Quotulatiousness

July 4, 2013

“Buenos Aires […] is the headquarters for the central planning bad idea bus”

Filed under: Americas, Economics, Government — Tags: , , , , , — Nicholas @ 08:32

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.

June 19, 2013

V for Vinegar

Filed under: Americas, Media, Soccer — Tags: , , , , , — Nicholas @ 08:29

The Economist reports on the rising tide of protest in Brazil:

All that changed on June 13th when the state’s unaccountable, ill-trained and brutal military police turned a mostly peaceful demonstration into a terrifying rout. Dozens of videos, some from journalists, others from participants and bystanders, show officers with their name tags removed firing stun grenades and rubber bullets indiscriminately at fleeing protesters and bystanders and hunting stragglers through the streets. Motorists trapped in the mayhem ended up breathing pepper spray and tear gas. Demonstrators found with vinegar (which can be used to lessen the effect of tear gas) were arrested. Several journalists were injured, two shot in the face with rubber bullets at close range. One has been told he is likely to lose his sight in one eye. The following day’s editorials took a markedly different tone.

By June 17th what has become dubbed the “V for Vinegar” movement or “Salad Revolution” had spread to a dozen state capitals as well as the federal capital, Brasília. The aims had also grown more diffuse, with marchers demanding less corruption, better public services and control of inflation. Many banners protested against the disgraceful cost of the stadiums being built for next year’s football World Cup. Brazil has already spent 7 billion reais, three times South Africa’s total four years earlier, and only half the stadiums are finished. “First-world stadiums; third-world schools and hospitals”, ran one placard.

[. . .]

So, why now? One reason is surely a recent spike in inflation, which is starting to eat into the buying power of the great majority of Brazilians who are still getting by on modest incomes, just as a big ramp-up in consumer credit in recent years has left them painfully overstretched. Bus fares have not risen for 30 months (mayors routinely freeze fares in municipal-election years, such as 2012, and in January this year the mayors of Rio and São Paulo agreed to wait until June before hiking in order to help the federal government massage the inflation figures). In fact, the rise in São Paulo’s and Rio’s bus fares comes nowhere close to matching inflation over that 30-month period. But bus fares are under government control, unlike other fast-rising costs such as those for housing and food. Perhaps they were simply chosen as a scapegoat.

More broadly, the very middle class that Brazil has created in the past decade — 40m people have escaped from absolute poverty, but are still only one paycheck from falling back into it, and 2009 was the first year in which more than half the population could be considered middle class — is developing an entirely new relationship with the government. They see further improvements in their living standards as their right and will fight tooth and nail not to fall back into poverty. And rather than being grateful for the occasional crumb thrown from rich Brazilians’ tables, they are waking up to the fact that they pay taxes and deserve something in return. Perhaps their government’s triumphalism over those shiny new stadiums was the final straw.

May 22, 2013

Hyperinflation in Diablo III

Filed under: Economics, Gaming — Tags: , — Nicholas @ 00:02

At the Ludwig von Mises Institute blog, Peter Earle looks at the “virtual Weimar” economy of Diablo III:

As virtual fantasy worlds go, Blizzard Entertainment’s Diablo 3 is particularly foreboding. In this multiplayer online game played by millions, witch doctors, demon hunters, and other character types duke it out in a war between angels and demons in a dark world called Sanctuary. The world is reminiscent of Judeo-Christian notions of hell: fire and brimstone, with the added fantasy elements of supernatural combat waged with magic and divine weaponry. And within a fairly straightforward gaming framework, virtual “gold” is used as currency for purchasing weapons and repairing battle damage. Over time, virtual gold can be used to purchase ever-more resources for confronting ever-more dangerous foes.

But in the last few months, various outposts in that world — Silver City and New Tristram, to name two — have borne more in common with real world places like Harare, Zimbabwe in 2007 or Berlin in 1923 than with Dante’s Inferno. A culmination of a series of unanticipated circumstances — and, finally, a most unfortunate programming bug — has over the last few weeks produced a new and unforeseen dimension of hellishness within Diablo 3: hyperinflation.

[. . .]

Two obvious solutions for managers of virtual economies include more vigilant bot restrictions and close — indeed, real-time — monitoring of faucet output, sink absorption, prices, and user behaviors. More critically, though, whether structured as auctions or exchanges, markets must be allowed to operate freely, without caps, floors, or other artificialities. Unrestricted (real) cash auctions would for the most part preempt and obviate black markets.

One also surmises, considering the level of planning that goes into designing and maintaining virtual gaming environments, that some measure of statistical monitoring and/or econometric modeling must have been applied to Diablo 3’s game world. The Austrian School has long warned of the arrogance and naïveté intrinsic to applying rigid, quantitative measures to the deductive study of human actions. Indeed; if a small, straightforward economy generating detailed, timely economic data for its managers can careen so completely aslant in a matter of months, should anyone be surprised when the performance of central banks consistently breeds results which are either ineffective or destabilizing?

Update, 24 June: It’s worth examining just who benefits the most from inflationary episodes like this, both in the game and in the real world:

Just as surely as if someone hit “print” on bonds at the U.S. Treasury Department and the Fed made more money of out thin air, the new gold in the game’s economy moved from the hands of its first owners — whose purchasing power was enhanced without contributing anything productive to the economy — to the hands of those who received it for the goods they offered in the “Diablo III” auction house. In so doing, the first holders of the new gold (the cheats) could buy more than they would otherwise have been able to, stimulating demand far outside of their legitimate capacity to do so. By bidding up items simply because they wanted them and could pay more for them, they caused the market to clear artificially high prices.

Reports from the “Diablo III” forums on Battle.net, one of Blizzard’s official sites, include complaints of people selling gems worth 30 million gold for 100–400 million gold; another participant on the forum griped that players “sold garbage for hugely inflated prices.” All told, only 415 out of the estimated three million subscribers who play every month actually exploited the glitch. But all it takes is a few rotten apples to spoil the barrel. In the real economy, the men and women of the Fed and the beneficiaries of their fraudulent money creation comprise a very small percentage of the total number of participants in the real market.

As the second holders of the new gold spent it on goods they desired in the virtual economy, they, too, stimulated demand far out of proportion to their productivity on the market. This raised the prices of what they purchased, just like the cheats who exploited the glitch to begin with. As this gold spread like a ripple on the surface of a body of water, each player’s purchasing power eroded further and further as prices rose higher and higher.

April 8, 2013

The “Winter of Discontent” that brought Margaret Thatcher to power

Filed under: Britain, Economics, History — Tags: , , , , — Nicholas @ 14:42

Megan McArdle explains the temper of the late 1970s in Britain:

To understand the legacy of Margaret Thatcher, you need to understand Britain’s “Winter of Discontent,” in which striking public-sector workers nearly paralyzed the nation. Actually, you have to go back a bit further, to the inflations of the 1970s. Americans remember the “stagflation” of the 1970s as bad, but in Britain it was even worse — the inflation rate peaked in 1975 at over 25 percent.

Governments on both sides of the pond decided that the solution to inflation was to simply declare, by fiat, that prices would not rise so much. In America we got Nixon’s wage and price controls. In Britain, they got the government’s 1978 vow to hold public-sector wage increases to 5 percent — at a time when inflation was running to double digits.

The public-sector workers, as you might imagine, did not like that. And in Britain, the public-sector workers had immense power. Trash piled up in the streets. The truck drivers who ferried goods all over Britain went on strike — and the ones who didn’t, like oil tanker drivers, began feeding their destinations to “flying pickets” — mobile groups of strikers who would go from location to location, blockading them so that workers couldn’t get in and goods couldn’t get out. The BBC called them the “shock troops of industrial action” and that’s an accurate picture; effectively mobilized, flying pickets can grind the wheels of industry to a halt. Which is what they did in the winter of 1978-79.

In Liverpool, the gravediggers went out, leaving bodies unburied for weeks. By the end of January, half the hospitals in Britain were taking only emergency cases. Full of righteous fury, the unions flexed every muscle, demonstrating all the tremendous power that they had amassed by law and custom in the years since the Second World War. Unfortunately, they were pummeling the Labour Party, which had given them most of those powers. And the public, which was also suffering through high inflation and anemic GDP growth, had had enough. They elected Margaret Thatcher, a Conservative grocer’s daughter without roots in the working-class power structure of the labor movement, or the elite power structure of Britain’s famously rigid class system. She systematically went about dismantling the two main sources that gave labor the power to essentially shut down the United Kingdom: lenient strike laws and state ownership of key industrial sectors.

[. . .]

Her detractors should remember that as terrible as it was for the miners when the pits were closed, these mining operations were not sustainable — nor was it even desireable that they be sustained so that further generations could invest their lives in failing coal seams. The work was dreadful. The coal was too dirty for the environment, or the delicate pink tissue of the miners’ lungs. And even if Britain had wanted to keep mining the filthy stuff, it was getting too expensive to dig it out. The mines were playing out, not because Margaret Thatcher was mean, but because the cradle of the Industrial Revolution had burned through much of her coal.

In short, Margaret Thatcher destroyed an industrial system which had yes, provided workers with a secure livelihood, but yes, also done so at an unnacceptable cost. These two things are the same legacy. They cannot be parted.

Her achievement was not inevitable. But looking back at the Winter of Discontent, I’d argue that it was necessary. The alternate future for a United Kingdom where the labor unions hung on was another decade or two of failing state firms and economic decline. By the early 1980s, the UK’s per-capita GDP was lower than that of Italy. You can maybe argue that there was some alternative Social Democratic future, Sweden-style, or perhaps the discovery of an alternative path to capitalism. But it’s hard to look at the convulsions of 1970s Britain and argue that this was a happier past that the nation should pine after. And I find it hard to argue that Britain’s economy could have been modernized without taking on the unions; their veto power made even such obvious steps as shutting down failing mines effectively impossible.

As I wrote a few years back:

My family left Britain in 1967, which was a good time to go: the economy was still in post-war recovery, but opportunities abroad were still open to British workers. My first visit back was in [mid-winter] 1979, which was a terrible shock to my system. I’d left, as a child, before the strikes-every-day era began, and my memories of the place were still golden-hued and happy. Going back to grey, dismal, cold, smelly, strike-bound Britain left me with a case of depression that lasted a long time. It didn’t help that the occasion of the visit was to attend my grandfather’s funeral: it was rather like the land itself had died and the only remaining activity was a form of national decomposition.

March 1, 2013

North Korea’s real inflation rate may have reached 116%

Filed under: Asia, Economics — Tags: , , , , — Nicholas @ 00:01

In the Cato@Liberty blog, Steve Hanke looks at North Korea’s offical statistics and makes an educated guess at what they conceal, rather than reveal about the country’s state:

During the past few weeks, North Korea has been the subject of outsized news coverage. The recent peacocking by Supreme Leader Kim Jong Un — from domestic martial law policies to tests of the country’s nuclear weapons capabilities — has successfully distracted the media from North Korea’s continued economic woes. For starters, the country’s plans for agricultural reforms have been deep-sixed, and, to top it off, I estimate that North Korea’s annual inflation rate hit triple digits for 2012: 116%, to be exact.

Unfortunately, the official shroud of secrecy covering North Korea’s official information and statistics remains more or less intact. But, some within North Korea have begun to shed light on this “land of illusions”. For example, a team of “citizen cartographers” helped Google construct its recent Google Maps’ exposition of North Korea’s streets, landmarks, and government facilities. In addition, our friends at DailyNK have successfully been reporting data on black-market exchange rates and the price of rice in North Korea — data which allowed me to conclude that the country experienced an episode of hyperinflation from December 2009 to mid-January 2011.

February 4, 2013

Argentina’s real inflation rate is a state secret

Filed under: Americas, Economics, Government, Media — Tags: , , , , — Nicholas @ 13:19

Argentina has lots of issues, but one of the biggest problems is that their official statistics fall somewhere along the spectrum between “a bout of wishful thinking” and “a tissue of lies”:

Argentina, the only country in the world that threatens private economists with jail terms for disputing the government’s obviously bogus inflation numbers, is now the only country in the world to be censured by the IMF for unacceptably bad economic statistics. In a rare move by the 24 member board of the world’s most prestigious financial institution, Argentina’s government was censured for failing to improve the quality of the numbers it uses to calculate things like GDP and, especially, the inflation rate.

The current president’s husband fired the professional economists in the statistical office in 2007. Ever since, the patent bogosity of Argentina’s statistics has undermined the government’s credibility at home and abroad. Inflation is a deadly sensitive subject in Argentina, where past bouts of hyperinflation have wiped out the savings of whole generations. Currently the government claims inflation is no higher than 11 percent; when the thought police aren’t watching them, private economists whisper that the real rate is more than 25.

This isn’t a new story: The Economist stopped using the official figures in their weekly economic summaries about a year ago. Argentina’s economic policies have become a valuable primer on “what not to do” for other countries. Argentina could be a South American version of Canada, but the political class ensures that will not happen.

December 23, 2012

Goldbugs, behold the CombiBar

Filed under: Business, Economics, Europe, Germany — Tags: , , , , , — Nicholas @ 10:48

If you’re a big gold fan, you might want to look at the CombiBar, which is a gold wafer that can easily be broken down into one-gram portions:

Private investors in Switzerland, Austria and Germany are lining up to buy gold bars the size of a credit card that can easily be broken into one gram pieces and used as payment in an emergency.

Now Swiss refinery Valcambi, a unit of U.S. mining giant Newmont, wants to bring its “CombiBar” to market in the United States and build up its sales presence India — the world’s largest consumer of gold where the precious metal has long served as a parallel currency.

Investors worried that inflation and financial market turmoil will wipe out the value of their cash have poured money into gold over the past decade. Prices have gained almost 500 percent since 2001 compared to a 12 percent increase in MSCI’s world equity index.

[. . .]

The CombiBar is particularly popular among grandparents who want to give their grandchildren a strip of gold rather than a coin, said Andreas Habluetzel head of the Swiss business of Degussa, a gold trading company.

Other customers buy gold for security reasons.

“Demand is rising every week,” Habluetzel said. “Particularly in Germany, people buying gold fear that the euro will break apart or that banks will run into problems.”

H/T to Tyler Cowen for the link.

December 17, 2012

QotD: Argentina’s little white interest rate lie

Filed under: Americas, Economics, Quotations — Tags: , , , , , — Nicholas @ 09:49

No one gives a toss that Argentina is lying about its inflation rate. Well, except maybe the economists they’ve fined and ruined for calculating the real one. We’ve all put up with Cuba lying about everything for 60 years after all.

Except, except … Argentina has issued index linked bonds as part of the 2001/2 debt restructuring. The interest paid depends on what the inflation rate is. If the government deliberately undercounts inflation then they get away with rooking the holders of those bonds.

That’s what this is about. That’s why anyone cares. It’s not simply that they’re liars it’s that they’re thieves.

Tim Worstall, “I wish people would get it right about Argentina”, Tim Worstall, 2012-12-17

December 16, 2012

Stephen Gordon on “The Carney Affair”

Filed under: Cancon, Economics, Media, Politics — Tags: , , , , — Nicholas @ 11:34

His latest post at Maclean’s talks about the distressing revelations from a Globe and Mail article the other day:

It took 20 years and two recessions — both of which were more severe than the one we just had — before we were able to come up with a monetary policy framework that works well. The current practice in Canada is that the government provides the Bank of Canada an inflation target, and the Bank of Canada is free to exercise its discretion in how it meets its mandate. This is not full independence — the Minister of Finance has the legal authority to override the Bank in extreme circumstances — but it’s been enough so that when the Governor of the Bank of Canada speaks, people know that there are no unspoken partisan political considerations through which his message should be filtered. Explanations of how monetary policy is being conducted can be taken at face value, even if they are couched in cautious and nuanced language.

Or at least, that was the case before the Globe story broke. The second paragraph puts this hard-earned reputation for non-partisan professionalism into question. Unless Mark Carney can swiftly and convincingly demonstrate that he responded to those Liberals’ overtures with a quick and unequivocal refusal, we shouldn’t be surprised if non-Liberals start looking through his recent speeches through the corrosive, distorted lens of partisan politics. Was his speech to the Canadian Auto Workers simply a play for union support? Was his dismantlement of the Dutch Disease talking point simply a tactic to put the NDP off-balance? For me, these are rhetorical questions written with a sense of sickening dread; others will doubtlessly repeat them in earnest and with angry, partisan vigour.

But even in the best-case scenario in which Mark Carney’s conduct is blameless, we are still left with the prospect that not-insignificant elements in the Liberal Party of Canada were willing to risk one of the most crucial elements of our governance for partisan gain. If we are extremely lucky, this episode will be quickly forgotten. But if by taking a run at Mark Carney, these Liberals have initiated a never-ending cycle of speculation about the possible political ambitions of future Governors of the Bank of Canada, they will have weakened — perhaps fatally — the foundations of Canadian monetary policy.

July 18, 2012

QotD: Quantitative Easing is institutionalized theft

Filed under: Economics, Government, Quotations — Tags: , , — Nicholas @ 08:56

In reality, economics is not the fiscal rocket-science you make it sound. Capitalism itself is based on good old-fashioned honesty. The money at the heart of it must be both an honest store-of-value and an efficient medium of exchange. It ceases to be so when the inherent deceits of fractional reserve banking allow trillions of false credit to be pumped into the system, thus forcing up prices (booms) which inevitably lead to over-valued commodities (busts).

What happens next is that the banks, having privatised their gains in the good times, simply socialise their losses onto the tax-payer. It’s a crime. Simple as that really.

Telegraph commentator “dionysusreturns“, responding to “Fed fiddles as America slides back into recession” by Ambrose Evans Pritchard, 2012-07-15

April 17, 2012

Argentina’s latest economic lesson

Filed under: Americas, Economics — Tags: , , , , , — Nicholas @ 10:50

Jan Boucek explains why Argentina is providing a helpful example to other countries on what not to do in economic policy:

This week, President Cristina Fernandez de Kirchner announced the seizure of Spanish oil company Repsol’s stake in Argentine oil company YPF to give the government 51% control. Spain is outraged and has recalled its ambassador. […]

Ms Fernandez justified her move on the grounds that YPF has failed to invest sufficiently to prevent Argentina from importing ever greater quantities of fuel. The fact that Argentine oil reserves have been dwindling means the sector needs greater and increasingly sophisticated investment to reach more complex structures, just like in the North Sea. Expropriation isn’t going to attract that kind of high-risk investment.

[. . .]

The YPF seizure continues Argentina’s cavalier attitude towards other people’s money shown back in 2008 when Ms Fernandez grabbed some $24 billion of private pension funds and used central bank reserves to meet debt payments. More recently, the country has been in a spat with the IMF over the quality of its statistics. Argentina claims inflation is running at somewhere between 5% and 11% but private independent estimates put the number at somewhere around 25%. The Economist is refusing to publish official Argentine inflation data.

Update: Well, regardless of the state of the economy, President Fernandez de Kirchner has a friend in the White House! President Obama has indicated his support for the Argentinian claim to … the ¿Maldives?

President Obama erred during a speech at the Summit of the Americas in Cartagena, Colombia, when attempting to call the disputed archipelago by its Spanish name.

Instead of saying Malvinas, however, Mr Obama referred to the islands as the Maldives, a group of 26 atolls off that lie off the South coast of India.

The Maldives were a British protectorate from 1887 to 1965 and the site of a UK airbase for nearly 20 years.

March 28, 2012

“[T]he Government of Canada is [like] a big national insurance company with a side business as a tax collector for the provinces”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 10:17

Kevin Milligan in the Globe and Mail:

The first question to ask of any budget announcement is whether the dollars are recurring or one-time only. If we change a tax that brings in $1-billion a year, the budget changes not just this year but in future years as well. […] Politicians and commentators often choose the time frame that suits their current argument. Confusion results. A good economist keeps her eye open to these tricks and tries to ensure we compare numbers on similar time-frames.

Next up is properly adjusting future dollars to account for inflation and our ability to pay. Dollars spent in the future are different than dollars spent now. Imagine that inflation averages 2 per cent a year, and inflation-adjusted economic growth is 1.5 per cent a year on top of that. In just 20 years, prices will increase by 50 per cent and the size of our economy — and our ability to pay for programs priced in nominal dollars — will double.

[. . .]

As a final note, it is always useful when crunching the numbers to keep in mind what the Government of Canada actually does with our tax dollars. Transfers to individuals for insurance programs (such as Employment Insurance and Old Age Security) are 25 per cent of spending. Transfers to provinces and territories (health and other transfers) are another 20 per cent. Interest takes a further 11 per cent. The best way to think of the Government of Canada is a big national insurance company with a side business as a tax collector for the provinces. (This is only slightly different from the US Government, which has been called by Ezra Klein an insurance company with a standing army.) Everything else the Government of Canada does — from fisheries management to culture to the military — takes the remaining 44 per cent. Making any change to the trajectory of total spending when insurance and inter-government transfers are both projected to grow rapidly requires very large changes to that residual 44 per cent.

December 14, 2011

Your disturbing chart of the week

Filed under: Bureaucracy, Economics, Education, USA — Tags: , , , — Nicholas @ 09:18

Source: Cato Institute.

October 22, 2011

This probably explains why the “typical” comic book reader is no longer a young teen

Filed under: Economics, Media — Tags: , , — Nicholas @ 11:30

It’s all in the economics of the comic book world:

Looking at the graph we can see that the relative price of a comic book stayed around a buck until 1970 or so, slowly ramping up to a buck fifty over the next 15 years. That’s a 50% increase. From 1985 to 2000 the price almost doubles (100%) getting neat three dollars. From 2000 to 2011, it’s around a 33% increase.

It’s a fact that costs increase over time, so I’m not saying prices could remain at a buck forever. But it is hard to see how young kids and teenagers can get into comic books, it’s simply too expensive. For $20 you get 5-7 books. Serious comic readers will pick up 10-20 books a week. A few years ago, when I was a more regular reader, I would the totals of other people routinely $30-50 a week. That’s $120-200 per MONTH. There can’t be many parents helping pay that much for a kid’s comic habit.

When my family came to Canada in 1967, one of the things I missed the most were British comics. Canadian American comics were very different from what I was used to, so I never really became much of a comic collector. I’d pick up the odd few, but it never was a “have to buy” item for me. I remember having to decide whether I wanted the immediate satisfaction of a chocolate bar or a can of pop, or the slightly longer-term satisfaction of a comic book. Immediate satisfaction won more of the time, and with my princely 25 cents per week allowance, there wasn’t a lot of satisfaction whichever way I decided to go.

October 21, 2011

Is the cost of living really rising?

Filed under: Economics, Food, History, Technology — Tags: , , , — Nicholas @ 12:55

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