Quotulatiousness

September 15, 2015

Tyler Cowen’s primer on Chinese economics

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

At Marginal Revolution Tyler Cowen pulls together the key economic points you need to know to understand what is happening in China’s economic downturn:

1. You can’t invest 45-50 percent of your GDP very well forever. It’s amazing how long China’s run has been, but it is over. The quality of their marginal investments is now low and that means their growth rate will be much lower too. The low hanging fruit is gone, at least for the time being. They might later on resurrect some new low-hanging fruit through institutional reform, we’ll see if they end up stuck in the middle income trap but right now they are at a sharp discontinuity.

2. There is no simple way to switch to a “consumption-driven” economy without the growth rate both falling and staying permanently lower. Structural reforms are absolutely called for, but in this context they represent a surrender to a lower rate of growth and thus they are especially difficult to pull off in a politically sustainable manner.

3. The Chinese have been growing at ten percent or nearly ten percent for about thirty-five years. More than a generation of Chinese is used to treating the risk premium as if they don’t have to worry about it. I shudder to think what economic and also political decisions have been made on that basis.

4. The Chinese economic response to the dwindling of their low-hanging fruit is sharp rather than smooth because there is a sudden revision of expectations, as people realize the risk premium isn’t zero after all. And seeing the others see that causes the new set of beliefs to spread pretty quickly. That is a very painful process for a macroeconomy, and it is not well captured by simple AD-AS analysis, although of course it has implications for both AD and AS.

5. I would not so quickly infer that the Chinese government is stupid when it comes to economics. It is true their actions do not correspond to what professional economists would recommend. But they are painted into a very unpleasant corner and have lots of interest groups to feed. Their observed response is possibly explained by some kind of public choice-constrained, nested game, internal conflict-driven seventh-best response. They were smart a few years ago, and they are still smart now. That doesn’t mean they will end up doing a good job.

6. Avoid mood affiliation! You can be a pessimist about the Chinese recession now without being a) a pessimist about China in the longer run, or b) a pessimist about Chinese political stability. Those are separate albeit related questions, and you are not forced to have the same mood response to all of them.

September 14, 2015

An Introduction to Externalities

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

Published on 18 Mar 2015

What are externalities and what are the different kinds of costs? And what does this have to do with the rise of “superbugs”? This video is an introduction to externalities, including the concepts of private cost, external cost, and social cost. Using the example of antibiotics and viruses, we take a look at how costs are passed along to different members of society beyond the producer and consumer. We’ll use a chart to illustrate how to calculate the effects of a Pigouvian tax, and we provide definitions for the other key terms that will be used throughout this video series.

Cash is still king … and we’d be insane to abolish it

Filed under: Business, Economics, France, Liberty — Tags: , , , , — Nicholas @ 03:00

In the Telegraph last month, Matthew Lynn made the case against eliminating cash:

Trying to get a plumber in France? In the rather unlikely event that you can actually find one who isn’t still on his grandes vacances, gone above his permitted 35 hours a week, or indeed long since relocated himself to South Kensington, then you’ll also have to make sure that you can pay by cheque or bank transfer.

From today, France is banning the use of cash for transactions worth more than €1,000, or slightly more than £700. On one level, that is about combating crime and terrorism. But on another, it is also part of a growing movement among academics and now governments to gradually ban the use of cash completely. It is inefficient, oils the underground economy, and makes it harder for central banks to manage the economy, or so runs the argument.

Much like gold, it is a “barbarous relic”, as some publications loftily dismiss it. The trouble is, cash is also incredibly efficient. And it is a crucial part of a free society. There is no convincing case for abolition.

When it comes to creeping state control, it is no surprise to find the French out in front. In the wake of this year’s attack on the Charlie Hebdo office, the government has clamped down on the use of cash. The maximum permitted transaction has been reduced from €3,000 to €1,000, and any cash withdrawal of more than €10,000 will be automatically flagged up to the police (tourists have a higher limit, but even that is being reduced to €10,000 – just in case you are planning on ordering some very expensive wine on your next trip to Paris).

[…]

In reality, cash is far too valuable to be given up lightly. In truth, the benefits of abolition are largely oversold. While terrorists and criminals may well use cash to buy weapons, or deal in drugs, it is very hard to believe that they would not find some other way of financing their operations if it was abolished. Are there really any cases of potential jihadists being foiled because they couldn’t find two utility bills (less than three months old, of course) in a false name to open an account? The web is full of false payment systems and anonymous names.

Nor is clamping down on the black economy such a big deal. Admittedly these things are hard to measure, but according to research by the London School of Economics, the black economy only accounts for 10pc of British GDP, which is the fourth lowest in the EU. Many of the people working in it are below the tax threshold anyway, and certainly below the VAT threshold. So the tax collected even if you clamped down completely is unlikely to amount to more than 1pc of GDP. As for negative interest rates, do we really want those? Or have we concluded that central bankers are doing more harm than good with their attempts to manipulate the economy?

QotD: “Fair” prices

Filed under: Business, Economics, Quotations — Tags: , — Nicholas @ 01:00

I think that there’s a lot of very dumb rhetoric about “fair trade” and “fair pricing,” usually coming from people who want to tell others how to set their prices. I generally distrust the word “fair.” But there is an emotional side to pricing. Smart businesses want their customers to feel good about transactions, especially repeat-business propositions such as restaurants. That’s why bartenders give out the occasional free drink, restaurateurs sometimes send out a free appetizer or dessert, etc. And, all the management consultants and books notwithstanding, there’s a lot of gut in business; if a cafe proprietor in New Mexico thinks that a price feels right, or wants to know whether his customers think a price feels right, I don’t think that’s insignificant. Businessmen want to do the right thing, too, at least as often as anybody else.

It does get tricky, sometimes, e.g. the car-dealer who adds $1,000 to the price of everything so he can tell gullible buyers he’s giving them $1,000 off. I think the Internet has made pricing “fairer” in the sense that sellers cannot as often get away with charging above-market rates; there are a fair number of stores that will sell you a product at whatever the lowest price you can document is. It’s hard to say no when somebody’s showing you the same product at a better price on his phone.

Kevin D. Williamson, “A Fair Point”, National Review, 2014-09-29.

September 13, 2015

Markets in everything, Fan Expo edition

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

At The Walrus, Jonathan Kay explains how Ron Weasley (and the whole Fan Expo celebrity photo “experience”) made him both sad and $300 poorer:

Photo by Jonathan Kay. Click to see full-sized image at The Walrus.

Photo by Jonathan Kay. Click to see full-sized image at The Walrus.

Fans of the TV show Entourage will remember the second-season episode in which Johnny Drama (Kevin Dillon) heads to San Diego’s Comic-Con International, dressed in prop-wardrobe Viking costume. Drama, we learn, had appeared in a (fictional) show called Viking Quest, starring as the warrior Tarvold. On the fan-convention circuit, Drama explained, he could rake in big money by signing autographs, and set conventioneers’ hearts aflutter with Tarvold’s signature cry of “Victory!” On Entourage, this seemed funny. In real life, I recently learned, it’s sad.

On Sunday, I took two of my daughters to the 2015 instalment of Fan Expo Canada, billed as “the largest Comics, Sci-fi, Horror, Anime, and Gaming event in Canada.” More than 100,000 fans show up annually for the four-day exhibition, which now sprawls over both buildings of the massive Metro Toronto Convention Centre. Under one roof, I was able to meet a life-size My Little Pony, compete in a Catan tournament, playtest emerging console video games, commission custom panels from famous cartoonists, pose with life-size Futurama characters, buy a fully functional 3D-chess set, and generally revel in all the various subcultures that the rest of society stigmatizes as dorky and juvenile. My girls and I have been to Fan Expo Canada three years in a row, and we always have a good time.

But my daughters are getting older. This year, for the first time, they were after more than just a Harry Potter wand and a Gryffindor T-shirt: They wanted to meet the real-life Harry Potter movie stars appearing at Fan Expo. Expecting to encounter nothing more than a real-life version of Drama’s Viking Quest subplot, I acquiesced, and we wandered over to celebrity row.

I was shockingly naive about how this process works. Before Sunday’s celebrity adventure, I’d assumed that one could mingle about and snap pictures with fan-con celebs for free, taking out your wallet only when you wanted a signed photo.

In fact, the best way to describe Fan Expo’s celebrity protocol is as a sort of Chicago Mercantile Exchange for human beings. Instead of live cattle, lean hogs, skimmed milk powder, cash-settled butter, and softwood pulp, this big board (displayed above) lists prices for Billy Dee Williams, Gillian Anderson, Danny Trejo, Neve Campbell, Norman Reedus, Skeet Ulrich, Zach Galligan, and fifty other stars and quasi-stars. The precision of the numbers suggests a fine-tuned demand-driven adjustment process that any commodities trader would recognize. Williams (Lando Calrissian from Star Wars, but you knew that) was listed at $57. Anderson (X-Files): $91. Danny Trejo (Machete): $74. Neve Campbell (Scream): $97. Norman Reedus (The Walking Dead): $130. Skeet Ulrich (Jericho): $68. Zach Galligan (Gremlins): $63. Just my luck: Rupert Grint (Ron Weasley, Harry Potter’s red-haired sidekick) was listed at $142 — highest on the board. I wanted to bail out. But having made the mistake of getting dragged this far, turning back wasn’t going to be a good-dad move.

September 9, 2015

QotD: The iSocialist

Filed under: Economics, Quotations — Tags: , , , , — Nicholas @ 01:00

Every ideology needs to believe in its inevitability. Religions get their inevitability from prophecies; secular ideologies get theirs from the modernist fallacy.

The modernist fallacy says that history is moving on an inevitable track toward their ideology. Resistance is futile, you will be liberalized. Marxism predicted the inevitable breakdown of capitalism. Obama keeps talking about being “on the right side of history” as if history, like a university history curriculum, has a right side and a wrong side. All everyone has to do is grab a sign and march “Forward!” to the future.

The bad economics and sociology around which the left builds its Socialist sand castles assume that technological progress will mean improved control. Capitalism with its mass production convinced budding Socialists that the entire world could be run like a giant factory under technocrats who would use industrial techniques to control the economic production of mankind in line with their ideals.

The USSR and moribund European economies broke that theory into a million little pieces.

The dot com revolution with its databases and subtle tools for manipulating individuals on a collective basis led to a Facebook Socialism that crowdsources its culture wars and “nudges” everyone into better habits, lower body masses and conveniently available death panels.

The iSocialist, like his industrial predecessor, assumes that technology gives superintelligent leftists better tools for controlling everything. The planned economy failed in the twentieth because the tools of propaganda posters, quotas and gulags were too crude. This time he is certain that it will work.

Daniel Greenfield, “Science is for Stupid People”, Sultan Knish, 2014-09-30.

September 7, 2015

New Lanark

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

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.

Arguments Against International Trade

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

Published on 25 Feb 2015

In this video, we discuss some of the most common arguments against international trade. Does trade harm workers by reducing the number of jobs in the U.S.? Is it wrong to trade with countries that use child labor? Is it important to keep a certain number of jobs at home for national security reasons? Can strategic protectionism increase well-being in the U.S.? Join us as we discuss these common concerns.

September 6, 2015

How the Division of Knowledge Saved My Son’s Life (Everyday Economics 3/7)

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

Published on 24 Jun 2014

In this video, Professor Boudreaux explains how the specialization of knowledge helped his two-year old son overcome a life-threatening illness. The science of medicine has enjoyed significant progress since the 19th century thanks to the vast size of the market and demand for health care services. Despite his foresight, Adam Smith never could have imagined the degree of expertise held by some of today’s medical specialists.

September 5, 2015

Raising the minimum wage also means raising prices for many retailers

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

Louis DeBroux on the plight of some marginal businesses in California who are seeing lower support from their customers as they raise prices to ensure they can keep paying their current employees at the new mandated minimum wage:

Earlier this year, labor unions in Los Angeles whipped up low-wage workers into a frenzy with demands for a minimum “living” wage of $15 per hour. They achieved their goal and the $15/hour wage bill was signed into law. This was supposed to be a huge victory for the workers (though, it should be noted, within days of the law going into effect, the same labor unions that lobbied for the $15/hour minimum wage were lobbying government for an exemption for union companies, so that union companies could pay well below the new minimum wage).

Even so, some California business owners decided to show solidarity with the cause of low-wage workers, significantly increasing their starting wage of their own volition.

Vic Gumper, owner of Lanesplitter Pizza (with stores in Albany, Berkeley, Oakland, and Emeryville, California), voluntarily raised wages for his employees to between $15 to $25 per hour. In order to cover the cost of the higher “living” wage, Gumper began advertising $30 “living wage pizzas” to his customers, which include patrons from the Pixar Animation Studios and biotech companies located near his shops. In doing so he declared these pizzas “sustainably served, really … no tips necessary”.

The result? Sales have dropped by 25% as liberals in these communities have balked at having to pony up more money for the pizzas. The hit has been so significant that Gumper has had to close during lunch hour at several locations (think about that…a restaurant that has to close during LUNCH because it can’t afford to stay open!).

Gumper says that “The necessity of paying a living wage in the Bay Area [which has one of the highest costs of living in the nation] is clear, so it’s hard to argue against it, and it’s something I’m really proud to be able to try doing…At the same time, I’m terrified of going out of business after 18 years.”

There really isn’t a free lunch … if you use the power of government to raise the costs of doing business, either the local businesses pass on that increased cost by way of the prices they charge to their customers or they economize by reducing their labour costs (and the number of employees they support). A more drastic solution is going out of business or moving out of the jurisdiction: neither of which is typically considered during the legislative process.

September 2, 2015

Tariffs and Protectionism

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

Published on 25 Feb 2015

We’ll look at the costs and consequences of tariffs, quotas, and protectionism. How do tariffs affect consumers? What about producers? Who wins and who loses? Find out with this video.
We’ll apply the fundamentals we learned in the supply, demand, and equilibrium section of this course to real-world examples — like that of protectionism in the U.S. sugar industry — to determine lost gains from trade or deadweight loss, the tariff equilibrium vs. the free trade equilibrium, and the value of wasted resources as a result of tariffs.

Seattle is considering implementing rent control

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

Megan McArdle on the things Seattle may learn — painfully — if they fail to heed the experiences of other cities that have implemented rent control:

So I see that Seattle is considering rent control. For a columnist who covers economic issues, this is a little bit like hearing that residents are debating how big to make the reet pleats on their zoot suits. It’s hard to get economists to agree on much of anything, but as Alex Tabarrok notes, this is an area of rare consensus among economists: Rent control creates more problems than it solves.

If you want a vivid example of what those problems look like, you can do no better than a letter written by a resident of Stockholm to the good citizens of Seattle, quoted by Tabarrok: “Seattle, you need to ask your citizens this: How would citizens like it if they walked into a rental agency and the agent told them to register and come back in 10 years? … Stockholm City Council now has an official housing queue, where 1 day waiting = 1 point. To get an apartment you need both money for the rent and enough points to be the first in line. Recently an apartment in inner Stockholm became available. In just 5 days, 2000 people had applied for the apartment. The person who got the apartment had been waiting in the official housing queue since 1989!”

Now, Stockholm is extreme. But the general effect always goes in the same direction. Rent control creates two classes of tenants: people who have the right to rent at below-market rates, and renters who would like to get a long-term lease on an apartment, but cannot, or must pay through the nose for a limited number of uncontrolled properties. Meanwhile, landlords let the quality of the existing stock decline and become very reluctant to build new housing that they can’t make a profit on.

This is not some sort of arcane secret that has not reached the policy analysts in our nation’s fair metropolises. They’re well aware of what rent control does. So why is it ever on the table?

QotD: The only four ways to spend money

Filed under: Economics, Humour, Quotations — Tags: , — Nicholas @ 01:00

In Milton Friedman’s 1980 PBS TV series Free To Choose, Friedman drew a simple graph showing that, mathematically, there are only four ways to spend money.

Spending your money on yourself is efficient. Tonight’s Special, prime rib with a small side dish of kale, looks like a good deal.

Spending your money on other people is efficient too. She’ll have the mac and cheese.

Spending other people’s money on yourself is not so efficient. The Wall Street Hedge Fund Managers’ Annual Dinner will be at Maxim’s in Paris.

But spending other people’s money on other people is the way government spending is done. Free caviar for all Americans! Whether they like caviar or not. And get in line because there’s nothing except caviar, and it will be rationed.

P.J. O’Rourke, “My Coffee Klatch With Rand Paul: The Kentucky small-l libertarian (and likely presidential candidate) talks with P.J. O’Rourke about philosophy, money, and hopelessness”, The Daily Beast, 2014-09-27.

September 1, 2015

Bet you didn’t see this coming – Koch and Sanders working together

Filed under: Business, Economics, Liberty, Politics, USA — Tags: , , , , , — Nicholas @ 03:00

As everyone on the left knows, the Koch brothers are blackest avatars of evil incarnate and any of their works are tainted with pure, unadulterated evil … which might make some heads explode because The Intercept is reporting that the Koch fortune might be put to work to help elect Bernie Sanders:

I have a prediction: Charles and David Koch will soon announce they’re backing Bernie Sanders for president.

Here’s my logic, which is irrefutable:

We know the Koch brothers, and the organizations they fund, hate corporate welfare more than anything. They hate it!

The top priority of Freedom Partners, which oversees the Koch network of donors, is “tackling ‘rent-seeking,’ ‘corporate welfare,’ and other forms of cronyism.”

Charles Koch himself just told Politico’s Mike Allen that “We have to show that this corporate welfare and cronyism is unjust.” Sure, said Koch, it makes their friends unhappy, but “so what? You’ve got to do the right thing.” So as Allen wrote, “Rolling back corporate welfare is one of the top issues Koch is pursuing.”

Similarly, when Koch spoke recently to 450 of his fellow big donors at a recent Koch event in California, he demanded that “they have to start opposing, rather than promoting, corporate welfare.” In the Wall Street Journal, Koch wrote that “I have spent decades opposing cronyism and all political favors, including mandates, subsidies and protective tariffs.”

It might sound outlandish, but there aren’t many of the four hundred Republican candidates who are as staunch against crony capitalism, corporate welfare, and rent-seeking as good old self-declared socialist Bernie Sanders (aside from Rand Paul, I can’t think of any current Republican candidates who might even hint at biting the corporate hands that feed their campaigns’ insatiable demand for fresh funding…).

August 31, 2015

The NDP and federal corporate taxes

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

In Maclean’s, Stephen Gordon looks at how the New Democratic Party is talking about their approach to corporate taxation during the current election campaign:

… the OECD says that the current combined (that is, federal plus state/provincial) corporate income tax rate in the US is 39 per cent. In Canada, it’s 26.3 per cent (the federal rate of 15 per cent plus an average provincial rate of 11.3 per cent.) Getting us up to something resembling the U.S. rate (in the absence of changes in provincial rates) would require increasing the federal rate to around 27 per cent.

The NDP has made use of several different reference points since then. For example, rolling back the cuts made under the Conservative government would bring the rate back up to 22 per cent. Increasing the federal rate to 19 per cent would bring us up to the average of the other G7 countries. The NDP’s target is apparently now down to 17 per cent or so.

As far as the prospects for Canadian economic growth go, this steady reduction is good news: corporate income taxes are the most harmful to economic growth. The growing recognition of the negative effects of corporate tax rates explains why Canada and other OECD countries have made it a point to reduce corporate income taxes over the past few decades […]

If you look at just the relationship between federal corporate income tax rates and federal income tax revenues, you get pretty much the same story. Even though federal corporate tax rates have fallen by more than half over the past 30 years, corporate income tax revenues have continued to fluctuate around two per cent of GDP.

Canadian corporate tax rates and revenue 1985-2014

There are at least two reasons why you might think that higher corporate tax rates might not result in higher corporate tax revenues:

  1. Higher corporate tax rates reduce the after-tax rate of return on investment. Everything else being equal, this reduces investment, capital accumulation and profits. Less profits means less corporate income to tax.
  2. Higher corporate taxes produce an incentive for multinational firms to shift taxable activities away from high-tax jurisdictions.

In the short and medium term, the second point is probably more important.

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