Published on 18 Mar 2015
What happened to the cleanliness of your clothes after the U.S. Department of Energy issued new washing machine requirements? The requirements — which require washers to use 21% less energy — mean that washers actually clean clothes less than they used to. Is “command and control” an efficient way to achieve the desired outcome (which is less pollution)? Rather than a standard requirement, such as the Department of Energy issued, a tax on electricity would provide users with greater flexibility in their washing—and would prompt people to purchase machines that use energy more efficiently and keep their clothes clean.
Are there times when a command and control solution to a problem makes the most sense? We look at the eradication of smallpox as one example.
September 21, 2015
Command and Control Solutions
September 9, 2015
August 20, 2015
How Buildings Learn – Stewart Brand – 4 of 6 – “Unreal Estate”
Published on 10 Jun 2012
This six-part, three-hour, BBC TV series aired in 1997. I presented and co-wrote the series; it was directed by James Muncie, with music by Brian Eno.The series was based on my 1994 book, HOW BUILDINGS LEARN: What Happens After They’re Built. The book is still selling well and is used as a text in some college courses. Most of the 27 reviews on Amazon treat it as a book about system and software design, which tells me that architects are not as alert as computer people. But I knew that; that’s part of why I wrote the book.
Anybody is welcome to use anything from this series in any way they like. Please don’t bug me with requests for permission. Hack away. Do credit the BBC, who put considerable time and talent into the project.
Historic note: this was one of the first television productions made entirely in digital— shot digital, edited digital. The project wound up with not enough money, so digital was the workaround. The camera was so small that we seldom had to ask permission to shoot; everybody thought we were tourists. No film or sound crew. Everything technical on site was done by editors, writers, directors. That’s why the sound is a little sketchy, but there’s also some direct perception in the filming that is unusual.
August 10, 2015
Price Controls and Communism
Published on 25 Feb 2015
What happens when the prices of all goods are controlled? Under communism, or a command economy, this is exactly what occurs. As a result, all of the effects of price controls become amplified: there are even more shortages or surpluses of goods, lower product quality, longer lines and more search costs, more losses in gains from trade, and more misallocation of resources. As we have seen, universal price controls destroy market coordination and create a system of planned chaos in which it becomes more difficult for consumers to get the goods and services they want and need.
August 3, 2015
July 20, 2015
Price Floors: The Minimum Wage
Published on 25 Feb 2015
Price floors, when prices are kept artificially high, lead to several consequences that hurt the consumer. In this video, we take a look at the minimum wage as an example of a price floor. Using the supply and demand curve and real world examples, we show how price floors create surpluses (such as a surplus in labor, or unemployment) as well as deadweight loss.
July 15, 2015
Price Ceilings: Rent Controls
Published on 25 Feb 2015
Rent controls are a type of price ceiling. We’ll use our diagram to show how rent controls create shortages by reducing the supply of apartments available on the market. Rent controls also result in reduced product quality, since they reduce the returns to landlords from renting apartments. Landlords respond by cutting costs or performing less maintenance, leading to lower quality. There are search costs associated with rent controls, and they also lead to a misallocation of resources since apartments are not allocated to renters who value them the most.
July 9, 2015
Price Ceilings: Misallocation of Resources
Published on 25 Feb 2015
Suppose there is a mild winter on the West Coast and a harsh winter on the East Coast. As a result of the weather, people on East Coast will demand more home heating oil, bidding up the price. Under the price system, entrepreneurs will be incentivized to take oil from where it has lower value on West Coast to where it has higher value on the East Coast. But when price controls are in place, even though the demand is still there from the East Coast, there is no signal of a higher price, eliminating the incentive for entrepreneurs to transport oil from west to east. In fact, this happened in the 1970s, resulting in oil going to lower valued uses on the West Coast while many people on the East Coast didn’t have enough oil to heat their homes. In this video, we’ll look at a diagram to visualize this misallocation of resources.
July 6, 2015
Price Ceilings: Deadweight Loss
Published on 25 Feb 2015
In this video, we explore the fourth unintended consequence of price ceilings: deadweight loss. When prices are controlled, the mutually profitable gains from free trade cannot be fully realized, creating deadweight loss. With price controls, less trading occurs and both buyers and sellers miss out on the mutually profitable gains that could have occurred. We’ll show how to calculate deadweight loss using our example of a price ceiling on gasoline.
June 27, 2015
Price Ceilings: The US Economy Flounders in the 1970s
Published on 25 Feb 2015
In 1971, President Nixon, in an effort to control inflation, declared price increases illegal. Because prices couldn’t increase, they began hitting a ceiling. With a price ceiling, buyers are unable to signal their increased demand by bidding prices up, and suppliers have no incentive to increase quantity supplied because they can’t raise the price.
What results when the quantity demanded exceeds the quantity supplied? A shortage! In the 1970s, for example, buyers began to signal their demand for gasoline by waiting in long lines, if they even had access to gasoline at all. As you’ll recall from the previous section on the price system, prices help coordinate global economic activity. And with price controls in place, the economy became far less coordinated. Join us as we look at real-world examples of price controls and the grave effects these regulations have on trade and industry.
June 2, 2015
The Great Economic Problem
Published on 8 Feb 2015
In this video, we discuss how different markets are linked to one another. How does the price of oil affect the price of candy bars? When the price of oil increases, it is of course more expensive to transport goods, like candy bars. But there are other, more subtle ways these two markets are connected. For instance, an increase in the price of oil leads to an increase in demand for oil substitutes, like ethanol. And when the supply of oil falls, oil should shift to higher-valued uses. But, which uses? How do we decide where to use less oil?
This brings us to the great economic problem: how to most effectively arrange our limited resources to satisfy our needs and wants. Which approach — central planning or the price system — is better at solving this problem? Join us as we explore this question further.
May 28, 2015
QotD: The key strength of markets
This is a general and pernicious failing of the left in my view. They really, just really, don’t get what it is that markets do and do very well. What markets do do is they produce the information, through the price system, of who is willing to produce what at which price and who desires to consume what at which price. Thus we get an efficient allocation of scarce resources by our use of markets. And Hayek pretty much got his Nobel for proving that there is no other system to hand which can perform this function. The planner simply cannot gain enough information to be able to perform that function, nor process it real time (and no, computing can’t do it either, Allende and his computer to run the Chilean economy was wrong.)
It’s entirely possible to critique markets on the grounds of equity though. For example, too many people are too poor if we just leave it to the market. Perhaps we agree with that idea, perhaps we don’t: but that argues for changing peoples’ incomes through intervention, not for abolishing the market in the provision of goods. Or, as I’ve said before, if Chavez and Maduro want poor Venezuelans to be better off then send them more money. Don’t mess with the market: the result of that messing will inevitably be the sort of breakdown we see here.
As for the people of Venezuela, well, obviously, this isn’t going to work out well. Their rulers have pretty much bankrupted the country through their incompetence: and now they’re taking more economic power unto themselves?
Not going to work, is it? Even competent governments haven’t been able to make nationalised food distribution systems work…
Tim Worstall, “Amazingly, Maduro Is Going To Make The Venezuelan Economy Even Worse. Yes, Worse”, Forbes, 2015-05-03.
April 24, 2015
April 8, 2015
January 27, 2015
How to think like a government bureaucrat
Robert Tracinski on the essential core of a control freak’s very being:
Here’s one of my favorite stories about how the mind of a government official works.
A few years ago, I was in a grocery store in Charlottesville when I overheard a conversation between two shoppers, one of whom was clearly in some position of authority (the City Council, I believe). This was right after the financial crisis. The real estate market had just collapsed, a whole bunch of local development project had just been canceled, and my wife was telling me about all the guys she knew in construction who were desperate for work. Yet here was this lady arguing for why the local government should not approve any new commercial building permits. The danger, she explained, was the prospect of “economic ghost towns,” retail areas where several shops had closed, hurting business for the others. Until these “economic ghost towns” were filled back up — whether anybody wanted them or not — there was no good reason to approve permits for new commercial construction.
I just couldn’t keep quiet and had to interrupt: Only in Charlottesville — a left-leaning university town — could an economic downturn be used as a reason to block new economic activity.
But you have to understand the outlook of those whose faith is the creed of government. Everything is proof of the need for more government power and control. The local economy is booming? Let’s hold back on building permits because we don’t want to grow “too fast.” The local economy is tanking? Let’s hold back on building permits because we don’t want “economic ghost towns,” or whatever. On the national level, in an economic collapse the government needs more money for “stimulus.” But if the economy is booming, that means we can afford higher taxes, right?
