Quotulatiousness

December 8, 2011

The Law of Misguided Subsidies

Filed under: Economics, Government, Media, Politics — Tags: , , , , , — Nicholas @ 09:44

T.J. Rogers explains the latest corollary to the well-known Law of Unintended Consequences (for examples of that law in operation, see your local, regional, or national government):

Wall Street understands how to make money, up-market or down. “Margin Call” may fuel Occupy movement ire, but in creating mortgage-backed securities, Wall Street did nothing other than facilitate home-financing access to the next tier of less-qualified home buyers, as demanded by every president since Bill Clinton. After that, the bankers did exactly what their shareholders wanted: bundle those risky loans into securities, sell them to lock in the profits, and dump the risk right back onto the federal government — where it belonged.

My purpose is not to debate the morality of mortgage-backed securities but to update the Law of Unintended Consequences with the corollary Law of Misguided Subsidies: Whenever Washington disrupts a market by dumping subsidies into it, Wall Street will find a way to pocket a majority of the money while the intended subsidy beneficiaries are harmed by the resulting market turmoil.

Rogers also explains why so many “special Limited Liability Corporations (LLCs)” are getting into the solar power business — not the manufacturing side, but the retail side. The profit margins are obscene. If the government hadn’t set up the market to work this way with their subsidies, the profit margins would be much lower.

“Pure socialism” in the Soviet Union

Filed under: Economics, History — Tags: , , , — Nicholas @ 08:53

Nicholas Snow summarizes the only serious attempt to implement “pure socialism” in the first years after the Russian revolution:

The closest the Soviet Union came to actual pure socialism was the period known as War Communism, 1918 to 1921. This period is unanimously seen as a disaster, even among socialists. Production fell in most if not all industries, and millions starved to death. From then on the Communist Party struggled to keep hold of both their Marxist ideology and their power. Naturally the latter took precedence, and as a result the price system, which they originally wanted to abolish, took on a larger and larger role. [. . .]

The Soviets certainly liked to keep up appearances. At a glance the Soviet economy looked centrally planned. The planning board for each industry set output levels, and the State owned de jure all means of production. A closer look, however, revealed a different story. As Boettke and Anderson pointed out, the Soviet economy was closer to that of a mercantilist economy, a heavily regulated market economy effectively run by rent-seeking government officials and factory managers. De facto, the factory managers were the owners and residual claimants. They paid the State for the right to run the factory, and in return the State created a monopoly for them, just as in the mercantilist system of old.

Middlemen, known as the Tolkachi, worked on behalf of the State enterprises to sell surplus commodities on the one hand and purchase needed products on the other. They essentially created a market that allowed for economic calculation not possible under a pure socialist system.

December 7, 2011

Harsanyi: Obama is “the mighty slayer of infinite straw men”

Filed under: Economics, History, Politics, USA — Tags: , , , , , , — Nicholas @ 09:18

While the GOP hopefuls are busy avoiding confrontation with Barack Obama, David Harsanyi is under no such restriction:

In Teddy Roosevelt’s era, President Barack Obama explained to the nation this week, “some people thought massive inequality and exploitation was just the price of progress. … But Roosevelt also knew that the free market has never been a free license to take whatever you want from whoever you can.”

And he’s right. Even today there are people who believe they should have free license to take whatever they want from whomever they can. They’re called Democrats.

Yet the president, uniter of a fractured nation, the mighty slayer of infinite straw men, claims that some Americans “rightly” suppose that the economy is rigged against their best interests in a nation awash in breathtaking greed, massive inequality and exploitation. Or I should say, he’s trying to convince us that it’s the case.

The middle-class struggle to find a decent life is the “defining issue of our time,” the president went on. And nothing says middle-class triumph like more regulation, unionism, cronyism and endless spending. Hey, Dwight Eisenhower (a Republican!) built the interstate highway system, for goodness’ sake. Ergo, we must support a bailout package for public-sector unions — you know, for the middle class.

Update: Monty goes a few steps further to criticize Obama:

It often strikes me how much Barack Obama looks, talks, behaves, and (apparently) believes like a character out of an Ayn Rand novel. Rand always wrote of statist Socialists more as caricatures than characters, but Barack Obama could have stepped whole and breathing right out of the pages of Atlas Shrugged. Which shows you the shallowness and unthinking obeisance to leftist cant the man displays — there is precious little subtlety to Barack Obama. You sometimes find hidden depths even in your ideological enemies, surprising pockets of common ground. But in Barack Obama, there is only a hollow vessel filled up with the thoughts and opinions of leftists he has associated with in his life. He speaks (and apparently thinks) only in platitudes, bromides, and cliches. Barack Obama is, in short, the end product of the grand “progressive” experiment since the early 1900’s. Ecce homo!

December 6, 2011

Guardian study finds that August rioters were motivated by Guardian editorials

Filed under: Britain, Economics, Government, Law, Media — Tags: , , , — Nicholas @ 09:16

Brendan O’Neill on the recent study, carried out by the London School of Economics and the Guardian:

Well, that’s convenient, isn’t it? A four-month Guardian/London School of Economics study into the riots that rocked English cities in August has found that the rioters were pretty much Guardian editorials made flesh. Concerned about government cuts, annoyed by unfair policing, shocked by social inequality and outraged by the MPs’ expenses scandal, it seems the young men and women who looted shops and burnt down bus stops weren’t Thatcher’s children after all — they were Rusbridger’s children, the moral offspring of those moral guardians of chattering-class liberalism.

This is a blatant case of advocacy research, of researchers finding what they wanted to find, or at least desperately hoped to find. For months now, the Guardian has been publishing articles arguing that the rioters were politically motivated, under headlines such as ‘These riots were political’ and with claims such as ‘the looting was highly political’ and the riots were a protest against ‘brutal cuts and enforced austerity measures’. And now, lo and behold, a Guardian study, Reading the Riots, has discovered that the rioters were indeed ‘rebels with a cause’, with 86 per cent of the 270 rioters interviewed claiming the violence was caused by poverty, 85 per cent arguing that policing was the big issue, and 80 per cent saying they were riled by government policies. Reading this study, we are left to marvel either at the extraordinary perspicacity of Guardian writers, or at their ability to carry out research in such a way that it confirms their own political preconceptions.

This study looks less like a cool-headed, neutral piece of sociology, and more like a semi-conscious piece of political ventriloquism, where rioters have been coaxed to mouth the political beliefs of the middle-class commentariat. This is not to say the Guardian and LSE researchers have been purposely deceitful, inventing evidence to suit a political thesis. Advocacy research is more subtle and less conscious than that. It involves a kind of inexorable pursuit of facts that fit and evidence that helps bolster a pre-existing conviction. So mental-health charities keen to garner greater press coverage always find high levels of mental illness, children’s charities that want to raise awareness about child abuse always find rising levels of child neglect, and now Guardian researchers who want to show that they’re right to fret about Lib-Con policies and outdated policing have found that these are burning issues amongst volatile English yoof, too.

December 5, 2011

Moral hazard invades the scientific sphere

Filed under: Economics, Government, Media, Science — Tags: , , — Nicholas @ 12:23

Bill Frezza looks at an unanticipated consequence of pouring more government money into the sciences:

Science and the scientific method are the jewels in the crown of Western civilization. The ascertainment of facts, construction of reproducible experiments, development of falsifiable theories, impartial training and meritocratic advancement of practitioners, and — most importantly — integrity of the publication process by which a well established body of truth can be confidently assembled all underpin the respect accorded to science by the citizenry. In modern times, this respect translates into tax dollars.

Unfortunately, today those tax dollars are corrupting the process. Unprecedented billions are doled out by unaccountable federal and state bureaucracies run by and for the benefit of a closed guild of practitioners. This has created a moral hazard to scientific integrity no less threatening than the moral hazard to financial integrity that recently destroyed our banking system.

According to a report in Nature Reviews Drug Discovery, nearly two-thirds of the experimental results published in peer-reviewed journals could not be reproduced in Bayer’s labs. The latest special issue of Science is devoted to the growing problem of irreproducibility. The Wall Street Journal reports that Amgen, Pfizer, and others have abandoned research programs after spending hundreds of millions pursuing academic research that could never be replicated.

H/T again to Monty for the link.

Why GM is very worried about the reported battery fire risk in the Chevy Volt

Filed under: Economics, Technology, USA — Tags: , , , — Nicholas @ 12:13

If you’ve been following the blog for a while, you’ll know I’m not over-optimistic about electric cars in the short-to-medium term (for example, here, here, here, and here) and I’m especially underwhelmed with GM’s most recent offering, the Chevy Volt:

Let’s talk economics first. Electric and hybrid-electric vehicles are more expensive to make and bring in less profit than other cars. They cost more to finance, more to repair, and more to insure. Their sales depend heavily on tax incentives, which means that selling more of them will require more taxpayer dollars. The National Renewable Energy Laboratory (NREL) estimates that plug-in hybrid vehicles cost $3,000 to $7,000 more than regular hybrids, even though the performance differences between the two models are slight, and the really fuel-efficient hybrids cost $12,000 to $18,000 more than the conventional brand. Consider the GM Volt. When it was first announced, the price estimate from General Motors (GM) was $30,000. That soon jumped to $35,000. Today, they sell for nearly $40,000.

Hybrids are also more expensive to insure, which has been known for some time. Back in 2008, online insurance broker Insure.com showed that it cost $1,374 to insure a Honda Civic but $1,427 to insure a Honda Civic Hybrid. Similarly, it cost $1,304 to insure a Toyota Camry but $1,628 to insure a Toyota Camry Hybrid. According to State Farm, hybrids cost more to insure because their parts are more expensive and repairing them requires specialized labor, thus boosting the after-accident payout.

And that, of course, presumes they don’t burst into flames, which brings us to today’s not-so-“ideal” headlines. Several crash tests have suggested that the plug-in hybrid Volt, the flagship vehicle at Government Motors, has a bit of a problem: when hit or badly disturbed in accident tests, the Volt’s Lithium-Ion (Li-ion) battery packs have been seen to spark, or burst into flames afterward.

H/T to Monty.

Debunking memes: the Gini co-efficient as a spark for rioting

Filed under: Britain, Economics, France, Media — Tags: , , , , — Nicholas @ 08:33

Theodore Dalrymple shows that the widespread habit of journalists in Britain to attempt to attribute the root cause of August riots to the Gini co-efficient fails the common-sense test:

An August feature story on the riots in Time offered a particularly striking example. The author suggested that to understand the riots, we should start with “something called the Gini co-efficient, a figure used by economists to indicate how equally (or unequally) income is distributed across a population.” In this traditional measure, the article notes, Britain fares worse than almost every other country in the West.

This little passage is interesting for at least two reasons. First is the unthinking assumption that more equality is better; complete equality would presumably be best. Second is that the author apparently did not think carefully about the table of Gini coefficients printed on the very same page and what it implied about his claim. Portugal headed the list as the most unequal of the countries selected, with a 0.36 coefficient. Next followed the U.K. and Italy, both with a 0.34 coefficient. Toward the bottom of the list, one found France, with a 0.29 coefficient, the same as the Netherlands. Now, it is true that journalists are not historians and that, for professional reasons, their time horizons are often limited to the period between the last edition of their publication and the next. Even so, one might have expected a Time reporter to remember that in 2005 — not exactly a historical epoch ago — similar riots swept France, even though its Gini coefficient was already lower than Britain’s. (Having segregated its welfare dependents geographically, though, France saw none of its town or city centers affected by the disorder.)

As it happened, when I read the Time story, I had an old notebook with me. In it, among miscellaneous scribblings, was the following list, referring to the riots in France and made contemporaneously:

    Cities affected 300
    Detained 2,921
    Imprisoned 590
    Burned cars 9,071
    Injured 126
    Dead 1
    Police involved 11,200
    Average number of cars burned per day before riots 98

And all this with a Gini coefficient of only 0.29! How, then, could it have happened? It might also be worth mentioning that the Netherlands, with its relatively virtuous Gini coefficient, is one of the most crime-ridden countries in Western Europe, as is Sweden, with an even lower Gini coefficient.

December 4, 2011

“Scratch a Walmart-basher and you’ll find a snotty elitist, a person who hates capitalism and consumption and deep down thinks the Wrong People have Too Much Stuff”

Filed under: Economics, Liberty, Media, USA — Tags: , , — Nicholas @ 10:09

ESR shares his thoughts about WalMart bashing:

I find that, as little as I like excess and overconsumption, voicing that dislike gives power to people and political tendencies that I consider far more dangerous than overconsumption. I’d rather be surrounded by fat people who buy too much stuff than concede any ground at all to busybodies and would-be social engineers.

But there’s more than that going on here . . .

Rich people going on about the crassness of materialism, or spouting ecological pieties, often seem to me to me to be retailing a subtle form of competitive sabotage. “There, there, little peasant . . .” runs the not-so-hidden message “. . .it is more virtuous to have little than much, so be content with the scraps you have.” After which the speaker delivers a patronizing pat on the head and jets off to Aruba to hang with the other aristos at a conference on Sustainable Eco-Multiculturalism or something.

I do not — ever — want to be one of those people. And just by being a white, college-educated American from an upper-middle-class SES, I’m in a place where honking about overconsumption sounds even to myself altogether too much like crapping on the aspirations of poorer and browner people who have bupkis and quite reasonably want more than they have.

December 3, 2011

QotD: How to emulate China’s success

Filed under: China, Economics, History, Quotations — Tags: , , , — Nicholas @ 11:36

To be clear, Andy Stern believes that the United States needs a Chinese-style central plan to flourish, one that will be executed by a streamlined government.

To really learn from the Chinese, and to enjoy such staggering growth rates, we should go about things differently: let’s have a Maoist insurrection followed by a civil war that lasts for several years. Then let’s destroy most of the wealth in the country, and drive out millions of our most enterprising and educated citizens by launching systematic terror campaigns during which millions of others will die in violence or of starvation. Next, let’s have a modest economic opening in coastal regions: impoverished citizens will be allowed to launch small-scale township and village enterprises and components will be assembled in a handful of cities by our stunted descendants. Then let’s severely curb those township and village enterprises because they represent a potential political threat and invite large foreign multinationals and state-owned enterprises [let’s not forget those!] to work our population to the bone at artificially suppressed wage rates, threatening those who complain with serious reprisals up to and including death. Let us also initiate a population control policy designed to improve our dependency ratio for a few decades. As large numbers of workers shift from low-value agricultural work to manufacturing, we will experience . . . rapid growth! Mind you, getting from here to there will involve destroying an enormous swathe of our present-day GDP. And that sectoral shift from rural to urban work will run out of gas pretty fast, as will the population control policy that will guarantee rapid aging.

Reihan Salam, “Andy Stern’s Peculiar Idea”, National Review Online, 2011-12-03

Is it time to kill the penny?

Filed under: Economics, Government, History — Tags: — Nicholas @ 11:25

December 1, 2011

Economists no longer bring out the “big guns”: now they reach for the “bazooka”

Filed under: Economics — Tags: , , — Nicholas @ 12:58

Terence Corcoran has lots of examples in his latest Financial Post column:

For months now Europe has been searching for the big bazooka of economic policy to get it out of its fiscal mess. Exactly when bazookas became a core principle of economic policy isn’t clear, but it is today everywhere in use. Google “euro and bazooka” and you’ll see what I mean.

In the high precincts of economic analysis, there is general agreement that Wednesday’s move by central banks, including the Bank of Canada, the Federal Reserve and the Bank of England, to make cheap dollar loans available to European banks, while a major bailout event, falls short of reaching the level of intervention required by the high priests of bazookanomics. “It’s not the bazooka the market was seeking,” said a Wall Street Journal report.

One of the early users of the word was Hank Paulson. As U.S. treasury secretary in 2008, he famously said, “If you have a bazooka in your pocket and people know it, you probably won’t have to use it.” At the time, his theory was that the U.S. government would not have to take over control of Fannie Mae and Freddie Mac because just having the power to take them over was good enough stop a bond market run on the two bankrupt mortgage backers at the heart of the U.S. housing crash.

November 30, 2011

George Jonas: “All governments are communist”

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas @ 08:52

George Jonas looks at how the government of Ontario managed to go a quarter of a trillion dollars into debt:

All governments are communist. Please, relax. What I mean is that all governments expect to be recompensed, not according to the value of their contributions to society, but according to their needs.

Marxist mythology defines progress as capitalism changing into socialism and socialism into communism. Under socialism, everyone contributes according to his abilities, and is compensated according to his contribution. This is an improvement over the vagaries of the market, but communist society goes further. While citizens still contribute according to their abilities, they’re compensated according to their needs.

[. . .]

In a free-market-cum-welfare-state such as Canada, people contribute to society according to their abilities, and are compensated for it at the whim of the market, minus the whim of the government, a.k.a. the taxman. Governments also contribute according to their abilities, but then compensate themselves according to their needs. Their needs vary as they aren’t equally corrupt or ambitious, though they seem equally insatiable. Premier Dalton McGuinty isn’t a communist but Ontario’s debt increased by $110-billion since his party came to power in 2003. We could have had Fidel Castro for less — well, Raoul, anyway.

A gentleman has his hand up. Yes? “Didn’t the debt go up because McGuinty kept his promise and didn’t raise taxes?” Nice try, sir, but no. He did.

November 29, 2011

Comparing the Tea Party and Occupy movements

Filed under: Economics, Liberty, Politics, USA — Tags: , , , , , — Nicholas @ 16:04

H/T to Jon, my former virtual landlord, for the link.

Stephen Gordon: Governments should favour consumers over producers

Filed under: Cancon, Economics, Government — Tags: , — Nicholas @ 09:40

In his latest post at the Globe & Mail‘s Economy Lab, Stephen Gordon points out that governments get the entire prosperity thing wrong:

The next time a political party vows to defend the interests of the producers in a certain industry, you should ask why it isn’t choosing to defend the interests of consumers instead. Because the contribution of an industry to the public good is not its ability to provide large incomes to those who work there; it is its ability to produce things that people want to buy.

Business groups may give lip-service to the benefits of competitive markets, but their heart isn’t in it; they know that their real interests are best served by providing reduced output at high prices. And that’s exactly what we get whenever governments set policy in order to benefit producers: see, for example, our dairy industry.

The motives of producers who call for special treatment in the name of consumer protection are equally suspect. Producers are not in business for their health, and they definitely are not in it for your health. So when producers call for regulations in the name of protecting consumers, you can generally assume that the real and intended effect is to exclude potential competitors: see, for example, our dairy industry.

Megan McArdle: Barney Frank will be missed

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:29

Yeah, read that title again. She’s not kidding at all:

Guess which Democrat now becomes the ranking member on the financial services committee? That’s right, none other than our favorite batty aunt, Maxine Waters. The woman who, during a major hearing with the cameras on her, asked the heads of Goldman Sachs and State Street bizarre questions about how they set the limits on their consumer credit cards*. She asked Ken Lewis, the head of Bank of America, a question about “offshore loss mitigation caps” (a term of which I — and also, clearly, Ken Lewis — had never heard) that was so bizarre — and garbled — that he was flummoxed into silence; he sat there squirming like a third grader being picked on by the teacher.

When he finally got the courage to ask what she meant, it became clear that Maxine Waters had no idea what she meant; I assume she’d either taken hasty and incomplete notes when her staffers briefed her about what to ask, or had flubbed reading the question, and couldn’t bring herself to admit on C-SPAN that she hadn’t really bothered preparing for the hearing to the extent, of, say, familiarizing herself with the institutions whose heads she was grilling, or actually bothering to understand the questions she was going to ask. It was kind of hilarious, until you realized that this was her job, and that she voted on critical financial regulatory questions.

Nor is this an isolated pattern; every time I see Maxine Waters at a hearing I know that the questions are going to be bizarre, and that Congresswoman Waters will make them even stranger with garbled readings and off-topic follow-ups.

* If I actually have to tell you this, these financial institutions do not really deal with consumers, much less their credit cards. I’m not picking on you — you have an excuse. You’re not a member of the financial services committee.

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