I am still a supporter of school vouchers. I don’t think they’ve lived up to the hopes that I (and a bunch of other folks) had for them. But that said, the best opponents can say is that they don’t do all that much better than the public schools on academic measures. Parents like them, kids like them, and they cost less. I just don’t see a good argument against them.
I think it’s telling that of the folks I know who oppose vouchers, not one of them has voluntarily kept their kids in a failing urban school. When they move, they choose a house in a good school district. I don’t see how you can morally do that and then tell some other, poorer parent that they need to lean into the strike zone and take one for the team.
That said, maybe there’s an argument for restricting them to kids in failing schools, or below a certain income. I don’t see any need for the government to subsidize Exeter. But for the kids who are trapped, I think they should get the same chance middle class kids do, even if it’s not the panacea we once hoped.
Megan McArdle, “Ask Me Anything”, Reddit, 2017-04-10.
April 13, 2019
QotD: School vouchers
April 12, 2019
QotD: Money is not wealth
If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money.* Wealth is as old as human history. Far older, in fact; ants have wealth. Money is a comparatively recent invention.
Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn’t need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn’t matter how much money you had.
Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.
Money is a side effect of specialization. In a specialized society, most of the things you need, you can’t make for yourself. If you want a potato or a pencil or a place to live, you have to get it from someone else.
How do you get the person who grows the potatoes to give you some? By giving him something he wants in return. But you can’t get very far by trading things directly with the people who need them. If you make violins, and none of the local farmers wants one, how will you eat?
The solution societies find, as they get more specialized, is to make the trade into a two-step process. Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The intermediate stuff — the medium of exchange — can be anything that’s rare and portable. Historically metals have been the most common, but recently we’ve been using a medium of exchange, called the dollar, that doesn’t physically exist. It works as a medium of exchange, however, because its rarity is guaranteed by the U.S. Government.
The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means. People think that what a business does is make money. But money is just the intermediate stage — just a shorthand — for whatever people want. What most businesses really do is make wealth. They do something people want.**
* Until recently even governments sometimes didn’t grasp the distinction between money and wealth. Adam Smith (Wealth of Nations, v:i) mentions several that tried to preserve their “wealth” by forbidding the export of gold or silver. But having more of the medium of exchange would not make a country richer; if you have more money chasing the same amount of material wealth, the only result is higher prices.
** There are many senses of the word “wealth,” not all of them material. I’m not trying to make a deep philosophical point here about which is the true kind. I’m writing about one specific, rather technical sense of the word “wealth.” What people will give you money for. This is an interesting sort of wealth to study, because it is the kind that prevents you from starving. And what people will give you money for depends on them, not you.
When you’re starting a business, it’s easy to slide into thinking that customers want what you do. During the Internet Bubble I talked to a woman who, because she liked the outdoors, was starting an “outdoor portal.” You know what kind of business you should start if you like the outdoors? One to recover data from crashed hard disks.
What’s the connection? None at all. Which is precisely my point. If you want to create wealth (in the narrow technical sense of not starving) then you should be especially skeptical about any plan that centers on things you like doing. That is where your idea of what’s valuable is least likely to coincide with other people’s.
Paul Graham, “How to Make Wealth”, Paul Graham, 2004-04.
April 10, 2019
QotD: UBI and the “end of work”
I’m sort of skeptically agnostic about the end of work. Yes, this has been predicted before, and never arrived. On the other hand, history is full of stuff that was predicted and didn’t arrive, until suddenly it did. So maybe this time is really different.
And what do we do if it is? I don’t know. I don’t think UBI [Universal Basic Income] is the answer. We have a fair amount of data about what places look like where large numbers of people are subsidized not to work. The answer is “like nowhere you’d want to live”. The predicted flowering of artistic and community endeavor does not arrive; people are depressed, less social, and spend a great deal of time on activities like watching television.
To this, UBI advocates rejoinder “But what about trust fund babies and old-style aristocrats! Everyone admires their lives of leisure!” To which my answer is “Heck no, I don’t”. The lives of the idle rich are better upholstered than the out-of-work poor, but suffer the same absence of meaning and community. They are not a model to which anyone should aspire.
Megan McArdle, “Ask Me Anything”, Reddit, 2017-04-10.
April 9, 2019
Blue’s Dumb History Tales
Overly Sarcastic Productions
Published on 8 Mar 2019Please check out That Works for the best blacksmithing on YouTube: https://goo.gl/vXsuFt
What do you get when you cross a month that has 5 Fridays with a historian who can’t do math? This nonsense, apparently.
PATREON: https://www.patreon.com/OSP
April 8, 2019
Comparing the economic performance of China’s private versus state-owned companies
If you’ve been following the blog for a while, you’ll know that I’ve long been skeptical of any official economic statistics coming out of China. The reasons for my skepticism are that vast areas of the Chinese economy were owned or controlled by the state and reporting from those entities was performed through layers of officials whose positions and personal well-being depended on those reports being as positive as possible. In a capitalist system, announcing false production or profit figures will eventually be detected (sometimes not as soon as we’d like), and the company loses the trust of customers, suppliers, and banks, making survival much more difficult. In a state-owned organization, everyone in the hierarchy has a vested interest in false information not being uncovered or reported. In a private firm, you could lose your job … in a state-run enterprise, you could be shot or sent to a “re-education camp” along with all your family. The incentive to lie is much stronger when your risks are that high.
Tim Worstall comments on a recent report that compares the performance over time of Chinese private companies, privatized state companies, and companies that are still state-run:
That China has relaxed the governmental grip upon industry in recent decades is true. That China has become very much richer in recent decades is also true. The two are not a coincidence, there’s causality there. However, we hear often enough that it’s the residual control over industry by the government that drives that success. Sure, OK, so the bureaucracy doesn’t specify prices or detailed actions but the general guidance provided by a politically driven bureaucracy explains the outperformance.
Except it doesn’t. Those former state industries still enjoying that government guidance perform worse than the free market firms sadly lacking it. State planning is keeping China poorer than it need be, not aiding its growth.
The report he’s commenting on:
Changing the tiger’s stripes: Reform of Chinese state-owned enterprises in the penumbra of the state
Ann Harrison, Marshall W. Meyer, Will Wang, Linda Zhao, Minyuan Zhao 07 April 2019The conventional wisdom that privatisation of state-owned enterprises reduces their dependence on the state and yields positive economic benefits has not always been borne out by empirical work. Using a comprehensive dataset from China, this column shows that privatised SOEs continue to benefit from government support in the form of low-interest loans and subsidies relative to private enterprises that have never been state-owned. Although there are clear improvements in performance post-privatisation, privatised SOEs continue to significantly under-perform compared to private firms.
Much of China’s economic growth has been driven by the emergence of a vibrant private sector, today accounting for approximately 60% of GDP and 80% of employment. Conventional wisdom holds that privatisation of state-owned enterprises (SOEs) reduces their dependence on the state and yields positive economic benefits including enhanced firm performance, productivity, and innovation. The pro-privatisation argument is that the state either cannot monitor managers properly or chooses not to pursue efficiency because state interests take precedence over financial results (Boardman and Vining 1989, Vickers and Yarrow 1991, Shleifer and Vishny 1994). Empirical work, however, has produced mixed results on privatisation. For example, DeWenter and Malatesta (2001) found that, among the 500 largest firms globally in 1975, 1985, and 1995, private enterprises had significantly lower costs and higher profits than SOEs. Yet, when they examined a sub-sample of privatised firms, they found inconsistent results – performance increased post-privatisation, while leverage and employment increased mainly pre-privatisation. Market returns from privatisation also differed across countries, positive in Hungary, Poland, and the UK but insignificant elsewhere.
Our research on privatisation in China (Harrison et al. 2019) is unique in several respects. We analyse an extremely large sample of industrial firms, more than 3.5 million firm-years from 1998 to 2013, drawing on the Annual Industrial Survey conducted by the China National Bureau of Statistics. We compare privatised firms with firms that remained state-owned and firms that had never been state-owned. Most importantly, we compare both the performance and dependence on the state of privatised firms with firms having no prior state ownership. Overall, our results indicate selective performance gains from privatisation – privatised firms have greater productivity and are more likely to file patents than firms remaining state-owned even though their return on assets barely improves. The performance effects notwithstanding, privatised firms remain dependent on the state. Subsidies, concessionary interest rates, and loans granted to privatised firms remain at nearly the same levels as those to SOEs. Privatisation changes the behaviour of firms but not firms’ dependence on the state.
A graphical portrayal of the differing performance of the three types of Chinese companies from the report:
Return on assets of state-owned enterprises, privatised state-owned enterprises, and privately-owned enterprises
QotD: Why does US healthcare cost so much?
This is a hotly debated question in health care policy. Here’s my rough stab at it: the 1970s inflation interacted particularly badly with two pre-existing policy choices: the tax deduction for employer-sponsored health insurance, and Medicare.
Start with employer-sponsored health insurance, which is, as everyone knows, tax advantaged relative to salary, because your employer can deduct it as an expense, but you don’t have to show it as income on your taxes.
This was an incredibly dumb decision, but in the defense of the folks who made it in the 1940s, at the time, health insurance wasn’t very expensive, because the health care system couldn’t do all that much (and the female labor that ran hospitals was cheap due to discrimination, or in the case of nuns, basically free).
Come the 1970s, inflation started causing a problem called “bracket creep”. Back then tax brackets weren’t indexed for inflation, so as inflation went up, folks got pushed into higher and higher tax brackets, even though the buying power of their salary had stayed the same, or [had] gone down. This was great for the government (and is a big reason our deficits were not disastrous in the 1970s), but it was terrible for people, and led to the tax revolts that helped put Reagan in office.
But I digress. The point is that bracket creep made non-taxed benefits much more attractive relative to salary, so insurance started getting more generous. That process has continued for decades. Insurance used to be “major medical” that covered big ticket items like hospital stays. Now we expect it to cover the cost of going to the doctor for the sniffles. Well, if you insulate people from those costs, they will incur more of them.
Effectively, this raises demand for health care services. But the US system, decentralized and litigation-happy, is very bad at controlling the supply side. End result: high costs.
The other thing that happened is Medicare. The original legislation called for reimbursing services at “reasonable and customary rates”. This was a gold mine for doctors and hospitals. In New York, for example, doctors used to be forced to do charity care as the price of their admitting privileges at prestigious city hospitals. Once Medicare came into the picture, there was no need for that! Or to economize on beds; you could always find someone to fill them. Eventually, Medicare tried to crack down (http://reason.com/archives/2011/12/13/medicare-whac-a-mole), but by then, it was damned hard to cut physician and hospital incomes, in part because they had made decisions based on their — like building new hospitals with all private rooms — that couldn’t be undone. Our cost base is permanently higher, and politically, we have shown no will to slash provider incomes. So even though our growth rate is about average for the OECD, we’re growing from a much higher level.
Megan McArdle, “Ask Me Anything”, Reddit, 2017-04-10.
April 3, 2019
Greater Poland Uprising – Book Picks – Veteran Care I BEYOND THE GREAT WAR
The Great War
Published on 2 Apr 2019It’s time for another episode of Beyond The Great War where we answer questions from the community. This time we take a look at the Greater Poland Uprising and the situation of Poland in early 1919, Jesse recommends a few of his favourite history books and we also talk about how veterans were treated after the 1918 armistice.
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Boysen, Jens. “Polish-German Border Conflict”, in 1914-1918 online. International Encyclopedia of the First World War. https://encyclopedia.1914-1918-online…Davies, Norman. White Eagle, Red Star. The Polish-Soviet War 1919-1920 and the ‘Miracle on the Vistula’ (London: Pimlico, 2003 [1972]).
Gattrell, Peter. Russia’s First World War (Pearson, 2005).
Gerwarth, Robert. The Vanquished. Why the First World War Failed to End, 1917-1923 (Penguin, 2017).
Horne, John. “The Living,” in Jay Winter, ed. The Cambridge History of the First World War, vol. 3: Civil Society (Cambridge: Cambridge University Press, 2014): 592-617.
Leonhard, Jörn. Der überforderte Frieden. Versailles und die Welt 1918-1923 (CH Beck, 2018).
Pawlowsky, Verena/Wendelin, Harald. “Government Care of War Widows and Disabled Veterans after World War I,” in: Contemporary Austrian Studies, XIX: From Empire to Republic: Post-World War I Austria, eds. Bischof, Günter/Plasser, Fritz/Berger, Peter (2010): 171-191
Prost, Antoine. “Les anciens combattants”, in Stéphane Audoin-Rouzeau and Jean-Jacques Becker, eds. Encyclopédie de la Grande guerre 1914-1918 (Paris: Bayard, 2013): 1025-1036.
Snyder, Timothy. The Reconstruction of Nations. Poland, Ukraine, Lithuania, Belarus, 1569-1999 (Yale University Press, 2003).
April 2, 2019
How Trains Changed China | Stuff That I Find Interesting
Jabzy
Published on 27 Mar 2016Thanks to Xios, Alan Haskayne, Lachlan Lindenmayer, William Crabb, Derpvic, Seth Reeves and all my other Patrons. If you want to help out – https://www.patreon.com/Jabzy?ty=h
Music by Derek Fiechter – https://www.youtube.com/channel/UCVRJ…
QotD: The legacy of the soixante-huitards
It is one of the theses of this lucid book that the generation of May 1968 — or at any rate its leaders — has arranged things pretty well for itself, though disastrously for everyone else. If it has not been outright hypocritical, it has at least been superbly opportunist. First it bought property and accumulated other assets while inflation raged, paying back its debts at a fraction of their original value with depreciated money; then, having got its hands on the assets, it arranged for an economic policy of low inflation except in the value of its own assets. Moreover, it also arranged the best possible conditions for its retirement, in many cases unfunded by investment and paid for by those unfortunate enough to have come after them. They will have to work much longer, and if ever they reach the age of retirement, which might recede before them like a mirage in the desert, it will be under conditions much less generous than those enjoyed by current retirees.
It matters little whether this was all part of a preconceived plan or things just fell out this way, for that is how things now are. The result is that what was always a class society is in the process of becoming a caste society, in which only children of the already well-off have a hope of owning their own house.
Theodore Dalrymple, “Beneath Paris”, Taki’s Magazine, 2017-01-07.
March 22, 2019
Understanding the Great Depression
Marginal Revolution University
Published on 23 May 2017In this video, we examine the causes behind the Great Depression with the help of the aggregate demand-aggregate supply model.
In 1929, the stock market crashed and an air of pessimism swept across America — making bank depositors nervous. What would you do if you thought your money might not be safe with the bank? You’d probably want it back in your own hands. What happened next? A run on the banks.
Along with the Stock Market Crash of 1929, it’s one of the iconic moments of the early days of Great Depression. However, the Great Depression was an incredibly complex downturn in which the economy experienced a series of aggregate demand shocks. By the end of this video, you’ll walk away with a better understanding of the many factors behind the Great Depression and how to apply the AD-AS model to a real-world scenario.
March 21, 2019
Remy: “Affluenflammation”
ReasonTV
Published on 20 Mar 2019When quality of life improved, doctors discover a new affliction.
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.
A parody of the Red Hot Chili Peppers’ “Californication” written by Remy.
Music tracks, mastering, and background vocals by Ben Karlstrom
Video produced by Austin Bragg.LYRICS
There’s a non-foregone phenomenon in any prosperous nation
When primal fears all disappear the brain then gets a sensation
The medical name we gave this pain is affluenflammationOl’ Bill Tub is chugging a jug of cold bovine lactation
When his eyes then realize that carton side’s got information
And since his life contains no strife it’s affluenflammationFor the better part of history diseases all were raging
Measles, mumps up on your junk like they were Kevin Spacey
Then came Jonas Salk
Makes you wonder what all for…Cuz we’ve got affluenflammation
We’ve got affluenflammationOl’ Chip Black is cracking the back of twelve live-steamed crustaceans
For the perks and glee of living free he starts to lose appreciation
And if you probe his frontal lobe — yep — affluenflammationThrough the course of human history each day we faced starvation
Rats and pox and chamber pots, streets filled with defecation
Free markets changed the norm
Makes you wonder what all for…Cuz we’ve got affluenflammation
We’ve got affluenflammation
We’ve got affluenflammation
We’ve got affluenflammation
“It’s back to normal, basically. The emperor is naked. Votes are for sale. Caveat emptor“
Chris Selley somehow seems, I dunno, a bit … cynical about Prime Minister Trudeau and Finance Minister Morneau’s 2019 federal (election) budget:
Ahoy there, relatively young and middle-class Canadian! Did you vote Liberal in 2015? And are you, shall we say, somewhat less enthused about that prospect four years later, for various reasons we needn’t go into here?
Now, what if Justin Trudeau were to offer you a down payment on a shiny new condominium?
Well, that’s just the kind of guy he is. Starting this year, so long as your household income is below $120,000, the Canada Mortgage and Housing Corporation will pitch in 5 per cent of the price of your first home — 10 per cent if it’s a new home, the construction of which the government hopes to incentivize.
That’s Item One in the 460-page federal budget tabled Tuesday in Ottawa.
On a new $400,000 condo, you could put down your own $20,000; CMHC would chip in another $40,000; and your monthly mortgage payment, on a 25-year term at 3.25 per cent, would drop by a not inconsiderable 12 per cent. You would reimburse CMHC, interest-free, if and when you sell. Cost to the taxpayer: $121 million over six years.
If you’re worried giving home-seekers free money might just push the price of a $400,000 condominium nearer to $440,000, Finance Minister Bill Morneau would first of all like you to stop. (“You’re wrong,” he admonished a reporter who dared suggest it during a press conference in the budget lockup Tuesday.) But if all else fails and you’re forced to rent, the feds also found $10 billion extra over nine years to throw at the Rental Construction Financing Initiative, a CMHC program that offers low-interest loans to qualified builders. The goal is 42,500 new rental units in a decade.
Can’t even think of home ownership until you pay off your student loans? Again, the government is here to help: From now on you’ll pay the Bank of Canada’s prime interest rate, instead of prime plus 2.5 points. And for the first six months after you graduate, you’ll pay nothing. The budget document introduces us to Angela, a recent psychology grad carrying $13,500 in student debt who landed a job at “a medium-sized consumer goods company.” (It doesn’t matter where she works. The writers just wanted to add some colour.) Angela will save something like $2,000 in interest over 10 years.
There’s also the new Canada Training Benefit, which the government intends to help Canadians with “the evolving nature of work.” (Maybe your parents were right, Angela. Maybe that psych degree wasn’t the best idea, Angela.) Starting in 2020, the feds will chip in $250 a year, and you can use the accumulated credit to pay up to half the cost of courses or training. And you can draw on up to four weeks of EI to complete it.
March 16, 2019
MMT – Magic Money Theory
Antony Davies and James R. Harrigan explain just why so many progressives are so excited about MMT:
Modern Monetary Theory, or MMT, is all the rage in the halls of Congress lately.
To hear the Progressive left tell it, MMT is not unlike a goose that keeps laying golden eggs. All we have to do is pick up all the free money. This is music to politicians’ ears, but Fed Chairman Jerome Powell is singing a decidedly different tune. Said Powell recently on MMT, “The idea that deficits don’t matter for countries that can borrow in their own currency … is just wrong.”
MMT advocates see this as outdated thinking. We can, they claim, spend as much as we want on whatever we want, unencumbered by trivialities like how much we have. But MMT is a bait-and-switch wrapped in a sleight-of-hand. It focuses on debt and dollars rather than resources and products. Debt and dollars are merely tools we use to transfer ownership of resources and products. It’s the resources and products that matter. Shuffling debt and dollars merely changes the ownership of resources and products. It doesn’t create more.
[…]
So here’s the sleight of hand. MMT advocates say that we won’t experience inflation because the U.S. dollar is a reserve currency — foreigners hold lots of U.S. dollars. First, increasing the money supply, other things constant, does create inflation. But when a reserve currency inflates, the pain gets spread around the world instead of being concentrated within one country. In short, MMT advocates believe our government should print money and let foreigners bear some of the inflation pain. Second, there’s no law that says that the U.S. dollar must be a reserve currency. The British Pound was one, but as its value declined, foreigners stopped holding it. Foreigners will stop holding U.S. dollars too as their value declines.
And here’s the bait-and-switch. MMTers say that if inflation does become a problem, the government can simply raise tax rates to soak up excess dollars. In short, the government would print money with one hand, buying whatever it wants and causing inflation. It would then tax with the other, thereby removing dollars from the economy and counteracting the inflation. In the end, all that’s happened is that the government has replaced goods and services that people want with goods and services politicians want.
After a bout of MMT, we might have the same GDP and zero inflation, but what constitutes that GDP would have changed dramatically. Instead of having more cars and houses, we might have more tanks and border walls.
March 12, 2019
A choice between a (small) UBI and not taxing the poor at all
Tim Worstall responds to an article advocating abolishing Britain’s tax-free personal allowance and replacing it with a form of universal basic income (UBI):
Sure, we need to have government, even if not quite as much as we do have. Thus we need tax revenues to pay for it. But that tax should be, where it is derived from income, paid by the better off among us. As Adam Smith pointed out, people should be paying more than in proportion to their income. I would actually argue that income tax should only kick in at median income but agree that would require a smaller state than we’ve got now. Actually, that’s why I would propose it.
Still, that does mean that this suggestion fails at that first hurdle:
The tax-free personal allowance, which rises to £12,500 in April, should be scrapped and replaced with a flat payment of £48 a week for every adult, according to radical proposals welcomed by shadow chancellor John McDonnell. The proposal, from the New Economics Foundation thinktank, is for a £48.08 “weekly national allowance,” amounting to £2,500.16 a year from the state, paid to every adult over the age of 18 earning less than £125,000 a year. The cash would not replace benefits and would not depend on employment.
It’s a universal basic income. Excellent stuff therefore. But the error is to think that this should replace that personal allowance. Assume that they’re including NI in that no allowance thing – if they’re doing it for income tax then they probably will for NI. What that means is that anyone earning more than £50 a week is facing a 40% marginal tax rate (yes, 40%, employers’ NI is incident upon the workers’ wages).
Do we think that’s a just way to pay for diversity advisers? That someone on £50 a week gives up 40% of any income over that? No, we don’t, we think that’s an entirely unjust taxation system. Actually, it’s a really stercore* taxation system.
* Someone’s been at his Latin texts again … I had to look this word up myself. It’s the ablative singular form of stercus, which means “manure, dung; to sully, soil, decay”, according to Wiktionary.
