Published on 9 Feb 2016
If you look at the African continent, perhaps the first word to come to mind is “enormous.” And that’s true. You could fit most of the United States, China, India, and a lot of Europe, into Africa. But if you compare Africa to Europe, Europe has two to three times the length of coastline that Africa has.
But what does coastline length have to do with anything?
Well, coasts mean access to water.
As benign as water might seem, it’s a major driver of economic growth. Adam Smith, the father of modern economics, argued that access to water reduced the cost of trade, and gave merchants access to larger markets. These larger markets incentivized specialization and innovation.
These twin processes ultimately spurred trade activity, and consequently, economic growth.
As an end result, civilization tended to grow wherever trade was easiest.
If you want proof of this, think of a few major cities.
Look at Istanbul, New York, Venice, Hong Kong, London, and similar areas. What do they all have in common? They all sit near a major coast or a major river. In contrast, look at some of the poorest areas in the world—places like Kampala, or Pointe-Noire. These places are all landlocked. Since goods are easier to transport over water than over land, trade in landlocked areas is more expensive.
And what happens when trade is more expensive?
It becomes harder to spark economic growth.
What this all means is economic growth is not only affected by a country’s rules and institutions, but by a country’s natural blessings, or natural hindrances, too. The effects of geography on growth cannot be discounted.
May 15, 2017
Geography and Economic Growth
May 14, 2017
The earliest lesson in economics
Steve Kates posted this at Catallaxy Files, saying it was everything you need to know about public spending:
QotD: Big business, crony capitalism and regulatory capture
Now, Pope Francis has the beginnings of a point about large “private corporations” (note the oxymoron), which in their wealth may grow (though only temporarily) to a size rivalling the smaller national governments. And I would add, they become nearly as centralized and monopolistic (through “regulatory capture”), and faceless and bureaucratic as the agencies of State. Whenupon, unlike the self-perpetuating agencies of the State, they begin to disintegrate from their own lack of enterprise.
It is not enough, as the libertarians suppose, to leave them to their fate, in the knowledge that if they are inefficient they’ll be gone tomorrow. For new large corporations rise to take their place, and at every moment the great majority of people are reduced to wage-slaves of one large corporation or another. Indeed, part of the power of large corporations comes from their scale as employers. A democratic government which tries to stand up to them will quickly relent, and switch to subsidies instead, when they threaten to create mass unemployment.
The question must be asked: What makes vast, morally obtuse, centralized corporations possible? And the answer should be easy to see. It is vast, morally obtuse, centralized governments, which command regulatory regimes that are consistent over huge areas. That has actually become our model for global “free trade”: making regulations and taxation consistent not only across nations, but across continents. This creates an order which large corporations, and only large corporations, are well-equipped to exploit.
Imagine instead they were to face different regulatory regimes, parish by parish. They could still operate, but would have to adapt each franchise to local conditions, as defined by the sovereign local authority. This immediately flips the onus, and gives the local merchant or producer the advantage over his multinational competitor, in being on the spot. It reduces that competitor’s economy of scale, while also imposing upon him a new model of corporate governance, as network, that must of necessity become decentralized and responsive (just as creatures in nature) to every single environmental niche.
The re-focusing on what is local, and what is doable locally, would have tremendous ramifications on “the environment” at large — overwhelmingly positive, given some time. Yet it would also have the happy effect of disempowering the ecological whack cases.
David Warren, “Five thousand max”, Essays in Idleness, 2015-06-19.
May 11, 2017
Words & Numbers: The Minimum Wage Conspiracy
Published on 10 May 2017
This week, James & Antony tackle minimum wage laws and present some hard facts that might surprise a lot of people.
See the YouTube description for a long list of links related to this discussion.
May 9, 2017
QotD: Wage floors and rent ceilings
[Progressives] tend to favor policies such as New York City’s rent controls, and the new $15 minimum wage being gradually phased in in some western cities. I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.
In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.
Wage floors present the same sort of problem as rent ceilings, except that now it’s the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.
Scott Sumner, “How bad government policies make us meaner”, Library of Economics and Liberty, 2015-08-25.
May 8, 2017
“Have libertarians — and the broader right and/or classical-liberal movement — really lost the ‘culture wars’?”
Nick Gillespie on the outcome of the most recent battles in the culture wars:
Spoiler alert: I think libertarians have already won the culture war in the most important ways possible. Whether it’s businesses like Whole Foods, Overstock, and Amazon; the massive and ongoing proliferation of platforms such as Netflix, YouTube, and Twitter; or gig-economy titans such as Uber and Airbnb, capitalism and entrepreneurship has been recast as an innovative, disruptive, liberatory system that allows us all to produce and consume whatever we want under increasingly personalized and individualized circumstances. What we need to do next to nail down what Matt Welch and I have dubbed The Libertarian Moment is to articulate the ways in which our society’s cultural, economic, and even political operating system has already bought into the idea that decentralization, individualism, innovation, and freedom to experiment.
If the medium is the message (all props to Marshall McLuhan) — if an operating system is more important than any specific content generated within that system — what has been abjured as “late capitalism” for decades has effectively ended all debates about how libertarian policies and mind-sets have freed us from bland top-downism in all parts of our lives. This isn’t to suggest that we are in any way living a utopian dream. It’s simply to point out that even after 15 years of drowsy economic growth and a massive expansion of state (and in many ways, corporate) power, our living standards continue to rise. Add to that huge advances in tolerance and change when it comes to racial, ethnic, and gender disparities and transformative shifts on topics as varied as drug policy, sexual orientation, criminal-justice reform, and gun rights too.
Cultural and political pessimism isn’t just a losing strategy, it’s a misimpression. Again, that’s not to say that massive problems don’t exist and need to be confronted. Will we ever see an actual federal budget again, much less that cuts government spending? U.S. foreign policy remains a shameful, disastrous, and destructive hodgepodge of hubris and stupidity. Speech and expression are under attacks from the right and the left, and the bipartisan turn against free trade and the easy movement of people across borders needs to be beaten back. As the late, great Arthur Ekirch explained in his neglected masterpiece The Decline of American Liberalism, forces of decentralization and centralization — of liberation and authoritarianism, of individualism and collectivism, of choice and coercion — have been slugging out in the United States since before there was a United States. The question is whether we are moving generally in a direction of more autonomy and less restriction on how we live our lives.
May 7, 2017
Canada-US trade relationship, visually
With all the talk (mostly from President Trump) about abandoning existing trade relationships like NAFTA, it’s worth looking at just how closely related the US and Canadian economies are (below the fold, because the graphic is yuuuuuge):
The Importance of Institutions
Published on 2 Feb 2016
In today’s video, we discuss a topic critical to understanding economic growth: the power of institutions.
To better shed light on this, we’re going to look at an example that’s both tragic and extreme.
In 1945, North and South Korea were divided, ending 35 years of Japanese colonial rule over the Korean peninsula. From that point, the two Koreas took dramatically different paths. North Korea went the way of communism, and South Korea chose a relatively capitalistic, free market economy.
Now — what were the results of those choices?
In the ensuing decades after 1945, South Korea became a major car producer and exporter. The country also became a hub for music (any K-pop fans out there?), film, and consumer products. In stark contrast, North Korea’s totalitarian path resulted in episodes of famine and starvation for its people.
In the end, South Korea became a thriving market economy, with the living standards of a developed country. North Korea on the other hand, essentially became a militarized state, where people lived in fear.
Why such an extreme divergence?
It all comes down to institutions.
When economists talk about institutions, they mean things like laws and regulations, such as property rights, dependable courts and political stability. Institutions also include cultural norms, such as the ones surrounding honesty, trust, and cooperation.
To put it another way, institutions guide a country’s choices — which paths to follow, which actions to take, which signals to listen to, and which ones to ignore.
More importantly, institutions define the incentives that affect all of our lives.
Going back to our example, in the years after 1945, North and South Korea took dramatically different institutional paths.
In South Korea, the institutions of capitalism and democracy, promoted cooperation and honest commercial dealing. People were incentivized to produce goods and services to meet market demand. Businesses that did not meet demand were allowed to go bankrupt, allowing the re-allocation of capital towards more valuable uses.
Against that grain, North Korea’s institutions produced starkly different incentives. The totalitarian regime meant that the economy was centrally planned and directed. Most entrepreneurs didn’t have the freedom to keep their own profits, resulting in few incentives to do business. Farmers also didn’t have enough incentive to grow sufficient food to feed the population. This was due in part to price controls, and a lack of property rights.
As for capital, it was allocated by the state, mostly towards political and military uses. Instead of going towards science, or education, or industrial advancement, North Korea’s capital went mostly towards outfitting its army, and making sure that the ruling party remained unopposed.
And now, look at how different the two countries are as a result of those differing institutions.
When it comes to economic growth, institutions are critically important. A country’s institutions can have huge effects on long-term growth and prosperity. Good institutions can help turn a country into a growth miracle. Bad institutions can doom a country to economic disaster.
The key point remains: institutions are important.
They represent the choices that a country makes, and as the Korean peninsula shows you, choices on this scale can have staggering effects on a nation’s present, and future.
May 4, 2017
What’s So Bad About The Galactic Empire?
Published on 4 May 2017
Have you ever really stopped to consider why the Galactic Empire in Star Wars is actually bad?
Welcome to Out of Frame, a new on-going monthly series where we talk about the intersection of art, culture, and ideas from a classical liberal perspective. The goal for this series is to explore the underlying ideas in movies, TV, comics, books, and other media that you may not have thought about before.
We really hope you loved this video and want to see more.
If you do, be sure to subscribe to our channel and come back for the next episode in a few weeks!
May 3, 2017
“Poverty, to be scenic, should be rural”
Daniel Hannan on the contrast between rural and urban poverty, and the attitudes of Westerners:
When I was growing up in Lima in the 1970s, Western visitors were astonished by the shantytowns, the barriadas, as they were known, that ringed that grimy city. Why, they asked, did people leave the countryside to live in these squalid slums? Why swap the pure air of the Andes for traffic fumes and sewage?
It was a very First World question. No Peruvian ever asked why people were quitting villages that lacked electricity and clean water. The barriadas may have been ugly, but they were humming with enterprise. They offered work, access to schools and clinics, a power supply. They were, for most of their denizens, transitional, a staging post between mountain squalor and something better.
In time, I came to realize that Western nose-wrinkling at developed countries was more esthetic than sympathetic. As the Victorian novelist Anthony Trollope put it, “Poverty, to be scenic, should be rural.”
Western attitudes haven’t advanced much since then. My kids’ geography homework is full of stories about evil Western corporations exploiting poor women in Vietnam or wherever. Now, you and I would not want to work in a Vietnamese sweatshop. But we have not spent our lives bending our backs in rice paddies.
Employees of foreign-owned companies in Vietnam earn 210 percent of the average wage. The readiness of that country to open itself to trade and investment has brought huge benefits to the Vietnamese, including those on the lowest incomes. Over 19 years, the West struggled to defeat totalitarian socialism in Vietnam, and failed. Three decades of trade have achieved what 60,000 American lives and over a trillion dollars in today’s prices in military spending failed to achieve: the end of Communism.
Developing countries which open their markets eliminate poverty more quickly than those which don’t. Compare Vietnam to Myanmar, or Colombia to Venezuela, or Bangladesh to Pakistan. A study of developing states since 1980 showed that those which had joined the global trading system enjoyed annual growth at an average of 5 percent, as against 1.5 percent for those which hadn’t.
Softwood lumber, again
Last week, Megan McArdle provided a quick look at the son of the bride of the revenge of the softwood lumber dispute monster:
According to American lumber producers, this is because of the nefarious subsidies the Canadian government has granted to its timber producers. In America, most softwood timbering takes place on private land, and the lumber is priced to recover the full cost of owning and maintaining many acres of trees. In Canada, forest resources tend to be owned by the government, which sets “stumpage fees” (the cost for cutting down a tree, which used to be assessed per stump and is now usually assessed by board feet or cubic meters [PDF]).
The American producers complain that these fees are set too low, providing an unfair subsidy for Canadian timber, especially because British Columbia (which has a lot of timberland) bans the export of Canadian logs, so that American lumber mills are unable to get in on this sweet, sweet deal.
For variety, American producers occasionally also complain that Canada is “dumping” (basically meaning that a country is selling goods in a foreign market below the price at home. Since this is — except in rare cases such as pharmaceuticals — a stupid business practice, accusations of dumping tend to exceed actual instances by a healthy margin.)
[…]
The history of litigation on this is long, rich and arcane. Since the 1980s, the U.S. and Canada have been locked in a cycle whereby the U.S. complains that Canadian softwood lumber is too darn cheap, complaints are filed with various entities, and eventually both sides decide it’s easier to come to some sort of settlement rather than subject everyone to another endless hearing on the minutiae of the lumber industry. Then an agreement expires, American lumber producers say “Now’s our chance, guys! We’re going over the top!” and the magical cycle of birth and death, conflict and resolution, begins once again in the forest lands.
When trade bodies get around to ruling, those rulings are often mixed: “Yeah, okay, maybe there’s some subsidy in there somewhere, but you Americans are wildly overreacting, so cool it with the huge tariffs.” Which was basically my take on the dispute in 2004, when I last covered it. Research does not reveal any good reason to revise that view, especially because Canadian stumpage has evolved somewhat over the years. British Columbia now uses auctions [PDF] in its coastal forest areas, which should tend to drive the price of stumpage there to par with the world market.
We should also note that any subsidy, however bad for American softwood lumber producers, is actually good for the vast majority of Americans who do not work in forestry. This morning, people were throwing wild numbers around about how much a tariff would increase the price of a house or a box spring. I’d take those numbers with a hefty dose of salt, but undoubtedly, they will drive the price of softwood lumber products up somewhat, which means less money in the pocket of you, The Modern American Consumer. So even if American timber producers were completely right and their tariff were warranted, the American consumer would suffer.
May 1, 2017
“100% certainty is almost always an indication of a cult rather than any sort of actual truth”
Jay Currie looks at the reaction to a Bret Stephens climate article in the New York Times:
On the science side the greatest threats were the inadequacy of the climate models and the advent of the “hiatus”. The models entirely failed to project any circumstances in which temperature ceased to rise when CO2 continued to rise. However the hiatus created exactly that set of conditions for what is now looking like twenty years. (Right this instant, last year’s El Nino, broke the hiatus. However, rapidly cooling post El Nino temperatures look set to bring the hiatus back into play in the next six months to a year.)
The economic side is even worse. It turns out that renewable energy – windmills and solar – costs a fortune and is profoundly unreliable. Governments which went all in for renewables (see Ontario) found their energy prices hockey sticking and the popularity plummeting without, as it turns out, making even a slight impression on the rise of CO2 concentrations.
The economics of climate change and its “mitigation” are a shambles. And it is beginning to dawn on assorted politicians that they might have been railroaded with science which was not quite ready for prime time.
Which makes it all the more imperative for the Nuccitelli and DeSmog blogs of this world to redouble their attacks on even mildly sceptical positions. Had the alarmists been less certain their edifice could have easily withstood a recalibration of the science and a recalculation of the cost/benefits. But they weren’t. They went all in for a position which claimed to know for certain that CO2 was driving world temperature and that there was no other possible cause for an increase or decrease in that temperature.
The problem with that position is that it was premature and very brittle. As lower sensitivity estimates emerge, as other, non-CO2 driven, temperature controls are discovered, consensus climate science becomes more and more embattled. What had looked like a monopoly on political discourse and media comment begins to fray. The advent of Trump and a merry band of climate change skeptics in the regulatory agencies and in Congress, has pretty much killed any forward motion for the climate alarmists in the US. And the US is where this battle will be won or lost. However, the sheer cost of so called “carbon reduction” schemes in the UK, Germany and the rest of Europe has been staggering and has shown next to no actual benefit so scepticism is rising there too. China has both embarked on an embrace of climate change abatement and the construction of dozens of coal fired electrical generation plants every year.
April 28, 2017
Words & Numbers: Actually, Life is Pretty Awesome
Published on 26 Apr 2017
This week, James and Antony take a brief departure from talking about the growing national debt, and our absurd tax system to discuss the numerous ways in which more economic and personal freedom has made people wealthier, more equal, and better off all over the world. We’re actually living in pretty amazing times.
Read more:
https://fee.org/articles/actually-life-is-pretty-awesome/
April 27, 2017
“Richard Florida has a new book [that] advises cities on what to do about problems that result from advice he gave them in his previous books”
Chris Selley hits this one out of the ballpark:
Gadabout urbanist Richard Florida has a new book: The New Urban Crisis. It advises cities on what to do about problems that result from advice he gave them in his previous books, notably The Rise of the Creative Class. Stuff your downtown core full of creative types and you shall prosper, the University of Toronto professor advised, and many cities listened. Now some face a “crisis of their own success,” he told a Toronto breakfast crowd at the Urban Land Institute’s Electric Cities Symposium: the blue-collar types who make the creative class’s artisanal baked goods and mind their children have been “pushed” ever further into the suburbs. Economic and geographic inequality results, and Rob Ford/Donald Trump/Brexit-style resentment can build.
Florida’s many critics have long warned this was a flaw in his vision. But now Florida says he finds it “terrifying,” so he’s off on another book tour.
If I sound a bit peevish, it’s because I find him rather insufferable. Critics have poked holes in much of his research, but much more of it strikes me as overly complex analysis and measurement of fairly basic, intuitive phenomena that are common to dynamic and not-so-dynamic cities. While the remarkable urban revivals in recent decades in New York and Pittsburgh, and nascent ones in Detroit and Newark, are all very interesting, I’ve never understood what they have to teach us about Canadian cities. Their cores never “hollowed out” in the first place, necessitating wholesale renewal. When I listen to Florida talk, I hear Lyle Lanley trying to sell Springfield a monorail.
In any event, his prescriptions for the GTA are not exactly visionary: more transit, more affordable housing, densification over NIMBYism and more decision-making autonomy for cities. “The key today is shifting power from provinces to cities,” Florida writes in a Canadian-focused paper linked to the new book. That made it all the more galling to watch his post-speech “fireside chat” with Ontario Premier Kathleen Wynne, whose tires he pumped well beyond their recommended PSI.
“You know this. It’s in your blood,” Florida gushed of her urbanist bona fides.
Well, let’s see. Wynne can certainly claim to have committed many billions in taxpayer money to transit projects. But if there were awards for NIMBYism, Wynne would have one for the nine-figure cancellation of two unpopular gas-fired power plants, during an election campaign of which she was co-chair; and perhaps another for her party’s shameless politicking on transit in Scarborough.
April 24, 2017
Growth Miracles and Growth Disasters
Published on 26 Jan 2016
In previous videos, you learned two things.
First, that there can be large disparities in economic wealth among different countries. And second, you learned that one key factor drives that disparity: growth rate. As we said, it changes everything. But just how transformative is a country’s growth rate?
Take Argentina, for example.
In 1950, the Argentine standard of living was similar to that of many Western European countries. Up until 1965, Argentina’s per capita income was ahead of many of its neighbors.
On the other hand, Japan in 1950 was on the other end of the spectrum. Japan had been ravaged by war and was only just beginning to find its economic footing again. At that time, Japan’s standard of living was roughly the same as that of Mexico.
It was quite poor, compared to the Argentina of the same era.
But look at what’s happened in the past 65 years.
Japan today is one of the world’s most prosperous countries. Since 1950, it has managed to double its living standards about every eight years. Argentina, on the other hand, has stagnated. Once, Argentina had double the standard of living of Japan. But Japan now doubles them today, with a standard of living 10 times higher than the one it had in 1950.
In economic terms, Japan is what we would call a growth miracle. It’s in the same class as other growth success stories, like South Korea and China which have experienced the “hockey stick” of prosperity. (India seems like it may have started on this path as well.)
These countries are proof of one thing: with the right factors, a poor country can not only grow, but it can do so quickly. It can catch up with developed countries at an astonishing rate.
What took the United States two centuries of steady growth can now be achieved by other countries in about one-fifth the time. Catch-up can happen in 40 years — about the span of a generation or two.
That’s the good news.
The bad news is, while growth can skyrocket in some countries, growth isn’t guaranteed at all.
Argentina is an example of this. It grew well for a time, and then it stalled. Even worse than Argentina, are countries like Niger, and Chad, which are the very worst of growth disasters. Not only are these countries in extreme poverty, but they also have little to no growth. More than that, these countries have never experienced substantial growth in the past.
But why does that all matter?
It matters because growth isn’t just about numbers. It’s not just about more goods and services. When a country grows, its citizens often end up with longer, healthier, and happier lives. Conversely, the countries that are growth disasters have citizens in poverty, with shorter and less happier lives.
As bleak as this seems, it’s the plain truth: while growth miracles are possible, growth disasters are, too.
Which leaves us with another question: what causes either state?
What leads to growth, prosperity, health, and happiness? And then, what leads to the opposite situation?
We’re excited to share the answer, but that’s a topic for future videos.
For now, check out this video to get up to speed on growth miracles and growth disasters.
