Technology’s heightening of society’s complexity outstrips its heightening of the social planner’s informational capabilities. Hayek, like [Adam] Smith, drew a lesson for policy: Except in the most clear-cut cases of systemic harm, like air pollution, the supposition that government officials can figure out how to improve the results of decentralized (i.e., voluntary) decision making becomes more and more outlandish. In his Nobel lecture, Hayek called that supposition the pretense of knowledge. As intellectuals who ponder the complex workings of the social world, we really know little aside from one hardy fact: If those who participate in an activity do so voluntarily, each is probably bettering his or her own condition. The more complex the system is, the more skeptical we ought to be about claims to knowledge that go beyond and against that hardy fact.
Fred Foldvary and Daniel Klein, The Half-Life of Policy Rationales, 2003.
November 5, 2018
QotD: Technological advance and the Knowledge Problem
November 4, 2018
That pesky Supreme court ruling on the Churchill Falls deal
I use the term “pesky” in the headline to avoid being slagged by one or possibly even both of my Newfoundland and Labrador readers … to curry favour with them, I’d need to escalate from somewhere between “ethically doubtful” and “outrageous”, and even that might not capture the essence of anger and resentment at Quebec’s amazingly great deal long-term on cheap hydro-electric power from the Churchill Falls facility. It is, as Wikipedia says, “the second largest hydroelectric plant in North America, with an installed capacity of 5,428 MW”, and thanks to Quebec financing and astute negotiations, most of that output is sold to Quebec at a very small proportion of today’s open market price. Colby Cosh arches an eyebrow over a Supreme Court justice’s lone vote of dissent on the case:
Churchill Falls generating station, Labrador.
Photo via Wikimedia Commons.
It is my solemn duty to perform one of the important functions of a newspaper columnist: raising one questioning eyebrow. On Friday the Supreme Court issued a judgment in the long battle between Churchill Falls (Labrador) Corp., a subsidiary of Newfoundland and Labrador Hydro, and Hydro-Québec. CFLco is the legal owner of the notorious Churchill Falls Generating Station in the deep interior of Labrador, close to the border with Quebec.
The station was built between 1966 and 1971. Hydro-Québec provided backing when the financing proved difficult for the original owner, an energy exploration consortium called Brinco. This led to the signing of Canada’s most famous lopsided contract: a 1969 deal for Hydro-Québec to receive most of the plant’s output for the next 40 years at a quarter of a cent per kilowatt-hour, followed by 25 more years at one-fifth of a cent. The bargain ends in 2041, at which time CFLco will get full use and disposal of the station’s electricity back.
This has been a heck of a deal for Quebec. It took on the risk of financing and building the station in exchange for receiving the electricity at a low fixed price — one that both sides in the court case agree was reasonable at the time. But it meant that Newfoundland saw no benefit from decades of oil price shocks, from the end of nuke-plant construction in the U.S., or from the increasing market advantage hydroelectricity enjoys while dirtier forms of power generation attract eco-taxation.
It has been maddening for Newfoundland to remain poor while Hydro-Québec grows fat on the profits from a Newfoundland river. Quebec, for its part, has never been completely convinced of the legitimacy of its border with Labrador, and it sees its good fortune as a sort of angelic reward for having to be part of Confederation. The Churchill Falls deal is (quite reasonably) regarded as proof that Quebec’s homegrown industrialists were able to beat resource-exploiting Anglo financiers at their own game. There are thus reasons beyond the bottom line that Quebec has never wanted to renegotiate the Churchill Falls contract. But the bottom line is enough.
November 3, 2018
Freedom’s Fighters with Tim Worstall
Adam Smith
Published on 1 Nov 2018Every month the Adam Smith Institute hails one of those who have fought the good fight for freedom over the decades. In this month’s Dr Madsen Pirie interviewed our blog maestro Tim Worstall, who visited the UK from his rather sunnier climes in Portugal.
“[I]t makes no sense to punish Americans with tariffs in order to convince foreign governments to stop punishing their citizens with tariffs”
Veronique de Rugy discusses the mercantilist errors that still influence politicians and voters on free trade policies:
There are many changes to domestic policy that could help protect Americans from the predations of protectionism. For instance, when considering whether or not to grant U.S. firms “trade remedies,” such as countervailing duties, officials should have to take into account the consequences for American consumers of any tariffs they’re thinking of imposing. Policy makers aren’t currently required to do that, and one agency — the International Trade Commission—is actually forbidden from doing so.
This must change. Recent developments prove that it’s dangerous to simply assume all U.S. presidents and a critical mass of legislators will remain committed to the principles of reciprocal free trade. Buyers of imported goods or products made with imported materials — which, to be clear, is all of us — can’t depend on the economic acumen of the policy makers deciding whether or not to impose tariffs. Instead, consumer protections need to be built into the regulatory process. Because there are virtually always more workers in consuming industries downstream of the trade barrier than there are in the sector receiving the protection, a requirement to take the harm to consumers into consideration would make it very hard to impose protectionist policies.
Some free trade sympathizers have floated the possibility of Congress reclaiming its power to impose tariffs from the White House. Sen. Mike Lee (R–Utah), for instance, has introduced the Global Trade Accountability Act, which would require congressional approval for tariff increases or other “unilateral trade actions.” Unfortunately, if this otherwise well-designed bill became the law of the land, it would be akin to guarding the hen house with a hungry dog instead of a fox.
An extensive literature shows that moving tariff-setting policy away from Congress (and its parochial, locally focused interests) was a critical part of reducing protectionist influence in Washington. President Trump is terrible on this issue, but in general, a president is more likely than are members of Congress to consider the interest of the entire country — and, hence, to support broad trade liberalization.
November 2, 2018
Intro to Business Fluctuations
Marginal Revolution University
Published on 11 Apr 2017This wk: Get acquainted with the basics of business fluctuations as we dive back into the final videos of our Macro course.
Next wk: Learn the basics of the aggregate demand-aggregate supply model.
Economic growth doesn’t happen at a steady pace; there are ebbs and flows. Prosperity on the national level depends on a country having good institutions in place. The factors of production – human capital, physical capital, and ideas – are also critical. And these variables often change, sometimes drastically.
In the United States, economic growth has averaged at about 3.2% for the past sixty years. But if you Google “US economic growth FRED,” you’ll quickly see that it’s not a smooth trend up. Instead, there are plenty of peaks and valleys, even though the U.S. has a relatively stable economy. Economists refer to these ups and downs around a country’s long-term GDP growth trend as “business fluctuations.”
“Recessions” are significant and widespread declines in employment and real income. But not only do people become unemployed during a recession, but capital and land often go un- or underused. This suggests that an economy is operating below its potential because resources are being wasted.
Recessions, large or small, are less than ideal states for an economy. We want people and resources well employed to produce more prosperity.
Over the next few videos, we’ll explore the basics of a model of business fluctuations called the aggregate demand-aggregate supply (AD-AS) model. We’ll put the model to use to look at how shocks affect an economy, and what policy can do to minimize the damage. Finally, we’ll apply the model to explain some of the largest economic catastrophes in United States’ history.
November 1, 2018
The Living Wage Makes It Harder to Make a Living
Foundation for Economic Education
Published on 11 Oct 2018We take big risks with people’s livelihoods when we make demand about what people should be paid. The reality is, people don’t necessarily need a “living wage” to make a living.
October 31, 2018
Store-bought Halloween costumes of old
Richard Lorenc explains why the Halloween costumes your parents bought for you as a kid … sucked:
While my husband and I were recently struggling to figure out our costumes for this Halloween (and we still don’t have any idea), he pulled up some old commercials on YouTube. The off-the-shelf options that trick or treaters had were, in a word, pitiful.
Basically, costume makers thought it was ok to make a front-only plastic mask (in any color, really) of a character and top it off with a plastic smock featuring an illustration of said character with either its name or the name of the show or movie it comes from. There was no attempt to dress in the character’s actual attire. If you wanted that, you’d either have to know a professional costumer or cobble together something from your closet.
Take a look for yourself at just how costume-poor we used to be:
Obviously, every costume is an opportunity to generate interest in a brand or franchise, and slapping on a logo is an easy way to get a name out there, but these costumes truly heralded a dark time for Halloween. Some may even argue that it demonstrated crass consumerism at its worst, with cynical companies taking the easiest route to grabbing a couple of bucks from desperate parents.
October 29, 2018
The $15 Minimum Wage Is Turning Hard Workers Into Black Market Lawbreakers
ReasonTV
Published on 11 Oct 2018An in-depth look at New York’s car wash industry, and the real world consequences of politicians interfering with a complex industry they don’t understand.
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.
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On March 4, 2015, a group of union leaders, activists, and elected officials were arrested for blocking traffic during a protest in front of a Vegas Auto Spa, a small car wash in Park Slope, Brooklyn. Chanting “No contract, no peace!” and “Si se puede!,” they had come in support of striking workers, who had walked out demanding a union contract after allegedly being subjected to dismal working conditions.
For David Mertz, the New York City director and a vice president at the Retail, Wholesale and Department Store Union (RWDSU), it was an inspirational moment in an ambitious six-year campaign to unionize the city’s car washes industry.
“These workers were willing to stand out there during one of the coldest winters … literally in decades to fight for their rights and for basic human dignity,” says Mertz, who was also arrested that day. “You have the ability to make change by coming together, and when you do that sometimes you find that you’ve got some friends on your side.”
In the past six years, the car wash industry, which employs low-skilled, mostly immigrant workers, has also been the target of lawsuits for alleged underpayment of wages, including a handful of cases spearheaded by the New York State Attorney General’s office. Working conditions in the industry were also cited as a raison d’être in the successful campaign to raise the state minimum wage to $15 per hour, which takes full effect at New York City car washes in January of 2019.
As Reason chronicled in a feature story in our July 2016 issue, the real world impact of the unionization drive, the lawsuits, and the $15 minimum wage has been mainly to push car washes to automate and to close down.
Two years later, there are more unintended consequences. The $15 minimum wage is fostering a growing black market—workers increasingly have no choice but to ply their trade out of illegal vans parked on the street, because the minimum wage has made it illegal for anyone to hire them at the market rate.
The minimum wage is also cartelizing the industry: Businesses that have chosen to automate are benefiting from the $15 wage floor because outlawing cheap labor makes it harder for new competitors to undercut them on price and service.
As a sequel to the 2016 article, this video takes an in-depth look at the real world consequences that result when politicians interfere with a complex industry they don’t understand, enabled by media coverage that rarely questions the overly simplistic tale of exploited workers in need of protection.
Written, shot, edited, and narrated by Jim Epstein.
October 28, 2018
QotD: Revolutionary price controls and the plight of Washington’s army at Valley Forge
By the end of 1775, Congress had already increased the nation’s money supply by 50 percent in less than a year, and state paper issues had already begun in New England. The Congressional Continental bills followed what was to become a sequence all too familiar in the western world: runaway inflation. As paper money issues flooded the market, the dilution of the value of each dollar caused prices in terms of paper money to increase; since this included the prices of gold, silver, and foreign currencies, the value of the paper money declined in comparison to them. As usual, rather than acknowledge the inevitability of this sequence, the partisans of inflationary policies urged further accelerated paper issues to overcome the higher prices and searched for scapegoats to blame for the price rise and depreciation. The favorite scapegoats were merchants and speculators who persisted in doing the only thing they ever do on the market: they followed the push and pull of supply and demand. In another familiar attempt to deal with the problems of inflationary intervention, they outlawed the depreciation of paper, or the rise of prices.
[…]
State and local governments presumed to know what market prices of the various commodities should be, and laid down price regulations for them. Wage rates, transportation rates, and prices of domestic and imported goods were fixed by local authorities. Refusing to accept paper, accepting them for less than par, charging higher prices than allowed, were made criminal acts, and high penalties were set: they included fines, public exposure, confiscation of goods, tarring and feathering, and banishment from the locality. Merchants were prohibited from speculating, and thereby from bringing the needed scarce goods to the public. Enforcement was imposed by zealots in local and nearby committees, in a despotic version of the revolutionary tradition of government by local committees.
Price controls made matters far worse for everyone, especially the hapless Continental Army, since farmers were thereby doubly penalized: they were forced to sell supplies to the army at prices far below the market and they had to accept increasingly worthless Continentals in payment. Hence, they understandably sold their wares elsewhere; in many cases, they went “on strike” against the whole crazy-quilt system by retiring from the market altogether and raising only enough food to feed themselves and their own families. Others reverted to simple barter.
Murray N. Rothbard, Conceived In Liberty, Volume IV, 1979.
October 27, 2018
The Progressive case for Americans to pay higher drug prices than the rest of the world
Tim Worstall carefully explains — in full compliance with Progressive philosophy and pointing out that Trump is wrong (which is extra bonus Progressive points) — why Americans should continue to pay more for drugs that are cheaper in other countries:
Working out which drugs work and how is expensive. There’s then another expensive in actually proving this well enough to gain a licence. All in costs are in the $1 to $2 billion range dependent upon who you want to listen to. Unfortunately, once you’ve done all that and paid all that anyone could just come along and copy your drug. Which means you don’t make your $2 billion back – that in turn meaning that no one does spend $2 billion, we don’t get new drugs and we all die in ditches.
This is a classic public goods problem and the solution we use – not the only one, not even the only viable one – is patents. You get about 10 years, the time between approval and patent expiry, to make your $2 billion back. Then anyone can copy it and we all get cheap copy drugs.
For this system to work it is not necessary that everyone pay these high patent protected prices. There’s no point in trying to charge some farm worker in S Africa $10,000 a year for HIV retrovirals anyway, they don’t have the cash and demanding it will gain nothing except their death. We just need some group to pay the high prices so that drug development still happens. Everyone else can get drugs at some margin above their manufacturing, not development, costs.
So, who is it who should be carrying this cost of producing this public good? Good progressive principles tell us that it should be the rich folk. Imagine that we used some other system of drug development, maybe taxpayers cough up for it all. It’ll still be the rich doing the paying, right? So, patents, where the rich pay full freight for drugs, the poor don’t, this meets our equity criterion.
And who are the rich in this global sense, for we’re talking about a global public good here? That would be the citizens of the richest large nation, the largest rich nation, the United States of America. So, yes, Americans should be paying high prices for drugs and the rest of us shouldn’t.
Do note that we’ve used impeccable redistributionist logic to reach this conclusion. It’s only if you think the rich shouldn’t be paying to benefit the poor that this is a bad idea. Which might be why Trump is agin it but it still puzzles as to why the progressives would be.
QotD: The gender pay-gap
If you mean the pay gap that exists between women, anybody with an ounce of statistical sense knows that it is insignificant when it comes to actual equivalent jobs with equivalent requirements. Once you factor in that women are statistically more likely to take time away from their careers for child rearing and factor that in, the pay difference is statistically insignificant. Unless you work in the Obama White House, because fuck you is why.
Men also tend to work more in dangerous or physically demanding jobs by choice, which also pay better. Nobody forces them to go into those fields. Men also get more STEM degrees and women get more LAS degrees. STEM pays better. Nobody is forcing these men to do math, but men and women are different. If you don’t understand why my accounting degree is more valuable that your gender studies degree, you don’t understand basic econ 101 and supply and demand. So yes, I would like fries with that.
If you mean the gender gap in voting between the parties, just about every psychological study ever conducted by somebody not huffing paint understands that women tend to make decisions more emotionally and men tend to make them more logically. I see you reaching for you Sexist Card, but I said tend. This is not always the case, it is simply a trend. If you don’t like it or find that sexist, you can fuck off and die. Men and women are different. Most of us happen to like that. Some men think more emotionally (like pajama boy metrosexual hipster douchebags for example), and some women think more logically (like hot republican warrior babes), but a trend is a trend.
Larry Correia, “Run Forrest Run!”, Monster Hunter Nation, 2014-11-05.
October 26, 2018
Economist Jack Mintz dis-claims credit for the Liberals’ carbon tax scheme
Everybody likes to be recognized for their work, but Jack Mintz wants to delineate where his original plan and the actual carbon tax scheme implemented by the federal government diverge:
I continue to maintain, as I have all these years, that the best way to implement carbon taxes is to use the revenues to reduce harmful corporate and personal taxes (I’ve since added land-transfer taxes to the original list). This includes removing anti-competitive levies while also providing support for low-income households to cope with higher electricity, heating and transportation costs.
However, what was unveiled Tuesday by the federal Liberal government in its carbon-pricing plan fails to achieve what I would have argued to be an ideal carbon policy. What is being advertised as a climate plan for provinces that fail to follow Ottawa’s carbon-tax directives — currently New Brunswick, Ontario, Manitoba and Saskatchewan, but they’ll likely be joined by others — instead comes across as a grand redistribution scheme administered by an expanding government bureaucracy.
While the federal carbon tax is almost uniform (electricity is not yet included), it provides special exemptions for certain sectors such as farmers, fishers, aviation, power producers in the North and greenhouse operators, although not the ones growing recreational cannabis.
But the departure from uniformity is marginal and not nearly as concerning as the Trudeau government’s continuing commitment to existing and even new regulations and subsidies to promote “clean energy,” each with their implicit carbon price. While economists repeatedly argue for a carbon tax precisely because it means we can forgo these high-cost interventions, somehow that has all been lost. While plenty of the economists behind the carbon-tax lobby were cheering Prime Minister Justin Trudeau’s new plan yesterday, I somehow missed their demands that we now must eliminate clean fuel and renewable electricity standards, subsidies for electric vehicles and ethanol — all of which have carbon costs well in excess of the $50-a-tonne carbon tax planned for 2022.
Another failure of the federal plan is to pass on carbon taxes in the form of Justin Bucks — or, to use the more laborious official name for these tax rebates: Climate Action Incentive Payments. So, rather than include carbon taxation as part of a comprehensive tax reform to make the tax system simpler, less distorting and fair, these Justin Bucks will be paid to households, small businesses, municipalities, universities, colleges, hospitals, non-profit and Indigenous populations.
A fatal flaw in federal pricing plan is a major shift in taxes from individuals to businesses. The average per household rebate — $1,161 in Saskatchewan in 2022 for example — is more than the cost per household of $946 (not including GST or HST on any energy bills). Even though the document states that business taxes are fully shifted forward to households, something is amiss here. How can household rebates average more than costs?
October 25, 2018
It’s not a “bribe” … it’s an “incentive”!
Terence Corcoran explains why the federal government’s promised “incentive” isn’t in any way, shape, or form any kind of bribe:
Step right up, ladies and gentlemen. Welcome aboard the all-new Canadian Cynical Circular Carbon Circus, the amazing Liberal climate control spectacle that will send you on a great environmental ride into the future.
Come on in! We will pay you to not consume fossil fuels — as individuals and as industries. It’s an economic revolution that takes us beyond blockchain and cryptocurrencies and cannabis into a brave new universe in which money goes round and round and everybody wins. We will pay Canadians with their own money — more than $20 billion over five years in carbon taxes that will raise the price of gasoline by 11 cents a litre by 2022, and ever higher thereafter if not sooner. Everybody pays and everybody wins, except for those who don’t. And some people win more than they pay. It’s better than a lottery!
For the people of Ontario, Saskatchewan, Manitoba and New Brunswick, the federal carbon circus cash comes via a new “Climate Action Incentive Payment.” An Ontario family of four will receive $307 for this year, the amount to be claimed on 2018 income tax returns. A Saskatchewan family will get a Climate Action Incentive Payment of $609.
What’s the Climate Action Incentive Payment for? The Liberal plan unveiled by Prime Minister Justin Trudeau and Environment Minister Catherine McKenna Tuesday doesn’t specify. What are taxpayers in the four provinces being incented to do, exactly, with this new wad of free cash? There is only one explanation: Vote Liberal in 2019!
The payments are based on a 2019 carbon price of $20 a tonne, rising to $50 by 2022. As the carbon tax goes up, Ontario families will receive $718 in 2022 and Saskatchewan families $1,459. And there will be more to come, presumably, since the latest doomsday scenario from the UN Intergovernmental Panel on Climate Change — the font of all speculation and data manipulation on climate issues — warned that by 2030 (only 12 years from now) a carbon price of somewhere between $135 to $5,500 per tonne would be needed to keep global warming below 1.5 degrees Celsius.
October 23, 2018
California (secessionist) dreaming
In the latest Libertarian Enterprise, L. Neil Smith suggests that the kindest thing to do to California is to allow it to secede from the Union:
… some Californians bleat that they want to secede from a United States that threatens to make them straighten up and fly right. Superficially, that might be a workable idea: on paper, California has one of the largest, most powerful economies in the world — bigger than that of many independent nations. It has a long, wonderful coastline and a couple of really good natural ports. Its agricultural sector is second to none. There is oil and gas within easy reach. It has no real military defenses, but I’m sure they’d be more than willing to leech off America’s defenses, our Navy, our Air Force, and our nuclear umbrella, like the deadbeat pajama boys they resemble, living in their mothers’ basements.
But wait. On the reasonable assumption that the California secession movement is limited to people in the counties that voted for Hillary Clinton, and that people in the counties who voted for Donald Trump do not want to secede, I consulted a California county-by-county election map for 2016. Blue counties dominate all but a tiny spot on the northern coast, which is too bad; most of the interior — the most productive part of the state — is bright red.
So here’s my brilliant idea. Instead of fighting another bloody, stupid, senseless War of Secession like the one we had in 1865, let’s grandly and magnanimously permit the state of California to secede — even insist on it — one county at a time. Those counties that vote to secede may do so and create the People’s Republic of Californistan, or whatever.
In exchange for defending this dog’s breakfast of a polity, we will keep all of our military bases and installations, somewhat like Guantanamo Bay Naval Air Station in Cuba. I believe the legal term is “adverse possession”. Those counties that do not vote to secede — we wouldn’t want them to become like the captive peoples and nations of Europe during the Cold War — may remain in the Union, joining the adjacent state (mostly Nevada) or forming their own. To paraphrase the Borg, “We will add their productiveness to our own.”
However the trouble (for California, anyway), if you look at the map, is that county-by-county secession leaves the people’s Republic without visible means of support, a vagrant state, as it were, full of pencil-neck politicos and other worthless parasites, guilty of loitering on our Left Coast. They’re already bankrupt, after decades of Leninist-Stalinist policies. Now they will never recover with their productive counties gone — and we get their avocados!
Let them eat software.
October 21, 2018
This is why Keynesianism doesn’t work in practice – the politicians flub the hard part
Tim Worstall explains the fatal flaw in Keynes’ economic theory … not so much in the theory part, but in the practical application by flesh-and-blood human beings:
We’re told that government borrowing is falling, the deficit closing. This therefore means that it’s possible to relax austerity, to start spending more upon sweeties for the voters. This being exactly and precisely why Keynesianism as a practical matter doesn’t work. For politicians will follow the fun bit and not the difficult part. Thus as an overall theory it simply is, to use a governmental phrase, no longer operative.
[…]
Think of what that basic Keynesian idea is. When the economy’s in the doldrums we should blow out the deficit in order to increase demand and thus boost the economy. But when we’re running at the resource limit then any such attempts will just turn up as inflation. So, we should stop doing that. Also, as Keynes himself pointed out, when the Sun shines is the time to repair the roof. Perhaps pay down some of that national debt so that the next time we need to blow that deficit out we’ve got space to do so.
Do note that this basic set up is also entirely consistent with modern monetary theory. When the economy is running at its limits then we should be taxing more of that created money back to prevent inflation. That is, running a smaller budget deficit, possibly even a surplus.
So, what happens to kill either theory in reality? Well, here we are. Unemployment at its lowest since the early 1970s. Employment to population ratio at its highest since then. And what are people talking about? Blowing out the deficit again to buy sweeties for voters. That is, the political imperatives just don’t militate in favour of anyone using these theories as they’re supposed to work.
In the meantime, of course, we’ve effectively changed the meaning of the word “austerity“:
Austerity is a political-economic term referring to policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. Austerity measures are used by governments that find it difficult to pay their debts. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures, which is assumed to make the payment of debt easier. Austerity measures also demonstrate a government’s fiscal discipline to creditors and credit rating agencies.
To a modern politician — or political activist — “austerity” now means something more like “only spending a bit more this year than you did last year”. British commentators have been accusing the government’s “austerity” measures for all kinds of negative effects, yet there have been no large scale austerity measures brought in.
