In past ages, the desire of kings and emperors to control the lives of their people was no less than it is now, but they simply lacked the means to substantially affect the average serf or peasant’s daily life. A tax collector or company of soldiers might come by occasionally, but it was the church and not the state that formed the polestar around which most lives revolved. But beginning in the late 19th century, technology allowed the governments of the industrialized nations to reach down into each city, town, and hamlet, and “adjust” things directly. In totalitarian regimes the impulse was malign, but in western nations the intentions were mainly good: to provide subsistence and aid for those in need of it.
But one thing has become clear in the western nations since the welfare-state started in earnest after World War II: it spreads like kudzu, it encompasses and infantilizes ever-larger percentages of the population, and it beggars even the richest and most powerful countries. Leave aside questions of morality and efficacy for the moment — it is dreadfully clear that the main problem with the welfare-state is that we can’t afford it. No one can, no matter how rich or powerful.
This is the paradox of the welfare state: it will surely ruin us if left to run unchecked, yet so many people now depend upon it that we can’t stop.
[. . .]
We have so successfully turned Americans into wards of the state that any significant change will (I fear) have to be imposed by fiat or by circumstance, because I don’t think it will ever take place at the political level. There is simply no way to get from here to there without making the kinds of wrenching changes that no democratic/republican form of government is good at. (If you doubt me, look at the protests in Greece, Ireland, and Portugal. Even when the writing is on the wall, the population does their best to ignore it.)
Monty, “She Walks in DOOM! Like the Night…”, Ace of Spades HQ, 2011-03-22
March 22, 2011
Why nobody takes conservative promises too seriously
Today is budget day, when federal Finance Minister Jim Flaherty will be introducing the Conservative budget for 2011. Unless something has suddenly changed in the government’s philosophy, don’t expect anything daring:
First and foremost, the budget should contain a plan for reducing federal spending in real terms over the next four or five years. Mr. Flaherty’s 2010 budget outlined how the federal government intended to restore balance to the federal books by 2015 by holding the line on spending increases to just over 1% a year while praying for a return to robust annual revenue increases. In fact, merely planning to hold the line on spending is never going to be enough. For one thing, the Conservatives have never proven themselves capable of pulling it off. Despite coming to power in 2006 on a message of fiscal restraint, the Tories raised federal program spending by an average of 6% in each of their first three budgets before the worldwide finance crisis of 2008. Since then, they have added $100-billion to the national debt, in large part thanks to stimulus spending of dubious worth.
According to the Canadian Taxpayers Federation, as of last Friday, Canada’s debt stood at nearly $563-billion. This means the debt repayments made over the 11 years before the recession began have been wiped out, and that the federal treasury is back to where it was before the Liberals’ then-finance minister Paul Martin brought down his austerity budget in 1995.
Since the Tories took power five years ago, program spending has expanded by nearly 40% and the federal civil service has grown by nearly 20%. We’re sorry, but we just don’t trust a government with a track record like the Tories’ to be able to regain budget balance simply by holding the line on new spending.
They can promise all sorts of things, but what they seem best at doing is pretending not to be “conservative” at all.
The government may fall, as the opposition are calling for even higher spending on “universities, home care, daycare, unemployment, seniors and Quebec”. This may work to the Conservatives’ advantage as they’re (temporarily) riding high in the opinion polls, so they might be able to win a majority if an election is forced on them over this budget. Of course, the opposition can read the polls too, so they may not be as eager to throw Stephen Harper an opportunity to win an easy victory.
Update: Well, the budget was tabled in the House, the opposition parties all rejected it “as it stands”, and the prime minister has stated they will not accept any amendments. For Thursday’s performance in the Ottawa Little Theatre, the budget will get first reading, which means the first opportunity for the government to be defeated . . . which means a May general election.
“He is kind of like a rock star, a nerdy professor, and your crazy uncle rolled into one”
Andrew Foy tries to place Ron Paul in the context of the modern Republican Party:
In his recent editorial “The Fighters vs. the Fixers,” appearing on National Review Online, Jonah Goldberg discussed what I suspect is his crop of contenders for the upcoming election: Tim Pawlenty, Mitch Daniels, Mitt Romney, Sarah Palin, Newt Gingrich, and Mike Huckabee. Considering that Paul smoked all of these candidates in the 2011 CPAC straw poll, where he garnered 30% of the vote, it was an odd choice to leave him out, and even more so when you account for the fact that Goldberg’s recently edited book Proud to be Right: Voices of the Next Conservative Generation featured several essays in which the authors expressed strong libertarian points of view.
Ah, but that CPAC straw poll was explained away as “Paultards” packing the event, which no other candidate would ever do, so the poll result was therefore invalid. Oh, and lots of chatter that Paul supporters would not be welcome to the next CPAC.
. . . Paul is an outspoken advocate of Austrian economics. Without being an economist myself, I would say that this economic school of thought argues against econometric models, state planning, bailouts, economic stimulus, and the monetary policy of the Federal Reserve. One of the hallmarks of Austrian economics, for which Hayek won a Nobel Prize, is the view that central banks create asset bubbles and hence the business cycle. Austrian economics predicted the recent housing collapse and economic recession when the mainstream economists and politicians, to whom we’re still wedded, were telling us that everything was “A-okay.”
In a 2007 address to the American Economic Association, Bernanke proclaimed, “The greatest external benefits of the Fed’s supervisory activities are those related to the institution’s role in preventing and managing financial crises. In other words, the Fed can prevent most crises and manage the ones that do occur.” A year later, we were mired in the biggest financial collapse since the Great Depression. While the great majority of politicians today (Democrats and Republicans) are happy to heed the advice and inflationary policies of the Fed, such as QE2, Paul is a lone voice in the wilderness crying foul. Conservatives should welcome his dissent.
March 21, 2011
The nuclear power industry’s technological lock-in
Leon Neyfakh looks at how light water reactors became the “default” choice of the nuclear power industry:
Japan’s reactors are “light water” reactors, whose safety depends on an uninterrupted power supply to circulate water quickly around the hot core. A light water system is not the only way to design a nuclear reactor. But because of the way the commercial nuclear power industry developed in its early years, it’s virtually the only type of reactor used in nuclear power plants today. Even though there might be better technologies out there, light water is the one that utility companies know how to build, and that governments have historically been willing to fund.
Economists call this problem “technological lock-in”: The term refers to the process by which one new technology can prevail over another for no good reason other than circumstance and inertia. The best-known example of technological lock-in comes from the 1970s, when VHS and Betamax, two different kinds of videotape, competed in the market until VHS gained a slight lead and then leveraged it to total domination. Whether the VHS format was actually superior to Betamax didn’t matter. After the lock-in, consumers no longer had a choice.
Much more is at stake in nuclear power. Some reactor designs are safer than others in an accident; some are more efficient than others in their use of fuel and produce less nuclear waste. The fact that the industry settled on light water over any number of alternatives was determined in the years after World War II, when the US Atomic Energy Commission and Navy Admiral Hyman Rickover made a series of hasty decisions that irreversibly set the course for how nuclear power plants around the world are built today.
“There were lots and lots of ideas floating around, and they essentially lost when light water came to dominate,” said Robin Cowan, a professor at the University of Strasbourg and the University of Maastricht who wrote a 1990 paper in The Journal of Economic History about the nuclear industry’s technological stagnation. “The market tends to choose a dominant design before it’s optimal, and it tends to under-explore.”
March 20, 2011
March 15, 2011
Shang-Jin Wei on the Chinese sex imbalance and its economic impact
China’s one-child policy not only intruded into the personal lives of Chinese couples, but it may also have been a key contributor to the economic bubble:
Could a reproductive policy have caused the financial crisis? Could it still be wreaking havoc with the world economy? During a lively discussion at the Council on Foreign Relations yesterday, Columbia professor Shang-Jin Wei said this could be the case. He claimed that the skewed Chinese sex ratio (there are more men than women) can explain much of global trade imbalances. Mr Wei reckons the Chinese sex ratio can explain the high Chinese saving rate, and this is what’s behind China’s current-account surplus.
China adopted the one child law in the early 1980s. It resulted in a skewed sex ratio because many couples preferred a male baby and aborted female fetuses. In 1980, 106 boys were born were born for every 100 girls. By 1997, it was 122 boys for every 100 girls. This means that today one in nine Chinese men will probably never marry and the situation is expected to get worse as time goes on. It’s been suggested that the large pool of single men with no marriage prospects can lead to social unrest. What that will mean for China’s political future is uncertain and potentially troubling. But the world may already be experiencing the economic impact of this policy. Trade imbalances, specifically the Chinese current account surplus and America’s current account deficit, are often cited as a cause of the financial crisis. They provided a glut of cheap, easy capital which fed the housing bubble.
[. . .]
The lack of a social safety net is often blamed for the high Chinese saving rate. Without welfare and government pensions the Chinese must save to self-insure themselves. But Mr Wei pointed out that even as the government has extended more social welfare programmes, the saving rate has continued to rise. He believes the uneven sex ratio can explain half of the increase in private saving between 1990 and 2005. He explained that the marriage market is becoming very competitive with so few girls. Chinese parents want to accumulate as much wealth as possible to ensure that their son can attract a wife. It is also important to provide sons with the best education possible. A competitive marriage market means that members of the disadvantaged gender must raise their game, which in China means greater wealth and education.
Mr Wei also reckons the sex ratio can explain capital accumulation in the corporate sector. The desire to accumulate wealth means that boys and their parents are more likely to become entrepreneurs, work more hours and take more unpleasant jobs. He found higher rates of entrepreneurship in areas with more skewed sex ratios.
This, of course, is the optimistic view of things. The pessimistic view involves those tens of millions of men who can never find wives and projects that into social unrest, civil disorder, and military adventurism. Let’s hope the optimistic view is closer to being correct.
March 14, 2011
Toledo, Ohio
P.J. O’Rourke remembers his home town:
My hometown, Toledo, Ohio, is one of those junkyards of American capitalism, a deindustrialized old industrial city. The population has declined from 383,818 in 1970 to 316,851 today. The unemployment rate is 10.4 percent. Jeeps are still made there, but most Toledo factories are gone — Auto-Lite, Willys-Overland, Champion Spark Plug, the glass plants of Owens-Illinois and Libbey-Owens-Ford. Toledo Scales aren’t made in Toledo anymore.
Downtown, the department stores are closed, as are most of the shops, theaters, restaurants, and bars. The city’s center looks plucked. Half the buildings have been razed. Toledo is a failure.
Actually, Toledo always was a failure. Incorporated in 1837, with a fancy name for what had been called the Great Black Swamp, Toledo was a land scam. A canal joining the Ohio River to Lake Erie was supposed to have its terminus there. The scam collapsed that very year, in the Panic of 1837, when Andrew Jackson ended easy land-buying credit. The canal did open, but not until 1845, by which time railroads had taken over shipping.
Toledo tried to be a rail hub. In 1860 it had six railroads. They were all short-line operations, each with a different track gauge and none connected to long-haul routes. Toledo’s Erie and Kalamazoo Rail Road never reached Kalamazoo.
March 11, 2011
Examining externalities
Predrag Rajsic looks at the economic case for governments to address externalities:
Some theorists claim that externalities are probably the most legitimate reason for state intervention in human interactions. The ethical case for intervention is that it can presumably increase overall economic efficiency. This article demonstrates that, even if one accepts this ethical principle, the usual choice of externality-generating actions that are believed to justify state intervention is purely arbitrary.
In fact, according to the definition of actions with external effects, any human action in a multi-individual society would qualify for regulation under the banner of improving economic efficiency (i.e., internalizing externalities). However, the nature of human existence renders this internalization impossible. Thus, we end up with a paradoxical situation where every action inevitably fails the ethical criterion we have put in front of ourselves.
[. . .]
Government intervention is commonly believed to be the correcting mechanism. In the cases where too much of an action is being performed, the government should coercively limit the externality-creating action (regulations, taxes, penalties, quotas, etc.) Alternatively, actions that result in positive externalities should be encouraged using the means available to the government (i.e., subsidies).
These government interventions are supposed to move the economy to the output mix as close as possible to the mix supposedly predicated by the model of perfect competition. In this sense, the model of perfect competition is adopted as a measuring stick for determining the ethical validity of individual action. According to this principle, one ought not act without taking into account the effect of his or her actions on all other individuals within the economy.
Reason.TV: Should governments subsidize alternative energy?
Amazon recommendation fail
Like many of you, I’ve bought lots of books from Amazon over the years. Knowing a fair bit about my book-buying habits, their recommendations for books I might be interested in are usually pretty good. Today’s email rather missed the mark:
I’m not sure how that book relates in any way to the work of Fernand Braudel:
Fernand Braudel (24 August 1902 – 27 November 1985) was a French historian and a leader of the Annales School. His scholarship focused on three main projects, each representing several decades of intense study: The Mediterranean (1923–49, then 1949–66), Civilization and Capitalism (1955–79), and the unfinished Identity of France (1970–85). His reputation stems in part from his writings, but even more from his success in making the Annales School the most important engine of historical research in France and much of the world after 1950. As the dominant leader of the Annales School of historiography in the 1950s and 1960s, he exerted enormous influence on historical writing in France and other countries.
Braudel has been considered one of the greatest of the modern historians who have emphasized the role of large-scale socioeconomic factors in the making and writing of history.[1] He can also be considered as one of the precursors of World Systems Theory.
If you’ve browsed the history section, you’ll have seen them:
March 10, 2011
Stephen Gordon: “business groups are pro-BUSINESS, not pro-MARKET”
Stephen Gordon provides a useful reminder about not conflating “business” interests with “free market” interests: they’re often in conflict.
This is something that should always be kept in mind in economic policy discussions: business groups are pro-BUSINESS, not pro-MARKET.
It is especially important to keep this in mind when we read news items such as this, in which several of Canada’s largest banks voice their opposition to the proposed TMX-LSE merger.
It is true that business groups will often make use the language of markets, and it is obviously in their interest to portray themselves as defenders of markets.
But they are a lobby group like any other, and cannot be relied upon to defend the general public interest.
This point is sometimes hard to see, especially since many business groups have the reputation of favouring such pro-market policies such as free trade. And so they do, but for precisely the wrong reason: as a way of increasing exports.
This is why you can often find big business working hand-in-mailed-gauntlet with regulators to shut down competitors and make it harder for new competitors to enter their markets: corporations do not naturally favour free markets. Corporations exist to maximize profit for their shareholders, not primarily to serve customers. Serving customers is one way to accomplish that end, but in a regulated economy it may not be the best way to do it. If you can get the naked force of government to muscle in and suppress other businesses, that leaves more profit for you (as long as you co-operate with the government, that is).
Small businesses don’t have the ability to cosy up to government in the same way big corporations can, so even if they band together in trade groups, they won’t have the ability to capture and direct the regulators in the way big businesses often can.
March 9, 2011
“It’s the libertarians who push this crap”
Dave Weigel tries to find the answer to the burning question “Why do conservatives hate trains so much?”:
But it could hardly make less sense to liberals. What, exactly, do Republicans, conservatives, and libertarians have against trains? Seriously, what? Why did President George W. Bush try to zero out Amtrak funding in 2005? Why is the conservative Republican Study Committee suggesting that we do so now? Why does George Will think “the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism”?
“You need to distinguish between Republicans and conservatives and libertarians when you look at this,” says William Lind, the director of the American Conservative Center for Public Transportation. “It’s the libertarians who push this crap.”
Libertarians, of course, have no problem with trains (see, e.g., Atlas Shrugged). They do have a problem with federal spending on transportation, as do many Republicans. Atlas Shrugged was published in 1957; Amtrak took over the rails in 1971. Since then, conservatives will sing the praises of private rail projects but criticize federally funded projects that don’t meet the ideal. Rep. John Mica, R-Fla., for example, pushed a high-speed rail initiative through Congress in 2008. By 2010, he was denouncing “the Soviet-style Amtrak operation” that had “trumped true high-speed service” in Florida. In 2011, as the chairman of the House Transportation Committee, he is interested in saving the Orlando-Tampa project by building 21 miles between the airport and Disney World. This is about 21 miles farther than local Republicans want to go.
