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.
June 2, 2015
The Great Economic Problem
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?
January 23, 2015
“We are all [Milton] Friedman’s children and grandchildren”
At Worthwhile Canadian Initiative, Nick Rowe explains just how important Milton Friedman still is in economics today:
I can’t think of any economist living today who has had as much influence on economics and economic policy as Milton Friedman had, and still has. Neither on the right, nor on the left.
If you had a time machine, went back to (say) 1985, picked up Milton Friedman, brought him forward to 2015, and showed him the current debate over macroeconomic policy, he could immediately join right in. Is there anything important that would be really new to him?
We are all Friedman’s children and grandchildren. The way that New Keynesians approach macroeconomics owes more to Friedman than to Keynes: the permanent income hypothesis; the expectations-augmented Phillips Curve; the idea that the central bank is responsible for inflation and should follow a transparent rule. The first two Friedman invented; the third pre-dates Friedman, but he persuaded us it was right. Using the nominal interest rate as the monetary policy instrument is non-Friedmanite, but the new-fangled “Quantitative Easing” is just a silly new name for Friedmanite base-control.
We easily forget how daft the 1970’s really were, and some ideas were much worse than pet rocks. (Marxism was by far the worst, of course, and had a lot of support amongst university intellectuals, though not much in economics departments.) When inflation was too high, and we wanted to bring inflation down, many (most?) macroeconomists advocated direct controls on prices and wages. And governments in Canada, the US, the UK (there must have been more) actually implemented direct controls on prices and wages to bring inflation down. Milton Friedman actually had to argue against price and wage controls and against the prevailing wisdom that inflation was caused by monopoly power, monopoly unions, a grab-bag of sociological factors, and had nothing to do with monetary policy.
January 22, 2015
China (barely) misses growth target … as if we can trust their numbers anyway
Ah, well, I haven’t ridden this old hobby horse for a while, so let’s just let Tim Worstall explain why this time, we might be able to get a bit of perspective from the otherwise unreliable official Chinese government economic figures:
Many observers have been slightly sceptical of Chinese GDP numbers for some years now. Regional GDP numbers don’t seem to quite match with other regional numbers (say, oil consumption, other proxies for economic activity) and national numbers don’t necessarily reflect the sum of all of those regional numbers either. There’s absolutely no doubt at all that the place has been getting richer but whether quite so much or quite in the manner being reported is another matter. And then there’s another group of observers (this one including myself) who have some experience of how communists report economic numbers. There’s a plan, the Communist Party is in charge of executing that plan and, amazingly, the plan is always reported to have either worked or been exceeded. Anything less would reflected badly on said Communist Party. As I’ve also been exposed to the old Soviet accounting systems I’m more sceptical than most on this point.
So, there’s that slight worry that a slowing China (or one not growing at the former breakneck pace perhaps) will also lower growth in other countries. We’re pretty sure that’s going to happen. But we’ve also got this other thing to ponder. If the Communist Party is allowing the reporting of numbers that don’t meet the plan then what’s going on with that?
Is this some sea change in the management of the numbers? They’re actually reporting the correct numbers? Or are those suspected massages of the numbers still going on but they underlying reality is so bad that they just couldn’t get up to the planned target? This is, I agree, all wild surmise. But it is a surprise that the numbers came in below target because that’s just not what we’ve come to expect in such a political system. And that could be very bad news indeed.
The seductive appeal of the big project
In a Forbes post from a few years back, Warren Meyer looks at the appeal of the megaproject to those inclined to think that what society really needs is someone in control:
What is it about intellectuals that seem to, generation after generation, fall in love with totalitarian regimes because of their grand and triumphal projects? Whether it was the trains running on time in Italy, or the Moscow subways, or now high-speed rail lines in China, western dupes constantly fall for the lure of the great pyramid without seeing the diversion of resources and loss of liberty that went into building it.
Writers like Thomas Friedman and Joel Epstein in the Huffington Post have eulogized China and its monumental spending projects. These are the same folks who, generations ago, tried disastrously to emulate Mussolini’s “forward-thinking” economic regime in the National Industrial Recovery Act. These are the same folks who wanted to emulate MITI’s management of the Japanese economy (which drove them right into a 20-year recession). These are the same folks who oohed and ahhed over the multi-billion dollar Beijing Olympics venues while ignoring the air that was un-breathable. These are the same folks who actually believed the one Cuban health clinic in Sicko actually represented the standard of care received by average citizens. To outsiders, the costs of these triumphal programs are often not visible, at least not until years or decades later when the rubes have moved on to new man crushes.
These writers worry that the US is somehow being left behind by China because its government builds more stuff than we do. We are “asleep.” Well, here is my retort: Most of the great progress in this country occurred when the government was asleep. The railroads, the steel industry, the auto industry, the computer industry — all were built by individuals when the government was at best uninvolved and at worst fighting their progress at every step.
In particular, both Friedman and Epstein think we need to build more high speed passenger trains. This is exactly the kind of gauzy non-fact-based wishful thinking that makes me extremely pleased that these folks do not have the dictatorial powers they long for. High speed rail is a terrible investment, a black hole for pouring away money, that has little net impact on efficiency or pollution. But rail is a powerful example because it demonstrates exactly how this bias for high-profile triumphal projects causes people to miss the obvious.
Which is this: The US rail system, unlike nearly every other system in the world, was built (mostly) by private individuals with private capital. It is operated privately, and runs without taxpayer subsidies. And, it is by far the greatest rail system in the world. It has by far the cheapest rates in the world (1/2 of China’s, 1/8 of Germany’s). But here is the real key: it is almost all freight.
November 4, 2014
Vizzini and the Man in Black – different kinds of planners
Sarah Skwire on the two different types of planners featured in William Goldman’s novel The Princess Bride:
… in the response that has spawned an M.O.U.T. (meme of unusual tenacity), Inigo replies, “You keep using that word! … I don’t think it means what you think it does.”
When my friend Sam Wilson, a frequent blogger at both Euvoluntary Exchange and Sweet Talk, posted a brief Facebook comment on that famous line, a glorious debate erupted. Sam recorded a bit of that over at Sweet Talk, but since that same discussion got me thinking about The Princess Bride in light of questions of political economy, I thought it was worth bringing over here.
Throughout the novel, Vizzini stands as an example of the expert, the intellectual, and the man of system. Thoroughly persuaded that he is capable of controlling the innumerable variables that are involved in every step of his extraordinarily complicated plans, he is constantly failing. While his initial snatch-and-grab of Buttercup goes well enough, everything after that begins to collapse — and always because he has failed to anticipate some kind of human action.
[…]
After a few rounds of intellectual pyrotechnics designed to determine the location of the poison, Vizzini fails. And he dies. And the reason Vizzini fails is that, once more, he has not anticipated a human action. The Man in Black has poisoned both cups. The Man in Black has conditioned himself to be immune to this poison, on the off chance that an occasion like this should arise. Once again, Vizzini’s ideal plan has been beaten by unpredictable humans.
I can hear Sam objecting that our hero, the Man in Black, is also something of a planner. I point out, in response, that his plans — particularly the plan to storm the wedding and rescue Buttercup — are always flexible, updated on the fly, and tagged with a warning label reading, “Hear me now; there may be problems once we’re inside.” He is a planner, yes, but certainly not one who believes his plans are ideal and immune to failure. It seems likely that the Man in Black has read Hayek’s “Use of Knowledge in Society,” which emphasizes the importance and viability of this kind of “knowledge of people, of local conditions, and of special circumstances” that allow an individual to plan his own actions and respond speedily when circumstances change.
By contrast, Vizzini might have done well to read Hayek’s “The Intellectuals and Socialism,” which could have cautioned him about the dangers of viewing the world only through one theoretical lens and ignoring the advice of practical types like Inigo. He certainly would have profited from Adam Smith’s famous warnings about the man of system, who treats other human beings as if they are merely chess pieces, with no motivations of their own. It is those motivations that thwart Vizzini at every turn. His human design is beaten, every time, by the unpredicted and unpredictable human actions of others.
As Hayek and Smith and a host of other thinkers remind us, any other outcome is simply inconceivable.
July 26, 2014
QotD: French “ultra-liberalism”
The French press, media and intellectuals castigate ad nauseam what they call the ‘ultra-liberalism’ of the present-day western world: and their characterization, as intellectually lazy as it is inaccurate, now goes virtually by default. Very few are the commentators who see through its inaccuracy. That a country whose public sector accounts for more than half of economic activity, and which is as highly-administered as France (and, it must be said, often well-administered, for who would not rather go on the Paris Metro than the New York Subway?), cannot plausibly be described as ‘ultra-liberal,’ ought to be perfectly obvious even on the most casual reflection, but alas it is not. If France is ultra-anything it is ultra-corporatist, but even that would be an exaggeration. And so present discontents are laid at the door of ultra-liberalism, though in fact a considerable proportion of the resentments and discontents of the young who approve of M’Bala M’Bala are attributable to the rigidity of the French labor market, which is caused precisely by an illiberal nexus of protections and restrictions.
The problem, then, is not ultra-liberalism but insufficient liberalism. The difference between France and other western countries, incidentally, is one of degree and not of type, though even degree can be important: illiberalism in the French labor market has in a matter of a few years turned London into one of the largest French-speaking cities in the world.
Theodore Dalrymple, “Illusions of Control in the Omnicompetent French State”, Library of Law and Liberty, 2014-01-07
July 11, 2014
July 23, 2013
The maple-flavoured Leviathan
Richard Anderson on the PM’s latest cabinet shuffle and the media’s focus on the personalities rather than their actual performance:
Perhaps if we looked too closely we might start asking questions. Like why a nation of 34 million needs 39 cabinet ministers? Abraham Lincoln was able to free the slaves, save the Union and encourage the settlement of the American West with a mere eight cabinet ministers. And this with a government run without computers, telephones or even typewriters. Just paper, ink and a few thousand miles of telegraph wires. The population of the whole of the United States in 1860, both North and South, was 31.4 million.
But in those days governments were confined to hum-drum matters, such as winning immensely bloody wars and subsidizing the occasional transcontinental railroad. Today the remit of the state is far more ambitious. Beyond maintaining public order and some key bits of infrastructure, the modern state takes it upon itself to educate, scold, monitor and regulate virtually every facet of modern life. Thus, in a sense, we need 39 wise men and women to govern over us. We would likely need 39,000 and there would still be work left undone.
Except such a feat is impossible. You cannot plan an economy, much less something even more complex such as a whole society, from a few office buildings in Ottawa. When those in charge are non-experts rotated in and out based on political expediency, the result is what Mises called planned chaos. Actual experts might even do worse. No one is really in charge of the Leviathan state. No matter how powerful Stephen Harper seems, he cannot fight against the full weight of bureaucratic inertia. He might, if he felt ambitious, give a few hard kicks.
[…]
Ask any halfway educated Canadian, say the typical university graduate, why exactly Canada needs a Minister of State for Sport and you will get no clear answer, not even a half decent guess. Apply the same question to a professor of political science and you will get no better response. Ask a senior bureaucrat you will get not response at all, except a stream platitudes each less discernible than the last. Yet all will swear that Canada needs a Minister of State for Sport. I mean, what have you got against Sport? Or Multiculturalism? Or Western Economic Diversification?
Since no decent consensus fearing Canadian objects to these things in and of themselves, they do not object to them being supervised, managed, regulated or subsidized by the government. Modern Canada’s true and unquestioned stamp of approval on any facet of everyday life is government authorization. No action or thought is truly noble unless a government department has been consecrated in its name.
Blessed is the name of the Minister of State for Western Economic Diversification.
July 4, 2013
“Buenos Aires […] is the headquarters for the central planning bad idea bus”
At the Sovereign Man blog, Simon Black discusses Argentina’s sad history of central planning failures:
The more interesting part about Buenos Aires, though, is that this place is the headquarters for the central planning bad idea bus.
Argentina’s President, Cristina Fernandez, continues to tighten her stranglehold over the nation’s economy and society.
This country is so abundant with natural resources, it should be immensely wealthy. And it was. At the turn of the 20th century, Argentina was one of the richest countries in the world.
Yet rather than adopting the market-oriented approaches taken by, say, Colombia and Chile, Argentina is following the model of Venezuela.
Cristina rules by decree here; there is very little legislative power. She may as well start wearing a crown.
Just in the last few years, she’s imposed capital controls. Media controls. Price controls. Export controls.
She’s seized pension funds. She fired a central banker who didn’t bend to her ‘print more money’ directives. She even filed criminal charges against economists who publish credible inflation figures, as opposed to the lies that her government releases.
Inflation here is completely out of control. The government figures say 10%, but the street level is several times that.
[. . .]
Being here in this laboratory of central planning makes a few things abundantly clear:
1) Printing money does not create wealth. If it did, Argentina would be one of the richest places in the world again.
2) All of these policies that are ‘for the benefit of the people’ almost universally and up screwing the people they claim to help.
Printing money creates nasty inflation. If you’re wealthy, it leads to asset bubbles, which can make you even wealthier. If you’re poor, you just get crushed by rising prices. Or worse – shortages (remember the recent Venezuelan toilet paper crisis?)
3) Desperation leads to even more desperation. The worse things get, the tighter government controls become… which makes things even worse. It’s a classic negative feedback loop.
Both the United States and pan-European governments are varying degrees of this model, with only a flimsy layer of international credibility separating them from the regime of Cristina.
So Argentina is really a perfect case study in things to come.
April 16, 2013
The anti-libertarian legacy of Margaret Thatcher
Sean Gabb explains why Thatcher should not be considered in any way “libertarian”:
She started the transformation of this country into a politically correct police state. Her Government behaved with an almost gloating disregard for constitutional norms. She brought in money laundering laws that have now been extended to a general supervision over our financial dealings. She relaxed the conditions for searches and seizure by the police. She increased the numbers and powers of the police. She weakened trial by jury. She weakened the due process protections of the accused. She gave executive agencies the power to fine and punish without due process. She began the first steps towards total criminalisation of gun possession.
She did not cut government spending. Instead, she allowed the conversion of local government and the lower administration into a system of sinecures for the Enemy Class. She allowed political correctness to take hold in local government. When she did oppose this, it involved giving central government powers of supervision and control useful to a future politically correct government. She extended and tightened the laws constraining free speech about race and immigration.
Her encouragement of enterprise never amounted to more than a liking for big business corporatism. Genuine enterprise was progressively heaped with taxes and regulations that made it hard to do business. Big business, on the other hand, was showered with praise and legal indulgences. Indeed, her privatisation policies were less about introducing competition and choice into public services than in turning public monopolies into corporate monsters pampered by the State with subsidies and favourable regulations — corporate monsters that were expected in return to lavish financial rewards on the political class.
April 10, 2013
In British political circles, the term “Thatcherism” conceals at least as much as it reveals
In sp!ked, Tim Black explains why the term “Thatcherism” is not actually a useful descriptor of Margaret Thatcher’s political ideology, but it helps hide the weaknesses of her political and ideological foes:
… for many of those who today preen themselves as left-wing, the idea of Thatcher is arguably even more important. And that’s because she can be blamed for everything that is wrong today. She may have left office nearly a quarter of a century ago, but so potent was the ideology she apparently promulgated — Thatcherism — that we as a nation continue to be in thrall to it. As one prominent left-wing columnist stated yesterday: ‘Thatcherism lives on. Nothing to celebrate.’ Ex-London mayor ‘Red’ Ken Livingstone agreed: ‘In actual fact, every real problem we face today is the legacy of the fact she was fundamentally wrong.’
Elsewhere, Johnathan Freedland at the liberalish-leftish Guardian joined the Thatcherism Lives chorus: ‘The country we live in remains Thatcher’s Britain. We still live in the land Margaret built.’ At the much-reported-upon, little-attended street parties in Brixton and Glasgow, staged in ironic honour of Thatcher’s passing, the belief that her ideas still walk among us was palpable. In the words of one 28-year-old student: ‘It is important to remember that Thatcherism isn’t dead and it is important that people get out on the street and not allow the government to whitewash what she did.’
[. . .]
And here is where reality stops and myth begins. Because that’s not what the left saw. They saw something more ideological than brutally pragmatic. They saw, in the words of Marxism Today editor Martin Jacques in 1985, ‘a novel and exceptional force’. They saw, in short, Thatcherism.
Given the fact that Thatcher herself never had an actual ideological project to which ‘Thatcherism’ might actually refer, it is unsurprising that a recent book on the subject admitted that ‘talk of “Thatcherism” obscures as much as it reveals’. Instead, the idea of Thatcherism always revealed far more about the left than it did about some perpetually elusive right-wing ideology. That is why the concept, first used by academic Stuart Hall in 1979, gained intellectual traction on the left in 1983, the year Labour, under the leadership of Michael Foot, suffered a devastating defeat at the General Election: it shifted the responsibility for failure from the Labour Party, and its complicity with so-called Thatcherite economics, to the working class, a social constituency supposedly seduced away from the Labour Party by Thatcher’s advocacy of social mobility and aspiration. The idea of ‘Thatcherism’ let Labour off the hook.
So the legacy of Thatcherism may indeed live on, as some sunk on the left insist. But not because of anything Thatcher herself did. It will live on because too many are more comfortable attacking a phantasm from the past than reckoning with political reality today.
