Quotulatiousness

August 24, 2015

Billionaires, good and bad

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

In the Washington Post, Ana Swanson examines the good and bad (for economic growth) of the billionaire class:

Over the past few decades, wealth has become more concentrated in the hands of a few global elite. Billionaires like Microsoft founder Bill Gates, Mexican business magnate Carlos Slim Helú and investing phenomenon Warren Buffett play an outsized role in the global economy.

But what does that mean for everyone else? Is the concentration of wealth in the hands of a select group a good thing or a bad thing for the rest of us?

You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.

Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.

A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.

Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.

Comparative Advantage

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

Published on 25 Feb 2015

What is comparative advantage? And why is it important to trade? This video guides us through a specific example surrounding Tasmania — an island off the coast of Australia that experienced the miracle of growth in reverse. Through this example we show what can happen when a civilization is deprived of trade, and show why trade is essential to economic growth.

In an economy with a greater number of participants trading goods and services, there are more ways to find a comparative advantage and earn more by creating the most value for others. Let’s dive right in with an example from our new friends, Bob and Ann.

August 22, 2015

Division of Labor: Burgers and Ships (Everyday Economics 2/7)

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

Published on 24 Jun 2014

A simple example of hamburgers being made at home versus at a restaurant can help illuminate the explosion of prosperity since the Industrial Revolution. The story of the division of labor and development of specialized tools is not a new one — Adam Smith began The Wealth of Nations with this concept. Yet it still has tremendous explanatory power about the world we inhabit.

August 20, 2015

Frédéric Bastiat

Filed under: Economics, Europe, France, History — Tags: , , , — Nicholas @ 05:00

Lawrence W. Reed makes the case for Frédéric Bastiat to be awarded a Nobel Prize … if they awarded them posthumously, anyway:

If a posthumous Nobel Prize was awarded for crystal-clear writing and masterful storytelling in economics, no one would be more deserving of it than Frédéric Bastiat (June 30, 1801–December 24, 1850). He set the standard over a century and a half ago.

This remarkable Frenchman was an economist in more than the traditional sense. He understood the way the economic world works, and he knew better than anybody how to explain it with an economy of words. He employed everyday language and a conversational tone, an innate clarity that flowed from his logical and orderly presentation. Nothing he wrote was stilted, artificial, or pompous. He was concise and devastatingly to the point. To this day, nobody can read Bastiat and wonder, “Now what was that all about?”

Economic writing these days can be dull and lifeless, larded with verbosity and presumptuous mathematics. Bastiat proved that economics doesn’t have to be that way: the core truths of the science can be made lively and unforgettable. In literature, we think of good storytelling as an art and stories as powerful tools for understanding. Bastiat could tell a story that stabbed you with its brilliance. If your misconceptions were his target, his stories could leave you utterly, embarrassingly disarmed.

If you aspire to be an economist or a policy maker or a teacher or just an influential communicator, take time to study at the feet of this 19th-century master.

August 19, 2015

Canada looks very good on an international ranking you won’t hear about from our media

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

Our traditional media are quick to pump up the volume for “studies” that find that we rank highly on various rankings of cities or what-have-you, but here’s someone pointing out that Canada’s ranking is quite good, but it’s not the kind of measurement our media want to encourage or publicize:

First, we must identify a nation’s currently employed population. Next, all public sector employees are removed to obtain an adjusted productive workforce. It may be objectionable that certain professions, like teaching, nurses in single payer systems and fire fighters, are classified as an unproductive workforce, but as our system is currently designed, the salaries of these individuals are not covered by the immediate beneficiaries like any other business but are paid through dispersed taxation methods.

Finally, this productive population is divided into the nation’s total population to identify the total number of individuals a worker is expected to support in his country. To remove bias toward non-working spouses and children, the average household size is subtracted from this result to get the final number of individuals that an individual must support that are not part of their own voluntary household. In other words, how many total strangers is this individual providing for?

The Implied Public Reliance metric does a far better job of predicting economic performance:

Canada - implied public reliance

Greece, the nation with the debt problem, is currently expecting each employed person to support 6.1 other people above and beyond their own families. This explains much of the pressure to work long hours and also explains the unstable debt loads. Since a single Greek worker can’t possibly hope to support what amounts to a complete baseball team on a single salary, the difference is covered by Greek public debt, debt that the underlying social system cannot hope to repay as the incentives are to maintain the current system of subsidies. To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population that is reliant on public subsidy.

Canada - reliant on public funding

Oh, and by the way … Greece is doomed:

The numbers imply that 67 percent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible as the 67 percent have strong incentives to continue to vote for the other 33 percent — and also foreign entities — to cover their living expenses.

The Big Ideas of Trade

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

Published on 25 Feb 2015

Trade makes people better off, but how? In this video we discuss the importance of specialization and division of knowledge. Specialization leads to improvements in knowledge, which then lead to improvements in productivity. For instance, physicians who specialize are able to learn more about one specific area in medicine, and we benefit from better health care because of this.

What does specialization have to do with trade? What can we learn from Star Trek about the division of knowledge? Is globalization a good thing? We’ll answer these questions and others in this introductory video on the big ideas of trade.

August 15, 2015

Still suffering from the injustices of a caste system? Just apply capitalism

Filed under: Bureaucracy, Economics, India — Tags: , , , — Nicholas @ 03:00

Swaminathan S. Anklesaria Aiyar explains how the introduction of free market practices is rapidly undermining the ancient caste system in India:

Karl Marx was wrong about many things but right about one thing: the revolutionary way capitalism attacks and destroys feudalism. As I explain in a new study, in India, the rise of capitalism since the economic reforms of 1991 has also attacked and eroded casteism, a social hierarchy that placed four castes on top with a fifth caste — dalits — like dirt beneath the feet of others. Dalits, once called untouchables, were traditionally denied any livelihood save virtual serfdom to landowners and the filthiest, most disease-ridden tasks, such as cleaning toilets and handling dead humans and animals. Remarkably, the opening up of the Indian economy has enabled dalits to break out of their traditional low occupations and start businesses. The Dalit Indian Chamber of Commerce and Industry (DICCI) now boasts over 3,000 millionaire members. This revolution is still in its early stages, but is now unstoppable.

Milind Kamble, head of DICCI, says capitalism has been the key to breaking down the old caste system. During the socialist days of India’s command economy, the lucky few with industrial licenses ran virtual monopolies and placed orders for supplies and logistics entirely with members of their own caste. But after the 1991 reforms opened the floodgates of competition, businesses soon discovered that to survive, they had to find the most competitive inputs. What mattered was the price of your supplier, not his caste.

August 13, 2015

The Hockey Stick of Human Prosperity (Everyday Economics 1/7)

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

Published on 24 Jun 2014

In this series, Professor Don Boudreaux explores the question economists have been asking since the era of Adam Smith — what creates wealth? On a timeline of human history, the recent rise in standards of living resembles a hockey stick — flatlining for all of human history and then skyrocketing in just the last few centuries. Without specialization and trade, our ancient ancestors only consumed what they could make themselves. How can specialization and trade help explain the astonishing growth of productivity and output in such a short amount of time — after millennia of famine, low life expectancy, and incurable disease?

August 11, 2015

The range and striking power of the Card and Krueger study

Filed under: Business, Economics, Food, Politics — Tags: , , , , — Nicholas @ 05:00

At Coyote Blog, Warren Meyer explains how one particular economic study wields far more influence in the fast food/minimum wage debate than any other similar study:

Pick a progressive on the street, and in the unlikely event they can name any economic study, that study will probably be Card and Krueger’s study of the effect of a minimum wage increase in New Jersey. Sixty bazillion studies have confirmed what most of us know in our bones to be true, that raising the price of labor decreases demand for that labor. Card and Krueger said it did not — and that a minimum wage increase may have even increased demand for labor — which pretty much has made it the economic bible of the Progressive Left.

What intrigues me is that Card and Krueger specifically looked at the effect of the minimum wage on large chain fast food stores. In this study (I will explain the likely reason in a moment) they found that when the minimum wage increased for all businesses in New Jersey, the employment at large chain fast food restaurants went up.

So I wonder if the Progressives making this ruling in New York thought to themselves — “we want to raise the minimum wage. Well, the one place where we KNOW it will have no negative effect from Card and Krueger is on large fast food chains, so…”

By the way, there are a lot of critiques of Card & Krueger’s study. The most powerful in my mind is that when a minimum wage is raised, often the largest volume and highest productivity companies in any given business will absorb it the best. One explanation of the Card & Krueger result is that the minimum wage slammed employment in small ma and pa restaurants, driving business to the larger volume restaurants and chains. As a whole, in this theory, the industry saw a net loss in employment and a shift in employment from smaller to larger firms. By measuring only the effect on larger firms, Card and Krueger completely missed what was going on.

August 10, 2015

Price Controls and Communism

Filed under: Economics, History — Tags: , , , , , — Nicholas @ 06:48

Published on 25 Feb 2015

What happens when the prices of all goods are controlled? Under communism, or a command economy, this is exactly what occurs. As a result, all of the effects of price controls become amplified: there are even more shortages or surpluses of goods, lower product quality, longer lines and more search costs, more losses in gains from trade, and more misallocation of resources. As we have seen, universal price controls destroy market coordination and create a system of planned chaos in which it becomes more difficult for consumers to get the goods and services they want and need.

August 9, 2015

Bob Rae then, and Bob Rae now

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

I missed when Colby Cosh started writing for the National Post a while back, and only just remembered to pick up the RSS feed for his column, so this one is nearly a month old (I’m hoping that the Post has given up on their goofy licensing idea for bloggers, which was why I stopped reading or linking to the paper when they introduced it):

Ever since May, when Alberta raised the orange flag of rebellion and keelhauled its Progressive Conservatives, we have heard much about the danger that Rachel Notley will turn out to be another Bob Rae. Every time I have heard this, I have asked myself a question: which Bob Rae?

I know they mean the callow young Rae who, as premier of Ontario, blew up the welfare rolls, fiddled with rent control and pay equity while the treasury hemorrhaged and struggled tumultuously against NAFTA. But what, I wondered, if Notley turned out to be more like Liberal-elder-statesman Bob Rae, who is often a more eloquent defender of markets than just about any Conservative politician one can name? (Fine: I’ll spot you Maxime Bernier.) The older he gets, the more explicit Rae becomes about his Damascene conversion to the primacy of economic competitiveness.

In May, Rae wrote a little-noticed article about Notley that was essentially a warning: don’t be me.

“Keeping spending on operations (health care and education in particular) in check has been the greatest challenge for social democratic governments around the world,” Rae wrote. “From the Labour government in the U.K. in the seventies, to the travails of François Hollande in France, the examples are legion. It ain’t easy.” The heavy sigh is almost audible.

“Government can’t defy gravity,” Rae added, taking what unreconstructed socialists would now call a “pro-austerity” position. “There’s a limit to what any government, of any stripe, can borrow, tax and spend.… The laws of economics are not exactly like the laws of physics, but reality has a way of rushing in.”

When it comes to Rachel Notley and the New Democratic Party, the truth is that Alberta, nauseated by the banana-republican habits of its PC caste, took a conscious gamble. Notley put forward an economic platform with a minimum of utopianism, and upheld the icons of relatively successful, fiscally austere prairie New Democrats: Roy Romanow, Gary Doer.

August 6, 2015

Michael Geist on the latest TPP leaks

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

As you’d expect from a set of negotiations — secret negotiations, at that — what the politicians say about it doesn’t necessarily have much to do with reality:

KEI this morning released the May 2015 draft of the copyright provisions in the Trans Pacific Partnership (copyright, ISP annex, enforcement). The leak appears to be the same version that was covered by the EFF and other media outlets earlier this summer. As such, the concerns remain the same: anti-circumvention rules that extend beyond the WIPO Internet treaties, additional criminal rules, the extension of copyright term, increased border measures, mandatory statutory damages, and expanding ISP liability rules, including the prospect of website blocking for Canada.

Beyond the substantive concerns highlighted below, there are two key takeaways. First, the amount of disagreement within the chapter is striking. As of just a few months ago, there were still many critical unresolved issues with widespread opposition to (predominantly) U.S. proposals. Government ministers may continue to claim that the TPP is nearly done, but the parties still have not resolved longstanding copyright issues.

Second, from a Canadian perspective, the TPP could require a significant overhaul of current Canadian law. If Canada caves on copyright, changes would include extending the term of copyright, implementing new criminal provisions, creating new restrictions on Internet retransmission, and adding the prospect of website blocking for Internet providers. There is also the possibility of further border measures requirements just months after Bill C-8 (the anti-counterfeiting bill) received royal assent.

Given the extensive debate on copyright during the 2012 reforms, the TPP upsets the balance the Canadian government struck, mandating reforms without public consultation or debate. The government has granted itself the power to continue to negotiate the TPP during the election period, but all the major parties should publicly declare where they stand on these issues.

August 5, 2015

A report on phasing out nuclear power in Sweden

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

It may make politicians and activists feel empowered and righteous, but it has negative aspects that don’t seem to get the same level of attention as the “feel good” rhetoric does:

Nuclear power faces an uncertain future in Sweden. Major political parties, including the Green party of the coalition-government have recently strongly advocated for a policy to decommission the Swedish nuclear fleet prematurely. Here we examine the environmental, health and (to a lesser extent) economic impacts of implementing such a plan. The process has already been started through the early shutdown of the Barsebäck plant. We estimate that the political decision to shut down Barsebäck has resulted in ~2400 avoidable energy-production-related deaths and an increase in global CO2 emissions of 95 million tonnes to date (October 2014). The Swedish reactor fleet as a whole has reached just past its halfway point of production, and has a remaining potential production of up to 2100 TWh. The reactors have the potential of preventing 1.9–2.1 gigatonnes of future CO2-emissions if allowed to operate their full lifespans. The potential for future prevention of energy-related-deaths is 50,000–60,000. We estimate an 800 billion SEK (120 billion USD) lower-bound estimate for the lost tax revenue from an early phase-out policy. In sum, the evidence shows that implementing a ‘nuclear-free’ policy for Sweden (or countries in a similar situation) would constitute a highly retrograde step for climate, health and economic protection.

August 4, 2015

Alex Tabarrok explains the “Happy Meal fallacy”

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

Another post from last month that I’m just getting around to linking:

Some restaurants offer burgers without fries and a drink. These restaurants cater to low-income people who enjoy fries and drinks but can’t always afford them. To rectify this sad situation a presidential candidate proposes The Happy Meal Act. Under the Act, burgers must be sold with fries and a drink. “Burgers by themselves are not a complete, nutritious meal,” the politician argues, concluding with the uplifting campaign slogan, “Everyone deserves a Happy Meal!”

But will the Happy Meal Act make people happy? If burgers must come with fries and a drink, restaurants will increase the price of a “burger.” Even though everyone likes fries and a drink they may not like the added benefits by as much as the increase in the price of the meal. Indeed, this must the case since consumers could have bought the meal before the Act but chose not to. Requiring firms to sell benefits that customers value less than their cost makes both firms and customers worse off.

The Happy Meal Fallacy is fairly obvious when it comes to happy meals but now let’s consider the debate over the gig economy and the hiring of employees versus contractors. Employees are entitled to benefits that contractors are not. Thus the standard conclusion is that classifying workers as contractors “is great for employers but potentially terrible for workers.” Wrong. Employees get their wages with fries and a drink while contractors get wages only. Would a law requiring firms to provide all workers with fries and a drink help workers?

If firms are required to provide benefits to contractors they will lower the contractor wage. But how do we know the extra benefits aren’t worth the reduction in wages? If the extra benefits were worth more to workers than they cost firms, firms would have eagerly provided these benefits as a way of increasing profits. Firms can profit whenever buyers are willing to pay more for a product than its cost. Benefits are a product that workers buy from firms.

August 3, 2015

Why Do Governments Enact Price Controls?

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

Published on 25 Feb 2015

If price controls have negative consequences, why do governments enact them? Let’s revisit our example of President Nixon’s wage and price controls in the 1970s. These price controls were popular, as is demonstrated by Nixon being re-elected after they went into effect. The public didn’t think that the price controls were to blame for things such as long lines at the fuel pump. Without knowledge of the economics behind price controls, the public blamed foreign oil cartels and oil companies for the shortages.

In this video we’ll also address questions such as: do price controls — like rent controlled apartments and the minimum wage — help the poor? Are there better ways to help the poor? If so, what are they? Let’s find out.

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