May 22, 2012
Reason.tv: Is Austerity to Blame for Europe’s Economic Woes?
May 20, 2012
This is why I don’t expect the Bush tax cut to be allowed to expire
Here it is in one easy-to-understand graph:
Brad Plumer explains:
What will the economy look like in 2013? A great deal depends on what Congress decides to do at the end of this year. Remember, the Bush tax cuts are expiring, the payroll tax holiday will sunset, and a bunch of new spending cuts under the debt-deal “sequester” are scheduled to kick in. Coming all at once, that’s a potentially big drag on growth.
[. . .]
To put this in perspective, the Federal Reserve expects the economy to grow at a roughly 2.9 percent pace in 2013. If Congress does nothing at the end of this year, much of that growth could be wiped out, and there’s a strong possibility that the United States could lurch back into recession. (Granted, a lot could depend on how the Fed reacts in this situation.)
On the flip side, as Ezra discussed in Thursday’s Wonkbook, letting all of the tax cuts expire and spending cuts kick in would also cut the U.S. deficit considerably: “Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022.”
H/T to Doug Mataconis for the link.
May 19, 2012
“Shared values” can only take you so far in the market
Tim Worstall responds to a short snippet from the Telegraph, lauding the “shared values” marketing approach exemplified by the Ben & Jerry’s ice cream firm:
But of course, this only works with those who share or desire those values that you are pushing. And there are some very different value systems out there. There is an, admittedly and thankfully very small, market out there for a company whose values include being beastly to Jews. I don’t think it will shock anyone at all to hear that there really are racists in our society who would respond to having their idiocy pandered to. Or sexists, capitalists, neoliberals and all sorts of groups that have slightly different value systems from those put forward by Ben and Jerry’s.
[. . .]
So, companies that appeal to the values of their potential customers: yup, great idea. Have fun and make money. But I’m afraid you cannot complain if some of them appeal to values you don’t share: for many will not share the values that you push.
Which leads then to the joy of this market thing. Companies that do define themselves by these values get to compete for the attentions of those who care about such things. Those catering to the rarer prejudices will either fail or stay small, those who cater to the mass ones successfully will prosper and grow fat. Which is excellent, isn’t it?
May 18, 2012
The nature of NATO
The North Atlantic Treaty Organization has been having a bit of an identity crisis for more than twenty years, as the original reason for its formation — the military threat posed by the Soviet Union and its subject nations in the Warsaw Pact — had almost literally fallen down in ruins. All those main battle tanks, armoured personnel carriers, fighter-bombers, helicopters, missile launchers, and other impedimenta of war were all pointing at a vast power vacuum. Doug Bandow has a post at the Cato@Liberty blog in advance of the upcoming NATO conference in Chicago, but he has a problem in his headline that needs to be fixed:
NATO Has Become a Form of U.S. Foreign Aid
Let me fix that for you, Doug:
NATO Has Become Always Been a Form of U.S. Foreign Aid
The NATO summit starts Sunday in Chicago and will be the largest gathering ever held by the alliance. This is fitting given NATO’s desire to act around the globe. While U.S. officials say no decisions on further expanding membership will be made at the meeting, they explain that the door remains open. Adding additional security commitments in this way would be a mistake.
The United States has always been and will continue to be the guarantor of NATO’s military promises. In reality, NATO could not pay its bills without the United States, much less conduct serious military operations. American alliance policy has become a form of foreign aid. Nowhere is that more true than in Europe.
[. . .]
The United States cannot afford to take on more allies and effectively underwrite their security. It is not worth protecting Georgia at the risk of confronting Russia, for instance. Moreover, now is the time to end this foreign aid to wealthy European countries. The Europeans have a GDP ten times as large as that of Russia. Europe’s population is three times as big. The Europeans should defend themselves. If they want to expand their alliance all around Russia, let them.
Conservative arguments for legalization of marijuana
Frances Woolley at the Worthwhile Canadian Initiative blog:
Milton Friedman — Nobel Laureate in Economics and adviser to Ronald Reagan — supported legalizing and taxing marijuana. Stephen Easton’s classic paper advocating marijuana legalization was published by the Fraser Institute. Why do so many right-leaning economists favour marijuana legalization?
Conservative economists typically believe that a person is a best judge of what is in his or her own interests. From this premise it follows that the government should not try to constrain or influence people’s behaviour. Yes, marijuana use has well-documented negative side effects, from memory loss to male breast growth. Yet if fully informed individuals decide that these personal costs are worth accepting for the benefits that marijuana use brings, the government should respect that choice. As Willie Nelson says “I smoke pot and it is none of the government’s business.”
[. . .]
Another reason for conservatives to favour legalization and taxation of marijuana is that they do not like paying taxes. Criminalization costs. According to a 2005 US study, legalization would save state and local governments $5.3 billion annually in reduced enforcement costs, while the federal government would gain another $2.4 billion federally. Locking up people for possession of a small amount of marijuana is a waste of resources, and good fiscal conservatives deplore waste.Taxing marijuana would be a money-maker: $6.2 billion annually, if marijuana were taxed at rates similar to those on alcohol and tobacco, according to this same 2005 report.Those revenues could be used to reduce deficits, or fund reductions in the taxes paid by conservative economists.
Conservatives have lots of good reasons to favour legalization. The people who should be fighting legalization are the small scale growers: little family-run organic pot farms wouldn’t stand a chance against industrial scale agri-business.
May 17, 2012
Defining “sustainability”
Ben Pile explains what is really meant by the term “sustainability” and the real agenda of those who argue for it:
Another reason might be that the concepts of ‘global’ and ‘sustainability’ are at best nebulous. To what extent are ‘global problems’ really global? And to what extent can making and doing things ‘sustainably’ really address problems such as poverty and inequality? Poverty is not, in fact, a problem of too much exploitation of natural resources, but too little. And poverty is not a global problem, but a categorically local one, in which a population is isolated from the rest of the world.
We can only account for poverty and inequality in the terms preferred by environmentalists if we accept the limits-to-growth thesis and the zero-sum game that flows from it. In other words, that there are limits on what we can take from the planet and we can only solve poverty if we divide those limited resources more equitably. Such an argument for reducing and redistributing resources has the reactionary consequence of displacing the argument for creating more wealth.
But to date, the arguments that there exist limits to growth, an optimum relationship between people and the planet, and that industrial society is ‘unsustainable’, have not found support in reality. The neo-Malthusians’ predictions in the Sixties and Seventies were contradicted by growth in population and wealth. And now there is a growing recognition that the phenomenon most emphasised by environmentalists — climate change — has been overstated. [. . .]
‘Sustainability’ is not about delivering ‘what we want’ at all but, on the contrary, mediating our desires, both material and political. Accordingly, the object of the Rio meeting is not as much about finding a ‘sustainable’ relationship between humanity and the natural world as it is about finding a secure basis for the political establishment. The agenda for the Rio +20 conference is the discussion of ‘decent jobs, energy, sustainable cities, food security and sustainable agriculture, water, oceans and disaster readiness’. Again, noble aims, perhaps. But is the provision of life’s essentials, and the creation of opportunities for jobs and the design of cities, really a job for special forms of politics and supranational organisations?
The idea that there are too many people, or that the natural world is so fragile that these things are too difficult for normal, democratic politics to deliver, flies in the face of facts. It would be easier to take environmentalists and the UN’s environmental programmes more seriously if millions of people were marching under banners calling for ‘lower living standards’ and ‘less democracy’. Instead, just a tiny elite speaks for the sustainability agenda, and only a small section of that elite is allowed to debate what it even means to be ‘sustainable’. We are being asked to take at face value their claims to be serving the ‘common good’. But there is no difference between the constitutions of benevolent dictatorships and tyrannies.
Sustainability is a fickle concept. And its proponents are promiscuous with scientific evidence and ignorant of the context and the development of the sustainability agenda, believing it to be simply a matter of ‘science’ rather than politics. The truth of ‘sustainability’, and the meeting at Rio next month, is that it is not our relationship with the natural world that it wishes to control, but human desires, autonomy and sovereignty. That is why, in 1993, the Club of Rome published its report, The First Global Revolution, written by the club’s founder and president, Alexander King and Bertrand Schneider. The authors determined that, in order to overcome political failures, it was necessary to locate ‘a common enemy against whom we can unite’. But in fighting this enemy — ‘global warming, water shortages, famine and the like’ — the authors warned that we must not ‘mistake symptoms for causes’. ‘All these dangers are caused by human intervention in natural processes, and it is only through changed attitudes and behaviour that they can be overcome. The real enemy then is humanity itself.’
Iceland adopting the Canadian dollar? It’s more likely than you think
Tristin Hopper in the National Post on the continued interest in Iceland for a currency union with Canada:
Icelanders are united on the need to ditch the krona. However, the country’s reigning Social Democrats want the Euro, while the opposition Progressive Party has been pushing for the Canadian dollar since last summer. As resource economies, Canada and Iceland’s economic cycles are more likely to be in sync, loonie proponents argue. Also, Canada is home to about 200,000 people of Icelandic descent, more than anywhere else in the world. “I see that connection helping the public in Iceland accepting a new currency,” said Mr. Gudjonsson.
So far, the loonie appears to be winning. A March Gallup poll showed public approval for the loonie easily pulling ahead of the U.S. dollar, the euro and the Norwegian krone.
The mechanics of the swap would be the easy part. A party of Icelanders officials would simply fly to a Canadian bank and arrange a $300-million withdrawal. The final pile of multicoloured bills — no larger than two photocopiers — would then be shipped across the North Atlantic and loaded into ATMs and bank vaults over a weekend. (While there is far more than $300-million in the Icelandic money system, the country currently only has $300-million worth of krona coins and bills in circulation.)
Short of imposing its own Iceland-style currency controls, the Bank of Canada has no choice in the matter. “We will do it unilaterally without asking,” said Mr. Valfells. “It’s better to ask for forgiveness than permission.”
Update: In a totally unrelated development, if Iceland adopts the loonie to replace the krona, we may get more interesting stories like this one from our new Icelandic friends. It’s got all sorts of elves, norse gods, and politicians. Much more fun than our current troll-versus-troll stories out of Ottawa.
May 13, 2012
Greek railway dis-economy of scale
It would actually be cheaper to send all Greek train passengers by private taxi than using the public rail network:
The claim that it would be cheaper for Greece to send every rail passenger to their destination by taxi was most recently made in the book Boomerang by Michael Lewis, the Moneyball author.
But it was first made by Stefanos Manos, the former Greek finance minister, in 1992. Manos used the railway system to illustrate what he saw as gross public sector waste.
“I was in favour of the Maastricht Treaty and was supposed to defend it in Parliament,” says Manos, now heading his own party, Drasi.
“I said we should drastically reduce the size of the public sector and its expenditure. And I gave as an example the railway where there were exorbitant wage bills compared to the revenue of the country.”
He says it was an off-the-cuff remark but about right.
“I knew the number of passengers and I made a brief estimate of what it would cost to send them from Athens to the north of Greece and I decided it was quite obvious it would be cheaper to send them there by taxi rather than train.”
It’s not quite true now: two passengers would have to share each taxi. If you got three passengers into each taxi, the government would be saving money.
May 11, 2012
Sneering at both the rich and the poor: the modern “equality” campaigners
Daniel Ben-Ami on the equal-opportunity snobs in the so-called “equality” movement:
It is easy to make the mistake of assuming there is a big drive towards equality in the world today. Politicians, pundits and even billionaire financiers rail against the dangers of inequality, excess and greed. A handful of Occupy protesters claiming to represent the ‘99 per cent’ against the super-rich ‘one per cent’ are widely lauded in influential circles. Parallel campaigns slate the wealthy for failing to pay their fair share of tax. Officially sanctioned campaigns promote fairness, social justice, social equality, equal access to education and the like.
From this false premise it appears to follow that radical politics is alive and well. If equality was historically a core principle of the left then, so it is assumed, the current discussion must be enlightened and humanistic. Those who oppose the plethora of apparently pro-equality initiatives are therefore cast as reactionary souls who are probably in the pay of giant corporations.
[. . .]
In contrast, the discussion in recent years has shifted decisively against the idea of economic progress and towards a deep suspicion, even hatred, of humanity. It promotes initiatives to counter the dangers of social fragmentation in an unequal society. Indeed, this fear of a disintegrating society can be seen as the organising principle behind a wide range of measures to regulate supposedly dysfunctional behaviour. These range across all areas of personal life, including childrearing, drinking alcohol, eating, sex and smoking. Such initiatives assume that public behaviour must be subject to strict regulation or it could fragment an already broken society.
A distinct feature of the current discussion is that the rich are also seen as posing a threat to social cohesion. Their greed is viewed as generating unrealistic expectations among ordinary people. In this conception, inequality leads to status competition in which everyone competes for ever-more lavish consumer products. A culture of excess is seen to be undermining trust and a sense of community.
The contemporary consensus thus marries the fear of social fragmentation with anxiety about economic growth. It insists that the wealthy must learn to behave responsibly by maintaining a modest public face. It also follows that prosperity must be curbed. This is on top of fears about the damage that economic expansion is alleged to do to the environment.
This drive to curb inequality is informed by what could be called the outlook of the anxious middle. It is middle class in the literal sense of feeling itself being torn between the rich on one side and ordinary people on the other. Its aim is to curb what it regards as excesses at both the top and bottom of society. It sees itself as living in a nightmare world being ripped apart by greedy bankers at one extreme and ‘trailer trash’ at the other.
May 10, 2012
May 9, 2012
Stephen Gordon explains that Dutch Disease is merely “economic hypochondria”
Politicians and newspaper columnists have a fetish about manufacturing. In the Globe and Mail Economy Lab, Stephen Gordon explains why it’s not the crisis we’re constantly being told it is:
The appreciating Canadian dollar has little to do with the decline in manufacturing; employment has been declining worldwide for decades. Changes in relative prices are more important. Producer prices for manufactured goods have increased by about 15 per cent since 2002, while the Bank of Canada’s commodity price index has more than doubled. Any attempt to promote manufacturing exports by depreciating the dollar is doomed to fail, since a lower Canadian dollar will also benefit resource exporters. Capital and labour will always move from sectors where prices are soft to sectors where demand is strong, regardless of what the exchange rate is doing.
But what about those 500,000 lost jobs? An underappreciated fact of the Canadian labour market is the size of the flows in and out of employment. More than 100,000 workers are laid off every month, and even more are hired. Before the recession, the fall in employment manufacturing was largely the result of attrition — workers who quit were not replaced. The loss of 500,000 manufacturing jobs since 2002 has been more than offset by the creation of 2.5 million jobs in other sectors.
[. . .]
Penalizing exports of raw resources could create processing jobs, but those gains will be more than offset by losses elsewhere. If processing in Canada were profitable under world prices, no government intervention would be necessary. The only way policy can generate significantly more processing jobs is by forcing producers of raw materials to accept lower prices or by forcing provincial governments to accept lower royalties. This would be a simple redistribution of income if production is held constant. But it is much more likely that producers would respond to these lower prices by reducing output. Total output and income would fall.
[. . .]
The shift away from manufacturing is part of a process that has increased incomes across Canada. “Dutch disease” is not a problem that needs solving.
A call to ban college football
This Wall Street Journal piece by Buzz Bissinger is guaranteed to stir up controversy:
In more than 20 years I’ve spent studying the issue, I have yet to hear a convincing argument that college football has anything do with what is presumably the primary purpose of higher education: academics.
That’s because college football has no academic purpose. Which is why it needs to be banned. A radical solution, yes. But necessary in today’s times.
[. . .]
Who truly benefits from college football? Alumni who absurdly judge the quality of their alma mater based on the quality of the football team. Coaches such as Nick Saban of the University of Alabama and Bob Stoops of the University of Oklahoma who make obscene millions. The players themselves don’t benefit, exploited by a system in which they don’t receive a dime of compensation. The average student doesn’t benefit, particularly when football programs remain sacrosanct while tuition costs show no signs of abating as many governors are slashing budgets to the bone.
If the vast majority of major college football programs made money, the argument to ban football might be a more precarious one. But too many of them don’t—to the detriment of academic budgets at all too many schools. According to the NCAA, 43% of the 120 schools in the Football Bowl Subdivision lost money on their programs.
The other big beneficiaries of the college football system is, of course, the NFL. Unlike baseball or NHL teams, it doesn’t have to maintain a “farm team” league or leagues to provide training and play opportunities for would-be professional football players. This burden, instead, is carried by the taxpayer as part of their share of higher education.
May 8, 2012
Absurd meme of the month: that European countries have imposed draconian fiscal austerity
For all the gasping about the impact of fiscal austerity on weakened European economies, it’s hard to detect from the actual numbers:
(Image from the Mercatus Center)
See all those coloured lines dropping precipitously? Me neither.
Veronique de Rugy asks where the “savage” spending cuts can be seen:
Austerity is destroying Europe, we are told. In fact, this “anti-austerity” slogan was a big reason for the victory of newly elected socialist François Hollande to the presidency of France. Interviewed in The Economist a few weeks ago, Hollande’s campaign director said “We are not disciples of savage spending cuts.”
But then, I look at the data and I am asking: What “savage” spending cuts?
Look at [the chart above]. It is based on Eurostat data which you can find here. Following years of large spending increases, Spain, the United Kingdom, France, and Greece — countries widely cited for adopting austerity measures — haven’t significantly reduced spending since 2008. As you can see on this chart:
- These countries still spend more than pre-recession levels
- France and the U.K. did not cut spending.
- In Greece, and Spain, when spending was actually reduced — between 2009–2011 — the cuts have been relatively small compared to what is needed. Also, meaningful structural reforms were seldom implemented.
- As for Italy, the country reduced spending between 2009 and 2010 but the data shows and uptick in spending 2011. The increase in spending represents more than the previous reduction.
In addition to failing to curb spending, several governments have raised taxes (which has a negative effect on growth in the economy and can — contrary to popular wisdom — actually reduce the total tax collected as people and companies change their habits to minimize the impact of the tax change).
Now available for download: License to Work
The Institute for Justice has released a new study, License to Work: A National Study of Burdens from Occupational Licensing, which shows the negative effects imposed on (especially) poor and minority workers across the United States:
The report documents the license requirements for 102 low- and moderate-income occupations — such as barber, massage therapist and preschool teacher — across all 50 states and the District of Columbia. It finds that occupational licensing is not only widespread, but also overly burdensome and frequently irrational.
On average, these licenses force aspiring workers to spend nine months in education or training, pass one exam and pay more than $200 in fees. One third of the licenses take more than a year to earn. At least one exam is required for 79 of the occupations.
Barriers like these make it harder for people to find jobs and build new businesses that create jobs, particularly minorities, those of lesser means and those with less education.
