H/t to Daniel J. Mitchell for the link.
December 8, 2012
December 7, 2012
No, we’re not running out of phosphorus (phosphate) and potassium (potash)
The most recent outbreak of the-sky-is-falling, we’re-at-peak-whatever panic mongering is debunked by Vaclav Smil:
Jeremy Grantham, a well-known presence in the financial world, recently published a World View column in the journal Nature in which he concludes that, “simply, we are running out” of almost all commodities whose consumption sustains modern civilization. There is nothing new about such claims, and since the emergence of a vocal global peak oil movement during the late 1990s, many other minerals have been added to the endangered list. Indeed, there is now a book called Peak Everything. What makes Grantham’s column – published under the alarmist headline “Be Persuasive. Be Brave. Be Arrested (If Necessary)” – worth noticing, and deconstructing, is that he puts his claims in terms more suitable for tabloids than for one of the world’s oldest and most prestigious scientific weekly magazines.
His direst example is “the impending shortage of two fertilizers: phosphorus (phosphate) and potassium (potash). These two elements cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. It’s a scary set of statements…. What happens when these fertilizers run out is a question I can’t get satisfactorily answered and, believe me, I have tried.” Well, he could have tried just a bit harder: an Internet search would have led him, in mere seconds, to “World Phosphate Rock Reserves and Resources,” a study published in 2010 by the International Fertilizer Development Center (IFDC) and funded by the U.S. Agency for International Development.
This detailed assessment of the world’s phosphate reserves (that are the part of a wider category of resources that is recoverable with existing techniques and at acceptable cost) concluded that they are adequate to produce fertilizer for the next 300 to 400 years. As with all mineral resource appraisals (be they of crude oil or rare earths), the study’s conclusions can be criticized and questioned, and the statement by the Global Phosphorus Research Initiative is perhaps the best document of that kind. But even the most conservative interpretation of IFDC’s assessment shows that phosphates have a reserve/production ratio well in excess of 100 years, higher than that of many other critical mineral resources.
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December 6, 2012
Zero Hedge talks Keynes and Hayek
Most politicians have a time sense that lasts just about as long as the current electoral cycle. Economics doesn’t fit neatly into that kind of cramped timescale. Politicians have a lot of influence over the long-term economy, but lack the sense of involvement over that long term because they have to stay tightly focussed on the next election (or they don’t get re-elected). This is one of the systemic faults that’s landed us in the long-term problems we’re facing right now:
Salma Hayek is beautiful, rich and famous. Friedrich Hayek is a deceased Austrian economist. He wasn’t very good looking, certainly not wealthy but he did become famous — but only 20 years after his death and then only within the make believe world of nerdy economists. Fortunately for the World today, if we are lucky, Friedrich Hayek may become the most famous Hayek of them all. Until then, the World remains firmly trapped in an economic hell created by Friedrich’s (and therefore Salma’s) arch enemy — John Maynard Keynes. IceCap’s Keith Dicker points out that, as most politicians and central bankers view the World in very short time frames, to truly understand the devastation wreaked by Keynesian economics, one has to take a step back and see how the financial destruction accumulated over time. It is true that these policies initially provided sugar highs for the economy — but the 3 step cycle of cutting interest rates, cutting taxes and borrowing money to create growth has finally reached its end point. If Mr. Keynes was alive today, we are confident he would be embarrassed that his lifelong work had been so severely distorted.
[. . .]
Since WWII, the Americans, Japanese, British and Europeans have spent way more money than they owned. But that was ok because the money they borrowed wouldn’t have to be repaid until some far away day in the future.
Unfortunately the future has now arrived and today, the next generations of Americans, Japanese, British and Europeans have all plunged into a deathly debt spiral.
Today it is no coincidence that the Americans, Japanese, British and Europeans have all set interest rates as close to 0% as possible.
Also today, it is no coincidence that the Americans, Japanese, British and Europeans are all printing money.
And finally, today it is also no coincidence that the Americans, Japanese, British and Europeans ignored Friedrich Hayek and instead followed the economic principles of John Maynard Keynes.
Today the entire global economic and financial system is rooted in unwavering support for John Maynard Keynes and his beliefs in deficit spending and debt-fueled growth.
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December 4, 2012
An American view of Canada’s immigration policies
Shikha Dalmia says that the US could learn useful lessons on immigration policy from Canada:
… Canada’s provincial-nominee program is a model of economic enlightenment. Under this system, 13 provincial entities sponsor a total of 75,000 worker-based permanent residencies a year, and the federal government in Ottawa offers 55,000. Each province can pick whomever it wants for whatever reason—in effect, to use its quota, which is based on population, to write its own immigration policy.
Provinces may pick applicants left over from the federal program. They can also solicit their own applicants from anywhere in the world. In a direct attempt to poach talent from the U.S., some provinces are sponsoring H1-B holders stuck in the American labyrinth.
The government in Ottawa can’t question either the provinces’ criteria or their methods of recruitment. Its role is limited to conducting a security, criminal and health check on foreigners picked by the provinces, which has cut processing time for permanent residency to one or two years—compared with a decade or more in the U.S.
Richard Kurland, a lawyer who is considered Canada’s top immigration expert, notes that provinces use the program for diverse goals such as enhancing existing cultural or ethnic ties with other countries. Not surprisingly, the most popular reason is economic: to augment the local labor market.
The program gives British Columbia the same flexibility to sponsor, say, bricklayers as it gives Ontario to sponsor computer programmers. It doesn’t treat the entire Canadian economy as monolithic and pretend that distant federal bureaucrats can effectively cater to local job markets. (Canada’s federal program is a different story altogether.)
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December 1, 2012
The problem with flood insurance
Talking about a very topical issue in Britain, Tim Harford explains why flood insurance is so expensive for some areas:
I’m not sure this is really an insurance problem.
How could it not be an insurance problem?
It seems to me that there are three kinds of hard-to-insure risks. First, there are unimaginable events, “unknown unknowns”, if you like. Yet floods are all too easy to imagine. Then there are risks that are subject to what economists call adverse selection. To take an extreme example, imagine a town ruled by some all-powerful Mob. Nobody in this town is ever robbed without warning. The Mob will be sure to let you know what’s coming to you and why they think you deserve it.
[. . .]
But that doesn’t sound like a good description of flood risk.
Quite so. Now the third kind of hard-to-insure risk is stuff that’s expensive and happens quite often. I’m trying to buy a house, I’m nearly 40 and so I’m trying to buy insurance for my family in case I die or become too ill to work. This is perfectly possible: it’s just expensive, because it’s not unusual for middle-aged men to get seriously ill. This sounds like a much better description of allegedly uninsurable homes: if there is a one in five chance of a flood, and a flood is going to cost £50,000, don’t expect to pay less than £10,000 a year for flood insurance.
But that’s unaffordable for a lot of people.
Yes, but unaffordability is not uninsurability. It’s insurable but expensive.
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Tyler Cowen and Andrew Coyne on The Great Stagnation
Tyler Cowen discusses his book The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick and Will (Eventually) Feel Better. Andrew Coyne (National Post) presents a rebuttal and the pair discuss Cowen’s thesis focusing on issues of productivity, innovation and government policy (moderated by Wendy Dobson).
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November 30, 2012
November 29, 2012
“One economist [said] that his colleagues’ pursuit of happiness was depressing him”
If you read newspapers or magazines, you’ll have noticed a spike in the economics of happiness over the last few years. Everyone seems to be reporting results of happiness surveys from all over … few of whom seem to agree on how to measure it or in some cases even what it is that they’re trying to measure. Claude Fischer talks about this recent boom market:
Bhutan’s Gross National Happiness Commission uses citizens’ reports of their happiness to assess national progress, and former French President Nicholas Sarkozy appointed a Nobel-encrusted commission to study a similar idea; the United Nations places “happiness indicators” on its war-burdened agenda; American science institutions pour money into fine-tuning measurements of “subjective well-being”; and Amazon’s list of happiness books by moonlighting professors runs from The Happiness Hypothesis to Stumbling on Happiness, Authentic Happiness, Engineering Happiness, and beyond.
Since at least the 1950s, academics have analyzed surveys asking people how happy or satisfied they feel. We’ve used fuzzy questions such as, “Taken all together, how would you say things are these days — would you say that you are very happy, pretty happy, or not too happy?” to assess respondents’ morale. We’ve compared, say, women to men and the poor to the rich. Dutch sociologist Ruut Veenhoven started compiling the findings into his World Database of Happiness back in the 1980s.
So what set off the current frenzy? Economists found happiness.
In the decade after 2000, the number of articles on happiness in major economics journals roughly tripled. One economist told me a couple of years ago that his colleagues’ pursuit of happiness was depressing him. Nonetheless, established leaders and bright new scholars turned to the topic and brought with them the funding, media prestige, and political clout of the profession. That a guild which prides itself on scientific rigor and hardheadedness would embrace such a sappy concept measured in such mushy ways is, well, bemusing. Even Federal Reserve Chief Ben Bernanke drew on the new economics of happiness to find the moral for his 2010 commencement address to University of South Carolina graduates: “I urge you to take this research to heart by making time for friends and family and by being part of and contributing to a larger community.”
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November 27, 2012
Coyne: Carney’s departure is probably for the best
Aside from the ousting of Toronto Mayor Rob Ford, the other big story in Canadian media yesterday was the announcement that Bank of Canada governor Mark Carney will be leaving to take over the Bank of England next year:
Inevitably, there are mixed feelings: satisfaction that a Canadian civil servant should be held in such regard abroad; annoyance that a foreign power should feel entitled to raid our highest offices, as if we were their farm team; gratitude for his service; disappointment that he did not finish his term.
On balance, however, the departure of Mark Carney as governor of the Bank of Canada, to take on the same position at the Bank of England, is probably for the best. It will of course be a great loss: he is largely deserving of his exalted reputation. That’s the point: he was becoming too big for the Bank. His ambitions were known to stretch beyond it; his persona was starting to overshadow it. Rock stars and central banks make an uncomfortable fit.
[. . .]
But ultimately, it’s the institution that counts, not the man. The Bank is steeped in talent, and any successor will be able to draw on the same organizational strengths as Carney. And Carney’s own outsized talents, it must be said, were beginning to present a problem, or at least might have. Politically savvy, a natural communicator, possessed of a certain glamour (at least by central banker standards), and young enough to harbour ambitions beyond his current office, it was perhaps inevitable that he should excite speculation about his future plans, without ever intending to.
All the same, it was unhealthy that talk began to turn to the possibility of him running for Liberal leader, and unhealthier still that this was not more firmly squelched, sooner. I’ve no reason to believe he ever seriously considered doing so, but it would have been a terrible business if he had. It is unusual enough for a governor to leave one country’s central bank for another. But for a governor to resign to lead the party seeking to replace the government he had lately served? I do not think the people who were urging this course upon Carney thought this through.
Update: At the Telegraph, Iain Martin reminds Carney’s sudden horde of fans that he’s merely mortal.
Is there any stopping Carney-mania? Those of us who 24 hours ago couldn’t have identified Mark Carney, even if he was wearing a T-shirt emblazoned with “I’m the Governor of the Canadian Central Bank” in 110pt type, now stroke our chins and swap our best Carney insights. He was voted the most trustworthy Canadian in a poll conducted by Readers Digest (Canada). He has four children. He paid $800,000 for his house in Ottawa, apparently, although he undertook $95,000 of improvements. Did they extend out the back or convert the attic? I don’t know, yet. And Canada didn’t have a banking crisis, you know. Only it did, in the 1990s, and the recovery and reorganisation put it in place afterwards left it in good shape ahead of the much bigger financial crisis which hit the US and the UK particularly hard. And Canada knows how to regulate its banks, only that wasn’t actually Carney’s job. This is most of what we know so far.
[. . .]
Now Carney is hailed as “the world’s greatest central banker”. None of this is to knock the Canadian for a second. He seems like a sensible, pragmatic fellow with a good record. It is also pleasing to see a fresh face, someone not from the revolving door cast-list of the British establishment. Although it is worth remembering that he is from the new global establishment, via 13 years at Goldman Sachs and subsequent sessions on panels at Davos.
The UK certainly needs this appointment to work out, but the new arrival deserves continuous scrutiny from sceptical parliamentarians and, yes, from a (hopefully) free press. After all, Mark Carney is a banker, not a magician.
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November 24, 2012
Japan’s demographic time-bomb has detonated
Remember the Japan of the 1970s and 1980s? The world-spanning colossus of economic might? The nation that had Wall Street wetting its collective pants with every bold move?
That was then. This is now:
Less than a quarter-century ago, Japan was the economic envy of the world. In 1989, Tokyo-listed shares represented nearly half the planet’s equity value, while the land beneath the city’s royal palace was worth more than all of California. American nightly news anchors practically misted up when they had to report that Rockefeller Center was turning Japanese.
Two lost decades and massive property- and stock-bubble explosions later, Japan is a one-word cautionary tale. Caught in economic and demographic atrophy — and stewarded by countless false-start prime ministers — the country has become a hub for zombie banks, a generation of disenchanted youth, and fading brands such as Sony, Sharp, and Panasonic.
Last year, for the first time, sales of adult diapers in Japan exceeded those for babies.
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Tim Worstall: Cosmic fun-spoiler
Writing in The Register, Tim Worstall brings his evil economist gaze to the SF fan’s irrational belief that asteroid mining is the way of the future:
Isn’t it exciting that Planetary Resources is going to jet off and mine the asteroids? This is every teenage sci-fi geek’s dream, that everything we imbibed from Verne through Heinlein to Pournelle is going to come true!
But there’s always someone, isn’t there, someone like me, ready to spoil the party. The bit that I cannot get my head around is the economics of it: specifically, the economics of the mining itself.
In terms of the basic processing of what they want to do I can’t see a problem at all, just as all those authors those years ago could see how it could be done.
Asteroids come in several flavours, and the two we’re interested in here are the ice ones and the nickel iron ones. The icy rocks, with a few solar panels and that very bright 24/7 sunshine up there, can provide water. That’s the first thing we need in abundance if we’re going to get any number of people up off the planet for any appreciable amount of time. And we’d really rather not be sending the stuff up out of the Earth’s gravity well for them.
It’s also true that those nickel iron asteroids are likely to be rich in platinum-group metals (PGMs). They too can be refined with a bit of electricity, and they’re sufficiently valuable (say, for platinum, $60m a tonne, just as a number to use among friends) that we might be able to finance everything we’re trying to do by doing so.
All terribly exciting, all very space cadet, enough to bring tears to the eyes of anyone who ever learnt how to use a slide rule and, as the man said, once you’re in orbit you’re not halfway to the Moon, you’re halfway to anywhere.
Except I’m not sure that the numbers quite stack up here. I’m sure that the engineering is possible, I’m certain that it’s all worth doing and most certainly believe that we want to get up there and start playing around with other parts of the cosmos over and above Gaia. But, but…
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November 17, 2012
The argument for a guaranteed annual income program
In the National Post, Andrew Coyne lays out the benefits of instituting a GAI to replace existing poverty programs:
The basic idea behind the GAI is sound: to consolidate a number of federal and provincial programs, some in cash and some in kind, into a single, universal, unconditional cash benefit, delivered through the tax system. The base amount would be modest: perhaps $10,000-$12,000 per person. Critically, it would be taxed back only gradually, say at 25 cents on the dollar, as earned income rises. Compare that to current practice, where benefits are often withdrawn dollar-for-dollar, or in the case of benefits in kind like free dental care or prescription drugs, are denied altogether to those who leave social assistance: an effective marginal tax rate of 100% or more.
You can see why the people who design and administer these systems do this. They’re trying to save money; they want to target assistance only to those who “need” it; they worry what people would do if given the cash to buy what they want, rather than the services government thinks they should have. But the result of all this careful selection and monitoring is not just condescending and intrusive: it effectively punishes people for taking a job, or working longer hours. This is the key insight of the GAI: dependence is created not so much by giving people money when they don’t work — certainly not at $10,000 a year — as by taking it away from them when they do.
So if all of this makes sense, why hasn’t it been done? One barrier is cost. The more gradually you reduce the transfer as income rises, the more paltry the base amount must be to stay within a given limit; conversely, set a more generous minimum, and you have to impose a steeper clawback. Of course, the arithmetic becomes less stark if you include the revenues saved from the programs the GAI would replace. But here you run into other obstacles.
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November 16, 2012
November 15, 2012
I, Pencil: The Movie
A film from the Competitive Enterprise Institute, adapted from the 1958 essay by Leonard E. Read. For more about I, Pencil, visit www.ipencilmovie.org
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November 14, 2012
The “manufacturing fetish”
John Kay talks about the widespread belief that only manufacturing is “real” in terms of what a national economy produces:
Manufacturing fetishism — the idea that manufacturing is the central economic activity and everything else is somehow subordinate — is deeply ingrained in human thinking. The perception that only tangible objects represent real wealth and only physical labour real work was probably formed in the days when economic activity was the constant search for food, fuel and shelter.
A particularly silly expression of manufacturing fetishism can be heard from the many business people who equate wealth creation with private sector production. They applaud the activities of making the pills you pop and processing the popcorn you eat in the interval. The doctors who prescribe the pills, the scientists who establish that the pills work, the actors who draw you to the performance and the writers whose works they bring to life; these are all somehow parasitic on the pill grinders and corn poppers.
When you look at the value chain of manufactured goods we consume today, you quickly appreciate how small a proportion of the value of output is represented by the processes of manufacturing and assembly. Most of what you pay reflects the style of the suit, the design of the iPhone, the precision of the assembly of the aircraft engine, the painstaking pharmaceutical research, the quality assurance that tells you products really are what they claim to be.
Physical labour incorporated in manufactured goods is a cheap commodity in a globalised world. But the skills and capabilities that turn that labour into products of extraordinary complexity and sophistication are not. The iPhone is a manufactured product, but its value to the user is as a crystallisation of services.
[. . .]
Most unskilled jobs in developed countries are necessarily in personal services. Workers in China can assemble your iPhone but they cannot serve you lunch, collect your refuse or bathe your grandmother. Anyone who thinks these are not “real jobs” does not understand the labour they involve. There is a subtle gender issue here: work that has historically mostly been undertaken by women at home — like care and cooking — struggles to be regarded as “real work”.
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