Quotulatiousness

September 29, 2012

Disabusing Canadians about mercantilism, one tweet at a time

Filed under: Cancon, Economics — Tags: , , , — Nicholas @ 10:29

Stephen F. Gordon is waging a lonely campaign to persuade Canadians that free trade is better than the managed, mercantilist “free trade” most of our governments have wanted since the NAFTA negotiations:

September 28, 2012

Even when they quote you accurately, they can still miss the point you’re trying to make

Filed under: Economics, Food, Media, Quotations — Tags: , — Nicholas @ 10:11

Tim Worstall, after thanking all the folks who got him to the point he can be quoted (and quoted accurately) in the Los Angeles Times, realizes that they’re using his words to present a point he isn’t trying to make:

I wrote here about the coming bacon famine. My point was that we’ve just had a bad crop and this requires a modest change in how we use that crop that we do have. We’d rather like people to stop feeding the now in short supply grains to pigs to make bacon and leave rather more of it to be eaten directly by humans. Further, I gloried in the fact that we have a system which achieves this. We have the futures markets: the future price of corn and soy and wheat has gone up. Farmers are culling their pig herds to avoid the future higher costs of feeding them. This will cause a shortage of bacon in the future and if not an excess then certainly more grain than otherwise that can be eaten by humans. I do regard this as a good result, yes. But what I am pointing to is the way in which in a market, price driven, system the entirely selfish pursuit of gelt and pelf, the desire purely for filthy lucre, brings about such a desirable result. The sole desire of agricultural commodity speculators is to increase the amount of cash in their wallets and reduce the amounts in those of other such speculators. Yet from this system we get a rebalancing of the use of a scarce resource which leads to more humans leading longer and better lives even if we’ve a certain shortage of pigs. At which point Hurrah! for capitalism and aren’t we all such lucky people.

[. . .]

Which is indeed what I said. However, we’re then told this:

    Worstall doesn’t go so far as to say we should stop eating meat, but his line of thinking is headed in the right direction. If we didn’t use grain as feed for livestock, we could take significant steps toward ending global hunger while also drastically reducing greenhouse gases. Meantime, we’d spare a whole lot of pigs — and maybe even our health.

All of which makes me sound like some kind of hippie, advocating vegetarianism and the equitable distribution of the world’s resources. When what I’m actually applauding is the way in which financial capitalism red in tooth and claw solves our distribution of scarce resources problems.

September 26, 2012

Virginia Postrel on the faulty notion of “secure jobs”

Filed under: Economics, Education, USA — Tags: , — Nicholas @ 11:24

Along with proving that no American politician ever deliberately angers the “middle class” (because literally 89% of Americans consider themselves to be middle class), Virginia Postrel points out the impossibility of creating “secure jobs”:

Imagine a career in which once you had worked somewhere for a long time — say, seven years — and you couldn’t be fired unless you did something really horrible. To make the picture even more appealing, imagine further that your industry was largely immune from foreign competition, had been enjoying increasing consumer demand, was subsidized by the state and federal governments, and rarely experienced any bankruptcies.

As you have probably realized, this career exists. It’s the professoriate. But while outsiders imagine higher education as a sheltered enclave of secure jobs, the actual state of American faculty members is much more uncertain. Tenure-track employment is no longer the norm. Part-time work is.

About 30 percent of faculty members are either tenured or on the tenure track, compared with about 57 percent in 1975. The rest are “contingent faculty”: About 19 percent work full time, usually on contracts lasting one to three years, and more than half work part time. (These figures omit graduate students who also teach classes.) Along with a lack of job security, contingent faculty members receive lower pay and fewer, or no, benefits. They frequently don’t have offices and may not even get library cards.

It’s a two-tiered system that depends heavily on people whose main jobs are doing something else. And it is what you get when you guarantee permanent employment but need flexibility as conditions change. How well it works for academia depends on whom you ask. But it certainly doesn’t deliver secure jobs.

Shakespeare’s Henry V: public choice theory in the 15th century

Filed under: Economics, Government, History, Media — Tags: , , , , — Nicholas @ 09:37

In The Freeman, Sarah Skwire points out that the opening act of Shakespeare’s Henry V — while boring to those hoping for battle and carnage — explains the public choice economic theory of rent-seeking:

Shakespeare’s Henry V — a favorite of theater companies and movie studios — begins with an invocation of the muse of fire, presumably because only her powerful heat and light can provide the inspiration necessary for Shakespeare’s great task of bringing forth so “great an object” on “this unworthy scaffold.” The prologue promises, after all, that we are about to see the armies of two great monarchies clash at the famous battle of Agincourt. A plea for divine aid seems only reasonable.

After all that buildup, however, the opening scene of the play has to be one of the dullest stretches in all of Shakespeare’s writing. Promised a ferocious battle with knights and horses and blood and thunder, we are given instead more than one hundred straight lines of a highly technical legal discussion between the Bishop of Canterbury and the Bishop of Ely. It is historically accurate. It is important. And it is exceptionally tedious.

It is tedious, that is, unless you are familiar with one basic piece of Public Choice theory.

Gain without Mutual Benefit

One its core concepts is the idea of rent-seeking. Unlike profit-seeking, which aims at mutually beneficial trade, rent-seeking is the attempt to use the political process to capture a bigger slice of wealth for oneself. Unlike trade, there is no mutual benefit. No wealth is created. The only profit is to the rent-seeker, and possibly his cronies. With that in mind, the opening scene of Henry V is gripping. It is no longer more than one hundred lines of fifteenth-century legal trivia. It is more than one hundred lines of some of the most explicit, uncensored, behind-the-scenes rent-seeking action in literary history.

September 25, 2012

It’s not just your imagination: libertarians really are weird

Filed under: Economics, Liberty, Politics — Tags: , , — Nicholas @ 00:01

Jonathan Haidt at the Righteous Mind summarizes a recent study published in PLoS ONE which looked at the psychology of libertarians (using conservatives and liberals as controls):

The findings largely confirm what libertarians have long said about themselves, but they also shed light on why some people and not others end up finding libertarian ideas appealing. Here are three of the major findings:

1) On moral values: Libertarians match liberals in placing a relatively low value on the moral foundations of loyalty, authority, and sanctity (e.g., they’re not so concerned about sexual issues and flag burning), but they join conservatives in scoring lower than liberals on the care and fairness foundations (where fairness is mostly equality, not proportionality; e.g., they don’t want a welfare state and heavy handed measures to enforce equality). This is why libertarians can’t be placed on the spectrum from left to right: they have a unique pattern that is in no sense just somewhere in the middle. They really do put liberty above all other values.

2) On reasoning and emotions: Libertarians have the most “masculine” style, liberals the most “feminine.” We used Simon Baron-Cohen’s measures of “empathizing” (on which women tend to score higher) and “systemizing”, which refers to “the drive to analyze the variables in a system, and to derive the underlying rules that govern the behavior of the system.” Men tend to score higher on this variable. Libertarians score the lowest of the three groups on empathizing, and highest of the three groups on systemizing. (Note that we did this and all other analyses for males and females separately.) On this and other measures, libertarians consistently come out as the most cerebral, most rational, and least emotional. On a very crude problem solving measure related to IQ, they score the highest. Libertarians, more than liberals or conservatives, have the capacity to reason their way to their ideology.

3) On relationships: Libertarians are the most individualistic; they report the weakest ties to other people. They score lowest of the three groups on many traits related to sociability, including extroversion, agreeableness, and conscientiousness. They have a morality that matches their sociability – one that emphasizes independence, rather than altruism or patriotism.

September 22, 2012

The spectre of Ayn Rand is haunting America

Filed under: Books, Economics, Media, Politics, USA — Tags: , — Nicholas @ 10:45

Terence Corcoran on “the most dangerous woman in America”:

Weird, I thought. Why would a world-famous economist, followed by millions, advisor to UN officials and presidents, launch into a personal attack on a novelist who’s been dead more than 30 years by citing one of her novels and paraphrasing the words of one of her characters? How many people have even heard of Ayn Rand? And who the hell cares what one of her characters said in a novel published 60 years ago?

Lots of people, it appears. Ayn Rand may be long dead, but she seems to have been resurrected as the most dangerous woman in America. Judging by the barrage of attacks and references in the media, one can only conclude that Ayn Rand is a pervasive and increasingly powerful force in U.S. politics, possibly on the brink of toppling the prevailing orthodoxies of modern American liberalism.

Media references to Ayn Rand have skyrocketed over the last year, many of them elaborate putdowns. Her name is dropped like a hand grenade into articles and commentaries, as if readers will instantly recognize the menace. Her name has become an explosive device — like Karl Marx’s or Chairman Mao’s — apparently enough to rankle and send shivers down spines.

[. . .]

Rand’s supporters appear to be moving in on Washington’s Cato Institute, a libertarian bastion long headed by Ed Crane but now presided over by John Allison, the Ayn Rand Institute board member. Allison, a former banker from North Carolina, with funding from the billionaire Koch brothers, themselves characters out of Occupy/liberal nightmares, has said he aims to reshape Cato along Randian lines.

This is war. Rand condemned liberals and conservatives, but had even stronger views about libertarians. In a 2009 biography of Rand, author Jennifer Burns records that during Rand’s public speeches, she called libertarians “scum,” “intellectual cranks” and “plagiarists.”

It’s hard to tell today who has more to gain or lose from the seeming resurrection of Ayn Rand as an ideological enemy of the statists. She had no time for most other worldviews, right, left or libertarian. She would have fought the Cato Institute, she would have rejected the Tea Party movement, and she would have sought to demolish the Jeffrey Sachs of the world.

Mismeasuring inequality

Filed under: Economics, Media, Politics, USA — Tags: , , , , — Nicholas @ 10:20

If you haven’t encountered a journalist or an activist going on about the Gini Coefficient, you certainly will soon, as it’s become a common tool to promote certain kinds of political or economic action. It is also useful for pushing certain agendas because while the numbers appear to show one thing clearly (the relative income inequality of a population), it hides nearly as much as it reveals:

The figures they use for a comparison are here. Looking at those you might think, well, if the US is at 0.475, Sweden is at 0.23 (yes, the number of 23.0 for Sweden is the same as 0.23 in this sense) then given that a lower number indicates less inequality then Sweden is a less unequal place than the US. You would of course be correct in your assumption: but not because of these numbers.

For the US number is before taxes and before benefits. The Swedish number is after all taxes and all benefits. So, the US number is what we call “market income”, or before all the things we do to shift money around from rich to poor and the Swedish number (in, fact, the numbers for all other countries) are after all the things we do to reduce inequality.

[. . .]

The US is reporting market inequality, before the effects of taxes and benefits, the Europeans are reporting the inequality after the effect of taxes and benefits.

[. . .]

Which brings us to the 300 million people in the US. Is it really fair to be comparing income inequality among 300 million people with inequality among the 9 million of Sweden? Quite possibly a more interesting comparison would be between the 300 million of the US and the 500 million of the European Union. Or the smaller number in the EU 15, thus leaving out the ex-communist states with their own special problems. Not that it matters all that much as the two numbers for the Gini are the same: 0.3*. Note again that this is post tax and post benefit. On this measure the US is at 0.38. So, yes, the US is indeed more unequal than Europe. But by a lot smaller margin than people generally recognise: or than by he numbers that are generally bandied about.

Which brings us to the second point. Even here the US number is (marginally) over-stated. For even in the post-tax and post-benefit numbers the US is still an outlier in the statistical methods used. In looking at inequality, poverty, in the US we include the cash that poor people are given to alleviate their poverty. But we do not include the things that people are given in kind: the Medicaid, SNAP, Section 8 and so on. It’s possible (I’m not sure I’m afraid) that we don’t include the EITC either. We certainly don’t in the poverty statistics but might in the inequality. All of the other countries do include the effects of such policies. Largely because they don’t offer benefits in kind they just give the poor more money and tell them to buy it themselves. This obviously turns up in figures of how much money the poor have.

Charles Stross on the diminishing marginal utility of just about everything

Filed under: Economics — Tags: , , — Nicholas @ 10:08

A post at his blog looks at an economic concept that is becoming familiar to more of us than ever before (even in the middle of a long-term economic crisis):

There’s a concept in economics called the diminishing marginal utility of money. Loosely put: if you give a £20 bill to a homeless dude, it will make his day — it’s worth a bunch of hot meals or a hostel bed for a few nights. If you give £20 to an average wage earner, it’s nice but not a game-changer: it’s worth a couple of cinema tickets or a round of drinks at the pub. And if you give £20 to a billionaire they probably won’t know what to do with it — they have employees to carry the money around for them, and anyway, they earn more in the time it takes to open their wallet and stash the bill than the £20 note is worth. They’re losing money by taking it!

Money. The more of it you’ve got, the less useful any additional increment becomes. And you don’t have to be a millionaire to get a handle for this.

These days, I’m in the weird position where almost all the stuff I would want to buy with any additional income is either stuff I can simply buy right now … or it isn’t available at any price.

September 21, 2012

California’s “wall of debt” actually a very high cliff of debt

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:21

Mary Williams Walsh on the so-much-worse than estimated debt of California:

Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled.

Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall.

On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought.

[. . .]

The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.

September 18, 2012

Canada ranks fifth in the world for economic freedom

Filed under: Australia, Cancon, Economics, Liberty, USA — Tags: , , , , , — Nicholas @ 12:19

The annual Fraser Institute report on world economic freedom may confirm what a lot of Canadians have been noticing: we’re now much more free than our American friends, at least by the measurements tracked in this series of rankings (PDF):

  • In the chain-linked index, average economic freedom rose from 5.30 (out of 10) in
    1980 to 6.88 in 2007. It then fell for two consecutive years, resulting in a score of
    6.79 in 2009 but has risen slightly to 6.83 in 2010, the most recent year available.
    It appears that responses to the economic crisis have reduced economic freedom
    in the short term and perhaps prosperity over the long term, but the upward
    movement this year is encouraging.
  • In this year’s index, Hong Kong retains the highest rating for economic freedom,
    8.90 out of 10. The other top 10 nations are: Singapore, 8.69; New Zealand, 8.36;
    Switzerland, 8.24; Australia, 7.97; Canada, 7.97; Bahrain, 7.94; Mauritius, 7.90;
    Finland, 7.88; and Chile, 7.84.
  • The rankings (and scores) of other large economies in this year’s index are the United
    Kingdom, 12th (7.75); the United States, 18th (7.69); Japan, 20th (7.64); Germany,
    31st (7.52); France, 47th (7.32); Italy, 83rd (6.77); Mexico, 91st, (6.66); Russia, 95th
    (6.56); Brazil, 105th (6.37); China, 107th (6.35); and India, 111th (6.26).
  • The scores of the bottom ten nations in this year’s index are: Venezuela, 4.07;
    Myanmar, 4.29; Zimbabwe, 4.35; Republic of the Congo, 4.86; Angola, 5.12;
    Democratic Republic of the Congo, 5.18; Guinea-Bissau, 5.23; Algeria, 5.34; Chad,
    5.41; and, tied for 10th worst, Mozambique and Burundi, 5.45.
  • The United States, long considered the standard bearer for economic freedom
    among large industrial nations, has experienced a substantial decline in economic
    freedom during the past decade. From 1980 to 2000, the United States was generally
    rated the third freest economy in the world, ranking behind only Hong Kong and
    Singapore. After increasing steadily during the period from 1980 to 2000, the chainlinked
    EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and
    7.70 in 2010. The chain-linked ranking of the United States has fallen precipitously
    from second in 2000 to eighth in 2005 and 19th in 2010 (unadjusted ranking of 18th).

New chapter from The Undercover Economist available for free download

Filed under: Books, Business, Economics, Media — Nicholas @ 11:16

If you read the first edition of Tim Harford’s excellent book The Undercover Economist, you might be interested in reading the new chapter he added for the second edition. For those of us who bought the first edition, he’s made the new chapter available for download:

The second edition of The Undercover Economist was published last year in the UK, and recently as an eBook in the US.

The biggest change from the first edition was a new chapter about the financial crisis. Lots of people have written to ask whether they can get this chapter without buying the entire book again. That seems only reasonable, and you can now download it here. Enjoy.

September 17, 2012

Harming the poorest during a food price hike

Filed under: Economics, Food, Government — Tags: , , — Nicholas @ 13:54

The Economist on the least effective ways of dealing with rising food prices:

Although the weather is the proximate cause of the price rises, governments are making matters worse. Look at America’s biofuels policy. By ensuring that a third of the country’s maize is turned into ethanol and fed to cars, it has driven up grain prices and made them more volatile by reducing stocks. At the start of this year America scrapped the subsidy for ethanol, and abolished the tariff on imports of the stuff — steps in the right direction. But a certain amount of ethanol still has to be blended with petrol by law. That keeps prices high.

Bad policies in America are encouraging bad policies elsewhere. Higher prices have spooked importing and exporting countries alike, causing them to turn away from volatile world markets and seek to insulate themselves. Between 2007 and 2011, 33 countries imposed export restrictions on food. Agriculture accounts for less than 10% of world trade, but more than two-thirds of the cost of all border distortions.

[. . .]

Farm protection is like a weed: it grows everywhere and seems impossible to eradicate. This newspaper has been making the case against it since 1843, when we were founded to oppose Britain’s protectionist Corn Laws. Sadly we seem to have made too little progress. At the moment governments are making farming less efficient than it should be. They are increasing poverty. Their policies are otiose, since there are better ways to help the poor, such as direct cash transfers. And they are counterproductive, because they exacerbate the problems they seek to solve.

September 15, 2012

Our collective maladjusted attitude to small risks

Filed under: Economics, Europe, Italy — Tags: , , , , , — Nicholas @ 09:44

Tim Harford shows that you can learn a lot about economics by looking at the process of hiring a rental car:

Here’s a puzzle. If it costs €500 to hire a €25,000 car, how much should you expect to pay to hire a €50 child’s car seat to go with it? Arithmetic says €1; experience suggests you will pay 50 times that.

This was just one of a series of economics posers that raised their heads during my summer vacation – indeed, within a few minutes of clearing customs in Milan. One explanation is that the apparently extortionate price reflects some unexpected cost of cleaning, fitting or insuring the seat – possible but implausible. Or perhaps parents with young families are less sensitive to price than other travellers. This, again, is possible but unconvincing. In other contexts, such as package holidays and restaurants, children with families are often given discounts on the assumption that money is tight and bargains keenly sought.

[. . .]

After paying through the nose for the car seat we were alerted to a risk. “If your car is damaged or stolen, you are liable for the first €1,000 of any loss.” Gosh. I hadn’t really given the matter any thought but the danger suddenly felt very real. And for just €20 a day, or something like that, I could make that danger vanish.

[. . .]

What’s happening here? Behavioural economists have long known about “loss aversion”: we’re disproportionately anxious at the prospect of small but salient risks. The car hire clerk carefully created a very clear image of a loss, even though that loss was unlikely. I haven’t paid such fees for years and have saved enough cash to write off a couple of hire cars in future.

September 7, 2012

“When I discover something surprising in data, the most common explanation is that I made a mistake.”

Filed under: Business, Economics, Government, Media — Tags: , , , — Nicholas @ 08:20

John Kay suggests you always ask how a statistic was created before you consider what the presenter wants you to think:

Always ask yourself the question: “where does that data come from?”. “Long distance rail travel in Britain is expected to increase by 96 per cent by 2043.” Note how the passive voice “is expected” avoids personal responsibility for this statement. Who expects this? And what is the basis of their expectation? For all I know, we might be using flying platforms in 2043, or be stranded at home by oil shortages: where did the authors of the prediction acquire their insight?

“On average, men think about sex every seven seconds.” How did the researchers find this out? Did they ask men how often they thought about sex, or when they last thought about sex (3½ seconds ago, on average)? Did they give their subjects a buzzer to press every time they thought about sex? How did they confirm the validity of the responses? Is it possible that someone just made this statement up, and that it has been repeated frequently and without attribution ever since? Many of the numbers I hear at business conferences have that provenance.

[. . .]

Be careful of data defined by reference to other documents that you are expected not to have read. “These accounts have been compiled in accordance with generally accepted accounting principles”, or “these estimates are prepared in line with guidance given by HM Treasury and the Department of Transport”. Such statements are intended to give a false impression of authoritative endorsement. A data set compiled by a national statistics organisation or a respected international institution such as the Organisation for Economic Co-operation and Development or Eurostat will have been compiled conscientiously. That does not, however, imply that the numbers mean what the person using them thinks or asserts they mean.

September 5, 2012

The positive side to rising food prices

Filed under: Economics, Environment, Food — Tags: — Nicholas @ 09:06

Tim Worstall responds to an article by Michael Hanlon:

    The storm is coming. One of the great dependables of modern life — cheap food — may be about to disappear. If a growing number of economists and scientists are to be believed, we are witnessing a historic transition: from an era when the basics of life have been getting ever more affordable, to a new period when they are ever more expensive.

Ah, no, I’m afraid you’ve not understood the projections. Yes, food is expected to become more expensive. But also more affordable at the same time.

For the driving force of the rise in food prices is expected to be that people are getting richer. Thus able to afford three squares a day, some of them even containing meat. The rise in incomes is expected to be greater than the rise in food prices: thus food becoming both more expensive and more affordable as a portion of incomes.

BTW, if you think that’s not how the word affordable is used in such contexts then do speak to the booze puritans. They say exactly this: booze has become more expensive but cheaper as a portion of incomes: more affordable.

And if incomes do not rise as predicted we don’t expect to see the food price rises. For it is not the idea of 10 billion people that is predicted to raise the prices. It’s the idea of billions currently on $2 a day becoming billions on $20 that is.

Also, as I’ve mentioned before, a significant part of the rise in global food prices is driven by particularly stupid government policies on ethanol production.

« Newer Posts — Older Posts »

Powered by WordPress