Kathleen Parker rightly criticizes Republicans for becoming a party of angry, fear-lathered excluders (“The GOP is becoming the party of exclusion,” July 31). But when she laments “the pitiless evolutionary march of globalization” not only does she reveal her own misunderstanding of the economy, she gives aid and comfort both to GOP excluders and to Sandersnistas who suffer many of the same misunderstandings.
In what way is globalization “pitiless”? Is it because it creates an ever-growing abundance of new goods and services that consumers choose to buy? Is it in the fact that it lowers the prices of food, clothing, furniture, electronics, communications, and (for example, by expanding the sizes of pharmaceutical-companies’ markets) medicines?
Is globalization “pitiless” because it allows many desperately poor workers in the developing world to earn incomes that enable them and their families to live above subsistence? Or perhaps globalization is “pitiless” because it obliges entrepreneurs and workers in the developed world – nearly all of whom are multiple times richer (thanks to globalization!) than are the foreigners about whom they complain they must compete – to adjust their actions to the choices of the consumers whom they serve?
Globalization is no more or less pitiless than is economic competition generally and what Deirdre McCloskey calls “market-tested innovation” – the same competition and innovation that over the past few centuries crafted our current high standard of living. So unless Ms. Parker believes that it is gentle and just for rich first-world workers to prevent poor third-world workers from improving their lives – unless Ms. Parker thinks it humane for consumers to be forced to accept whatever products are offered, and at whatever prices are demanded, by existing producers rather than motivate producers to work hard and creatively to please consumers – she should not describe globalization as “pitiless.”
Donald J. Boudreaux, letter to the Washington Post, 2016-07-31.
April 21, 2018
QotD: “Pitiless” globalism
April 19, 2018
The mis-measurement of the digital economy
In the Continental Telegraph, Tim Worstall explains why our current statistical model does not adequately reflect the online world’s contribution to our economy:
To give my favourite current example. WhatsApp is used by some billion people around the world for some to all of their telecoms needs. It turns up in economic statistics as a reduction in productivity.
That’s mad.
In more detail, WhatsApp is free to use and carries no advertising. That means there’s no sale associated with it. We measure consumption at market prices – a price of $0 means no consumption. Consumption is one of the three ways we measure GDP – each of the three should be the same as the other two but isn’t because lying about taxes.
The other two calculations are all incomes, or all production. Things that are sold at no price do not add to production given that we measure it at market prices.
Income, well, there’re 200 or so engineers at Facebook who work on it (I checked with Facebook itself). Say their salary is $250k a year each. Probably too low but we’ve got to use some number or other. $50 million then. That’s incomes added to GDP.
So, in our three methods of calculating GDP – they should all be the same but that doesn’t matter here – we’ve value of WhatsApp (more accurately, WhatsApp adds value of $x each year to the global economy) of $50 million. Or $0 or $0.
April 14, 2018
The Solow Model and the Steady State
Marginal Revolution University
Published on 12 Apr 2016Remember our simplified Solow model? One end of it is input, and on the other end, we get output.
What do we do with that output?
Either we can consume it, or we can save it. This saved output can then be re-invested as physical capital, which grows the total capital stock of the economy.
There’s a problem with that, though: physical capital rusts.
Think about it. Yes, new roads can be nice and smooth, but then they get rough, as more cars travel over them. Before you know it, there are potholes that make your car jiggle each time you pass. Another example: remember the farmer from our last video? Well, unless he’s got some amazing maintenance powers, in the end, his tractors will break down.
Like we said: capital rusts. More formally, it depreciates.
And if it depreciates, then you have two choices. You either repair existing capital (i.e. road re-paving), or you just replace old capital with new. For example, you may buy a new tractor.
You pay for these repairs and replacements with an even greater investment of capital.
We call the point where investment = depreciation the steady state level of capital.
At the steady state level, there is zero economic growth. There’s just enough new capital to offset depreciation, meaning we get no additions to the overall capital stock.
A further examination of the steady state can help explain the growth tracks of Germany and Japan at the close of World War II.
In the beginning, their first few units of capital were extremely productive, creating massive output, and therefore, equally high amounts available to be saved and re-invested. As time passed, the growing capital stock created less and less output, as per the logic of diminishing returns.
Now, if economic growth really were just a function of capital, then the losers of World War II ought to have stopped growing once their capital levels returned to steady state.
But no, although their growth did slow, it didn’t stop. Why is this the case?
Remember, capital isn’t the only variable that affects growth. Recall that there are still other variables to tinker with. And in the next video, we’ll show two of those variables: education (e) and labor (L).
Together, they make up our next topic: human capital.
April 12, 2018
Alex Tabarrok profiled in the Washington Monthly
Alex Tabarrok is a friend-of-a-friend (does that make us “friends once removed”?) I’ve read lots of his blog posts and watched many of his videos, but I’ve never actually met him in real life, so this profile was quite interesting:
Tabarrok came by his libertarianism early. When he was growing up in Toronto, his family would debate political and ethical issues over dinner every night. One evening the Tabarroks were debating the moral value of rock and roll. “I said, ‘Well, look at this band, Rush: they even quote this philosopher Ayn Rand in their songs,’ ” he recalled recently. “My mother said, ‘Oh yeah, you’d probably like her,’ and I felt embarrassed because I was using this in an argument and I actually hadn’t read any Ayn Rand before.” Tabarrok thinks his mother probably regrets her suggestion to this day.
Tabarrok made his way to the U.S. for graduate studies at George Mason, returning there as a professor in 2002. He now directs its Center for Study of Public Choice and is the economics chair at GMU’s Mercatus Center, a research institute heavily funded by Charles Koch and cofounded by Richard Fink, a former Koch Industries executive. The center, which boasts ties to prominent right-wing groups like the American Legislative Exchange Council, funds research to promote free-market policy solutions and the rollback of regulations. (Mercatus is Latin for “market.”) The Wall Street Journal has called Mercatus “the most important think tank you’ve never heard of.”
A few years ago, Tabarrok got a new toy to play with. Until recently, there was never great data available for researchers who wanted to empirically study the effects of regulation. But, in 2014, two other Mercatus Center research fellows developed a new public-use database called RegData, which captures everything published in the Code of Federal Regulations each year. Measuring regulation has always been surprisingly tricky, because when an agency puts out a rule, it can contain any number of new individual legal requirements. RegData addresses that problem by scrubbing the Code for key words such as “shall,” “required,” and “may not.” The theory is that this more accurately measures the number of regulations than simply counting the total number of pages in the Code, as past studies tended to do. RegData also uses artificial intelligence techniques to predict which industry each regulation will affect. The upshot is that, for the first time, economists could more confidently measure federal regulations over time and by industry. In theory, that would make it easier to build the case that regulations were hurting the economy.
April 11, 2018
Mumbai’s high court demonstrates lack of economic knowledge in theatre ruling
Movie theatres and multiplexes generally charge more for the concessions than sometimes adjacent businesses in the same area, and also usually forbid patrons from bringing in their own food to consume on the premises. A recent case before the Bombay High Court argued that this was unfair to moviegoers and the court agreed:
Bombay High Court in Mumbai
© A.Savin, Wikimedia Commons
This is an interesting little test of the judicial system – you know, those told that the Beatles were a popular beat combo – on the subject of property rights. The Bombay High Court has just failed this test too. The question is, multiplex cinemas, why is the food so expensive in them? The correct answer is because the owners of multiplex cinemas make a profit in that manner. According to the court this doesn’t wash. In fact, they seem not to have even considered the argument in that manner:
The Bombay High Court has ruled that food items and bottled water be sold at regular prices inside multiplexes. The directive was issued by a division bench of Justices S.M. Kemkar and M.S. Karnik last week in response to a Public Interest Litigation (PIL) filed by Mumbai resident Jainendra Baxi. He had challenged the prohibition on carrying outside food in movie theatres and multiplexes across Maharashtra.
The economics here is simple enough. The people who order food inside the cinema, at those higher prices, subsidise the others who only buy the ticket to see the movie. Sure, that’s not the first round outcome, but it is the competitive equilibrium. Cinema owners being able to profit from food makes the basic ticket cheaper.
The rights based part is also simple enough. I’m running a business, I can and should be able to decide how people access that business. If I’m running a restaurant I’m entirely at liberty to insist that you only get to consume things at my table that you’ve bought from me. Even if I show a film at the same time.
Another way to put this is that the judges have just failed Chesterton’s Fence. They’ve not grasped why the limitation is in place to start with, therefore they see nothing wrong in ridding everyone of the limitation. And the net effect of this is going to be higher multiplex cinema ticket prices for everyone in Maharashtra.
April 10, 2018
Structural Unemployment
Marginal Revolution University
Published on 8 Nov 2016Unemployment comes in many forms. Sometimes, like we saw with short-term, frictional unemployment, it can actually indicate a healthy, growing economy. But what about persistent, long-term unemployment? That’s not so good.
When a large percentage of those who are considered unemployed have been without a job for a long period of time and this has been true for many years, it’s considered structural unemployment.
Structural unemployment can result from shocks to an economy that drastically alter the labor market. These shocks are not all bad – the rise of the Internet is one such example. Regardless, it can take a while for an economy to adjust to big changes.
These adjustments tend to happen faster in the United States than in Europe. This is most likely due to differences in labor regulations, and how those regulations affect a country’s ability to respond to shocks.
The United States’ employment law known as the “at-will doctrine” makes it so that an employee can quit, or an employer can fire, at any time for any reason. It’s legally much harder to terminate an employee in many European countries. This makes hiring riskier in Europe, resulting in a less dynamic labor market that isn’t able to quickly respond to shocks.
As you might guess, structural unemployment tends to count for a higher percentage of total unemployment in Europe than in the United States. This remains one of the most serious issues facing many European economies today.
April 9, 2018
Portrait of a protectionist
The latest of a long-running series by Don Boudreaux, all entitled “A Protectionist is Someone Who…”:
… if he is among the many protectionists (such as Donald Trump or Peter Navarro) who, finding meaning in bilateral trade accounts, detects danger for country A if country A has a trade deficit with country B, should also find danger for each private producer that has a trade deficit with another private producer. That is, if this protectionist were consistent in his views, the same reasoning that leads him to worry about America’s trade deficit with China should also lead him to worry about, say, The Trump Organization, Inc.’s trade deficit with each of its many suppliers, including with each of any janitors that The Trump Organization, Inc. has on its payroll or otherwise contracts to hire. (After all, I’m quite certain that no janitor hired by The Trump Organization, Inc., buys as much from The Trump Organization, Inc., and The Trump Organization, Inc., buys from any janitor.)
So why does the allegedly genius businessman who is now president of the United States – and whose many fans believe him to “tell it like it is” – not judge his own private company by the same standards that he so confidently insists are appropriate for judging Americans’ trade with non-Americans? After all, if China’s trade surplus with America really is evidence either of Chinese chicanery or of the incompetence of American leaders (or both), then it must also be true that a Trump Organization janitor’s trade surplus with The Trump Organization, Inc. is evidence either of that janitor’s chicanery or of the incompetence of Trump Organization leaders (or both).
April 8, 2018
Premier Wynne’s crazy (high speed) train proposal
I usually start any criticism of new railway line proposals with a disclaimer that I’m actually very pro-railways. I do so because it’s absolutely true and it kind of hurts me to shoot down these wonderful-sounding schemes just because they make no economic sense whatsoever. Last week, Jen Gerson found herself doing exactly the same thing while discussing the Ontario Liberal proposal for a new high speed passenger line:
It would be good to preface this column with a confession. I love trains. I loved taking trains while tooling about in Europe in my ‘20s. I would happily trade additional travel time to enjoy the comforts of a train in favour of airport security and an airline seat.
[…]
Train lovers like myself often like to lament the fact that Canada is the only G7 nation without a high-speed rail line, as if that fact makes us technologically backward — as opposed to merely sparsely populated.
But as Feigenbaum points out, there are only two high-speed rail lines anywhere in the world that make any money after factoring in build and operating costs: Tokyo to Kyoto, and Paris to Lyon. “There is another line in Japan that breaks even. All of the rest of the High Speed Rail projects in the world lose money and some lose a lot of money,” Feigenbaum says.
“In the North American context, you need at least 3 million people in each of the metropolitan areas [you’re serving]. You need incredibly high population density in both of these cities. You need very good inner-city transit systems and you need generally low rates of car ownership.”
Toronto qualifies as a reasonable high speed rail hub by this definition. Windsor does not.
And she doesn’t even mention the almost-universal cost overruns on major infrastructure projects like this, nor delays in obtaining equipment (especially if the winning bidder is Bombardier).
I swear I have squandered days of my life thinking about this train to Windsor and I’ve come to the conclusion that it is an onion of stupid. Every layer you peel away reveals some new and terrible aspect that doesn’t make any sense.
Fortunately, this is almost certainly just an election promise that will never actually go further than some lovely animations and perhaps a few physical scale models for politicians’ photo ops leading up to the vote. It will then probably disappear from the picture even if the Liberals get back into office.
QotD: Just and unjust profits
“Progressives’” hostility to free trade would be amusing were its consequences less baneful: deeply distrustful of the motives of business people, and convinced that profits are ethically suspect, Sandersnistas and many other “Progressives” are in the front lines of the troops who are intent on using trade restrictions to protect business people from competition and, thus, to enhance business people’s prospects of earning excess profits – profits that truly are ethically unjust because they are the fruits of the forced removal from consumers of choices on how they, consumers, may spend their own money. (Of course, the very same economically damaging and ethically unjust consequences spring from trade restrictions supported by Trumpkins and many other conservatives. The tales that each of these economically ignorant groups tell to each other to justify their mercantilist policies differ, but the policies and the harmful results are identical.)
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-07-30.
April 7, 2018
Kevin Milligan on the Catch-22 that is the modern recycling situation
Most of us are aware that we “should” recycle (even though the economics of recycling are, for most items, mixed at best), but as Kevin Milligan points out, there are no universal standards for what can and can’t be recycled among municipalities:
The headline and tone of this story on recycling "Canadians are doing it wrong" shows everything that is wrong with recycling. Confusing, complex, and conflicting rules relying on voluntary compliance leads to a large waste. It's not citizens' fault. https://t.co/VcvSpJIypR
— Kevin Milligan (@kevinmilligan) April 6, 2018
Check out this part. It's Plastic, labelled as recyclable, but somehow the citizen is supposed to know it's not recyclable. At least in Toronto. Cross a municipal border and there will be different rules. pic.twitter.com/QpVUoH8uWk
— Kevin Milligan (@kevinmilligan) April 6, 2018
Ok you finish your takeout coffee. Quick: which bin does soiled waxed paper go in? I have no clue. Depends where you are. UBC seems to have different rules than Vancouver. And that's different from home/condo rules. And their enforcement strategy is to try to shame us.
— Kevin Milligan (@kevinmilligan) April 6, 2018
To me, the solution seems to be centralized standards; clear and uniform for manufacturers and consumers. I've always found the German Grüne Punkt system easy to follow. https://t.co/MzLCRmC6fr pic.twitter.com/1lXlNpmawC
— Kevin Milligan (@kevinmilligan) April 6, 2018
Anyway. I don't do research in this area so I'm just a citizen with no expertise. As a citizen though I would like a system designed like the designers have ever met an actual human. Also, get off my lawn.
— Kevin Milligan (@kevinmilligan) April 6, 2018
This is what generates my rantiness. In Vancouver there are pro-recycling bus ads that explicitly try to shame people for not recycling everything; depict you literally as a monster for not complying. I reject this shaming! https://t.co/VDDdrjNKBC
— Kevin Milligan (@kevinmilligan) April 6, 2018
April 5, 2018
QotD: ESR’s “Iron Laws of Political Economics”
Mancur Olson, in his book The Logic Of Collective Action, highlighted the central problem of politics in a democracy. The benefits of political market-rigging can be concentrated to benefit particular special interest groups, while the costs (in higher taxes, slower economic growth, and many other second-order effects) are diffused through the entire population.
The result is a scramble in which individual interest groups perpetually seek to corner more and more rent from the system, while the incremental costs of this behavior rise slowly enough that it is difficult to sustain broad political opposition to the overall system of political privilege and rent-seeking.
When you add to Olson’s model the fact that the professional political class is itself a special interest group which collects concentrated benefits from encouraging rent-seeking behavior in others, it becomes clear why, as Olson pointed out, “good government” is a public good subject to exactly the same underproduction problems as other public goods. Furthermore, as democracies evolve, government activity that might produce “good government” tends to be crowded out by coalitions of rent-seekers and their tribunes.
This general model has consequences. Here are some of them:
There is no form of market failure, however egregious, which is not eventually made worse by the political interventions intended to fix it.
Political demand for income transfers, entitlements and subsidies always rises faster than the economy can generate increased wealth to supply them from.
Although some taxes genuinely begin by being levied for the benefit of the taxed, all taxes end up being levied for the benefit of the political class.
The equilibrium state of a regulatory agency is to have been captured by the entities it is supposed to regulate.
The probability that the actual effects of a political agency or program will bear any relationship to the intentions under which it was designed falls exponentially with the amount of time since it was founded.
The only important class distinction in any advanced democracy is between those who are net producers of tax revenues and those who are net consumers of them.
Corruption is not the exceptional condition of politics, it is the normal one.
Eric S. Raymond, “Some Iron Laws of Political Economics”, Armed and Dangerous, 2009-05-27.
April 4, 2018
The bias against reporting good news
Last month, Matt Ridley looked at the contrast between how readily bad news is shared and how reluctant we seem to be to share good news:
[…] It also feeds our appetite for bad news rather than good. Almost by definition, bad news is sudden while good news is gradual and therefore less newsworthy. Things blow up, melt down, erupt or crash; there are few good-news equivalents. If a country, a policy or a company starts to do well it soon drops out of the news.
This distorts our view of the world. Two years ago a group of Dutch researchers asked 26,492 people in 24 countries a simple question: over the past 20 years, has the proportion of the world population that lives in extreme poverty
1) Increased by 50 per cent?
2) Increased by 25 per cent?
3) Stayed the same?
4) Decreased by 25 per cent?
5) Decreased by 50 per cent?
Only 1 per cent got the answer right, which was that it had decreased by 50 per cent. The United Nations’ Millennium Development goal of halving global poverty by 2015 was met five years early.
As the late Swedish statistician Hans Rosling pointed out with a similar survey, this suggests people know less about the human world than chimpanzees do, because if you had written those five options on five bananas and thrown them to a chimp, it would have a 20 per cent chance of picking up the right banana. A random guess would do 20 times as well as a human. As the historian of science Daniel Boorstin once put it: “The greatest obstacle to discovery is not ignorance — it is the illusion of knowledge.”
Nobody likes telling you the good news. Poverty and hunger are the business Oxfam is in, but has it shouted the global poverty statistics from the rooftops? Hardly. It has switched its focus to inequality. When The Lancet published a study in 2010 showing global maternal mortality falling, advocates for women’s health tried to pressure it into delaying publication “fearing that good news would detract from the urgency of their cause”, The New York Times reported. The announcement by NASA in 2016 that plant life is covering more and more of the planet as a result of carbon dioxide emissions was handled like radioactivity by most environmental reporters.
What is more, the bias against good news in the media seems to be getting worse. In 2011 the American academic Kalev Leetaru employed a computer to do “sentiment mining” on certain news outlets over 30 years: counting the number of positive versus negative words. He found “a steady, near linear, march towards negativity”. A recent Harvard study found that 87 per cent of the coverage of the fitness for office of both candidates in the 2016 US presidential election was negative. During the first 100 days of Donald Trump’s presidency, 80 per cent of all coverage was negative. He is of course a master of the art of playing upon people’s pessimism.
April 3, 2018
QotD: How to win a trade war
Spartacus has had enough. He has been taken advantage of for too many years and he has suffered trade deficits for far too long. Complaints to the regulators have fallen on deaf ears so now time has come to take the necessary action to put this to an end.
For far too long, Spartacus has run a significant trade deficit with Woolworths and Coles; not only for groceries but for petrol also.
Spartacus keeps buying things from Woolworths and Coles but they never buy anything from him. Those bastards even occasionally “dump” products in their stores meaning that Spartacus can buy groceries for less than he would normally. This is completely unsatisfactory.
Effective immediately, pursuant to SEO 1 (Spartacus Executive Order 1), Spartacus has declared a trade war on Woolworths and Coles. Hence forth, rather than buying quality and (relatively) well priced groceries from these trade cheaters, Spartacus will grow his own fruit, vegetables and meat. And rather than buying petrol, Spartacus will walk or otherwise ride his 2 wheeled chariot. Importantly also, when it comes to paper products, particularly of the toilet paper variety, well, the Fairfax papers will be used for their natural purpose.
Yes. Spartacus will have less leisure time, less disposable income and less grocery choice, but he will no longer have a trade deficit with Woolworths and Coles. This is a trade war Spartacus can win.
And if a sore “butt” comes to pass, what would be colonic damage. Sorry. Collateral damage.
“Spartacus”, “Spartacus’ Trade War”, Catallaxy Files, 2018-03-11.
March 30, 2018
QotD: “Progressive” eugenicists
Although their ethics were appalling, “Progressive” eugenicists of the late 19th and early 20th centuries at least got their economic analysis correct: they understood that forcibly raising employers’ cost of employing certain kinds of labor would reduce the quantity of that labor that is employed. This correct economic understanding was at the foundation of these “Progressives’” support for minimum wages; these “Progressives” explicitly wanted to keep people that they regarded as ‘undesirable’ from working.
I say (and believe) that these “Progressives’” ethics were appalling. Yet I’m quite sure that they did not see themselves as monsters. They surely believed themselves to be enlightened, humane, and highly ethical. They believed that they worked for a larger cause – “social reform” – and saw eugenics, minimum wages, and other uses of state force as progressive means of improving humankind through social engineering. One lesson here is that people convinced that they have a mission to improve society by helping forcibly to re-arrange that society so that it conforms to some pre-conceived image are dangerous brutes (if ones that wear suits) whose brutality is hidden from them by their consciously held good intentions and masked from their contemporaries, ironically, by the grand scale (‘society’) upon which they propose to implement their schemes. (If Bill pokes a gun at his neighbor Betty and threatens to shoot Betty if she pays any of her workers less than $7.25 per hour, Bill is rightly recognized as a brute who belongs in prison. Yet if Bill persuades a uniformed and well-armed gang to threaten to shoot, not just Betty, but everyone in the state who employs workers at wages lower than $7.25 per hour, Bill is celebrated as a humane social reformer who belongs in public office. It’s damn bizarre.)
Don Boudreaux, “Quotation of the day…”, Café Hayek, 2016-07-16.
