Quotulatiousness

February 9, 2012

Paul Wells: Harper’s trip to China is going well

Filed under: Cancon, China, Economics, Media — Tags: , , , — Nicholas @ 11:22

In his Maclean’s column, Paul “Inkless” Wells talks about the state of play in prime minister Stephen Harper’s visit to China:

The old-timers in the press gallery know how to defuse an announcement like this. We dust a toolkit from the early Chrétien days off. A Canadian prime minister shows up in a fancy Beijing ballroom with a bunch of business executives wielding Montblanc pens. A big number is being tossed around — say, “$3 billion.” But if we subtract the deals that would have happened anyway, and then subtract the deals that aren’t really deals — then we can wear that number down to some innocuous nub.

But while individual elements of Stephen Harper’s signing ceremony Thursday night in a fancy Beijing ballroom may not pan out, at some point the weight of evidence starts to suggest something real is going on. The evidence at hand comes, not just from Canadian sources, but from Chinese.

The first source of the morning was the semi-official English-language China Daily, which reserves real excitement for vice-premier Xi Jingping’s upcoming trip to the United States but which has been respectful, and a little more than that, toward Stephen Harper all week.

Later in the day came Harper’s bilateral meeting with Hu Jintao. Here, no trace of scolding for time spent posturing in the early years of Harper’s term as prime minister. Now, Hu said, “Mr. Prime Minister, you put a lot of value on Canada’s relationship with China and are strongly committed to promoting the practical cooperation between our two countries. I appreciate your efforts.” Translation: You’re out of the doghouse. Come here, ya big lug.

Michael Pinkus: Apathetic Ontario and the LCBO monopoly

Filed under: Bureaucracy, Cancon, Economics, Government, Liberty, Media — Tags: , , , , , — Nicholas @ 09:12

In the latest issue of his OntarioWineReview.com newsletter, Michael Pinkus again expresses frustration with the government-run monopoly on retail sales of wine and spirits in Ontario:

I have made this point before when talking about the LCBO Food & Drink magazine, which competes directly with other publications in the province for advertising dollars; a magazine that is paid for by the people for the people, which sounds great and a pillar to build a country on, but not when you are competing against the very people who paid the money in the first place (magazine editors, publishers, writers, etc. are taxpayers too). One of the sad realities is that with each bottle a publisher buys they are paying to put themselves out of business.

It’s bad enough that the LCBO are the only game in town to buy booze … it’s bad enough that they waste millions of dollars a year on fancy stores (when they don’t have to) … it’s bad enough that a government run monopoly competes against their own populace and private enterprises for advertising revenue … but now they have to blow dollars on advertising themselves, buying expensive jingles and song rights … is that where you want your tax dollars to go? Could we not find better uses for this money, seriously? And what happened to social responsibility? They are advertising so we’ll buy more — does that seem counter-productive to the social responsibility pact. Heck, I don’t see this many ads for Premier Liquors out of Buffalo, and they have competition.

In the coming weeks we’ll look a little deeper into the LCBO, see what the Auditor General had to say, and read what the pundits are talking about. Find out why our booze prices are being raised mainly because we can’t be trusted as a society to police ourselves when it comes to drinking the devil’s liquid. I just can’t believe that all this is going down and nobody seems to be saying anything on the subject. Over the past few weeks I have been listening to CFRB: John Tory and Jim Richards both made mention, Richards went as far as to speak with Chris Layton (media relations mouthpiece for LCBO) — while both announcers shared their outrage with listeners over various aspects of the LCBO’s conduct (John: advertising; Jim: price raising), the apathetic Ontarians who bothered to call in had very little to say on the matter, many believing the LCBO is doing a bang up job.

A quick search of the blog shows that just about every mention of the LCBO is a negative one. No surprise there: the LCBO is a relic of the post-Prohibition era and is still run in a way that would be familiar to the state-owned “stores” of the old Soviet Union. They are undeniably better both in selection and in service than they used to be, but just about every positive change was wrought by the mere threat that the government of the day was looking at privatization as an option. As soon as the threat went away, the positive changes could be slowed or even stopped: after all, where else are you going to go to buy your wines and spirits?

Boardroom quotas are a bad idea

Filed under: Britain, Economics, Government, Politics — Tags: , , , — Nicholas @ 09:05

James Delingpole on the British government’s half-baked notion to introduce quotas for female board members in business:

I love women. Women are great. I’ve married one, I’ve personally bred one and I’ve got lots who are my friends. And after years of close observation, here’s what I’ve concluded: chicks are definitely the superior species. They’re more intuitive, more versatile, more articulate, more competent. Plus, of course, they have breasts.

Given that all this is so, I really don’t understand why David Cameron feels he needs to impose quota systems on boardrooms. Not for the reasons he gives anyway. I could understand it if he said: “Look, I have no shame, no principles, no moral or ideological core in my blubbery, spineless, Heathite body. My Coalition government is run by Lib Dems, a marketing man and focus groups. And what they all tell me is: “Suck up to the female demographic.” So that’s why I’m saying this crap.”

But that’s not what Cameron has said in Stockholm. He’s actually trying to claim that he’s doing it for the good of British business.

    Government figures suggested that Britain’s slow progress was costing the economy more than £40 billion in lost potential each year, roughly equal to the defence budget.

Yeah right. I’m sure there are also “government figures” which suggest that green technologies will create millions of new jobs; “government figures” which suggest wind farms are a vital part of Britain’s energy package; “government figures” which suggest that a 50 per cent upper band tax rate is really healthy business.

Doesn’t make it so, though does it?

February 8, 2012

You can’t blame declining rates of marriage on poverty

Filed under: Economics, Media, USA — Tags: , , — Nicholas @ 11:33

Bryan Caplan explains:

I’m baffled by people who blame declining marriage rates on poverty. Why? Because being single is more expensive than being married. Picture two singles living separately. If they marry, they sharply cut their total housing costs. They cut the total cost of furniture, appliances, fuel, and health insurance. Even groceries get cheaper: think CostCo.

These savings are especially blatant when your income is low. Even the official poverty line acknowledges them. The Poverty Threshold for a household with one adult is $11,139; the Poverty Threshold for a household with two adults is $14,218. When two individuals at the poverty line maintain separate households, they’re effectively spending 2*$11,139-$14,218=$8,060 a year to stay single.

But wait, there’s more. Marriage doesn’t just cut expenses. It raises couples’ income. In the NLSY, married men earn about 40% more than comparable single men; married women earn about 10% less than comparable single women. From a couples’ point of view, that’s a big net bonus. And much of this bonus seems to be causal.

[. . .]

If being single is so expensive, why are the poor far less likely to get married and stay married? I’m sure you could come up with a stilted neoclassical explanation. But this is yet another case where behavioral economics and personality psychology have a better story. Namely: Some people are extremely impulsive and short-sighted. If you’re one of them, you tend to mess up your life in every way. You don’t invest in your career, and you don’t invest in your relationships. You take advantage of your boss and co-workers, and you take advantage of your romantic partners. You refuse to swallow your pride — to admit that the best job and the best spouse you can get, though far from ideal, are much better than nothing. Your behavior feels good at the time. But in the long-run people see you for what you are, and you end up poor and alone.

Tyler Cowen comments on the first part of Caplan’s post:

More plausibly it is the rise in female income (among other factors, including the rise of birth control, [...]) which is behind the decline in marriage, but that doesn’t fit with traditional mood affiliation, which finds the rise in female income to be good (which it is), and the decline in marriage to be — neither good nor bad per se but not exactly worth celebrating. If you can blame capitalism and wage stagnation for the decline of the family among lower earners, so much the better for ideology but as a sociological proposition that is a very weak hypothesis (do you see convincing links to real sociological evidence, showing this to be the dominant factor? No) and as Caplan shows it doesn’t fit with the economics either.

February 6, 2012

Brazil fights back against celebrity oppression

Filed under: Americas, Economics, Media — Tags: , , , — Nicholas @ 11:25

John Conroy on the recent backlash in Brazil against foreign celebrities using domestic issues as platforms for moralizing:

Film director James Cameron, responsible for Terminator, Titanic and, more recently, Avatar, has been working on a considerable side-project for a few years now. Cameron film fans shouldn’t get their hopes up, however. This side-project is more political than filmic. He has been trying to prevent the Brazilian government from constructing Belo Monte, the world’s third-largest hydroelectric dam, on the Xingu river which runs through the Amazonian rainforest.

[. . .]

But then something very curious happened. Another tribe of Brazilians, normally so fearful of being seen outside of their natural habitat, fought back. Geeky university students and their professors made a film with zero production values undermining every argument used by Cameron, the NGOs, the Kayapo and TV Globo. These are the myths they challenged:

  • The Indians will have nowhere to live. Actually, a student from Brasilia University who has done little else but study the impact of the project on indigenous lands responded that not one of the indigenous lands in the region will be flooded. There are 12 indigenous territories near the project in an area of 56,000 square kilometres with 2,200 indigenous people living on them. That’s two-and-a-half times the size of Wales. Thirty consultative meetings were held in tribal villages and recorded on video.
  • The dam and its reservoirs will flood and destroy 640 square kilometres of rainforest. Not exactly. The reservoirs will cover an area of 502.8 square kilometres of which 228 square kilometres are already within the body of the river itself.
  • The dam will starve the Xingu National Park of water. This is not true. The students displayed a map revealing that the park is in fact 1,300 kilometres up river of the dam.
  • For eight months of the year the region above the dam is nearly a desert making the dam inefficient and only capable of generating a third of its installed capacity. The implication here is that there is insufficient water to drive the turbines at full power. However, during the high-water period of the year, the river empties 28 million litres of water per second at the point of the turbines, creating an extraordinary potential energy generation of 11,233 megawatts (MW). Even at the river’s lowest levels in the month of October, it delivers 800,000 litres per second. The annual average energy production of Belo Monte will be 4,571MW, or 41 per cent of the potential generating capacity, not one third. This will power 40 per cent of Brazil’s entire residential energy consumption.

What would follow a European Union crack-up?

Filed under: Bureaucracy, Economics, Europe, Politics — Tags: , , , , — Nicholas @ 10:13

If you listen to Angela Merkel and other European leaders, what would follow a break-up of the EU would be something out of Mad Max, a post-apocalyptic wasteland where the living would envy the dead. With no Brussels bureaucrats to direct everyone’s affairs, war, pestilence, starvation, looting, violence and unregulated bananas would proliferate. Bruno Frey isn’t quite as sanguine:

The major problem is that people do not see any alternative to the presently enacted European unification. The Europe-minded politicians even insist that, if the euro and the EU collapse, complete chaos will break out. The European continent will go back to the situation before World War II. The various nations will isolate themselves economically, and they will even start to fight each other. A war within the core of Europe, in particular between France and Germany, is taken to be a real possibility lurking in the background.

This view disregards the fact that the European unification process was made possible only because Germany and France stopped considering each other as enemies. They then saw themselves as the ‘motor’ of the European integration process, which started with the establishment of an economic union and then expanded to the political sphere. It is certainly wrong to think that the only thing that was needed to bring peace to Europe was a formal international treaty.

The claim that the downfall of the euro and the EU would produce chaos and war may be interpreted to be just a strategy necessary to get support for helping the highly indebted nations such as Greece, Portugal, Spain, or Italy with ever more financial support. However, conversations I have had with persons from various European countries suggest that many people really believe that Europe will disintegrate and that wars are looming if the EU dissolves. I hold this view to be seriously mistaken.

[. . .]

The individual countries in Europe will quickly form new treaties among themselves. Collaboration will be maintained in all those areas where it has worked well. Some countries will remain in a newly formed and smaller Eurozone, for which the appropriate treaties will be designed. A similar reconstitution will take place with respect to Schengen, which will then encompass different members. Only those countries that find it advantageous will join a new convention on the free movement of persons. In contrast, those nations that do not find such new treaties attractive, or that are not admitted to them by the other members, will not join.

The result will be a net of overlapping contracts between countries, which the various nations will join at will. These contracts will not be based on a vague notion of what ‘Europe’ may mean, but rather on functional efficiency. Crucially, the individual treaties will be stable because they will be in the interest of each member.

America’s boom in “Moocher Culture”

Filed under: Economics, Government, Politics, USA — Tags: , , , , , — Nicholas @ 00:08

Glenn Harlan Reynolds in the Washington Examiner explains why the growth in something-for-nothing attitudes can and will come to grief:

“Fifty thousand for what you didn’t plant, for what didn’t grow. That’s modern farming — reap what you don’t sow.”

That’s a line from a song about farm subsidies, “Farming The Government,” by the Nebraska Guitar Militia.

But these days it applies to more and more of the U.S. economy, as Charles Sykes points out in his new book, A Nation Of Moochers: America’s Addiction To Getting Something For Nothing.

The problem, Sykes points out, is that you can’t run an economy like that. If you tried to hold a series of potluck dinners where a majority brought nothing to the table, but felt entitled to eat their fill, it would probably work out badly. Yet that’s essentially what we’re doing.

[. . .]

But the damage goes deeper. Sykes writes, “In contemporary America, we now have two parallel cultures: An anachronistic culture of independence and responsibility, and the emerging moocher culture.

“We continually draw on the reserves of that older culture, with the unspoken assumption that it will always be there to mooch from and that responsibility and hard work are simply givens. But to sustain deadbeats, others have to pay their bills on time.”

And, after a while, people who pay their bills on time start to feel like suckers. I think we’ve reached that point now:

  • People who pay their mortgages — often at considerable personal sacrifice — see others who didn’t bother get special assistance.
  • People who took jobs they didn’t particularly want just to pay the bills see others who didn’t getting extended unemployment benefits.
  • People who took risks to build their businesses and succeeded see others, who failed, getting bailouts. It rankles at all levels.

And an important point of Sykes’ book is that moocher-culture isn’t limited to farmers or welfare queens. The moocher-vs-sucker divide isn’t between the rich and poor, but between those who support themselves and those nursing at the government teat.

February 5, 2012

This is where all the manufacturing jobs have gone

Filed under: Britain, Economics, History, Technology — Tags: , , — Nicholas @ 11:44

Jackart explains that they’ve not so much been “outsourced” as they’ve been compressed, optimized, economized, and made more efficient. Fewer workers are now required to produced more things, and this is unequivocally a good thing:

A small cadre of highly skilled professionals do the jobs with enormous machines once done by vast armies of peasant labourers; which is what’s happening to manufacturing. British industrial production is rising barring recessionary glitches, UK industrial production has kept rising for most of the last 100 years. We are still producing lots of things that can be dropped on a foot. It’s just it’s no longer done by the descendants of those peasants who left the land during the industrial revolution to seek work in factories. Those factories still exist, but they employ a small number of highly paid people to operate machines which do the riveting, welding, assembling and polishing. Each machine takes does the job of hundreds of people.

That’s what happened in Agriculture, and is happening in Manufacturing. And THIS IS A GOOD THING. Because all those people not employed in riveting in Tyneside shipyards or Scything Lincolnshire corn fields are employed doing something else for someone else. All that productive labour has been freed, but we’re still getting the food produced, in abundance the Lincolnshire harvestman would have thought impossible.

The majority of Western economies are now services. Even the Germans, who’ve a niche in Machine tools and Automobiles have only 21% of their economy in making things they can drop on their feet.

And this reflects another point. Manufactured products are getting cheaper, so to have material wealth unimaginable to our Lincolnshire harvestman requires far fewer hours of Labour to achieve. Thus cars, the most expensive manufactured products most of us buy, are getting cheaper relative to average earnings, decade by decade. A reliable runaround would have been beyond the means of a WW2 factory worker, but is available to a cleaning lady now. So the same car forms a smaller part of the economy. Having spent less on the car, we can spend more on clothes, shoes, music, computers, kitchen appliances etc, and in so doing provide jobs to people supplying those things. Above all we can pay for people do do things for us – cut our hair, serve us food in restaurants, mediate for us legally, invest our surplus production into other productive activities, heal our illnesses and so on.

[. . .]

The next challenge is to banish stress and misery from our lives. I suspect this will be harder. The only caveat is that I have a great deal more faith in Adam Smith’s “invisible hand” (a much maligned and misunderstood idea) than the idiotic ideas of politicians. Politicians still seem to think manufacturing jobs are special, which suggests they don’t understand why we’re rich. The only limitless resource is man’s ingenuity. Markets aren’t an ideology, they’re simply what works in the absence of one, by deploying that one limitless resource to everyone’s benefit.

February 3, 2012

Reason.tv: A non-hagiographic analysis of FDR, the New Deal, and the expansion of federal power

Filed under: Economics, History, USA — Tags: , , , , — Nicholas @ 14:16

The end of London’s diesel locomotive plant

Filed under: Cancon, Economics — Tags: , , , , — Nicholas @ 12:10

I’ve updated my earlier post on the labour dispute at London’s EMC plant now that the current owners have announced the closure of the facility.

Update, 5 February: Mike P. Moffatt at Worthwhile Canadian Initiative debunks some of the media coverage of the closure:

After the U.S.-Canada Free Trade Agreement, GM Diesel closed their La Grange, Illinois plant and consolidated their production to the London plant, though kept the head office, research, design, and manufacturing of some components in La Grange. EMD London was a direct beneficiary of the U.S.-Canada Free Trade agreement, something I have yet to hear in the media. The domestic locomotive market, by itself, would not have supported the level of production we have seen over the last two decades.

In 2005, GM Diesel sold the Electro-Motive Division (including the GM Diesel plant in London and the head office in La Grange) to a couple of U.S. private equity firms, who re-named it Electro-Motive Diesel. In 2010, those firms sold EMD to Caterpillar.

[. . .]

We need to keep in mind that:

  1. EMD has always been a U.S. corporation.
  2. The intellectual property from research and design, etc. was from the head office in La Grange, Illinois.

So that leaves “know-how” which Cohn mentions in a follow-up paragraph. On Twitter, Colby Cosh asked: “Cohn talks about “know-how” but (a) know-how isn’t IP and (b) Cat doesn’t seem to have much use for the workers who have it, do they?” Caterpillar, however, did send a number of employees from London to their new plant in Muncie, IN, to train newly hired workers. I am Facebook friends with an EMD worker and I remember him objecting loudly to this last fall. But did Caterpillar really buy EMD so that it could obtain the talents of a dozen guys to teach advanced welding techniques?

There are a lot of narratives to this story, many of them unpleasant. A narrative about a U.S. company buying Canadian IP at 15 cents on the dollar does not pass the sniff test, however.

Update the second, 7 February: Andrew Coyne gets his inconvenient, yucky facts in our lovely flag-waving, anti-capitalist nationalistic fantasy:

EMD never received any subsidies from the federal government; certainly not since Caterpillar bought it. Indeed, looking through the hundreds of pages of “grants and contribution” in the Public Accounts, it may be the only company in the country that didn’t. The Harper visit to which Olive refers was to promote a tax break for the purchasers of locomotives, not the manufacturers. The visit occurred in 2008, two years before the Caterpillar purchase.

It’s not clear how the foreign investment laws could have been invoked to cover a purchase of an American company by another American company, or if they could, why this should be the pretext for “demanding job guarantees.” Presumably if it is wrong for a firm to close a plant or lay off workers, it is just as wrong whether it has recently been the object of a foreign takeover bid or not. Perhaps you will say we should bar all companies from closing a plant. Okay: why would they ever open one? If workers, once hired, cannot ever be laid off, why would they ever be hired?

Of course, there’s always Olive’s suggestion of a punitive tariff, through which the cost of keeping jobs in London locomotive plants could be shared by consumers and businesses across the country. (You’re welcome.) This would recreate the system of foreign branch plants that existed in the days before free trade, small factories producing exclusively for the domestic market. Rather than lament at foreigners stealing our jobs and technology, the nationalists could once again lament at being tenants in our own land.

Paul Wells: Harper and the Tories acted like “trust fund kids”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 11:06

An interesting column at Maclean’s this week, where Paul Wells recasts Stephen Harper’s recent speech at Davos as autobiographical confession:

This passage should be read as thinly veiled autobiography and confession. This week a former senior public servant told me that when the Conservatives came to power in 2006, they inherited structural surpluses, booming oil prices and shrinking public debt, and they acted the way trust-fund kids do. “These were like kids in a candy store who had all this allowance. ‘Wow, we can do all this stuff?’ ”

But don’t take my nameless source’s name for it. Take Jim Flaherty’s. His first budget speech, in 2006, carried the title “Focusing on Priorities.” And what did he describe as priorities? In order: “Providing immediate and substantial tax relief,” he said. “Encouraging the skilled trades.” “Families and communities.” “Investing in infrastructure.” “Security.” “Accountability.” “Expenditure management.” “Restoring fiscal balance for our Canadian federation.” And right down there at the bottom, “prosperity.” So you can’t say it wasn’t the No. 1 priority. It’s right there in ninth place.

In Flaherty’s 2007 budget speech, the word “growth” appeared once.

But sometimes the world changes and the trust fund goes bust. For Harper, that happened in the first week of December 2008, when he had to fight like a street gang to keep the job he thought he’d just been re-elected to. So much changed after that. He won in 2011 by running on the economy after years of running away from it. And now here he was in Davos to tell everyone about “the good, growth-oriented policies. The right, often tough choices.”

Flaherty is my local MP, so I’m well acquainted with his habit of talking like a conservative, but running the finance ministry like one of Pierre Trudeau’s acolytes. It must really be galling him that he has to act like a grown-up for the coming budget. As I’ve said more than once, if you factor out the military and foreign affairs aspects, there were few things that Harper did that wouldn’t have been done just as readily by Paul Martin. And I mean Martin as PM, not in his more successful guise as minister of finance.

Lemonade stand economics and government accounting

Filed under: Economics, Government — Tags: , , — Nicholas @ 10:14

An amusing illustration of the differences between real world profit and loss and the government’s accounting methods:

Parents, wanting to encourage the idea that working and making money is a good idea, drive around to buy the lemon, sugar, designer bottled water, cups, spoons, napkins, a sign or two, and probably a paper table cloth.

Aside from time and gas, the outing adds up to something north of $10. At the opening of business the next day, the kids find business is slow to nonexistent at $1 per cup. So, they start to learn about market demand and find that business becomes so brisk at only 10 cents per cup that they are sold out by noon, having served 70 cups of lemonade and hauled in $7.

[. . .]

There is a strand of economics, we’ll call it the K-brand, that sees all this as worthwhile. They add together the $10 spent by the parents to back the venture and the $7 spent by the customers and conclude that an additional $17 of spending is clearly a good thing. Surely, the neighborhood economy has been stimulated.

To the family it is a loss, chalked up as a form of consumption. If this were a business enterprise it would be a write-off. In classical economics it is a “mal-investment.”

[. . .]

But that is not how it works in government accounting. While a private business must adjust its books to reflect the losses from an intended investment that went bad, governments never do that.

When a government “invests” in, say, an airport in Johnstown, Pa., all the expenditures for labor and materials are recorded as investments and are additions to national output. Never mind that when it is later discovered that only three people a day want to fly to or from the airport, no adjustment to national wealth will reflect the folly of this “mal-investment.”

If the airport had been financed by purely private, commercial enterprises, the initial expenditures would have been recorded as investment spending, but when reality struck and the entire project was written off as a total loss, the business-profit component of national output would decline. That is, a previous bad “investment” reduces, rather than augments, current national income.

New economic ideas on employment and stimulus

Filed under: Economics, Government — Tags: , , , — Nicholas @ 10:03

Arnold Kling, writing in the Wall Street Journal, explains why (if his new theories are validated) governments have been doing exactly the wrong things to help the economy recover:

… I believe that the process of creating employment is explained not by the theories of Keynes, but rather by the theories of Adam Smith and David Ricardo. Smith famously described the advantages of specialization and division of labor. Ricardo pointed out the gains from trade that come from consuming goods that others produce more efficiently. From the perspective of Smith and Ricardo, real jobs emerge in the context of patterns of sustainable specialization and trade.

Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising prices. In the U.S. and the U.K. in particular, the finance industry expanded well beyond its true economic value. Once the property bubbles burst, these jobs were exposed as not viable. Meanwhile, ongoing creative destruction brought about by the Internet and globalization have continued to allow substitution of capital and emerging-market labor for industrialized countries’ labor in many sectors. Together, these phenomena have caused widespread dislocation.

More government spending will not bring back the days when supposedly triple-A-rated mortgage securities could be fashioned out of dodgy loans to unqualified borrowers. Doing so would not halt the ongoing improvements in productivity in manufacturing and retail trade. It would not facilitate the adjustments that are needed in the mix of skills in the labor force. The necessary adjustments can only be made by the decentralized efforts of entrepreneurs.

[. . .]

The word “sustainable” in “patterns of sustainable specialization and trade” refers to profitability. Patterns that are profitable can be sustained. Patterns that are not profitable must eventually be shut down. That is the problem with patterns of trade created by government borrowing and spending: They are not sustainable, as has been illustrated in the U.S. by the failure of many of the “green energy” companies supported by President Obama’s stimulus package. Moreover, as European policy makers have discovered, there are limits to how much governments can borrow to fund their experimentations in specialization and trade.

February 2, 2012

Is Sino-Forest a typical Chinese company?

Filed under: China, Economics, Government, Law — Tags: , , , — Nicholas @ 09:52

Colby Cosh posted an initial article on the investigation into Sino-Forest’s business back in June:

Timber company Sino-Forest is locked in a fascinating battle for survival against Carson Block, a stock analyst with a mixed record of publicity attacks on Chinese-based enterprises. With professional analysts reluctant to say what they make of Block’s “strong sell” report on Sino-Forest, I’m in no position to endorse it as a piece of financial advice or investigative journalism. Considered strictly as entertainment, however, the report is remarkable.

Block has documented that Sino-Forest operates with extraordinary opacity for a company whose holdings are surely very widely distributed — particularly, one assumes, within Canada. Sino-Forest claims to be doing hundreds of millions of dollars’ worth of sales through mostly unidentified “authorized intermediaries” in China — traders who are apparently happy to let the company buy title to trees, hold them as they appreciate, take on the bulk of the costs and risks in the meantime, and then snap up revenues when the trees are eventually converted into wood products. Block, having poked around a bit in the literal Chinese backwoods, questions whether much if any of the reported underlying activity is happening.

[. . .]

Sino-Forest is refusing, despite intense pressure, to make a full disclosure of the identities of the “authorized intermediaries” who are making its money. The company claims that to do so would put it at a competitive disadvantage, which makes one wonder why its business model ought to depend so heavily on sheer obscurity. One possible answer is that Sino-Forest’s real, fundamental business is some sort of cryptic regulatory arbitrage; that seems like a game potentially worth playing with paper assets in places that have a strong rule of law, but it is surely a dangerous one in a nominally Communist country, where a nationalization could be arranged in the space of an afternoon. (Or where some regional Party functionary could simply be bribed to “lose” crucial paperwork.)

Today, he posted a follow-up report:

Could a curious investor look at actual maps of timber controlled by Sino-Forest agents, you ask? Well, you see, it’s not exactly kosher for foreigners to carry around maps of remote parts of China. You can borrow them from forestry officials if you really need to. Will the local forestry bureaus confirm Sino-Forest’s claims about plantations operated by its agents? Well, sometimes they’ll give you a certificate of sorts, for all the good it might do. “The confirmations are not title documents, in the Western sense of that term,” the committee report notes. (As I understand it, the Western meaning of “title document” is that it gives one an unquestioned, justiciable claim to ownership of something, whether the Party or the Army or the good Lord in heaven approve or not.)

[. . .]

The impression given is that you need influential “backers” to do business in China. The question for the Western investor, though it’s probably now moot, is whether the real role of these backers is to help exploit Chinese resources for the benefit of the Western shareholders or to help fleece Western shareholders for the benefit of Chinese suppliers and bureaucrats.

As Jon, my former virtual landlord puts it, this is a hobby horse I like to ride now and again.

February 1, 2012

The wonders of selection, or why it now takes you an hour to find “just the right item” at the store

Filed under: Economics, Liberty — Tags: , , , — Nicholas @ 11:59

Monty (who just joined Twitter) linked to a Reason article on the glories of choice we have available to us in the western world. Monty’s comment:

The glories of capitalism, as expressed in the salty-snacks aisle of the supermarket. When you have a surfeit of a good or service, the value-add stops being the utility-value of the good and instead becomes esthetics or status. That’s why rich people drive Rolls Royces and Ferraris instead of Toyotas and Fords. As cars, they all do pretty much the same thing and in pretty much the same way; but the value-add of a Ferrari lies in aspects not directly related to the utility value of the vehicle. You can say the same about nearly any other commodity class, from clothes to electronics…to snack foods.

And the A Barton Hinkle article he links to:

But you don’t have to research the past 50 years of product flops to make the case. Just check a vending machine. There you will find every possible combination and interpolation of snack food. In the potato chip category alone — we don’t have time to look at crackers, cheese puffs, corn chips, or cookies — one finds not just barbecue- or cheddar-flavored chips, but chili cheese, cool ranch, ragin’ ranch, habanero, cheddar jalapeno, hot sauce, honey cheese, creamy chipotle, Mediterranean herb, and ketchup-flavored chips.

It’s obvious what’s going on here. Like every other industry, America’s snack-food makers live in deathly fear that the other guys are going to come up with the next “disruptive innovation” first, so everyone is trying to innovate as fast as they can. The poor sots in middle management have been told next year’s raise depends on producing X amount of revenue from new products. But there are only so many truly new products you can think up. Answer? Combine existing products the way you choose from a Chinese take-out menu: one from Column A, one from Column B. …

This seems to be the method at Hammacher Schlemmer — the fine folks who bring you must-have products like the bath mat/alarm clock and the remote-control pillow. It seems to work for them. So why not try it with snack food? Pickle-flavored potato chips, that’s why. Who needs all that ridiculous junk? Your basic potato-flavored potato chip was good enough for our ancestors and by gad sir, it should be good enough for us.

Or at least this is my attitude when standing before a vending machine. Whisk me into an office-supply store, however, and the tune suddenly changes. I am among those who have a weak spot — call it a fetish, call it an obsession — for school supplies. Pens, especially.

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