July 18, 2012
Who Exploits You More: Capitalists or Cronies?
July 17, 2012
Ending supply management
In the Globe and Mail Economy Lab, David Bond explores equitable ways to compensate farmers who will lose out if-and-when the federal government abandons the supply management system:
The quota was originally given out for free, therefore farmers or their direct successors still in the business would receive nothing for their original allocation and then 90 per cent of whatever they paid at the time they acquired additional amounts of quota.
Why only 90 per cent? Well having quota allowed the holders to earn returns on their investment well in excess of the returns that could have been earned in alternative forms of farming. Having enjoyed for more than 40 years these superior returns thanks to their ability to persuade government to protect them from competition it’s time they “enjoyed” some of the costs they foisted upon Canadian consumers.
While the potential beneficiaries of this compensation may complain of shoddy treatment they evidenced little sympathy on the costs they passed on to the consumers much less the harmful impact they had on potential exports of other agricultural and non-agricultural exports because government refused to modify supply management during trade negotiations.
July 16, 2012
Toronto edges cautiously toward allowing wider range of “street food”
Matt Gurney in the National Post on Toronto’s inch-by-glacial-inch move toward allowing a bit more variety in the foods street vendors can sell:
Last week, Toronto City Council approved hot dog vendors to sell an expanded variety of foods. The expanded list is still far from expansive. Veggie sticks, fruit salads and bagels with individually packaged butters are about the extent of the street food revolution in Toronto. Even these baby steps are progress, though — they follow the total failure of Toronto’s A La Cart program, which tried to expand the city’s food options to include more “ethnic” fare. The program, which should go down in history as the most botched effort the city has ever made, is Prosecution Exhibit A for those who believe that governments only exist to screw up things that really aren’t all that complicated.
But the city’s concern about street food, though overwrought and frankly embarrassing, at least comes from an honest place — concerns about spoiled food or improper preparation hurting public health. But Toronto has always missed the point. The public is protected when governments monitor outcomes and harshly punish failures, not seek to control process. Health inspections are an entirely reasonable part of the government’s job, with street food as much as any industry. And it seems that Toronto, while fretting about what food vendors might be doing wrong, hasn’t exactly been doing a bang-up job of its own responsibilities.
Hard though it is to imagine, other cities — even other Canadian cities — somehow manage to have all sorts of tasty treats for sale by food trucks, carts, and temporary kiosks without civilization crumbling.
July 13, 2012
Questioning the accuracy of official Chinese economic figures
Yes, we’ve heard this several times before, and for good reason:
China’s relatively mild slowdown in the second quarter has reignited a controversy about whether its official statistics can be trusted.
Chinese growth edged down to 7.6 per cent in the second quarter from 8.1 per cent in the first quarter, and analysts said the momentum in June, from stronger bank lending to rising investment, pointed to a rebound in the second half of the year.
But rather than delivering reassurance, the numbers instead provoked questions about whether the reality is worse than the government is letting on.
Economists with Barclays noted that a deceleration in industrial production was consistent with 7.0-7.3 per cent growth. Analysts at Capital Economics said that the true figure was probably closer to 7.0 per cent.
[. . .]
Doubts about Chinese data have a fine pedigree. Li Keqiang, who is widely expected to succeed Wen Jiabao later this year as premier, confided to U.S. officials in 2007 that gross domestic product was “man made” and “for reference only”, according to a diplomatic cable published by WikiLeaks.
Earlier posts on the Chinese economy are here.
Nice little racket some Toronto stores have set up
Charge your customers 5 cents per bag, beat them over the head with the message that the money goes to “charity”, then pocket the profits:
Another customer, who requested anonymity, said she now boycotts Loblaws, Shoppers and PharmaPlus. When Loblaws started selling plastic bags, she said it led to poorer customer service like cashiers refusing to pack her groceries.
“A bag was a courtesy given for shopping in the store and also a way for the store to advertise by putting their logo on the side of the bag,” she said in an email.
She also detests the World Wildlife Fund, which Loblaws funds with bag sales.
Metro spokeswoman Marie-Claude Bacon said Metro buys each bag for about 2.5¢. Most retailers won’t say how much plastic bag revenue flows to charities. Even when they do give, they recoup 33¢ of every donated dollar, Al Rosen, a forensic accountant, points out.
And he adds: “Overall, there are some who are being honest about increasing their donations and there are others who are just taking advantage of plastic bag thing to find another way of making the same donations as they previously made.”
July 11, 2012
Crony Capitalism: the issue that unites the Tea Party and the Occupy movement
Matthew Mitchell at the Mercatus Center:
Despite the ideological miles that separate them, activists in the Tea Party and Occupy Wall Street movements agree on one thing: both condemn the recent bailouts of wealthy and well-connected banks. To the Tea Partiers, these bailouts were an unwarranted federal intrusion into the free market; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis.[1] To both, the bailouts smacked of cronyism.
The financial bailouts of 2008 were but one example in a long list of privileges that governments occasionally bestow upon particular firms or particular industries. At various times and places, these privileges have included (among other things) monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts. Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.
[. . .]
… regulations can be especially useful to firms if they give the appearance of being anti-business or somehow pro-consumer. Regulations are often supported by strange bedfellows. Bruce Yandle of Clemson University has studied the phenomenon extensively:
The pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers … support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer.[25]
The moralizing arguments are often front and center in regulatory policy debates, while the narrow interests that stand to benefit from certain regulations are much less conspicuous.
July 10, 2012
American exceptionalism, especially in taxation
Mark Steyn on the unique American perspective on taxes:
Elsewhere in the world, there are two generally accepted bases for taxation: residency and source of income. Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American — even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain; Slovenia taxes you if you’re a resident of Slovenia; but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.
As I say, no other developed country does this — although Eritrea does.
On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills — or a small businessman attempting to expand his distribution in Canada.
Maybe you don’t care about these people: Why can’t the business guy expand his business in Michigan or Idaho like true-blue Americans would do, etc? But at a time when America is ever more mortgaged to foreigners, making it more difficult for Americans to go out and earn money from the rest of the planet doesn’t seem a smart move. Unless you’re planning on making U.S. citizenship a combination food-stamp card. American exceptionalism and American isolationism are not the same thing.
More to the point, the 2008 “exit tax”, the existing foreign bank-account disclosure paperwork, the new FATCAT act, and even the recent habit of publishing the names of those who renounce citizenship are simply inappropriate in a free society.
July 9, 2012
The constipated British housing market
Tim Harford’s weekend column on the state of Britain’s housing market and a possible solution to the disconnect between supply and demand:
The chief obstacle to house building in the UK is the planning system, which, 65 years ago, did away with the idea that if you owned land, you could build on it, and replaced it with a system where planning permission was required. Permission to build houses is severely rationed, and such rationing can be seen clearly in the gap between the value of agricultural land without planning permission (a few thousand pounds a hectare) and the value of such land once permission has been granted (a few million).
The difficulty is that local authorities have the ability to grant planning permission but have little incentive to do so, because it tends to be unpopular with existing voters. The huge windfall from winning planning permission falls to whoever has managed to speculate on land and navigate the tangle of planning rules. These serve as nice barriers to entry for existing developers, while driving up the price of building land and so driving down the size of new homes.
Tim Leunig, chief economist at CentreForum, a think-tank, has proposed a two-part system of land auctions to get around this problem. Local authorities would buy land at auction, grant planning permission on it and then sell the land on to developers — with some strings attached, if they so choose. The profits would be enormous, and enjoyed by existing residents in the form of lower taxes or better public services. This isn’t the only way to liberalise planning, but it retains local control and democratic accountability — while dramatically increasing the incentive to develop.
Restoring a free market right to build on property you own would also be a fast solution to the diminished housing supply, but when have governments at any level willingly given up power?
July 7, 2012
Tim Worstall: the software patent system is FUBAR’ed
In Forbes, Tim Worstall explains the odd situation of Amazon trying to obtain patents to use defensively when (not if) they get sued for entering the smartphone market:
… Amazon isn’t searching out patents which would allow it to build phones to, say, the GSM or CDMA standards. For those patents, by virtue of being included in those standards, must be made available to all comers on reasonable and non-discriminatory terms (RAND, or Europeans add “Fair” to the beginning to give FRAND). So any patent that is actually necessary to make a phone that interacts with the network is already available to them on exactly the same terms that Samsung, Apple, Nokia or anyone else pays for them.
No, what Amazon is looking for is just some bundle of patents, somewhere, that have something to do with mobile telephony. So that when (and sadly, it really is when, not if) they get sued by someone or other for breaching a patent then they’ve got some great big bundle of documents that they can wave back at them. Such patents can range from the possibly valid (slide to unlock perhaps) through to two that really irk me: Apple claiming a patent on a wedge shaped notebook and, unbelievably to me, on the layout of icons on the Galaxy Tablet in Europe.
I take this to be evidence that the technology patent system has simply got out of hand: that the system is entirely Fubar in fact. We need to recall what a patent is supposed to do: it is not that intellectual property is some God given right. Rather, we realise that given that ideas and technologies are public goods it is very difficult to make money out of having invented them. Thus we artificially create intellectual property in the form of patents and trademarks. But we are always walking a narrow line between encouraging invention by awarding such rights and discouraging derivative inventions by awarding rights that are too strong.
July 5, 2012
July 2, 2012
Hoist a craft-brewed beer to thank Jimmy Carter for saving America’s brewing tradition
Jimmy Carter will have to go a long time before his reputation recovers from his four years in office, but along with beginning to deregulate the air travel, freight railroad, and trucking industries, he also deserves credit for triggering the revival of the American craft brewing tradition. This is from an article in The New Republic, published in 2010:
If you’re a fan of craft beer and microbreweries as opposed to say Bud Light or Coors, you should say a little thank you to Jimmy Carter. Carter could very well be the hero of International Beer Day.
To make a long story short, prohibition led to the dismantling of many small breweries around the nation. When prohibition was lifted, government tightly regulated the market, and small scale producers were essentially shut out of the beer market altogether. Regulations imposed at the time greatly benefited the large beer makers. In 1979, Carter deregulated the beer industry, opening back up to craft brewers. As the chart below illustrates, this had a really amazing effect on the beer industry:
H/T to The Whited Sepulchre for the link.
July 1, 2012
The Royal Navy’s successful privatization effort
Even the most dogmatic libertarian would be hard-pressed to defend the notion of privatizing the fighting navy, but the rest of the navy (training, support, maintenance, etc.) can in some instances be privatized not only without impacting military efficiency, but actually boosting it:
The Royal Maritime Auxiliary Service (RMAS) was privatised and taken over by Serco back in the 1990s and run for profit. To this day, Serco Denholm are responsible for the provision of all manner of auxiliary services, ranging from tugs and tender transfers, through to torpedo recovery craft, exercise minelayers and range target vessels.
All in all, there are easily over 100 vessels which can be found primarily in naval bases, but also in other establishments such as the Kyle of Lochalsh, around the UK. This fleet of vessels is an important reason to be positive for two reasons. Firstly, many navies rely on their own personnel to man and operate these vessels. When they need replacing, these costs are funded from naval budgets, and not from a wider contract fund. Similarly, the manpower needed to operate them comes from the Navy, and not from the private sector, meaning more sailors are needed to do this sort of job, and not go to sea on a ‘proper’ military vessel. By contracting out the service, the RN is able to focus its resources and manpower on proper military vessels, and not have to worry about finding funds to replace elderly tugs, at a time when it wants to bring frigates into service. It is not remotely glamorous, but it is an essential part of operating a Navy, and one that is often forgotten.
Also forgotten is just how new this fleet is — there has been a huge amount of investment in the port services fleet in recent years, with literally dozens of craft (Humphrey read something saying over 80 new vessels were being ordered) being built and entering service. The RN has managed to acquire the services of one of the most modern and effective port support vessels fleets in the world. This would not have happened if the RN were still looking after the RMAS — instead, by privatising it, the funding instead has brought new ships and better capabilities into service, at a reduced cost to the taxpayer. This matters because without it, the RN would be reliant on ever older ships, or finding scarce equipment programme funds to pay for them. (For those interested in the ships in service now, try this link — http://www.rfanostalgia.org/gallery3/index.php/RMAS)
June 29, 2012
From Maoism to Kleptocracy in one generation
China’s economic growth has been one of the wonders of the modern world, as one of the poorest nations has pulled itself well up the economic tables over just the last twenty years. What it has not done, however, is replace the communist leadership with democratically elected leaders. What has happened is that switching from a pure command economy to a freer economy has created fantastic opportunities for graft and corruption. Opportunities which have been grasped eagerly by party leaders and their friends and family:
As I set out in The Fall of the Communist Dynasty, and a HT to John Hempton’s piece within which he contends that the entire Chinese economy is a Kleptocracy , this week we have news from Citron Research who reports that Evergrande Real Estate Group Ltd is ‘a deception on a grande scale’ .
Citron quote ;-
‘Evergrande who ranks among the top 5 Chinese property companies. Our analysis and primary research reveal that: 1] Evergrande is insolvent; and 2] Evergrande will be severely challenged from a liquidity perspective. The Company’s management has applied at least 6 accounting shenanigans to mask Evergrande’s insolvency. Our research indicates that a total write-down of RMB 71bn is required and Evergrande’s pro forma equity is negative 36bn.’
What sparked Citrons interest in Evergrande was the mail order doctorate the chairman claimed from the University of West Alabama, a small college 230 miles north of New Orleans with 2300 on-campus students. Evergrande’s is one of the top 5 players in the Chinese property market that fell for its 8th consecutive month in May. My experience with these types of matters is that small things can be excellent markers to greater problems. Small examples of dishonesty in one area of life are often reflected in larger undiscovered examples in other areas of a person’s life.
[. . .]
Zoomlion has an interesting business model, it is similar in many of ways to Caterpillar, except whereas Caterpillar report falling sales, Zoomlion reports astounding sales growth with a fivefold increase in revenue since 2007. Zoomlion customers sometimes buy ten concrete mixers when they planned to initially by one or two. They have a perverse incentive to buy more than they need because these concrete trucks are purchased via finance packages supplied by Zoomlion.
Then the machines can be garaged and used as collateral to borrow further funds from other lenders. Zoomlion continues to grow while cement sales have plunged. In May, cement output increased 4.3 per cent YoY, down from 19.2 per cent recorded last year. Zoomlion’s new debt of $22.5B buys roughly 900,000 trucks which could produce enough concrete (at six loads a day) to build over thirty Great Pyramids of Giza a day.
[. . .]
All revolutions have class and economic matters at their core. Ironically, the difference in a future Chinese collapse is that the expropriators in China in this cycle have been the Communist Party political class. The CCP have become the Kleptopreneur bourgeoisie who have expropriated from China’s proletariat (the industrial working class), via corruption and theft from the state and state owned enterprises. The Ka-Ching Dynasty is responsible for the greatest looting of a nation in history.
Marx wrote that modern bourgeois society (Capitalism) has conjured up such gigantic means of production and of exchange, that it is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells (Karl Marx)
The CCP ‘sorcerers’ have summoned up a political and economic nether world that is so systemically corrupted it is in the process of spiralling into same revolutionary physics that destroyed the original Chinese merchant bourgeoisie that Mao overthrew.
Earlier posts on China’s economy are here. H/T to Cory Doctorow for the link.
June 19, 2012
Big business loves regulation: it keeps competition at bay
Jan Boucek at the Adam Smith Institute blog, with a couple of examples of big business welcoming additional government intervention in their markets:
First out of the trap was Barclays CEO Bob Diamond. In an interview Wednesday with Bloomberg, he reprised his long-standing mantra that “strong banks, like Barclays, want strong regulation.”
This sounds good in our current age of finger-pointing and bank-bashing but serves Barclays well if high barriers to entry keep out more competition from Diamond’s industry.
Then in an interview Friday with The Financial Times, the outgoing head of retail at Royal Bank of Scotland Brian Hartzer suggested regulators should forcibly end free current accounts. He smoothly phrased it in terms that chime with today’s sentiment: “Regulatory intervention might be helpful in forcing banks to the table” and “A large proportion of customers are being cross subsidised — we think that’s unfair.”
Of course, what Hartzer proposes means banks no longer having to compete on price for their most basic product.
Both these sweetly melodious proposals for more regulation need to be treated with Adam Smith’s “most scrupulous” and “most suspicious attention” because they’re music to the ears of our discordant political maestros.
The closer big business and government become, the stricter the regulations against individuals and firms trying to compete with the big businesses. Small firms are almost always disproportionally impacted by industry-wide regulations (and that’s by design), which makes them less able to compete with the established firms. Regulators are more help to big companies than clever advertising, innovative product development, or good customer relations.
June 13, 2012
When is a bribe appropriate?
The British government is trying to crack down on bribery, which on the surface seems like a good thing to do: but will it cripple British businesses in third world countries?
We used to draw a distinct line between what was acceptable business conduct here at home and what we did abroad with Johnny Foreigner.
Inviting Bertie from your major customer to Henley or the Derby, or waving Cup Final and Olympic tickets in his face was entirely acceptable. Slipping him £500 for an order was bribery and both illegal and immoral.
But what you did abroad was an entirely different matter: bribery was until very recently tax deductible.
[. . .]
This is of course very different from the system of old. Which was, essentially, that soft soaping someone with experiences and days out was just absolutely fine while any mention at all of cash was not just legally but also socially verboten.
At home, in Britain, that was. Having worked in some pretty odd and even rough places I’ve done my share of bribing people, but even so I would be profoundly shocked if I was asked for a bung in Blighty. But the system also most definitely facilitated the payment of bribes to Johnny Foreigner.
At one point, working in Russia, I needed to get cheap railway prices out of the Russian railroads to make the numbers on a metals shipment add up. The only way known to do this was to make a deal with the North Koreans who had special state-set prices on said railways. Which is how I found myself inside the N. Korean embassy in Moscow handing over $10,000 in crisp notes to their KGB-style guy after the successful conclusion of the shipment.
Yes, of course, it’s terribly naughty subverting the employees of a communist dictatorship, but the reaction here at home was the most interesting. When I made gentle enquiries to the taxman as to how I might account for this transaction, hinting gently at first, he finally pointed out that since I’d paid the bribe in a foreign currency to a foreign chap that was just fine. Just list it as a business expense and it was tax deductible.
