Quotulatiousness

December 5, 2014

The urban light-rail mania

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

If you live in a city, chances are that the politicians of your ‘burgh are talking light rail. Unless, of course, you already are suffering under the burden of a light rail project snarling traffic during construction … and snarling traffic in operation. Light rail, in general, is an attempt to resurrect the streetcar era by vast infusions of tax dollars. It’s an attempt to solve a traffic management problem in one of the more inefficient ways possible: to get a few people out of their cars and into modern streetcars instead.

I’m not anti-rail by any means. I travel five days a week on a heavy rail commuter train that does a pretty fair job of getting me where I need to go in a timely and economical fashion. Worse than that, I’m a railway fan — as I’ve mentioned before, I founded a railway historical society. I’m not against light rail due to some sort of anti-rail bias … I’m against it because it’s almost always too expensive, too inflexible, and too politicized.

Georgi Boorman wonders why so many cities are still falling into the light rail trap:

In a previous piece, I discussed the radical ideological roots of the mass transit scam. There are some, such as Seattle City Councilwoman Kshama Sawant (who urged Boeing factory workers to seize control of the plant and begin building mass transit) who believe centralization and a complete shift to mass transit are crucial for cities’ futures. Others simply buy into this myth that light rail and trolleys will somehow elevate their cities to the next level of sophistication — the very prospect of which is ignorant, at best, and self-indulgent, at worst.

The overwhelming evidence shows that these mass transit projects do little to improve our quality of life, in terms of easing congestion and expanding access to jobs and, despite popular perception, have no significant net environmental benefits since they rarely succeed in their express goal of removing cars from the road or decreasing congestion-induced idle times, a frequently cited contributor to greenhouse-gas emissions. As the satirical online newspaper The Onion reported, “98% of Americans favor public transportation for others.” That statistic may be fake, but we’ve all experienced the sentiment.

Even the writers of The Simpsons seem to understand the comical nature of light-rail adoption in American cities, brilliantly satirizing the salesmanship by transit authorities. The salesman, “Lyle Lanley,” begins by comparing the Simpsons’ town of Springfield to Shelbyville. “This is more of a Shelbyville idea,” he says slowly, turning his back to the crowd. “Now, wait a minute!” the Springfield mayor responds hastily, “We’re just as smart as the people of Shelbyville—just tell us your idea and we’ll vote for it!”

Gleefully, Lanley begins his presentation; with a grand sweeping gesture, the salesman uncovers a model of the city, complete with buildings, trees, and a brand new Springfield Monorail zooming through the town on its miniature tracks. Holding up a map labeled with all the towns to which he’s sold monorails, he exclaims, “By gum, it put them on the map!” Continuing his pitch, Langley heightens the townspeople’s imaginations and sells them on the “novel” idea of their very own monorail.

In other words, the buy-in had nothing to do with demand for a certain kind of transportation, and everything to do with wanting do the same as other cities that have, or are building, the same thing. Of course, 50 years ago the Seattle Center monorail (built by the German company Alweg) could easily have been said to have elevated the Emerald City at the 1962 World’s Fair, being the cutting-edge of rail technology at the time; but building monorails, light rails, and streetcars in 2014 is a regressive move that mirrors the past rather than engages with the present while leaving room for future innovation.

December 4, 2014

Fully Fitted Freight (1957)

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

Published on 29 Nov 2013

How freight was moved around Britain by rail in the 1950s, although in reality a lot of it was unfitted.

If you think your mortgage is bad, here’s a bit of perspective

Filed under: Britain, Economics, History, WW1 — Tags: — Nicholas @ 00:02

Britain is deeply in debt, like most western countries, but some of the debt is much longer term than usual:

Britain will pay off all of its debt used to fund World War One next March, when it redeems a government bond first issued more than 80 years ago to help pay for the conflict.

The finance ministry said on Wednesday that it would redeem the 1.9 billion pound ($3 billion), 3.5 percent War Loan — a perpetual bond which means it has no fixed maturity date — on March 9 next year.

Issued in 1932, the War Loan was used to refinance debt accumulated during World War One, which ended in 1918.

Some market experts said they would miss the bond as a rare historical curiosity in modern finance.

“For those of us who’ve been looking at the gilt market for a long time, a little bit of magic has fallen out of the market,” said Barclays fixed income strategist Moyeen Islam.

What needs to be pointed out however, is that they’re not actually paying off the WW1 debt: they’re eliminating that particular interest-bearing bond (because it’s now paying a higher rate of interest than the UK government’s other debt instruments). The money to pay off the current holders of those bonds will be borrowed on the market at current market rates. That’s the government equivalent of paying off one credit card with another … you still have a debt, it’s just being held by a different lender now. Tim Worstall explains:

As background, yes, Britain ran up big debts in WWI. Those were those National War Bonds. And interest rates changed a bit, finances moved around, and in 1927 it was decided that those National War Bonds should be changed. And the change was to turn them into perpetual bonds: the capital would never be paid off, there would just be a stream of interest off into the indefinite future. The government retained the right to buy them in at any point (a “call option” on them) which is what Osborne is exercising now. One more thing: there were other bits and pieces of debt lying around. Odd bits and pieces from the 19th century, debt from the Crimean War, from those (not large enough) attempts to deal with the Great Famine in Ireland, bits and pieces relating to the Napoleonic Wars and even, would you believe it, some parts that related all the way back to the South Sea Company and the South Sea Bubble of the 1720s (although that connection is pretty remote).

All of these pieces were dumped into the same pot and “consolidated” into these perpetual bonds. They were and are thus known as “Consols”.

What Osborne is going to do is exercise that call option and bring those bonds back in. But he’s not actually “paying off” those debts. He’s going to issue other, more conventional, gilts in order to have the money to give to those sending in their Consols. He must be doing that: the government really is borrowing £100 billion a year and change at present. This is no more “paying off” those debts than my taking out a bank loan to pay off my credit card is paying off debts. It might well be a very good idea to do that, given the difference in the terms of the debts and the interest rates, but it’s still not paying off, is it?

H/T to Elizabeth for the original link.

December 3, 2014

QotD: Money in the “paradise of the real”

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

Money is a symbolic system, the purpose of which is to facilitate exchange and to act as a recordkeeping technology. That money is so very important to our everyday lives and yet has no real connection with physical reality is the source of many apparent paradoxes and contradictions. These are the best of times, these are the worst of times.

Measured by money, things look relatively grim for the American middle class and the poor. Men’s inflation-adjusted average wages peaked in 1973, and inflation-adjusted household incomes for much of the middle class have shown little or no growth in some time. The incomes of those at the top of the distribution (which is not composed of a stable group of individuals, political rhetoric notwithstanding) continue to pull away from those in the middle and those at the bottom. The difference between a CEO’s compensation and the average worker’s compensation continues to grow.

But much of that is written into the code. If, for example, you measure inequality by comparing the number of dollars it takes to land at a certain income percentile, with a hard floor on the low end (that being $0.00 per year in wages) but no ceiling on the top end, and if you have growth in the economy, then it is a mathematical inevitability that incomes at the top will continue to pull away from incomes at the bottom, for the same reason that any point on the surface of a balloon will get farther and farther away from the imaginary fixed point at its center as the balloon is inflated. This will be the case whether you have the public policies of Singapore or Sweden, and indeed it is the case in both Singapore and Sweden.

Purely symbolic systems are easy to manipulate, which is why any two economists can take the same set of well-documented economic data and derive from it diametrically opposed conclusions.

With economic models, we are a little like Neo in The Matrix, before he takes the red pill: We are not in the real world, but in a simulacrum of it, one that has rules, but rules that can be manipulated by those who understand the code. Economic models and analysis are very useful, but it’s worth taking the occasional red-pill tour, leaving behind the world of pure symbolism and taking a look at the physical economy.

Welcome to the paradise of the real.

Kevin D. Williamson, “Welcome to the Paradise of the Real: How to refute progressive fantasies — or, a red-pill economics”, National Review, 2014-04-24

November 30, 2014

Working for free

Filed under: Cancon, Economics — Tags: , — Nicholas @ 11:12

In Maclean’s earlier this month, Colby Cosh addressed the brief flare-up of controversy around comments by the Governor of the Bank of Canada on the topic of doing work for free:

It is inherently difficult to feel sorry for the guy whose signature is on the money. But the governor of the Bank of Canada, Stephen Poloz, has been receiving what must be an unfamiliar burst of catcalls for comments he made about underemployed youth on Nov. 3 and 4.

Canada, Poloz was explaining, is making a somewhat gimpy recovery from the financial bubble-burst of 2008-09. A lot of the lost employment has been superficially replaced, but an unusual quantity of the new work consists of part-time jobs being performed by people who would like full-time ones, and there are some 200,000 young people who are “out of work, underemployed, or trying to improve their job prospects by extending their education.

“I bet almost everyone in this room knows at least one family with adult children living in the basement,” he added. “I’m pretty sure these kids have not taken early retirement.”

The next day, at a hearing of the House of Commons finance committee, Scott Brison followed up, asking if Poloz anticipated a long-term “scarring” effect on young people whose entry into the labour market has coincided with a lingering recession. Poloz’s response has been summarized as: “Go work for free.” What he actually said was: “When I was asked yesterday, I suggested, as I have privately to young folks who ask me what they should be doing in this job environment, that people volunteer to do something which is at least somewhere related to their expertise, so that it’s clear they are gaining some learning experience during that period.”

In fewer words: yeah, go work for free. The remark led to a curious revival of this year’s earlier controversy over unpaid internships, particularly in the magazine industry. Poloz hadn’t technically said anything about unpaid internships, which are hardly the only means of amassing job experience by working for free, and in many cases probably not the best one. (If you want magazine work, don’t take an internship. Start a blog.) Nonetheless, there was a fresh round of recrimination for companies that faced legal and moral pressure months ago and stopped providing internships as a result.

One gets the sense that Poloz and his critics are talking past one another. The critics complained that not every underemployed young person has the luxury of living with his parents. But it is hard to see how that would contradict his personal advice to those who do have it. Everybody should make maximum use of their advantages in creating a career path. And a comfortable basement with no rent attached is one of the most widely available.

Bad politics, bad economics and the “great chocolate shortage”

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

Tim Worstall explains that the fuss and bother in European newspapers about the “market failure” in the chocolate supply is actually a governmental failure (a market sufficiently bothered by legislation and regulation):

The last few days have seen us regaled with a series of stories about how the world is going to run out of chocolate. That would be, I think we can all agree, almost as bad as running out of bacon. So it’s worth thinking through the reasons as to why we might be running out. After all, cocoa, from which chocolate is made, is a plant, it’s obviously renewable in that it grows each season. So how can we be running out of something we farm? The answer is, in part at least, that there’s some bad public policy at the root of this. As there usually is when something that shouldn’t happen does.

Here’s the basic story in a nutshell:

    A recent chocolate shortage has seen cocoa farmers unable to keep up with the public’s insatiable appetite for the treat–and the world’s largest chocolate producers, drought, Ebola and a fungal disease may all be to blame.

Much of the world’s chocolate comes from West Africa so the disruption by the Ebola outbreak is one obvious part of it. But the shortage is not something immediate, it’s something that has been coming for some years. Ebola is right now, not a medium term influence. Drought similarly, that’s a short term thing, and this is a medium term problem. It’s also true that as the world gets richer more people can afford and thus desire that delicious chocolate.

[…]

Ahhh…the government is paying the farmers £1 a kg or so and the market is indicating that supply and demand will balance at £1.88 a kg. So, what we’ve actually got here is some price fixing. And the price to the producers is fixed well below the market clearing price (although the government most certainly gets that market price). So, we’ve a wedge in between the prices that consumers are willing to pay for a certain volume and the price that the farmers get for production. So, therefore, instead of it being the price that balances supply and demand we end up with an imbalance of the supply and demand as a result of the price fixing.

This is how it always goes, of course, whenever anyone tries to fix a price. If that price is fixed above the market clearing one then producers make more than anyone wants to consume (think the EU and agriculture, leading to butter mountains and wine lakes). If the price is fixed below the market clearing one then producers don’t make as much as people want to consume. This is why it’s near impossible to get an apartment anywhere where there is rent control. And if prices are fixed at the market clearing price then why bother in the first place? Quite apart from the fact that we’ve got to use the market itself to calculate the market clearing price.

November 20, 2014

“The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck”

Filed under: Economics, Media — Tags: , , , — Nicholas @ 12:30

At Forbes, Tim Worstall explains why — despite the headlines — Piketty didn’t actually change economics:

That optimal taxation theory really rests on two things that we’re pretty sure are true. The first being that Laffer Curve thing. No, this doesn’t mean that all tax cuts pay for themselves. Rather, that it’s possible for tax rates to be so high that they actually reduce the amount of tax revenue being collected. A nice example of this is the latest rise in New York’s cigarette tax: less money in total is now being raised even though the tax rate has risen. Given that our primary purpose in taxing is to get the money we need to run the government that we must have (as ever, my opinion being that we might want to have less government, and thus lower taxes, than we currently do but that’s another matter) having a tax over the revenue maximising rate just isn’t sensible.

The second pillar is that we know that different taxes destroy different amounts of economic activity for the same revenue collected. As above, we want to gain revenue but obviously we also want it at the least cost. That means getting as much of it as we can from the low deadweight costs taxes and as little of it as we can manage from the high cost ones. We also know how the spectrum looks. At the lowest deadweight costs we have repeated taxes on real property (say, a land value tax), then taxes upon consumption (VAT or sales taxes) then on incomes and highest of all, upon corporates and capital. There’s one off the spectrum, transactions taxes like the financial transactions tax, but that’s so silly that no one serious is suggesting it.

So, standard and general theory insists that we shouldn’t be taxing corporates and capital at all if we can manage it and also that we don’t want to have very high taxes rates on anything.

So, if for political (or even emotional) reasons you think that we really should be gouging the rich then you’re going to have to go find yourself some new economic theories. And that, I think, is really what is going on here with Piketty and the gang (slightly catchy that, isn’t it? The Piketty Gang ride in, a hollerin’ an’ a whoopin’ and take all the money from Scrooge McDuck?). They want to find a reason to tax wealth, something conventionally contraindicated, and they want to have very high income tax rates, something also contraindicated by conventional theory. So, rather than try to overturn that conventional theory they’re bypassing it. Ignoring it even and just bringing up the idea of inequality instead to see if that will convince people.

November 19, 2014

A worthwhile Zambian initiative

Filed under: Africa, Economics, Law — Tags: , — Nicholas @ 07:43

Tim Worstall unexpectedly finds himself on the same side of an economic and political question as a Green Party politician from Zambia:

This strikes me as being one of the very few good ideas that has been put forward at any recent election in any country that I’m aware of. A Zambian politician has decided that, given that the world seems to be moving toward legal medical marijuana at least, if not full legalisation, then that country should make use of its comparative and absolute advantage in growing the stuff and thus supply it to the rest of the world. […]

It’s slightly disconcerting to find myself agreeing with a politician, let alone one from the Green Party, but as I say this strikes me as an excellent policy.

Let’s start from the beginning: all of us liberals (whether economic or social liberals) agree that allowing people to legally toke is a thoroughly good idea. The drug itself is almost entirely harmless (obviously less so than tobacco for example, and those stories about it bringing on schizophrenia and the like are more to do with people becoming schizophrenic self-medicating than anything else) and being banged up in a jail cell, convicted of a felony, for having possession of a joint or two is going to do far more harm to your life chances than actually smoking them.

If we’re going to agree to that (and I agree people not liberals of any flavour may not) then similarly clearly we would like the best dope we can get at the lowest possible price. Given that this is true of every other product we consume it’s going to be true of this one too. And that means that if other places around the world can produce it better, or more cheaply, or some combination of the two, than we can then we should be trading with them.

November 18, 2014

Finland’s Great(est) Depression

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

Lars Christensen explains why — economically speaking — Finland is suffering through an economic phenomena even worse than the Great Depression:

In my post from Friday — Italy’s Greater Depression — Eerie memories of the 1930s — I inspired by the recent political unrest in Italy compared the development in real GDP in Italy during the recent crisis with the development in the 1920s and 1930s.

The graph in that blog post showed two things. First, Italy’s real GDP lose in the recent crisis has been bigger than during 1930s and second that monetary easing (a 41% devaluation) brought Italy out of the crisis in 1936.

I have been asked if I could do a similar graph on Finland. I have done so — but I have also added the a third Finnish “Depression” and that is the crisis in the early 1990s related to the collapse of the Soviet Union and the Nordic banking crisis. The graph below shows the three periods.

Three Finnish depressions

[…]

The most interesting story in the graph undoubtedly is the difference in the monetary response during the 1930s and during the present crisis.

In October 1931 the Finnish government decided to follow the example of the other Nordic countries and the UK and give up (or officially suspend) the gold standard.

The economic impact was significant and is very clearly illustrate in the graph (look at the blue line from year 2-3).

We have nearly imitate take off. I am not claiming the devaluation was the only driver of this economic recovery, but it surely looks like monetary easing played a very significant part in the Finnish economic recovery from 1931-32.

November 15, 2014

QotD: Women, careers, and equality

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

So what do you do about women who freely make choices that perpetuate structural inequalities? Do you stop them from making the choices? Neither Harvard, nor Kantor, seems to have a good answer. But that is the core dilemma. Maybe women drop out because they have a deeper biological connection to their kids. Maybe they do so because they’re raised to be nurturers, or maybe because they don’t feel the same personal anguish that a man does when he gives up on the dream of a top-flight career. Maybe if men felt they had the option to stay home, more would. And maybe women find the role of breadwinner more stressful than men do — all the women I know who are the primary earners are neurotic about it in a way that the men I know don’t seem to be. I’m not talking about the fear that your partner will resent your success; these are women married to admirably feminist men. I’m just talking about a near-constant fear that you will not be able to provide, and your family will end up horribly destitute. I’m not saying that men don’t experience that worry, but they don’t seem tormented by it the way the women I talk to are.

Or maybe it’s that women just don’t want it badly enough. In my experience, one of the reasons that women drop out of finance, and 80-hour-a-week fields more generally, is that they just don’t want it as badly as the men. In their 20s, they’re happy to work those kinds of hours, even at tasks they find boring. They do well at them, too. But a lot of these jobs aren’t actually that rewarding as work: The investment banking associates I observed seemed to spend most of their time on basically clerical tasks, tabulating data and proofreading PowerPoints. And eventually most of the women seem to say “You know, I just care more about relationships than I do about success.” There are always exceptions on both sides: women who will sacrifice anything for the career they feel called to and men who would rather be home. But on average, the women I talk to just aren’t nearly as willing to sacrifice close friendships, and family relationships, for the sake of their jobs.

We can say that they shouldn’t have to, of course, but the sad fact is that there are trade-offs in this world. In your 20s you can finesse them — work super hard and also have a roaring social life — because you have boundless energy and no one depending on you. This is the age at which young women write furious articles and Facebook posts denouncing anyone who suggests that women opt-out of high pressure jobs for any reason other than the rankest sexism.

As you age, your body refuses to cooperate with your plan to work from 7 a.m. to 11 p.m. and then hang out with friends. Your parents start to need you more, if only to lift heavy things. And of course, there are kids. You start having to make direct trade-offs, and then suddenly you look up and you haven’t seen your friends for two years and your mother is complaining that you never call. This is the age at which women write furious articles defending their decision to step back from a high-pressure job and/or demanding subsidized childcare, generous paid maternity leave and “family friendly policies,” a vague term that ultimately seems to mean that people who leave at five to pick up the kids should be entitled to the same opportunities and compensation as people who stay until 9 to finish the client presentation. These pleas usually end (or begin) by pointing to the family-friendly utopia of Northern Europe, except that women in Europe do less well at moving into high-test management positions. Whatever the government says, someone who takes several years off work is in fact less valuable to their company than someone who doesn’t.

Megan McArdle, “Harvard’s Gender Bender”, Bloomberg View, 2013-09-10

November 13, 2014

“Class matters far less than it used to in the 19th century. Citizenship matters far more.”

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

Tim Harford — white, male Oxford grad and child of Oxbridge-educated parents — checks his privilege:

All these accidents of birth are important. But there’s a more important one: citizenship. Gillian, Simon and I are all British citizens. Financially speaking, this is a greater privilege than all the others combined.

Imagine lining up everyone in the world from the poorest to the richest, each standing beside a pile of money that represents his or her annual income. The world is a very unequal place: those in the top 1 per cent have vastly more than those in the bottom 1 per cent – you need about $35,000 after taxes to make that cut-off and be one of the 70 million richest people in the world. If that seems low, it’s $140,000 after taxes for a family of four – and it is also about 100 times more than the world’s poorest people have.

What determines who is at the richer end of that curve is, mostly, living in a rich country. Branko Milanovic, a visiting presidential professor at City University New York and author of The Haves and the Have-Nots, calculates that about 80 per cent of global inequality is the result of inequality between rich nations and poor nations. Only 20 per cent is the result of inequality between rich and poor within nations. […]

That might seem obvious but it’s often ignored in the conversations we have about inequality. And things used to be very different. In 1820, the UK had about three times the per capita income of countries such as China and India, and perhaps four times that of the poorest countries. The gap between rich countries and the rest has since grown. Today the US has about five times the per capita income of China, 10 times that of India and 50 times that of the poorest countries. (These gaps could be made to look even bigger by not adjusting for lower prices in China and India.) Being a citizen of the US, the EU or Japan is an extraordinary economic privilege, one of a dramatically different scale than in the 19th century.

QotD: Unintended consequences

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

After World War II, many left-wing European governments wanted to do something about unemployment. As I discuss extensively in my book, unemployment is about the worst thing that can happen to you in a modern democracy, short of death or dismemberment. So they passed laws making it very, very difficult to fire workers. In Italy, for example, a judge could reverse a layoff decision, not because you’d fired the worker unjustly, but because the judge didn’t think you needed to cut staff. Hurrah! Finally, workers were protected from the dark specter of unemployment!

Well, not quite. Workers were thrilled; employers were terrified. Now hiring a worker meant you were stuck with them unless they committed some absolutely flagrant offense — like, say, emptying the till and running out the door.

That’s a hell of a commitment to make to someone you barely know. So employers didn’t want to hire scary strangers; they wanted to hire close friends and family. Or, better yet, no one at all. Youth unemployment in many of these nations was staggering. The insiders had a great deal, but people without jobs found themselves consigned to a series of temporary, not-very-well-paid contracts. Or the dole.

The lesson is that when you make it harder to exit, you also make people reluctant to enter.

Megan McArdle, “Can Limiting Divorce Make Marriage Stronger?”, Bloomberg View, 2014-04-16

November 12, 2014

QotD: Europe’s banking trap

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

Banking is a service, […] and a service has a cost associated with it. Modern banking has all kinds of fees and charges associated with it. But depositors are often charged for keeping too low a balance in their savings or checking accounts, not too large a balance. What’s going on here?

Central banks have created this monster via the regimen of ZIRP (Zero Interest Rate Policy). This is a way of implementing Keynesian stimulus, but central banks have run up against the liquidity-trap wall: interest rates cannot fall below zero. Monetary policy stops working at the zero-interest boundary.

For central banks, the problem is that in a slow-growth economy (or actually a recessive one) a paradox arises where rational behavior on the part of savers leads to bad results: consumers save their money out of concern for the future, but the economy — starved of the cash that fuels it — slows still further. This is the argument behind Keynesian stimulus; inject more (newly-printed) money into the economy until people stop being scared and start spending freely again (with their own money and borrowed money). The danger of inflation looms, however, so central banks try to implement various regimes to keep it under control (with varying degrees of success).

This theory founders on the shoals of reality, alas. It’s rational for people to save money, particularly during bad times, because people believe their currency stock to be an appreciating (or at least a constant-value) asset. But when a sovereign inflates (devalues) its currency to solve a short term economic problem, they run the risk of damaging confidence in the currency itself. Inflation may inject some nitrous oxide into the engine of the economy for a short time, but the outcome may be a blown engine (i.e., a ruined currency, as it was during the Weimar era).

When people lose trust in a fiat currency, it’s nearly impossible to restore confidence in it. Trust is all a fiat currency has — without trust, fiat currency is just worthless paper. This is really the core of the sound-money argument: deflation is bad because it can stall an economy and make debt servicing murderously difficult, but inflation is worse because it wrecks the currency itself. Hard-money currency regimes may be somewhat prone to deflationary cycles, but at least they never go to zero value; they always retain some value. Fiat currencies can go to zero.

Monty, “DOOM: The Wrath of Draghi”, Ace of Spades H.Q., 2014-11-06.

November 5, 2014

It’s not a paradox after all – Easterlin refuted

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

Tim Worstall explains that the so-called Easterlin Paradox — that economic growth did not make people happy — is clearly not supported by the evidence:

As background here: the basic paradox that Easterlin pointed to is that, past a certain level (roughly when we’ve become rich enough to solve the supply of basic creature comforts like food, shelter, clothing etc, something like a GDP per capita of $15,000 say), a country getting richer doesn’t seem to make the population any happier. While we’ve now got rather better data than he could work with, and thus we know that people do keep getting happier but at a much lower rate, that basic idea has proven very popular. Of course it has: for it’s allowed all sorts of people to argue that we don’t have to chase that Great God, GDP, and we can thus do things that make people happier and not richer. It’s a lovely argument to use when someone objects that taxing the heck out of the rich will reduce growth for example. For one can just riposte that more growth wouldn’t make people happier while taxing the heck out of the rich would. It’s used as the opening argument in The Spirit Level in this manner: as higher GDP doesn’t make people happier we can therefore concentrate upon inequality instead. And there’s many other such uses around and about.

I’ve never thought that was quite right and I said so. My argument being that it’s not the level of economic wealth that makes people happy or unhappy (above that basics level that is). Rather, it’s the direction of change of it. If a country is gradually getting richer then people will be happier than if the economy is stagnant or shrinking. And the association of greater happiness with the richer countries is not really because they are richer, but because in becoming rich those countries have obviously had decades, if not centuries, of gradually rising incomes: that very thing that makes people happy.

November 3, 2014

Trekonomics

Filed under: Economics, Media — Tags: , , — Nicholas @ 07:18

In The Federalist, Robert Tracinski responds to last month’s Reason.tv list of the top five anti-libertarian TV shows with a stirring defence of Star Trek:

… there are occasional statements by our lead characters, particularly in Star Trek: The Next Generation, about how the economy has evolved beyond money. As I have pointed out elsewhere, this is an unfortunate bit of pseudo-science: “A complex, technologically advanced economy that runs without money, prices, and markets is like a starship powered by a perpetual motion machine.” There’s a more detailed takedown at Hot Air which asks: “Who Mines the Dilithium?

Some of this was toned down as The Next Generation got its dramatic feet under it and the writers gradually disentangled themselves from the mandates of Gene Rodenberry’s liberal utopianism. When you have to take an idea and project it into concrete terms, you quickly discover what really makes sense and what just doesn’t work. For example, having an empath as a part of the command team seems like a great idea — until you discover that she is only really capable of delivering the most banal insights. So that element of the story is downgraded. The same happened as Star Trek continued, particularly with the Ferengi, a race of galactic traders who start out as a crude anti-capitalist caricature (which borrowed uncomfortably from Nazi caricatures of Jewish bankers). Over the course of the franchise, particularly in Deep Space Nine, they were humanized (so to speak) and transformed more into lovable rogues, while Quark’s bar provided Deep Space Nine with its thriving commercial hub.

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It’s important to draw a distinction between what a work of art tells you and what it shows you. In the world of Star Trek, there are a few, infrequent references in which we are told that the economy works (somehow) without prices. But the socialism all happens quietly off screen, and it’s not what the show is actually about. The show is about the culture and approach to life of those on board the Enterprise (or the other vessels in later spin-off series). And the culture of the Federation bears none of the hallmarks of a socialist society.

When people are provided with a guaranteed living, whether they work or not, they don’t generally devote themselves to self-improvement, the betterment of mankind, the writing of deathless poetry, or the peaceful exploration of the galaxy. Instead, they tend to stop working, striving, or putting forth any effort at all, not even the effort of changing out of their pajamas in the morning. To the extent they do work, since effort has been disconnected from reward, they tend to avoid as much effort as possible. In the Soviet Union, there was an old joke: “We pretend to work, and they pretend to pay us.” And when rewards and advancement are no longer connected to a person’s productivity, they tend to be distributed according to an alternative currency of political pull. So all organizations end up being run by preening politicians, scheming bureaucrats, and drone-like functionaries who are skilled at pushing paper and going through the motions of production rather than actually producing anything.

What we are shown on Star Trek is the opposite. As Virginia Postrel has pointed out, based on a survey of her readers, the actual appeal of Star Trek is that it presents a kind of ideal capitalist workplace.

    In Star Trek, the work is meaningful; the colleagues are smart, hard-working, competent and respectful; the leaders are capable and fair; and everyone has an important contribution to make…. Deep friendships develop from teamwork and high-stakes problem-solving. It’s the workplace as we wish it were.

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