Published on 18 Mar 2015
In this video, we talk about the special case of the decreasing cost industry. As output increases, costs will continue to fall, and more firms will enter which, again, increases output. It’s a virtuous circle! At the end of this video, we review the major points made in this section. If you find that something doesn’t quite make sense, feel free to re-watch videos as many times as you’d like.
November 12, 2015
September 7, 2015
In The Register, Bill Ray takes a geek’s-eye-view of the town of New Lanark, a key place in the early industrial revolution:
Nestled in the Clyde Valley the village owes its existence to the falls that were harnessed to refine raw cotton sent in from the colonies: a picture-postcard image from a time when Britain was the factory of the world.
But for all its industrial heritage New Lanark is a long way from being a typical “dark satanic” mill, as it marks the end of that time and the dawning of a better age.
Visit the village today and you can see the big machines that kept the empire running. Enormous water wheels; later supplemented by steam engines, connected by belts and ropes to machines which turned raw cotton into usable thread and fabric. However, it’s not industrial history that is celebrated at New Lanark, rather a social revolution, and one driven by one man whose ideas created the working life as we understand it today.
The man was Robert Owen, who, in 1799, bought New Lanark and immediately embarked on his “grand social experiment”. His radical ideas, such as refusing to employ children, providing medical insurance, and educating the workforce, were ridiculed by his competitors who couldn’t see the value in teaching children, let alone adults. But Owen believed that industry should serve the betterment of all men, not just those who owned the factories.
It worked too, rather to the surprise of his peers. New Lanark was a successful mill and profits rose steadily under the beneficent command of Owen. It could be argued, perhaps, that New Lanark would have been even more profitable without the social agenda, but every afternoon at five we should all be grateful for his reforms that made our working lives what they are:
“Eight hours daily labour is enough for any human being, and under proper arrangements sufficient to afford an ample supply of food, raiment and shelter, or the necessaries and comforts of life, and for the remainder of his time, every person is entitled to education, recreation and sleep”
Not that the workers at New Lanark did quite as well as we do; their working day ran ten and a half hours, but once mealtimes had been deducted it was approaching eight and certainly much better than the conditions in other mills around the country.
July 28, 2015
India spent a lot of time and money to develop an arms industry that could supply the Indian army with Indian-made weapons. One of these weapons is the INSAS rifle. Unfortunately. Strategy Page reports on the resurrection of the INSAS despite its many failings in combat conditions:
In early 2015 India seemed to be finally responding to complaints from soldiers and other security personnel fed up with the poor performance of the locally made INSAS (Indian Small Arms System) 5.56mm assault rifle. The government recently reneged on that promise and announced that the despised INSAS would be replaced, in two years, by the MIR (Modified INSAS Rifle). On paper there are some improvements, like full auto-fire (INSAS can only do single shot or three round bursts), folding butt stock, Picatinny rail (for all manner of accessories), more reliable and effective magazines and more ergonomic design (making MIR easier to handle, clean and use). The government also revealed that recent firing tests have shown only two jams after 24,000 rounds fired by MIRs. There will also be a MIR 2 that is chambered to fire the AK-47 (7.62×39) round. Despite all that, to the current unhappy INSAS users the promise of the MIR comes as a huge disappointment. The government weapons design capability has a long and consistent history of failure and disappointing promises. Few INSAS users believe MIR will be much of an improvement over INSAS and will serve more as another source of cash for corrupt officials. While buying foreign weapons uses a lot of valuable foreign exchange it is more closely monitored and has proven to be less corrupt. In 2010 the government had agreed to allow the military to get a rifle that works and that meant a foreign rifle. The leading candidate was Israeli. But now that competition has been cancelled and many troops believe it is all about corruption, not getting the best weapons for the military.
This sad situation began in the 1980s when there was growing clamor for India to design and build its own weapons. This included something as basic as the standard infantry rifle. At that time soldiers and paramilitary-police units were equipped with a mixture of old British Lee-Enfield bolt action (but still quite effective) rifles and newer Belgian FALs (sort of a semi-automatic Lee-Enfield) plus a growing number of Russian AK-47s. The rugged, easy to use and reliable Russian assault rifle was most popular with its users.
In the late 1980s India began developing a family of 5.56mm infantry weapons (rifle, light machine-gun and carbine). Called the INSAS, the state owned factories were unable to produce the quantities required (and agreed to). Worse, the rifles proved fragile and unreliable. The design was poorly thought out and it was believed corruption played a part because the INSAS had more parts than it needed and cost over twice as much to produce as the AK-47.
June 25, 2015
Published on 20 Jun 2015
Activities at the Chrysler Tank Arsenal in Detroit. Wheel suspension units are milled, wheels ground, gun mount gears cut, armor plate put through a punch press and drill, sprocket gears cut by an arc torch, gears heat treated and immersed in oil baths, armor plate hydraulically riveted, the tanks assembled, armament installed, and the tanks lifted from the assembly line by cranes. The tanks are tested at Fort Knox, Kentucky.
May 29, 2015
Sarah Hoyt coined the term “the historian’s blindfolds” to describe historical situations where “the ‘everyone knows’ [happenings don’t] get recorded, and the ‘never happens’ or ‘happens so rarely it’s big and sensational’ gets recorded ALL the time”:
I’ve – for instance – for the last several years been very suspicious of Dickens, because my other sources for the time (not just primary sources, but those writing often in a family/biography) context paint quite a different picture.
I mean, yes, there were horrible conditions at the time, but they were horrible conditions by our perspective, and we live in an era of superabundance. And the underclass lived very disordered lives. Well, I read student doc. Our underclass just uses different substances and is better fed. Go to Student Doc “Things I learn from my patients” (it’s not coming up for me, hence not linked. Also, prepare to lose hours there. [This might the site]) BUT as “bad” as the industrial revolution might have been, it attracted droves of farmers from the countryside. And having seen it happen in real time in India and China, I’m no longer able to believe the propaganda that they were “forced” off their lands.
Farming looks like a lovely, bucolic occupation to those who have never done any, but the farming they did at the time involved no tractors, no milking machines. It was inadequate tools and inadequate strength beating inadequate livelihood out of inadequate (in most places) soil. Yeah, to paraphrase Mark Twain, the girls wove wreaths for Michaelmas, and everyone danced around the Maypole, but in between there was a very harsh reality that made the rather horrible conditions in the early mills seem like heaven and depopulated the countryside and packed the cities – as we see now in China and India.
So, our first problem with finding out if there really was a “first night” right for the seigneur is to figure out the difference between the accounts and the truth. There is no direct evidence, but remember all the recording of the times was done by church men who might very well not know what was going on. Sometimes, granted, it was willful not know. The village priest determinedly didn’t know of certain things that went on around May Day and I’m fairly sure would continue not knowing if he walked in on it and saw it. Because he wasn’t stupid and stuff that’s been going on for two thousand years and yet is of a nature not to be co-opted into the church celebration of this or that saint (St. Anthony and St. John with bonfires and wild herbs and jumping over the fires, and trekking to the city and across the city to see the sunrise on the sea, for instance, for Summer solstice. Yeah. Perfectly normal Catholic tradition) couldn’t be stopped cold, but knowing about it would mar his ability to preach against certain things which he must preach against. (“It was a morning in May—” And for the record this particularly guppie always thought going amaying is about gathering the flowers to put in every entrance to the house to word off evil spirits. But I am an ODD and often unable to see what’s right before my eyes because I was told it was different.)
The problem of the “first night” is compound by several issues: we’re talking a span of about 2000 years. It’s about sex and everyone lies about sex, or shuts up about it, which can be the same. We have fundamental disagreements on the basic nature of men and women. And that’s what I’m going to go with. Because that’s the interesting part.
May 28, 2015
Published on 8 Feb 2015
In this video, we discuss how markets link people and places all over the world. We’ll take a look at production and consumption markets and, importantly, the role that prices play in it all. Following up on our example of a rose, we take a look at other global products such as the Apple iPhone. Where is the iPhone made? It’s produced by thousands of people all over the world, working in cooperation in order to make one product that many of us enjoy. Join us as we observe the invisible hand in action.
April 7, 2015
Published on 2 Jan 2015
In this video, we explore the relationship between price and quantity supplied. Why does the supply curve slope upward? The supply curve shows how much of a good suppliers are willing to supply at different prices. For instance, oil suppliers in Alaska and Saudi Arabia face different costs of extraction, affecting the price at which they are willing to supply oil.
April 6, 2015
Published on 2 Jan 2015
Why does the demand curve slope downward? The demand curve demonstrates how much of a good people are willing to buy at different prices. In this video, we shed light on why people go crazy on Black Friday and, using the demand curve for oil, show how people respond to changes in price.
Update, 16 June: Forgot to link to the very first video in the series … here.
March 11, 2015
In Forbes, Tim Worstall looks at last week’s announcement that China is (slightly) lowering their economic growth forecast.
On that larger scale though what people are worrying about is this. Catch up growth is easier than growth from the technological frontier. What is meant by this is that it’s a great deal easier to generate economic growth if you have an example in front of you of how to do things. To take a trivial example, if you can go and buy a mobile phone, take it apart to see how it works, it’s a lot easier to copy that technology than it is to invent it for the first time. And this is true of how you make cement, how you put up buildings, how you farm a field and so on. And at root that’s what economic growth is: becoming more efficient at doing all of these things as well as everything else. Each time you become more efficient at doing one task you free up resources to be doing something else. Thus you get both the original thing plus the new one from the same resources: this is the very definition of economic growth.
However, there’s a limit to such catch up growth. In certain areas China is right at that technological frontier (in some areas ahead of the rest of the world in fact). Which is where things become more difficult: there’s no one to copy. Therefore that invention has to happen domestically. This is obviously more difficult. But also it rather requires a certain set of institutions. The rule of law, property rights and so on. These aren’t things that China notably has (although things are very much better than they were decades ago). It’s those headwinds that need to be beaten. Bringing in these new institutions, embedding them in the society and the economy, without causing so much disruption as to slow down growth while they are done.
The standard jargon for this is “middle income trap”. To be crude about it the general feeling is that it’s pretty easy to go from dirt poor to middling income. The essence is really just to stop doing stupid things that hold economic development back. China’s done that very well even though they did start from a very low level of an immense number of very stupid things that Maoism did to hold economic growth back. The middle income trap is where the transition over to those institutions that promote technological frontier growth don’t appear (or are not imposed). And thus the stunning growth peters out.
January 31, 2015
Earlier this month, I linked to an article about the low reputation enjoyed by India’s first domestically designed and manufactured assault rifle. According to Strategy Page, there’s a potential change of heart by the Indian military on the INSAS rifle:
In response to the growing combat losses because of flaws in the locally made INSAS (Indian Small Arms System) 5.56mm assault rifle, the Indian government seems likely to capitulate and allow the military to get a rifle that works. Unfortunately for nationalist politicians, this will probably be a foreign rifle, and the leading candidate is Israeli.
This all began in the 1980s when there was growing clamor for India to design and build its own weapons. This included something as basic as the standard infantry rifle. At that time soldiers and paramilitary-police units were equipped with a mixture of old British Lee-Enfield bolt action (but still quite effective) rifles and newer Belgian FALs (sort of a semi-automatic Lee-Enfield) plus a growing number of Russian AK-47s. The rugged and reliable Russian assault rifle was most popular with its users.
In the late 1980s India began developing a family of 5.56mm infantry weapons (rifle, light machine-gun and carbine). Called the INSAS, the state owned factories were unable to produce the quantities required (and agreed to). Worse, the rifles proved fragile and unreliable. The design was poorly thought out and it is believed corruption played a part because the INSAS had more parts than it needed and cost over twice as much to produce as the AK-47.
The original plan was to equip all troops with INSAS weapons by 1998. Never happened, although troops began to receive the rifle in 1998. By 2000 half the required weapons ordered were still not manufactured. Moreover in 1999 the INSAS weapons got their first real combat workout in the Kargil campaign against Pakistan. While not a complete failure, the nasty weather that characterized that battle zone high in the frigid mountains saw many failures as metal parts sometimes cracked from the extreme cold. Troops complained that they were at a disadvantage because their Pakistani foes could fire on full automatic with their AK-47s while the INSAS rifles had only three bullet burst mode (which, fortunately, sometimes failed and fired more than three bullets for each trigger pull.) What was most irksome about this was that the INSAS rifles were the same weight, size and shape as the AK-47 but cost about $300 each, while AK-47s could be had for less than half that. The INSAS looked like the AK-47 because its design was based on that weapon.
Update: Added the link to Strategy Page.
January 12, 2015
Virginia Postrel on “the power of seemingly trivial inventions to utterly transform our notion of ‘normal’ life”
In The Weekly Standard, Virginia Postrel reviews Packaged Pleasures by Gary S. Cross and Robert N. Proctor:
Toward the end of the nineteenth century, a host of often ignored technologies transformed human sensual experience, changing how we eat, drink, see, hear, and feel in ways we still benefit (and suffer) from today. Modern people learned how to capture and intensify sensuality, to preserve it, and to make it portable, durable, and accessible across great reaches of social class and physical space.
Eating canned peaches in the winter, buying a chocolate bar at the corner newsstand, hearing an opera in your living room, and immortalizing baby’s first steps in a snapshot all marked a radical shift in human experience. Replacing scarcity with abundance and capturing the previously ephemeral — these mundane pleasures defied nature as surely as did horseless carriages.
It’s a keen insight and a valuable reminder of the power of seemingly trivial inventions to utterly transform our notion of “normal” life. Cross and Proctor carry their theme through chapters on cigarettes, mass-market sweets (candy, soda, ice cream), recorded sound, photographs and movies, and amusement parks. The somewhat eccentric selection reflects the authors’ scholarly backgrounds. In his previous work, Cross, a historian at Penn State, has focused primarily on childhood and leisure, which presumably explains the amusement parks. Proctor, a historian of science at Stanford, has written extensively on tobacco and cancer, including in his Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition (2012).
The authors are at their best when showing how incremental improvements cumulate to create dramatic technological and cultural changes. They start with the packaging itself. “Industrial containerization,” they write, “made it possible to distribute foods throughout the globe; think only of what it would be like to live in a world without tin cans, cardboard cartons, and bottled drinks.” The “tubularization” represented by cylinders such as cigarettes, tin cans, and soda bottles (not to mention lipsticks and bullet shells) transformed manufacturing and marketing as well as distribution, giving producers easily fillable containers that could be labeled, branded, and advertised.
Historians unduly slight packaging technologies, the authors suggest, because “tubing the natural world” developed so gradually. Although the metal can dates back to 1810, it took nearly a century of refinements in stamping, folding, and soldering to achieve the design that changed the world: the “sanitary can,” which used crimped double seams and no interior solder to create an airtight seal. This was the design, Cross and Proctor write, that “allowed a wide range of tinned food to reach urban populations, especially as rival processors introduced ever-cheaper and more attractive foodstuffs festooned with colorful labels and catchy brand names.”
January 1, 2015
In 1913, turnover reached an unbelievable 370 percent, and Ford hired more than 50,000 people to maintain an average labor force of about 13,600. When profits swelled, he paid well for labor, creating an uproar when he doubled the basic wage to $5.00 a day, which triggered a virtual stampede of job seekers. Paying higher wages for labor was not altruistic in Ford’s eyes. Moreover, it wasn’t simply that Ford was trying to pay his workers “enough to buy back the product,” although he did preach a high-wage doctrine after the stock market crash in 1929. Rather, paying relatively high wages was, for Ford, a matter of smart business. He regarded well-paid skilled workers as important as high-grade material. By paying workers well, he effectively lowered his costs because higher wages reduced turnover and the need for constant training of new hires. (At the time, the newspapers saw Ford’s wage increase as an extraordinary gesture of goodwill.)
Mark Spitznagel, The Dao of Capital: Austrian Investing in a Distorted World, 2013.
December 30, 2014
It’s very easy to let your eye skip over the humble pallet, yet it represents a huge improvement in how products get from the factory to you:
The magic of these pallets is the magic of abstraction. Take any object you like, pile it onto a pallet, and it becomes, simply, a “unit load” — standardized, cubical, and ideally suited to being scooped up by the tines of a forklift. This allows your Cheerios and your oysters to be whisked through the supply chain with great efficiency; the gains are so impressive, in fact, that many experts consider the pallet to be the most important materials-handling innovation of the twentieth century. Studies have estimated that pallets consume 12 to 15 percent of all lumber produced in the US, more than any other industry except home construction.
Some pallets also carry an aesthetic charge. It’s mostly about geometry: parallel lines and negative space, slats and air. There is also the appeal of the raw, unpainted wood, the cheapest stuff you can buy from a lumber mill — “bark and better,” it’s called. These facts have not escaped the notice of artists, architects, designers, or DIY enthusiasts. In 2003, the conceptual artist Stuart Keeler presented stacks of pallets in a gallery show, calling them “the elegant serving-platters of industry”; more recently, Thomas Hirschhorn featured a giant pallet construction as part of his Gramsci Monument. Etsy currently features dozens of items made from pallets, from window planters and chaise lounges to more idiosyncratic artifacts, such as a decorative teal crucifix mounted on a pallet. If shipping containers had their cultural moment a decade ago, pallets are having theirs now.
Since World War II, most of America’s pallet needs have been met by several thousand small and mid-sized businesses. These form the nucleus of not just an industry, but a sprawling, anarchic ecosystem — a world, really, complete with its own customs, language, and legends, with a political class, with its own media. This world is known as “whitewood.” There are approximately forty thousand citizens of whitewood, ranging from pallet pickers (who salvage pallets from the trash) to pallet recyclers (who repair broken pallets and make them whole) to pallet manufacturers, pallet consultants, pallet academics, pallet thieves, and pallet association presidents. Whitewood includes people who crisscross the country selling pallet repair machinery, preaching the gospel of tools such as the Rogers Un-Nailer.
Not all pallets belong to the world of whitewood. The most important other category — and whitewood’s chief antagonist — is the blue pallet. These blues are not just a different color; they are also built differently, and play by different rules, and for the past twenty-five years, the conflict between blue and white has been the central theme in the political economy of American pallets. The person most identified with this conflict is a soft-spoken, middle-aged man from Kansas named Bob Moore. Currently embroiled in a legal battle over a pallet deal gone bad, Moore is a singular figure in the industry and a magnet for controversy. When not in federal court, he can sometimes be found piloting a Mooney Acclaim Type S airplane, which he prefers, when possible, to flying commercial. The Mooney is a good place to concentrate, one imagines. And it is important to concentrate when plotting the future of pallets.
December 19, 2014
Unions only help if the underlying economic situation is that the employer is able to charge a great deal more for the amount of product generated per worker-hour than the worker is getting — there is headroom for the worker’s wage to expand into while the manufacturer still makes a net profit. (If the manufacturer doesn’t make a net profit the business collapses and nobody gets paid.)
During the age that manufacturing nostalgisists remember nostalgically, this was true. For most of that period (roughly 1870-1970), the capital goods required to manufacture in a way price-competitive with the U.S. were so expensive that almost nobody outside the U.S. could afford them, and in the few places that could they were mainly preoccupied with supplying their domestic markets rather than the U.S. World War II prolonged this period by hammering those “few places” rather badly.
In that environment, U.S. firms could profit-take hugely, benefited by being scarce suppliers not just to the U.S. but (later on) to the whole world. And unions could pry loose enough of that margin to make manufacturing jobs comfortably middle-class.
All that ended in the early 1970s. A good marker for the change is the ability of the Japanese to make cheap cars for export and sell them for the U.S.
In the new world, the profit margins on manufactured goods narrowed dramatically. The manufacturing firms could no longer effectively ignore overseas competition in the U.S. domestic market. U.S. consumers no longer had to to pay the large price premiums required to sustain domestic manufacturing wages at pre-1970 levels, and they jumped right on that option.
In this environment, unions don’t help because they have almost no negotiating room. If they bid up workers’ wages, the jobs will evaporate or move overseas – not because corporations are being “greedy” but because they can no longer charge the prices that would allow such high wages to be sustained. Too much foreign labor and capital is ready to pounce on the first hint of price-taking.
Eric S. Raymond, “Why labor unions have lost their moxie”, Armed and Dangerous, 2014-11-29.
December 16, 2014
In the first post at his new blog, Anton Howes lays out one of the biggest questions about the 19th century:
What caused the Industrial Revolution?
By the term “Industrial Revolution”, the broadly accepted meaning is of (1) innovation-led, (2) sustained and (3) replicable economic growth.
Each of those adjectives are the source of some of the other important questions in the social sciences. Here are some brief summaries of the issues at hand, which I’ll maybe expand upon separately.
Innovation-led growth distinguishes itself hugely from what we might call ‘Ricardian’ or ‘Malthusian’ economic growth (it’s usually called ‘Smithian’, but that’s a topic for another time). Capital accumulation, population growth, conquest, and education, can all result in initial surges of economic growth. But this is soon brought to a standstill by the brutal reality of diminishing marginal returns, depreciation, and food shortages.
Innovation existed before the Industrial Revolution. Of course it did – you need look no further than the invention of agriculture, writing, bronze, crop rotations, horse collars, windmills, gunpowder, printing presses, paper, and bills of exchange to know that innovations have occurred throughout history before the IR.
The difference is that these were few and far between. Some of them, often grouped together, resulted in Golden Ages, or “Efflorescences” as Jack Goldstone likes to call them. The 1st Century early Roman Empire; the 8th Century Arab World; 12th Century Sung Dynasty China; the 15th Century northern Italian city-states; and 17th Century Dutch Republic are all good examples.
Perhaps most importantly, this miracle quickly spread. First to Belgium, across the Atlantic to the new-born USA, and then to the Dutch Republic still winding down from its own Golden Age, France, Northern Italy, and the multitude of German principalities.
In the last Century it spread to Japan, South Korea, Singapore, Hong Kong, China, Vietnam and Eastern European countries escaping the shadow of Communism.
In this Century it appears to finally be taking root in various African countries. Kenya, Tanzania and Rwanda in particular seem to be leading the way.
The more recent recipients of the IR are experiencing an unprecedented rate of growth, which in itself provides a further miracle in economic history. Britain’s sustained growth only initially manifested itself at less than 1% per year. It took about 100 years for Britain’s first doubling in GDP to occur.
More recent recipients can expect to grow at 7-10% every year, and sometimes even higher. To put that in perspective, growth at 7% per year would result in a doubling of the size of the economy in only 10 years. 10% a year in only 7 years.