Quotulatiousness

October 12, 2018

Carbon taxes may be efficient, but let’s not rush into it quite yet…

Filed under: Cancon, Economics, Environment, Government — Tags: , , , , — Nicholas @ 05:00

Terence Corcoran says we shouldn’t jump at the chance to kill our economy just because carbon taxes are efficient:

It didn’t take long for federal Environment Minister Catherine McKenna to tweet out the news implying that the Nobel committee supported the government of Canada’s carbon-price scheme. The Montreal-based carbon-taxing NGO, the Ecofiscal Commission, hailed Nordhaus for having “demonstrated” that a universal price on carbon was the most “efficient” way to curb climate change.

Before jumping aboard the Nordhaus bandwagon, however, carbon-taxing politicians and all Canadians might want to take a closer look at what they are being led into.

[…]

Nordhaus and his co-winner of this year’s Nobel in economics, former Stanford economist Paul Romer, are great believers in “incentives.” As Romer said in a post-Nobel interview (tweeted by McKenna, naturally): “I believe, and I think Bill (Nordhaus) believes, that if we start encouraging people to find ways to produce lower carbon energy, everybody’s going to be surprised at the progress we’ll make as we go down that path. All we need to do is create some incentives that get people going in that direction, and that we don’t know exactly what solution will come out of it — but we’ll make big progress.”

But why a tax? If all we need to do is deploy the price mechanism, why impose a tax? Let’s ignore for a moment the dubious assumption that the science and economics of climate change are sound and settled. Would it still not be better to have the government set the carbon price, require the energy companies to charge it, but allow the revenue to flow not to government but through to energy companies and their shareholders, and others in the supply chain? That’s where market forces and the above-mentioned miracle price mechanisms — rather than government planners — would determine where to invest and what energy alternatives are best. (No gas retailer could possibly eat the cost of a 90-cent-per-litre carbon tax, so they’d have no choice but to pass at least most of it along to the customer).

One of the ironies of carbon taxation is the enthusiasm for “market mechanisms” and “prices” among politicians who otherwise abhor and resist market pricing of everything from roads to health care to rental housing to public transit to education to broadcasting and telecom and the internet and the price of cannabis, not to mention the Canadian price of milk and chickens. With carbon, market pricing is suddenly a great idea, no matter how fanciful the analyses and speculative the projections.

October 6, 2018

QotD: Macroeconomics

Filed under: Economics, Quotations — Tags: , — Nicholas @ 01:00

[I]t’s not too much to say that macroeconomics in the Samuelsonian-Keynesian mode abstracts away from most of what is essential in economics. Market processes and entrepreneurial searches for profit; specialization; the complementarity of different capital goods with each other and with labor; the role of relative prices; the reality and importance of institutions; the reality and importance of the fact that politicians are relatively uninformed and self-interested agents. These important aspects of economic and social reality are either ignored or treated haphazardly in too much of what is called “macroeconomics.”

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-11-05.

October 5, 2018

A quick way for Doug Ford to reduce Ontario’s electrical rates

Filed under: Business, Cancon, Economics, Government — Tags: , , , — Nicholas @ 03:00

Ross McKitrick, Elmira Aliakbari and Ashley Stedman outline one of the fastest ways for the Ontario government to get Ontario electricity rates back down toward the national average:

The Ford government seems to want to repair Ontario’s electricity market. It recently moved to scrap the Green Energy Act and reportedly plans to eliminate or alter the so-called Fair Hydro Plan.

While these moves will mitigate future price increases, they won’t reduce current electricity prices. In fact, according to a Fraser Institute study being released today, to lower existing prices the government must reduce what’s known as the “Global Adjustment” — an extra charge on electricity. It won’t be easy, but reducing the global adjustment could bring down electricity prices by about 24 per cent.

This would be welcome news for Ontarians, as electricity prices increased 71 per cent from 2008 to 2016, far outpacing electricity-price growth in other provinces.

[…]

Between 2008 and 2017, the GA grew from less than one cent per kilowatt-hour (a common billing unit for energy) to about 10 cents, accounting for the entire increase in Ontario electricity commodity costs over that time. Therefore, the key to lowering power prices in Ontario is to reduce the GA.

In our study, we use reports published by the Ontario Energy Board to breakdown the GA to better understand where the money goes and provide specific recommendations on how to lower electricity prices. We found that the largest component of the GA charge — nearly 40 per cent — funds subsidies paid to renewable energy sources (wind, solar, etc.) under feed-in-tariff contracts, yet these sources only provide seven per cent of Ontario’s power output.

And notably, the GA provides almost 90 per cent of revenue earned by renewable generators, with only 10 per cent coming from actual power sales. This overwhelming reliance on government subsidies (paid by ratepayers) rather than actual electricity sales reveals how distorted the pricing structure has become in Ontario.

October 3, 2018

USMCA (aka son-of-NAFTA) – what’s the damage after all?

Filed under: Business, Cancon, Economics, USA — Tags: , , , , , — Nicholas @ 03:00

The most common sentiment from Canadian comments appears to be “meh, it could have been much worse”. That doesn’t mean it’s particularly good, either:

All that cross-border yelling, a solid year of bluster and petulance, dire rhetoric about “stabs in the back” and “special places in hell,” fake deadlines and all-night negotiations, and we end up with pretty much the agreement we started with? All that was required to fix NAFTA, that destroyer of American jobs and pox on its prosperity, the deal Donald Trump memorably complained was “the worst agreement in history,” was to change its name — from North American Free Trade Agreement to US-Mexico-Canada Agreement? Seriously?

Not quite. The result is certainly a far heave from some of the more apocalyptic scenarios we had been entertaining ourselves with. But neither is it the largely unaltered “NAFTA 2.0” of much initial comment. There are substantive changes in there, most of them bad, and not all of them imposed by an overbearing U.S. on an unwilling Canada.

Still, it’s not quite the conflagration we’d been banking on, is it? Trump is the bully in middle school who threatens to take your lunch money, only to settle for a half a slice of your pizza. Or, in this case, 3.6 per cent of it.

That’s the share of the Canadian dairy market to which the U.S. will now have tariff-free access, a slight advance on the 3.25 per cent market share the U.S. had negotiated under the Trans Pacific Partnership — before Trump withdrew from it. (Oh, and “milk price classes 6 and 7” are eliminated, for fans of that dispute. It involves skim milk solids.) There are also some minor increases in tariff-free imports in the other supply-managed sectors: eggs, chicken, cheese and so on. Everything else will face the same triple-digit tariffs, as before.

That’s unfortunate. Supply management is a blight on the Canadian political and economic landscape we could well do without. The NAFTA re-negotiations were an ideal opportunity to bargain it away, as it should have been in the original NAFTA. That it remains more or less intact — even the dairy lobby could manage only a half-hearted jeremiad of imminent lacto-doom in response — is one of the chief disappointments in this agreement.

Still, what did you expect? There was never any chance of these negotiations resulting in a deepening and broadening of NAFTA — not with protectionists on both sides of the table. The only question was whether the status quo protectionists on this side — who wished to preserve all of NAFTA’s existing exemptions — could hold out against the expansionist protectionists on the other, who wished to cut NAFTA into little mercantilist pieces. As it turns out the answer is: surprisingly well.

A quick summary of the winners and losers in this agreement:

Is this a free trade agreement?

No. Unlike NAFTA, this latest agreement makes no pretense to be about free trade (or even freer trade). It’s a protectionist agreement imposed by the U.S. on the other two countries.

Who benefits from the agreement?

The primary beneficiaries of the agreement are labor unions, U.S. dairy farmers, U.S. drug manufacturers, and companies that provide automation for manufacturers (e.g., robot makers).

The agreement will require at least 30 percent of cars (rising to 40 percent by 2023) to be made by workers earning $16 an hour. This will force more cars to be produced in the U.S. and Canada since the typical manufacturing wage in Mexico is only about $5 per hour. The agreement also requires Mexico to make it easier for workers to form unions, which will make them less competitive against more productive unionized workers in the U.S. and Canada.

U.S. dairy farmers will also gain greater access to the Canadian market. Because of new restrictions on how much dairy Canada can export, there is the potential for U.S. dairy to gain a greater market share in foreign countries.

U.S. drug companies will also be able to sell pharmaceuticals in Canada for 10 years (rather than eight) before facing generic competition.

Because the agreement makes human labor in the three countries somewhat more costly, companies that create robots and other automation will likely be the long-term beneficiaries.

Who are the biggest losers in this agreement?

As with almost all protectionist trade agreements, consumers are the ones who will be hurt the most.

As the Washington Post notes, economists and auto experts think USMCA is going to cause car prices in the U.S. to “rise and the selection to go down, especially on small cars that used to be produced in Mexico but may not be able to be brought across the border duty-free anymore.”

Because the restrictions on Canadian steel and aluminum also remain in place, businesses that use those materials in manufacturing will pay inflated prices, and their products will be less competitive on the global market.

October 2, 2018

Costs of Inflation: Financial Intermediation Failure

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Marginal Revolution University
Published on 7 Feb 2017

In the previous video, we learned that inflation can add noise to price signals resulting in some costly mistakes from price confusion and money illusion. Now, we’ll look at how it can interfere with long-term contracting with financial intermediaries.

Let’s say you want to take out a big loan, such as a mortgage on a house. The financial intermediary (in this case, a commercial bank) is going to charge you an interest rate as their profit for loaning you the money. In this situation, inflation has the potential to work against you or it can work against the bank.

If the bank charges you a nominal interest rate (i.e., the interest rate on paper before taking inflation into account) of 5% and inflation climbs unexpectedly to 10% for the year, the real interest rate (nominal minus inflation) falls to -5%. The bank actually loses money. However, if inflation has been higher and banks are charging 15% for mortgages and inflation rates fall unexpectedly to 3%, you’re stuck paying a real interest rate of 12%!

The above scenarios are similar to what actually happened in the United States in the 1960s and 1970s. Inflation was low in the 60s. But then in 70s, inflation rates climbed up unexpectedly. People that purchased a home in the 60s lucked out with low interest rates on their mortgages coupled with higher inflation, and many were able to pay off the loans more quickly than expected. But anyone that purchased a higher interest rate mortgage in the 70s only saw inflation fall back down. It was good for the banks and a costly choice for the homeowners. They were saddled with a high-interest mortgage while lower inflation meant a lower increase in wages.

It’s not that the people buying homes in the 1960s were smarter than those in the 70s. As we’ve noted in previous videos, inflation can be very difficult to predict. When banks expect that inflation might be 10% in the coming years, they will generally adjust their nominal interest rates in order to achieve the desired real interest rate. This relationship between real and nominal interest rates and inflation is known as the Fisher effect, after economist Irving Fisher.

We can see the Fisher effect in the data for nominal interest rates on U.S. mortgages from the 1960s through today. As inflation rates rise, nominal interest rates try to keep up. And as the inflation rates fall, nominal interest rates trail behind.

Now, if inflation rates are both high and volatile, lending and borrowing gets scary for both sides. Long-term contracts like mortgages become more costly for everyone with much higher risk, so it happens less. This is damaging for an economy. Coordinating saving and investment is an important function of the market. If high and volatile inflation is making that inefficient and less common, total wealth declines.

Up next, we’ll explore why governments create inflation in the first place.

September 29, 2018

‘We Are Always on the Verge of Chaos:’ The PJ O’Rourke Interview

Filed under: Books, Economics, Liberty, Politics — Tags: , , , — Nicholas @ 04:00

ReasonTV
Published on 28 Sep 2018
The libertarian humorist talks about his new book, how to drink in war zones, and why the Chinese are more American than most U.S. citizens.

Reason is the planet’s leading source of news, politics, and culture from a libertarian perspective. Go to reason.com for a point of view you won’t get from legacy media and old left-right opinion magazines.

—————-

For the last 45 years, no writer has taken a bigger blowtorch to the sacred cows of American life than libertarian humorist P.J. O’Rourke.

As a writer at National Lampoon in the 1970s, he co-authored best-selling parodies of high school yearbooks and Sunday newspapers. For Rolling Stone, The Atlantic, and other publications, O’Rourke traveled to war zones and other disaster areas, chronicling the folly of military and economic intervention. In 1991, he came out with Parliament of Whores, which explained why politicians should be the last people to have any power. Subtitled “A Lone Humorist Attempts to Explain the Entire U.S. Government,” this international bestseller probably minted more libertarians than any book since Free to Choose or Atlas Shrugged. More recently, O’Rourke published a critical history of his own Baby Boomer generation and How The Hell Did This Happen?, a richly reported account of Donald Trump’s unexpected 2016 presidential victory.

O’Rourke’s new book, None of My Business, explains “why he’s not rich and neither are you.” It’s partly the result of hanging out with wealthy money managers and businessmen and what they’ve taught him over the years about creating meaning and value in an ever richer and crazier world. It covers everything from social media to learning how to drink in war zones to why the Chinese may be more American than U.S. citizens. He also explains why even though he doesn’t understand or like a lot of things about modern technology, he doesn’t fear Amazon or Google, especially compared to people who are calling for Socialism 2.0.

I sat down with O’Rourke to talk about all that, the good and bad of Donald Trump, and why being an “old white man” just isn’t what it used to be (and why he’s OK with that).

Edited by Ian Keyser. Cameras by Jim Epstein and Mark McDaniel. Intro by Todd Krainin.

Please Listen Carefully” by Jahzzar used under a Creative Commons license.

September 28, 2018

The staunch Progressive dismissal of Warren Harding and Calvin Coolidge

Filed under: Economics, Government, History, Politics, USA — Tags: , , , , , — Nicholas @ 05:00

In Richard Epstein’s review of Jill Lepore’s recent book These Truths: A History of the United States, there’s some interesting discussion of the Harding and Coolidge administrations:

Lepore’s narrative of this period begins with President Warren Harding, who, she writes, “in one of the worst inaugural addresses ever delivered,” argued, in his own words, “for lightened tax burdens, for sound commercial practices, for adequate credit facilities, for sympathetic concern for all agricultural problems, for the omission of unnecessary interference of Government with business, for an end to Government’s experiment in business, for more efficient business in Government, and for more efficient business in Government administration.” Harding’s sympathetic reference of farmers is a bit out of keeping with the rest of his remarks. Indeed, farmers had already been a protected class before 1920, and the situation only got worse when Franklin Roosevelt’s administration implemented the Agricultural Adjustment Acts of the 1930s, which cartelized farming. But for all her indignation, Lepore never explains what is wrong with Harding’s agenda. She merely rejects it out of hand, while mocking Harding’s conviction.

Given her doggedly progressive premises, Lepore may have predicted a calamitous meltdown in the American economy under Harding, but exactly the opposite occurred. Harding appointed an exceptionally strong cabinet that included as three of its principal luminaries Charles Evans Hughes as Secretary of State, Andrew Mellon as Secretary of Treasury, and Herbert Hoover as the ubiquitous Secretary of Commerce, with a portfolio far broader than that position manages today. And how did they perform? Lepore does not mention that Harding coped quickly and effectively with the serious recession of 1921 by refusing to follow Hoover’s advice for aggressive intervention. Instead, Harding initiated powerful recovery by slashing the federal budget in half and reducing taxes across the board. Both Roosevelt and Obama did far worse in advancing recovery with their more interventionist efforts.

To her credit, Lepore notes the successes of Harding’s program: the rise of industrial production by 70 percent, an increase in the gross national product by about 40 percent, and growth in per capita income by close to 30 percent between 1922 and 1928. But, she doesn’t seem to understand why that recovery was robust, especially in comparison with the long, drawn-out Roosevelt recession that lingered on for years when he adopted the opposite policy of extensive cartelization and high taxes through the 1930s.

Lepore is on sound ground when she attacks Harding and Coolidge for their 1920s legislation that isolated the American economy from the rest of the world. The Immigration Act of 1924 responded to nativist arguments by seriously curtailing immigration from Italy and Eastern Europe, subjecting millions to the ravages of the Nazis a generation later. Harding and Coolidge also increased tariffs on imports during this period. What Lepore never quite grasps is that any critique of these actions rests most powerfully on the classical liberal worldview that she rejects. Indeed, Harding and Coolidge exhibited the same intellectual confusion that today animates Donald Trump, who gets high marks for supporting deregulation and tax reductions at home, while simultaneously indulging in unduly restrictive immigration policies and mercantilist trade wars abroad. Analytically, however, the same pro-market policies should control both domestically and abroad. Hoover never got that message — as president, he signed the misguided Smoot-Hawley Tariff Act of 1930 that sharply reduced the volume of international trade to the detriment of both the United States and all of its trading partners, which helped turn what had been a short-term stock market downturn in 1929 into the enduring Great Depression of the 1930s.

September 27, 2018

Revising the accredited investor rules

Filed under: Economics, Humour — Tags: , , — Nicholas @ 03:00

Alex Tabarrok summarizes a suggestion from Matt Levine on how to improve the rules for accredited investors:

Matt Levine has an excellent piece on accredited investor rules and his alternative:

  • Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
  • To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing, anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
  • Then you take the form to an SEC employee, who slaps you hard across the face and says “Really???” And if you reply “Yes, really,” then she gives you the certificate.
  • Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.

September 26, 2018

The New York Times on the minimum wage question

Filed under: Business, Economics, Media, USA — Tags: , , , — Nicholas @ 05:00

Jon Miltimore shares the key points of a New York Times editorial on the minimum wage:

The minimum wage is the Jason Vorhees of economics. It just won’t die.

No matter how many jobs the minimum wage destroys, no matter how many times you debunk it, it always comes back to wreak more havoc.

We’ve covered the issues at length at FEE, and quite effectively, if I do say so myself. But I have to admit that one of the greatest takedowns of the minimum wage you’ll ever find comes from an unlikely place: The New York Times.

There are many reasons people and politicians find the minimum wage attractive, of course. But the Times, in an editorial entitled “The Right Minimum Wage: 0.00,” skillfully rebuts each of these reasons in turn.

Noting that the federal minimum wage has been frozen for some six years, the Times admits that it’s no wonder that organized labor is pressuring politicians to increase the federal minimum wage to raise the standard of living for poorer working Americans.

“No wonder. But still a mistake,” the Times explains. “There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed.”

But why has the idea “passed”? Why would raising the minimum wage not help the working poor?

“Raising the minimum wage by a substantial amount would price working poor people out of the job market,” the editors explain.

But wouldn’t the minimum wage increase the purchasing power of low-income Americans? Wouldn’t a meaningful increase allow a single breadwinner to support a family of three and actually be above the official U.S. poverty line?

Ideally, yes. But there are unseen problems, as the editors point out:

    There are catches…[A higher minimum wage] would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.

But if that’s true, why would progressives support such a law? What’s their rationale for supporting a minimum wage if it does more harm than good? Is it sheer political opportunism?

Not necessarily. The Times explains:

    A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable.

There’s just one problem with this logic, the editors say:

    The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

Reforming Union Pacific

Filed under: Business, Economics, Railways, USA — Tags: , , , — Nicholas @ 03:00

Fred Frailey explains why the vast Union Pacific system is due for some serious economic streamlining:

Union Pacific locomotive 5587, a General Electric AC4400CW-CTE (AC44CWCTE)
Photo by Terry Cantrell via Wikimedia Commons.

Union Pacific is the ideal lab rat for Precision Scheduled Railroading, practiced by the late Hunter Harrison on four Class I railroads, with great rewards for shareholders and mixed results for customers. UP, which will begin recasting itself October 1, is ideal for the role because it has too many employees, too many unproductive route miles, and too many expensive toys. Plus, it is less interested in increasing market share than in maximizing freight rates, which makes right-sizing the railroad easier. Let’s start by running the numbers.

Employees. At the peak of the last railroad cycle in 2006, Union Pacific had already been lapped by its western competitor, BNSF Railway, in both cars originated and revenue ton miles. Since then, through 2017, UP’s originations and revenue ton miles both fell 17 percent, while BNSF RTMs actually set a record in 2017. Yet at 44,146 employees last year, UP’s employee count was still 7 percent higher than that of BNSF. To put this another way, for UP’s productivity per employee (revenue ton miles per worker) to equal its competitor’s, it would need to slice the headcount by 16,000. A place to start might be headquarters in Omaha. UP counted 3,678 executives, officials and staff assistants in 2017 versus BNSF’s 1,511.

Barren route miles. Salina, Kan., to Provo, Utah, is becoming a traffic wasteland. That didn’t stop UP from laying welded rail and concrete ties and from covering the almost 1,000 miles with centralized traffic control. Meanwhile, one train a day (plus Amtrak) operates In Missouri between St. Louis and Poplar Bluff, Ark. And the railroad has effectively ceased freight service between Watsonville Junction and San Luis Obispo, Calif., and is close to doing so over the rest of the Coast Line to Los Angeles. All of these routes and perhaps many others you can identify contribute little revenue but buckets of costs, inflating the operating ratio (which is the percentage of revenues eaten up by operating costs). They would constitute Hunter Harrison’s first target.

Map of the Union Pacific Railroad as of 2008, with trackage rights in purple (the special Chicago-Kansas City intermodal trackage rights are lighter).
Image via Wikimedia Commons.

[…]

Moreover, there are aspects to PSR as practiced by Hunter Harrison that customers won’t like. At the core of Precision Scheduled Railroading is intense use of assets: Run as many trains every day one direction as you do the other, fill them to maximum designed length and operate them at similar speeds. This isn’t how the commercial world works, and the Hunter Harrison way to make customers ship seven days a week was to discount rates on slow days and slap on surcharges on busy days. This keeps your crews and equipment fleet in motion at all times, and those cars and locomotives not continually used can be retired. Goodbye to growth and increased market share, which is a messy process requiring you to accede to the needs of customers rather than the other way around. But it is efficient.

However, if Union Pacific is serious about serving its customers better and delivering individual cars rather than trains to their destinations on schedule, I have an idea that I guarantee will achieve that result: Base salaried bonuses and stock grants on UP’s success in getting cars to customers on the right day and time and on the right train. UP has scheduled individual cars for decades, but there have never been monetary consequences for achieving those plans. People do follow the money. And when Union Pacific does for customers what it says it will do, calling the process Precision Scheduled Railroading or whatever you wish, I will be leading the applause.

September 25, 2018

QotD: The Laffer Curve

Filed under: Britain, Economics, Government, Quotations — Tags: , , — Nicholas @ 01:00

Around a certain sort of leftist mention of the Laffer Curve just brings a derisive snort. The sadness of that reaction being that it’s just an obvious mathematical truth. Tax rates of 0 % and 100 % bring in no revenue. Somewhere in between maximises the moolah. Note what isn’t being said, that all tax cuts always pay for themselves, nor even that lower tax rates are necessarily a good thing. Only that there’s some optimal level with regard to revenue collection.

All the arguments about the optimal level of government are over in the Wagner Curve and such others.

The Laffer Curve is also made up of two components, the income and substitution. Some people will work just to make their nut. Observational studies have shown that many taxi drivers do. So, increase their tax rates and they’ll work more. The substitution effect is, well, what’s that net wage worth to me? What’s the value of not working? When going fishing is worth more than working then people will go fishing. The curve as a whole is the interplay of these two effects.

Each tax in each society has its own such curve. A transactions tax of 0.01% can reduce revenue collection, as the EU’s study of a financial transactions tax shows us. Taxes upon income of 20% are below that Laffer Curve peak.

But where, exactly, is that peak for taxes upon income? The best study we’ve got, Saez and Diamond, says between 54% and 80% dependent upon other structures in the tax system. The Tory part of the UK Treasury says around 40 to 45% for income tax, plus national insurance, so at the bottom end of that S&D range. Many lefties want to say it’s higher so we can tax “the rich” more.

Tim Worstall, “How Lovely To Spot The Laffer Curve In The Wild – Doctors’ Pensions Edition”, Continental Telegraph, 2018-09-05.

September 24, 2018

QotD: Entrepreneurs

Filed under: Business, Economics, Quotations — Tags: , — Nicholas @ 01:00

We need entrepreneurs to decide what to do.The only alternative is governmental bureaucracy, which is good for national defense and a few other things, but very bad at most of what we do, from room rental to rock music. The entrepreneuseonly succeeds if people like what she does, and agree voluntarily to pay for it. A free society is one of choice. Entrepreneurs give choice, bureaucrats crush it.

Deirdre Nansen McCloskey, “Why We Need to Admire Entrepreneurs”, Peace Love Liberty, 2018-09.

September 23, 2018

How to use the stock market as a scorecard during a trade war

Filed under: Business, China, Economics — Tags: , , , — Nicholas @ 03:00

At the Continental Telegraph, Tim Worstall explains how even the financial journalists at Fortune are misunderstanding what the changes in stock market values mean during Trump’s ongoing trade disputes with China:

… how stock markets react is not a good guide to the positive effects of tariffs. Quite the opposite in fact. It’s a much better guide to how we’re all getting screwed by tariffs. That is, the better the US stock market does the more evidence we’ve got of the bad effects of tariffs and a trade war.

Think on it. Why is Trump imposing tariffs? To protect American business from competition by those dastardly foreigners. Who loses in the absence of competition from the Yellow Peril? Those American consumers who would have bought those better/cheaper Chinese goods if they were able to. Who gains from tariffs? American businesses who can now gouge the American consumer a little more in the absence of those items imported from East Asia.

So, a rise in the US stock market is a guide to how much more profit American business can screw out of the American public. It’s a measure, a reasonably good and precise one too, of how much we the people are losing from the trade war and tariffs. More exactly, it’s the capitalised value of the ongoing losses we’re suffering from this restriction of our choices, the competition those who supply us face.

That is, the better the stock market performance the higher those costs and the more we’re losing the trade war. That is, as long as you accept that it is consumers, not producers, that matter, but then that’s the standard economic assumption ever since Adam Smith even if it gets lost in Washington DC often enough.

The US stock market rising in response to US tariffs is evidence of the losses from tariffs, not the gains.

September 21, 2018

QotD: “Let us abandon Capitalism, and go back to Adam Smith”

Filed under: Bureaucracy, Economics, Quotations — Tags: , , — Nicholas @ 01:00

An old friend of mine, among my bosses in late ’seventies Bangkok — Antoine van Agtmael, genuinely admired and loved — was the genius who invented the expression “emerging markets,” to replace that downer, “developing countries.” (Which in turn had been the euphemism for “backward countries.”) It was by such creative hocus-pocus that attitudes towards “Third World” investment were dramatically changed, in the era of Thatcher and Reagan. A man of indomitably good intentions; charitable, selfless, and a brilliant merchant banker; a little leftish in his social and cultural outlook — I give Antoine’s phrase as an example of the sort of poetry that changes the world. I took pride, once, in editing a book of his astute investment “case studies.”

Thirty-six years have passed, since in my youth and naiveté I was draughting a book of my own on what is still called “development economics.” (I was a business journalist in Asia then, who did a little teaching on the side.) It seemed to me that “free enterprise” should be encouraged; that “government intervention” should be discouraged; but that the aesthetic, moral, and spiritual order in one ancient “developing country” after another was being undermined by the success, as also by the frequent failures, not only of foreign but of domestic investors. This bugged me because, like my father before me (who had worked and taught westernizing subjects in this same Third World), my well-intended efforts on behalf of “progress” were ruining everything they touched; everything I loved.

My attempt to explain this, if only to myself, ended in abject failure to answer my central question: “Why does capitalist success make the world ugly and its people sad?”

Only now do I begin to glimpse an answer; and that part of it could be expressed in the imperative, “Let us abandon Capitalism, and go back to Adam Smith.”

David Warren, “In defence of economic backwardness”, Essays in Idleness, 2016-12-01.

September 14, 2018

A sensible post-Brexit farming policy

Filed under: Britain, Bureaucracy, Business, Economics, Europe, Government — Tags: , , , — Nicholas @ 05:00

Tim Worstall linked to his 2016 post at the Adam Smith Institute that nicely summarizes the best post-Brexit farm policy for Britain:

We have an alternative policy framework to suggest. Let’s just not have a policy. No subsidies, no payments, no department, no Minister, nothing, nowt, zippedy dooh dah. The New Zealand option. You’ve had it good for a century or more now there’s yer bike and have a nice ride.

We would not swear that this is true but we have heard that it is so — British farming has long passed Parkinson’s Event Horizon. There are now more bureaucrats “managing” farming than there are farmers farming. Let’s not pay the farmers anything and thus we don’t need the bureaucrats paying it — a double saving. Instead of £2 to £3 billion a year in taxes going to the farmers, plus whatever the amount again to pay it to them, we could just keep that what, £5 billion? And go and buy food from whomever.

Sounds like a plan really and we recommend it to all. Let’s use Brexit to right some of the wrongs of our current system. One of those wrongs being the incessant whining and demands for bribery from the farming sector.

The correct design of the new domestic agriculture policy is that there isn’t one. And nor is there any funding for either it or its absence. In short Meurig, go away.

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