Quotulatiousness

September 26, 2012

Shakespeare’s Henry V: public choice theory in the 15th century

Filed under: Economics, Government, History, Media — Tags: , , , , — Nicholas @ 09:37

In The Freeman, Sarah Skwire points out that the opening act of Shakespeare’s Henry V — while boring to those hoping for battle and carnage — explains the public choice economic theory of rent-seeking:

Shakespeare’s Henry V — a favorite of theater companies and movie studios — begins with an invocation of the muse of fire, presumably because only her powerful heat and light can provide the inspiration necessary for Shakespeare’s great task of bringing forth so “great an object” on “this unworthy scaffold.” The prologue promises, after all, that we are about to see the armies of two great monarchies clash at the famous battle of Agincourt. A plea for divine aid seems only reasonable.

After all that buildup, however, the opening scene of the play has to be one of the dullest stretches in all of Shakespeare’s writing. Promised a ferocious battle with knights and horses and blood and thunder, we are given instead more than one hundred straight lines of a highly technical legal discussion between the Bishop of Canterbury and the Bishop of Ely. It is historically accurate. It is important. And it is exceptionally tedious.

It is tedious, that is, unless you are familiar with one basic piece of Public Choice theory.

Gain without Mutual Benefit

One its core concepts is the idea of rent-seeking. Unlike profit-seeking, which aims at mutually beneficial trade, rent-seeking is the attempt to use the political process to capture a bigger slice of wealth for oneself. Unlike trade, there is no mutual benefit. No wealth is created. The only profit is to the rent-seeker, and possibly his cronies. With that in mind, the opening scene of Henry V is gripping. It is no longer more than one hundred lines of fifteenth-century legal trivia. It is more than one hundred lines of some of the most explicit, uncensored, behind-the-scenes rent-seeking action in literary history.

September 24, 2012

One thing the Occupy movement was absolutely right about: crony capitalism

Filed under: Business, Government, Politics — Tags: , , , — Nicholas @ 12:29

In the Calgary Herald, Mike Milke says that the Occupy protest movement was spot-on in their criticism of crony capitalism:

With the recent first anniversary of Occupy Wall Street, consider one beef from protesters that was legitimate: crony capitalism.

In general, Occupy Wall Street types could be described as a little too naive about the downside of more government power, and too critical of people who exchange goods and services in markets.

But insofar as any protester was annoyed with politicians who like to subsidize specific businesses — corporate welfare in other words, and which is an accurate example of abused capitalism — hand me a protest sign and give me a tent.

When taxpayer dollars are given or “loaned” (wink, wink, nod, nod) to specific businesses, such taxpayer-financed subsidies are not cheap.

According to the OECD, in 2008, at least $48 billion was proposed for automotive companies alone. Annually, global taxpayer subsidies to the energy industry clock in at more than $100 billion. And in Canada, between 1994 and 2007, governments spent $202 billion on all types of subsidies to multiple corporations in all sorts of industries.

September 8, 2012

QotD: The European Project

Filed under: Bureaucracy, Europe, Government, Quotations — Tags: , , , , , , — Nicholas @ 10:22

Like all people with bad habits, politicians and bureaucrats are infinitely inventive when it comes to rationalizing the European Project, though they’re inventive in nothing else. Without the Union, they say, there would be no peace; when it’s pointed out that the Union is the consequence of peace, not its cause, they say that no small country can survive on its own. When it is pointed out that Singapore, Switzerland, and Norway seem to have no difficulties in that regard, they say that pan-European regulations create economies of scale that promote productive efficiency. When it is pointed out that European productivity lags behind the rest of the world’s, they say that European social protections are more generous than anywhere else. If it is then noted that long-term unemployment rates in Europe are higher than elsewhere, another apology follows. The fact is that for European politicians and bureaucrats, the European Project is like God — good by definition, which means that they have subsequently to work out a theodicy to explain, or explain away, its manifest and manifold deficiencies.

[. . .]

The personal interests of European politicians and bureaucrats, with their grossly inflated, tax-free salaries, are perfectly obvious. For politicians who have fallen out of favor at home, or grown bored with the political process, Brussels acts as a vast and luxurious retirement home, with the additional gratification of the retention of power. The name of a man such as European Council president Herman Van Rompuy, whose charisma makes Hillary Clinton look like Mata Hari, would, without the existence of the European Union, have reached most of the continent’s newspapers only if he had paid for a classified advertisement in them. Instead of which, he bestrides the European stage if not like a colossus exactly, at least like the spread of fungus on a damp wall.

Corporate interests, ever anxious to suppress competition, approve of European Union regulations because they render next to impossible the entry of competitors into any market in which they already enjoy a dominant position, while also allowing them to extend their domination into new markets. That is why the CAC40 of today (the index of the largest 40 companies on the French stock exchange) will have more or less the same names 100 years hence.

More interestingly, perhaps, Hannan explains the European Union’s corruption of so-called civil society. Suppose you have an association for the protection of hedgehogs because you love hedgehogs. The European Union then offers your association money to expand its activities, which of course it accepts. The Union then proposes a measure allegedly for the protection of hedgehogs, but actually intended to promote a large agrarian or industrial interest over a small one, first asking the association’s opinion about the proposed measure. Naturally, your association supports the Union because it has become dependent on the Union’s subsidy. The Union then claims that it enjoys the support of those who want to protect hedgehogs. The best description of this process is fascist corporatism, which so far (and it is of course a crucial difference) lacks the paramilitary and repressive paraphernalia of real fascism.

Theodore Dalrymple, “Rejecting the European Project”, City Journal, 2012-09-07

August 21, 2012

The 21st century equivalent to the enclosure movement

Filed under: Africa, Americas, Asia, Government, Liberty — Tags: , , , , — Nicholas @ 10:07

Joseph R. Stromberg reviews The Land Grabbers: The New Fight over Who Owns the Earth, by Fred Pearce.

The Land Grabbers is a wonderful primer on the newest manifestations of an ancient form of plunder: the seizure of other people’s resources and destruction of their livelihoods. The author, Fred Pearce, is a well-established British environmental journalist. Here he surveys the ongoing alienation of allegedly “unused” or “underused” land in Africa, Latin America, East Asia, Russia, Ukraine, Georgia, Australia, and elsewhere at the hands of international corporations, both private and state-owned. Politicians in the affected countries are key partners in operations that resemble the late-19th-century scramble for control of Africa. The land grabs aim at enriching privileged companies and their political allies, usually at the expense of those already on the land. States, companies, and their frequent close friend, the World Bank, see no reason to respect sitting owners and resource users, whatever their rights under customary law and (sometimes) postcolonial statutes. Pastoral nomads get even less respect. In Tanzania, for example, governments and safari capitalists have reduced the traditional grazing lands of the Maasai herdsmen to a fraction of what they were. And in Ethiopia, the government’s “villagization” policy, Pearce writes, resettles peasant farmers “in the manner of Stalin, Mao, and Pol Pot,” clearing the way for deals with foreign capital.

Where agriculture is concerned, the effort goes forth under an ideology that claims that only industrial-scale farming, modeled on subsidized American agribusiness, can feed the world. The ideologues in question include John Beddington, chief UK government scientist; Paul Collier, former research head at the World Bank; and Richard Ferguson of the investment company Renaissance Capital, who hopes to see “industrial-sized farms of a million hectares.” To realize that vision, smallholders, hunters, gatherers, and pastoralists must get out of the way and submit themselves to wage-labor, wherever they find it. The ideology goes hand in hand with the form of globalization that relies on the power of the United States and some associated countries to dictate the contours of world trade. While the U.S. has toppled states seen as hostile to American business interests (as in Guatemala in 1954), today’s methods are often more subtle. They include USAID programs, American domination of World Bank policies, and a web of treaty obligations, especially international investment agreements.

Pearce is an environmentalist, but his book is not especially ideological. He’s more interested in presenting data. Wherever possible he has figures for acreage (or hectares) and tells us who did what to whom and where. He also faults wealthy environmental idealists and NGOs, noting that their parks and preserves can displace local people and their property, just like commercial hunting preserves, sugar plantations, logging operations, and the rest can.

August 14, 2012

Ethanol: starving the third world, by government policy

Filed under: Economics, Environment, Food, Government, USA — Tags: , , , — Nicholas @ 08:47

Jeffrey Tucker on the absurd and cruel implications of a government mandate:

Corn prices are officially through the roof, spiking to record highs. It’s been headed this way through six years of crazy volatility. Now the spike is undeniable. At the same time, crop yields are lower they have been since 1995.

Everyone blames the drought, as if the market can’t normally handle a supply change. The real problem is that the corn market is fundamentally misshaped by government interventions that have made a mess of this and many more markets. The distortions are never contained, but spread and spread.

[. . .]

“Corn is the single most important commodity for retail food,” Richard Volpe, an economist for the USDA told the Los Angeles Times. “Corn is either directly or indirectly in about three-quarters of all food consumers buy.”

Fine, then, answer me this, Mr. Government Economist Man: Why is 40% of the corn crop being burned up in our gas tanks? The answer is a Soviet-like, fascist-like, stupid-like government mandate. It is actually relatively new. It came about in 2005 and 2007. It mixes nearly all the gas we can buy with a sticky product now in rather short supply.

Of all the government regulations I’ve looked at in detail over the last 10 years, the ethanol mandate is, by far, the worst. There are no grounds on which it is defensible. None!

Like so many government initiatives, this was supposed to do something good: reduce the consumption of fossil fuel for gasoline production by substituting a proportion of ethanol. While gas was expensive and ethanol was cheap this might make sense — but when ethanol becomes more expensive, and the raw material used to produce the ethanol would be far better used for food and feedstock, the whole policy becomes an act in the theatre of the absurd.

August 13, 2012

Did China peak in 2008?

Filed under: China, Economics, Environment — Tags: , , , , , , — Nicholas @ 07:53

Walter Russell Mead wonders if the Chinese economy actually hit its peak in 2008 and will not be able to get back to that level of performance:

According to The Diplomat, the long term outlook is even more depressing. China will have to confront a series of structural challenges if it is to continue to achieve the kind of dynamic growth that lifted the country from economic backwater to emerging great power in just three decades.

The most obvious challenge is demographics. A RAND study observed that the proportion of the Chinese population of working age peaked in 2011 and began slowing this year. The share of the elderly population is rising. Healthcare and pension costs will soar as a result. So will labor costs. Investment and savings will diminish. In short, China may face the prospect, unknown in human history, of growing old before it gets rich.

The environment presents another dilemma. Like many rapidly industrializing economies, China sacrificed environmental protection at the altar of economic growth. But the effects of this approach have taken a toll: already, argues The Diplomat, ”Water and air pollution today cause 750,000 premature deaths and around 8 percent of GDP.” And as Via Meadia recently pointed out, the political costs of this approach are starting to mount as well. An outbreak of NIMBYism has forced many local officials to cancel major industrial projects as ordinary Chinese citizens demand an end to environmentally unsound development.

Of greater concern is that China has backed away from market reforms in the last decade and embraced a version of “state capitalism” that emphasizes the state far more than it does capitalism. But as state-run entities have become more powerful, their political backers — and financial beneficiaries — have an even greater stake in blocking attempts at reform.

H/T to Jon, my former virtual landlord, for the link.

August 12, 2012

China’s economic situation in Keynesian and Austrian terms

Filed under: China, Economics — Tags: , , , , — Nicholas @ 09:27

Tyler Cowen in the New York Times:

Keynesian economics holds that aggregate demand — the sum of all consumption, investment, government spending and net exports — drives stability, and that government can and should help in difficult times. But the Austrian perspective, developed by the Austrian economists Ludwig von Mises and Friedrich A. Hayek, and championed today by many libertarians and conservatives, emphasizes how government policy often makes things worse, not better.

Economists of all stripes agree that China may be in for a spill. John Maynard Keynes emphasized back in the 1930s the dangers of speculative bubbles, and China certainly seems to have had one in its property market.

[. . .]

The Austrian perspective introduces some scarier considerations. China has been investing 40 percent to 50 percent of its national income. But it is hard to invest so much money wisely, particularly in an environment of economic favoritism. And this rate of investment is artificially high to begin with.

Beijing is often accused of manipulating the value of its currency, the renminbi, to subsidize its manufacturing. The government also funnels domestic savings into the national banking system and grants subsidies to politically favored businesses, and it seems obsessed with building infrastructure. All of this tips the economy in very particular directions.

The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup — not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services.

Lots of earlier discussion of the problems in China’s economy here.

August 8, 2012

The economy is booming in Parasite City, DC

Filed under: Bureaucracy, Economics, Government, USA — Tags: , , — Nicholas @ 00:02

Gene Healy points out that while the rest of the US is still in the doldrums, there’s one bright spot: the one place that is booming, because it’s almost purely tax dollars feeding the growth.

Have you seen the latest jobs report? Major buzzkill: creeping unemployment, anemic growth, and the recovery’s totally stalled.

But not here: The District is booming! “Washington may have the healthiest economy of any major metropolitan area in the country,” says New York Times D.C. bureau chief David Leonhardt in Sunday’s Gray Lady. “You can actually see the prosperity”!

Yes we can! Construction cranes dominate the downtown skyline, and your average homeless guy can barely grab a stretch of sidewalk before yet another boutique store pops up to bounce his bedroll.

True, if you venture outside the Death Star’s orbit to visit the colonies for Thanksgiving or Christmas, you’ll see a lot of boarded-up storefronts. You might even feel a twinge of shame when Matt Drudge feeds you headlines like “D.C. Leads List of Most Shopaholic Cities in America.”

Whatever: Guilt is for losers! The main lesson the rest of the country should take from the capital’s prosperity is, per Leonhardt, that “education matters.”

D.C.’s “high-skill” economy boasts more college degrees than any other major metropolitan area in America. “If you wanted to imagine what the economy might look like if the country were much better educated,” Leonhardt writes, “you can look at Washington.”

Hey, you people out there in flyover country: We’re eating your lunch because we’re “smarter” than you! Hit the books, rubes: We built this!

August 6, 2012

India’s blackouts are a sign that reform is desperately needed

Filed under: Economics, India — Tags: , , , , — Nicholas @ 10:20

The Economist on the massive blackouts in India recently:

FOR an aspiring economic superpower, there can be few more chastening events than electricity cuts as massive as those that struck northern and eastern India this week. An area (including the capital, Delhi) in which more than 600m people live faced blackouts over two days. Infrastructure, from traffic lights to trains, stopped working. Hospitals, sanitation plants and offices ground to a halt. Airports and factories had to rely on backup generators, often fuelled by truckloads of diesel.

The impact on India’s economy goes far beyond lost output. The blackout will badly damage the country’s reputation, and highlights the rotten infrastructure that is hobbling its efforts to catch up with China.

[. . .]

At one end, not enough cheap coal is being dug up and gasfields are sputtering. At the other, the national transmission grid needs investment. Meanwhile the “last mile” distribution companies, largely state-owned, that buy power and deliver it to homes and firms, are financial zombies. Much of their power is pinched or given away free. Local politicians put pressure on them to keep tariffs low, which leads to huge losses. Squeezed between a shortage of fuel and end-customers who are nearly bust, those private generating firms are now cutting back on vital long-term investment in new plants.

[. . .]

The solution is to cut graft, tackle vested interests and allow markets to work better. The coal monopoly needs to be broken up and local distribution firms privatised. Yet despite the looming crisis, for a decade the government has shirked doing what is clearly necessary, just as it has failed to implement key tax reforms, cut public borrowing or open the retail sector to competition. It has allowed corruption and red tape to damage other vital industries, such as telecoms.

August 1, 2012

It’s not congressional gridlock: it’s abdication of responsibility

Filed under: Government, Politics, USA — Tags: , , , , — Nicholas @ 16:23

We’ve all seen journalists refer to the situation in the US congress as being “gridlocked”: the Democrats and Republicans just can’t manage to get along at all, leaving the system constipated and unable to function. Nick Gillespie and Veronique de Rugy in The Hill point out that this is letting the members of congress off far too lightly:

Many observers and participants — including the entire GOP and Democratic leadership — are quick to cry gridlock and to blame inaction on some new awful hyper-partisan or ideological era.

But there isn’t gridlock, which usually results from Democrats and Republicans sharing power and clashing over alternative positions. Gridlock slows things down — almost always a good thing — but it doesn’t stop serious legislation from happening. Welfare reform, balanced budgets, defense cuts and capital-gains tax rate cuts in the 1990s were all the product of gridlock that slowly gave way to consensus.

And today’s Congress is more than happy to pass legislation when it suits members’ interests. In just the past few months, for instance, the ostensibly gridlocked Congress reauthorized the Export-Import Bank program that gives money to foreign companies to buy U.S. goods; extended sharply reduced rates for government-subsidized student loans; re-upped the Essential Air Service program that subsidizes airline service to rural communities; and voted against ending the 1705 loan-guarantee program that gave rise to green-tech boondoggles such as Solyndra and Abound. None of these were party-line votes — all enjoyed hearty support from both Democrats and Republicans.

[. . .]

What we’re actually witnessing — and have been for years now — is not gridlock, but the abdication of responsibility by Congress and the president for performing the most basic responsibilities of government. Despite the fiscal crisis that Washington knows will occur if it fails to deal with unsustainable spending and debt, it hasn’t managed to produce a federal budget in more than three years.

July 31, 2012

QotD: The crony capitalist Olympics

Filed under: Britain, Government, Politics, Quotations, Sports — Tags: , , , — Nicholas @ 09:17

The Olympics are a giant exercise in sports socialism — or crony capitalism, if you prefer — where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.

Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.

Shikha Dalmia, “Why London Is Yawning Over the Olympics: Have Western countries finally outgrown the sports socialism of the Olympic Games?”, Reason, 2012-07-31

July 18, 2012

Who Exploits You More: Capitalists or Cronies?

Filed under: Business, Government, Liberty, Politics — Tags: , , , , — Nicholas @ 09:48

The “you didn’t build it” meme, inter-personal relations style

Filed under: Economics, Government, Humour, Politics — Tags: , , — Nicholas @ 09:02

An amusing extension of President Obama’s “you didn’t build it” claim:

You Got Laid Last Night? That’s Nice, But . . .

somebody else made that happen. Sport.

You met this chick on the Internet, which DARPA invented, with money taken from taxpayers by the government, which printed the money after giving the concession to log national forests to produce the paper, lands stolen from the Indians by the government, aided by soldiers who were paid for with taxes paid by taxpayers through the government. The logging was opposed by ineffectual lawyers hired by environmentalist organizations which received grants from the government, who nevertheless received their legal fees from environmental agencies who still paid themselves liberal salaries underwritten by taxpayers, and which donate to liberal PACs.

The beer you plied her with was paid for with money paid to you by a corporation for whom you used to work, before you conspired to get fired to collect your 99 because you were tired of taking it from The Man, which is permitted to exist by the government, which taxes both its income and yours. On the way to meet your date, you withdrew money for the date at an ATM which charged you a $2 convenience fee, though it operates on a system paid for by taxpayers to the government. The government used taxpayer money to bail out the bank in question when its mortgage investments went bust-oh! largely because the government, in concert with government-subsidized political agencies and government lawyers, threatened the banks, who paid their executives lavishly for accepting the ridiculous loan standards demanded by the government-subsidized political agencies and government lawyers who performed their agitation on the taxpayer dime. Once again, the lawyers and the non-profit executives were well remunerated, and turned around to send some of their salaries to legislators who would vote them more grants and loans, and who were further rewarded by well-compensated positions at those institutions after they were forced to resign after scandals for which other people might have been sent to prison.

If you somehow missed the start of the “you didn’t build it” meme, try here.

H/T to Jon, my former virtual landlord.

July 13, 2012

Questioning the accuracy of official Chinese economic figures

Filed under: Business, China, Economics, Government — Tags: , , , — Nicholas @ 09:50

Yes, we’ve heard this several times before, and for good reason:

China’s relatively mild slowdown in the second quarter has reignited a controversy about whether its official statistics can be trusted.

Chinese growth edged down to 7.6 per cent in the second quarter from 8.1 per cent in the first quarter, and analysts said the momentum in June, from stronger bank lending to rising investment, pointed to a rebound in the second half of the year.

But rather than delivering reassurance, the numbers instead provoked questions about whether the reality is worse than the government is letting on.

Economists with Barclays noted that a deceleration in industrial production was consistent with 7.0-7.3 per cent growth. Analysts at Capital Economics said that the true figure was probably closer to 7.0 per cent.

[. . .]

Doubts about Chinese data have a fine pedigree. Li Keqiang, who is widely expected to succeed Wen Jiabao later this year as premier, confided to U.S. officials in 2007 that gross domestic product was “man made” and “for reference only”, according to a diplomatic cable published by WikiLeaks.

Earlier posts on the Chinese economy are here.

July 11, 2012

Crony Capitalism: the issue that unites the Tea Party and the Occupy movement

Filed under: Business, Government, Liberty, Politics — Tags: , , , , , — Nicholas @ 09:17

Matthew Mitchell at the Mercatus Center:

Despite the ideological miles that separate them, activists in the Tea Party and Occupy Wall Street movements agree on one thing: both condemn the recent bailouts of wealthy and well-connected banks. To the Tea Partiers, these bailouts were an unwarranted federal intrusion into the free market; to the Occupiers, they were a taxpayer-financed gift to the wealthy executives whose malfeasance brought on the financial crisis.[1] To both, the bailouts smacked of cronyism.

The financial bailouts of 2008 were but one example in a long list of privileges that governments occasionally bestow upon particular firms or particular industries. At various times and places, these privileges have included (among other things) monopoly status, favorable regulations, subsidies, bailouts, loan guarantees, targeted tax breaks, protection from foreign competition, and noncompetitive contracts. Whatever its guise, government-granted privilege is an extraordinarily destructive force. It misdirects resources, impedes genuine economic progress, breeds corruption, and undermines the legitimacy of both the government and the private sector.

[. . .]

… regulations can be especially useful to firms if they give the appearance of being anti-business or somehow pro-consumer. Regulations are often supported by strange bedfellows. Bruce Yandle of Clemson University has studied the phenomenon extensively:

The pages of history are full of episodes best explained by a theory of regulation I call “bootleggers and Baptists.” Bootleggers … support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer.[25]

The moralizing arguments are often front and center in regulatory policy debates, while the narrow interests that stand to benefit from certain regulations are much less conspicuous.

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