Is being pro-business and pro-capitalism the same? Does capitalism generate an unfair distribution of income? Was capitalism responsible for the most recent financial crisis? Dr. Jeffrey Miron at Harvard answers these questions by exposing three common myths of capitalism.
May 19, 2013
April 27, 2013
Tim Worstall explains that the current efforts by various campaigners including Stephen Fry are not only a waste of time and effort, but betray a fundamental misunderstanding of how the EU is set up:
There are several points that could be made. One being that selling to Brits from Luxembourg is not tax dodging, it’s exactly what the EU intends the Single Market should be. A, umm, single market across 27 countries. A second might be that even if we start to whine about UK warehouses, tax is still not due here. Our double taxation treaty with Luxembourg means that such warehouses do not lead to tax being due. And that’s from 1968 or so when Wilson ruled: it’s also a standard part of all double taxation treaties and for good reason.
(For example, the metals trade uses warehouses in Rotterdam as the point at which a contract is concluded. The cut flowers business warehouses in a small village near Schipol. Should Holland get all the tax from the world’s metals and flower businesses? Or should everyone be taxed where they really are, not the warehouses?)
But there’s much worse than this. We’ve had the Margaret Hodges screeching that we’re talking about immoral, not illegal. The TJN and other fools similarly scream about how awful it is that people can do business without paying tax. And it is precisely all of this activism that leads these gentle booksellers to spend their year collecting signatures. To absolutely no avail whatsoever.
For in the year they are complaining about, last year, 2012, Amazon did not make a profit. A $39 million loss in fact according to their accounts. It’s simply not true that “tax dodging” by Amazon is leading to the crucifixtion of the independent book shop. That’s a lie that’s been foisted upon people by the obfuscations of the campaigners.
April 16, 2013
In Maclean’s, Stephen Gordon collects six of the most common myths politicians use to justify trade distorting policies:
1) Exports are good. Not true; exports are the costs we pay for engaging in international trade. Diverting domestic productive resources to producing more things for foreigners doesn’t increase our standards of living.
2) Imports are bad. This is point one restated: imports are the benefits from trade. The reason we engage in international trade is to obtain goods and services more cheaply than we can produce them for ourselves.
3) Trade deficits are bad. I went though this at length in this post: noting that a country has a trade deficit (or, more properly, a current account deficit) is the same thing as noting that domestic investment is larger than domestic savings. It’s not obvious why this is necessarily a bad thing.
4) Trade deficits are a sign of a slowing economy. The Canadian trade balance is generally counter-cyclical: falling during expansions and rising during recessions. A trade deficit is standard fare for Canadian expansions, not something to get concerned about.
5) Liberalized trade increases employment. Again, this is point one restated. Liberalized trade may increase the number of workers in certain export-oriented sectors. But the effect on total employment in the economy is zero.
6) Liberalized trade reduces employment. Again, this is point two restated. Liberalized trade may reduce the number of workers in certain sectors vulnerable to foreign competition. But the effect on total employment in the economy is still zero.
April 14, 2013
Sheldon Richman suggests that some people’s objections to free trade and free markets isn’t so much ethical as aesthetic:
Market advocates tend to respect the intellect of their fellow human beings. You can tell by their reliance on philosophical, moral, economic, and historical arguments when trying to persuade others. But what if most people’s aversion to the market isn’t founded in philosophy, morality, economics, or history? What if their objection is aesthetic?
More and more I’ve come to think this is the case, and I believe I witnessed an example recently at a lecture I gave at St. Lawrence University. During the Q&A a woman asked, in all sincerity, why society couldn’t do without money, since so many bad things are associated with it. She also suggested that cooperation is better than market competition. I replied that since money facilitates exchange and exchange is cooperation, it follows that money facilitates cooperation — a lovely thing, indeed. Government, I added, corrupts money.
I also said that competition is what happens when we are free to decide with whom we will cooperate. I don’t know if my response prompted her to rethink her objections to the market, but I am confident her objection was aesthetic. For her, money and competition are ugly. Perhaps I didn’t respond on an aesthetic level; it’s something I have to work on. But I tried, and so must we all when we encounter these sorts of objections.
Like that nice woman, many decent people dislike markets because they find them unattractive. And they associate markets with other things they find unattractive besides money and competition: (rugged, atomistic) individualism, selfishness, and profit. F.A. Hayek noticed this, writing in “Individualism: True and False”, “the belief that individualism approves and encourages human selfishness is one of the main reasons why so many people dislike it.” If that’s the case, philosophical, moral, economic, and historical arguments may fall on deaf ears. The objections must be met on an aesthetic level.
April 10, 2013
Expect to pay more for your iPods and similar devices, says Mike Moffatt in the Globe and Mail:
Last week, I wrote that the federal government’s changes to tariffs in Budget 2013 would result in new import duties on models of MP3 players and three of four models of Apple iPods. The tariff changes involve changing the tariff status of 72 countries, so music devices manufactured in China, Indonesia and Malaysia will pay a 5 to 6 per cent tariff rather than their “preferential” rate of zero, starting in 2015.
The article caused quite a stir, and the government denied it was true. A spokeswoman for Finance Minister Jim Flaherty said the article was wrong. “Music devices like iPods are imported into Canada duty-free under a long-standing special tariff classification from 1987,” she wrote. That classification, which was unaltered by the recent budget, is known by its number: 9948.00.00. (We’ll call it 9948 for short.)
However, a close reading of the relevant document, Tariff Item 9948.00.00 (9948 for short), shows that to qualify for the special classification, the importer must meet strict criteria.
My position that importers cannot meet the requirements of 9948 rests on three straight-forward premises:
1. It appears that sellers of iPods and MP3s are required to collect “end use certificates” from the final consumer on each sale, and be able to present these to the CBSA if audited.
2. The 9948 requirement for “end use certificates” appears to be actively enforced by the CBSA.
3. Retailers cannot reasonably collect these certificates from consumers when they buy an iPod.
These three, put together, make retail sales of iPods and MP3 players ineligible for 9948 and therefore subject to an iPod tariff. What follows is my evidence.
The importer must maintain a database (what Moffatt calls “an iPod registry”) of personal information on the final purchasers of the devices, but there is no matching legal requirement on the consumer to provide this personal information (which would probably violate privacy laws in any other context).
The CBSA’s Memorandum D10-14-51 requires that consumers attest that they will use the iPod in a manner in which it is “physically connected” to a computer (though not necessarily permanently so, according to the memo) and will “enhance the function” of that computer. The consumers must attest that their devices will be “solely used for the purpose for which they were imported.”
If a consumer uses a device in a manner not covered by 9948 during the first four years of ownership, the importer is required to “make a correction to the declaration of tariff classification and pay any applicable duties and taxes.”
This rule is not trivial. CITT Appeal No. AP-2008-023 discusses the need for sellers claiming the tariff reduction (here Code 2101, the predecessor to 9948.00.00) to show that the end consumer is using the goods in the manner described on the certificate.
But there is no practical way an importer could possibly verify and ensure that that the retailer’s customers have not changed how they are using iPods and MP3 players.
March 28, 2013
Michael Pinkus updates us on a hopeful sign that we may soon see the end of one of Canada’s surviving Prohibition-era laws:
Almost two years ago I published in these very pages an interview I did with Ian Blue, a lawyer who had turned his focus to liquor laws, constitutional issues and even more importantly, the Importation of Intoxicating Liquors Act (IILA). Now, many think the law was struck down but in fact there was just an amendment made to the federal law that now allows you to carry a certain amount of booze for personal use across provincial borders without fear of being charged by your provincial liquor board. So why am I bringing up this “ancient history” — well it seems the constitutional challenge that Ian was hoping for has finally got a name and a voice in the form of Vin de Garde wine club, and the challenge is going forward — before you blindly blow this off as another soon-to-be failed attempt to challenge the power and might of the LCBO I suggest we revisit the interview, the article and the issues that surround it; there seems to be more relevance here than ever before. This is going to get very interesting.
Have you ever been out to British Columbia and brought back a couple of bottles of wine? Better yet, have you ever driven across the border to Quebec and brought back a case of beer? If you have done either of these things then you my friend are a felon, capital F-E-L-O-N. That’s all according to the Importation of Intoxicating Liquors Act (IILA) of 1928, which is still on the books and very much in use by our liquor board (the LCBO). What it boils down to is, you can travel to Cuba and bring back 2 bottles of rum, go stateside and return with two bottles of wine, go to Mexico and carry back 4 cervesas; but you can’t cross Canadian provincial borders carrying any booze back with you. So, who’s ready to turn themselves in?
Not so fast says lawyer Ian Blue, who has been looking into the matter for us. Ian is an energy lawyer who found himself in a conversation with fellow lawyer, Arnold Schwisberg, about the IILA and like an ear-worm (a song that won’t leave your head) Ian couldn’t stop thinking about the absurdity of the Act. “The constitutional issues around inter-provincial and international sales of energy have equipped me admirably to look at the IILA … it stuck with me until I wrote my paper on the subject ‘On the Rocks’.” Ian subsequently wrote a second article on the same topic (On the Rocks; The Gold Seal Case: A Surprising Second Look); both appear in Advocate Quarterly.
[. . .]
“Liquor boards would continue to exist, their power would just be diminished,” but they would definitely put up a fight, “You’re fighting entrenched interests, so if you’re diminishing their power they’re going to fight to try and keep it.”
How big a fight? “I would be fighting 10 sets of lawyers one each from every attorney general’s department; probably 10 sets of lawyers from the provincial liquor commission; and probably lawyers from the police associations,” estimates Ian, but that’s just the tip of the iceberg. “What [a win] would mean is that if I wanted to have a private liquor store I could set one up and I could buy directly from the wineries in Niagara or British Columbia or foreign countries. Nova Scotia restaurants could order wines from Ontario. It would just loosen up the system. [It] doesn’t mean licentiousness; the province could still legislate standards for people who work in liquor stores, store hours, security, all safe drinking training, all that stuff; it’s just that you would not need to have liquor and wine sold through publicly funded liquor stores; being sold to you by unionized staff on defined benefit pension plans.”
But what about those who claim a loss of provincial revenue as their argument for keeping the liquor boards as is? According to winelaw.ca, “The Provincial Governments make their money regardless of whether the sale is made in a government store or a private store. In fact, the revenue that government makes from liquor on a per capita basis for 2007/2008 was as follows: $192 for BC [a mix of private and government stores], $190 for Alberta [all private stores], and $139 for Ontario.”
March 25, 2013
In Maclean’s, Stephen Gordon give props to the spinmeisters in the employ of the federal government:
Full credit to the government’s communications strategists: they managed to produce budget-day headlines that said the exact opposite of what was in the budget.
The first thing I read on the morning of budget day was the National Post story about cutting tariffs on hockey gear. There was also a matching A1 story in the Globe and Mail and I walked to the budget lockup in a cheerful mood. Even though the numbers involved were tiny, I couldn’t help but feel encouraged about how the measure was being marketed. Almost without exception, trade liberalisation is presented as a concession to the demands of foreign exporters, but the real gains from trade are those obtained from being able to purchase cheaper imports. These gains can be obtained by reducing tariffs unilaterally – the most famous example is the repeal of the the UK Corn Laws in 1849. There was no drawn-out process of negotiations with corn (wheat) exporters in other countries: the UK government simply eliminated tariffs so that the population could have cheaper food. The morning headlines led me to believe that our government was going to implement a unilateral tariff reduction for the simplest and best reason: because it increased consumers’ purchasing power.
I was wrong, of course. Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates that those 37 tariff reductions will be accompanied by 1290 tariff increases. [. . .]
So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves.
What are politics of #bdgt13 tariffs? Possibilities: CPC thinks a) no one would notice b) big gains from Orchardites c) only ‘experts’ care.
— Kevin Milligan (@kevinmilligan) March 25, 2013
March 10, 2013
February 11, 2013
In the Financial Post, Terence Corcoran looks at the good and not-so-good aspects of a recent Senate report on the reasons Canadians pay so much more for goods than Americans (even when the goods are identical and the currencies are trading at par):
Retail prices in Canada, seemingly across the board, are higher. Even with the Canadian dollar at par, the price of everything from running shoes to televisions and Chevy Camaros to books is said to be above U.S prices. One bank report once put the Canada-U.S. price gap at 20%.
Somebody’s gotta do something, everybody agrees. Enter the Senate committee with one of the most hard-nosed, market-driven overviews of how and why Canadians pay more for goods at retail. The report dodges and fudges some key issues, especially farm product supply management, which was seen by the committee and the retail industry as too politically hot to handle.
[. . .]
Even in this, however, the committee pulls its first punch. The recommendation to “review” such tariffs — watery phrasing in itself — also suggests “keeping in mind the impact on domestic manufacturing.” Sorry, folks, but you can’t have it both ways. Tariffs are protectionist devices for manufacturers that consumers pay for. If you want to reduce the price to consumers, the $3.9-billion in protection for manufacturers has to go. End of discussion.
What makes The Canada-USA Price Gap even more valuable is its compact insights into the many causes of higher retail prices in Canada. The economy is a complicated and often unfathomable series of market and price relationships beyond the power and even understanding of policy makers. The report recognizes that fact time and again.
November 24, 2012
Terence Corcoran talks about the 1970s-era food packaging regulations that have suddenly become topical:
What started out looking like a regulatory non-event, the Harper government’s plan to repeal scores of petty federal rules governing the size of containers for packaged food in supermarkets, has suddenly become a great national food fight.
It’s industry against industry, food processors versus supply management, Heinz battling Campbell’s, baby-food makers against corn canners — all part of a war over jobs and trade and consumer dollars. Nominally over antiquated federal regulations, it’s also a war that highlights another reason why Canadian consumers pay more for products at the retail level.
[. . .]
Never mind peanut butter. Ottawa has detailed container specs for what looks like every food product on store shelves: canned vegetables, fruit juices, vacuum-packed corn, tomato juice, maple syrup, frozen spinach, pork and beans, bagged potatoes, soups, desserts, pies, sauerkraut, horseradish sauce, wine — and many more.
It is unclear why these detailed container-size regulations exist, but one explanation is that they are a result of Ottawa’s mass conversion to metric measure in the 1970s under then prime minister Pierre Trudeau. Under the metrication rules, the law mandated metric for all prepackaged food products.
Whatever the intent of the detailed regulations, the effect has been to erect trade barriers that have created protected industries that are now opposing the proposed changes. The Food Processors of Canada set up a web page, KeepFoodJobsInCanada, promoting an email campaign to force Agriculture Minister Gerry Ritz to block the plan to repeal the container-size regulations. It seems to have worked, so far.
November 15, 2012
A film from the Competitive Enterprise Institute, adapted from the 1958 essay by Leonard E. Read. For more about I, Pencil, visit www.ipencilmovie.org
November 6, 2012
Why are some countries wealthy while other nations are poor? Prof. James Otteson, using the ideas of Adam Smith, explains how the division of labor is a necessary and crucial element of wealthy nations. Additionally, Otteson explains Smith’s idea of the invisible hand, which explains how human beings acting to satisfy their own self interest often unintentionally benefit others.
October 4, 2012
In Maclean’s, Stephen Gordon decries the undying myth that if one party to a trade is benefitting then the other must be losing:
In The Myth of the Rational Voter, Bryan Caplan argues that the most important obstacles to implementing sound economic policies are not lobby groups or the ability of other special interests to influence politicians, but certain systemic, irrational beliefs of the electorate. This is hardly an encouraging conclusion, but if we needed any more evidence for at least one aspect of his thesis, the CNOOC-Nexen takeover is providing it.
One of the prejudices identified by Caplan is what he calls anti-foreign bias: “a tendency to underestimate the economic benefits of interaction with foreigners.” According to popular (mis)perception, dealing with foreigners is to be mistrusted: if they want something from us, then they must perceive some benefit from the exchange. And if foreigners are gaining, then Canadians must be losing.
September 29, 2012
Stephen F. Gordon is waging a lonely campaign to persuade Canadians that free trade is better than the managed, mercantilist “free trade” most of our governments have wanted since the NAFTA negotiations:
Not enough people understand the benefits from the unilateral opeining of borders. (1/2)
— Stephen Gordon (@stephenfgordon) September 29, 2012
The benefits we get from foreign investment are not conditional on how the other govt treats foreign investment.
— Stephen Gordon (@stephenfgordon) September 29, 2012
The gains from the Nexen takeover have *nothing* to do with how China treats foreign investment.
— Stephen Gordon (@stephenfgordon) September 29, 2012
Martin Wolf once called GATT a mutual disarmament treaty for mercantilists. That mindset is still too dominant.
— Stephen Gordon (@stephenfgordon) September 29, 2012
Too many people think that Canadian investors are our hostages and that we should demand some form of compensation for releasing them.
— Stephen Gordon (@stephenfgordon) September 29, 2012
September 28, 2012
Tim Worstall, after thanking all the folks who got him to the point he can be quoted (and quoted accurately) in the Los Angeles Times, realizes that they’re using his words to present a point he isn’t trying to make:
I wrote here about the coming bacon famine. My point was that we’ve just had a bad crop and this requires a modest change in how we use that crop that we do have. We’d rather like people to stop feeding the now in short supply grains to pigs to make bacon and leave rather more of it to be eaten directly by humans. Further, I gloried in the fact that we have a system which achieves this. We have the futures markets: the future price of corn and soy and wheat has gone up. Farmers are culling their pig herds to avoid the future higher costs of feeding them. This will cause a shortage of bacon in the future and if not an excess then certainly more grain than otherwise that can be eaten by humans. I do regard this as a good result, yes. But what I am pointing to is the way in which in a market, price driven, system the entirely selfish pursuit of gelt and pelf, the desire purely for filthy lucre, brings about such a desirable result. The sole desire of agricultural commodity speculators is to increase the amount of cash in their wallets and reduce the amounts in those of other such speculators. Yet from this system we get a rebalancing of the use of a scarce resource which leads to more humans leading longer and better lives even if we’ve a certain shortage of pigs. At which point Hurrah! for capitalism and aren’t we all such lucky people.
[. . .]
Which is indeed what I said. However, we’re then told this:
Worstall doesn’t go so far as to say we should stop eating meat, but his line of thinking is headed in the right direction. If we didn’t use grain as feed for livestock, we could take significant steps toward ending global hunger while also drastically reducing greenhouse gases. Meantime, we’d spare a whole lot of pigs — and maybe even our health.
All of which makes me sound like some kind of hippie, advocating vegetarianism and the equitable distribution of the world’s resources. When what I’m actually applauding is the way in which financial capitalism red in tooth and claw solves our distribution of scarce resources problems.