Published on 15 Feb 2017
We’re really excited to present the first episode of what will be an on-going video podcast featuring Dr. Antony Davies, Professor of Economics of Duquesne University in Pittsburgh, and Dr. James R. Harrigan, Senior Research Fellow at Strata, in Logan, Utah.
Each Wednesday we’ll be sharing a new short video featuring Antony and James talking about the economics and political science of current events. We hope you enjoy the show and look forward to your input on what topics Antony and James should cover in the future.
Today’s episode is about everybody’s favorite subject: Taxes!
February 16, 2017
Words & Numbers: The Customer is Always Taxed
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January 26, 2017
Autarky is not the answer
Warren Meyer on the idiocy of Trump’s economic nationalist notions:
Think about the corollary of Trump’s economic nationalism, particularly if everyone followed this same approach. If one skews all the rules and taxes and prohibitions so everything must be sourced domestically, then if a country does not have some particular resource or skill domestically, it is out of luck. No domestic rare earth metals? Sorry.
But governments and powerful people seldom calmly accept that something they critically need is not available. They will be tempted to go and take it. The worst, most violent empire building of the last 100-150 years has occurred when countries have pursued economic nationalism. Think of the colonialism of the late 19th century. Today we happily trade with South Africa and other countries for valuable resources, but in that time of economic nationalism, if a country wanted access to these resources, it felt it had to control the land and the people. Hitler in the 1930’s wanted to make Germany self-sufficient in agricultural goods and certain other resources, and the only way to do that was to go and grab other people’s land and resources.
The best example of all of this phenomenon is, I think, Japan in the 1930’s. Japan felt that it was resource poor and under Trump’s theory of economic nationalism, it felt it had to control oil and other resources it did not have domestically. So it plotted to go take it. When the US instituted a trade embargo in these very goods to punish Japan’s aggressiveness in China, it just accelerated Japan’s thinking in this area, convincing it for good it had to control these resources, and it was soon invading the oil-rich islands of what is now Indonesia. This example is all the more telling because Japan actually found true prosperity after the war when it traded peacefully for these resources. Unfortunately, it adopted economic nationalism, via MITI, of another form and helped manage themselves into a 20-year recession, but that is another trade-related story for another day.
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November 23, 2016
The History of Paper Money – III: Barebones Economy – Extra History
Published on Oct 15, 2016
Poor England. First Charles I and civil war, then losing to the French, then the Great Fire of London in 1666. Luckily, Nicholas Barbon comes along to help. And make obscene amounts of money. Who says you can’t do both?
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July 21, 2016
QotD: The economic folly of mercantilism
At the heart of [Trump’s] argument is the belief that selling to countries is good and buying from them is bad, the crude mercantilist fallacy that Adam Smith’s Wealth of Nations debunked in the same year that America embraced the Declaration of Independence. Smith, the brilliant British political economist, argued that unless people start eating gold bullion, the point of wealth is to buy not sell; to consume not produce. If China starts shipping free plasma TVs to America, a few American companies may be thrown out of business, but American consumers will be better off. What’s more, they’ll be able to spend their savings on goods from other companies. The only folks that protectionist policies benefit are crony capitalists who face less competition — the very thing that Trump says he’s fighting.
Shikha Dalmia, “Donald Trump’s free-trade follies”, The Week, 2016-06-30.
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April 14, 2016
Why there’s very little “free trade” involved in the TPP
ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:
Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.
These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?
The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.
The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.
The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.
That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.
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November 18, 2015
Adam Smith – The Inventor of Market Economy I THE INDUSTRIAL REVOLUTION
Published on 22 Feb 2015
Adam Smith was one of the first men who explored economic connections in England and made clear, in a time when Mercantilism reigned, that the demands of the market should determine the economy and not the state. In his books Smith was a strong advocator of the free market economy. Today we give you the biography of the man behind the classic economic liberalism and how his ideas would change the world forever.
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October 30, 2014
“Free Trade” deals usually have little to do with actual free trade
It’s not exactly a revelation that what politicians call “free trade” agreements are usually tightly constrained, regulated, and micro-managed trade: almost the exact inverse of what a genuine free trade deal would look like. This is primarily because politicians and diplomats have hijacked the original term to describe modern mercantilism. In The Diplomat, Ji Xianbai looks at how so-called free trade negotiations are little more than diplomatic beat-downs of the weaker parties by the stronger:
The classic mercantilism, the one associated with the idea that the precious metals obtained through a favorable balance of foreign trade were essential to a powerful nation, may be historically obsolete. The core of the mercantilist view, namely that self-interested states maximize economic development by optimizing political control to strengthen national power, is very much alive and well. Indeed, the vitality of mercantilism as a state of mind may have infiltrated every corner of the international political economy. If one considers the essence of mercantilism through Robert Gilpin’s definition – the attempt of governments to manipulate economic arrangements in order to maximize their own interests – multiple examples immediately come to mind: Japan’s “economic totalitarianism” system in which the entire society was united in deterring foreign competition in the postwar period, China’s ascendance since 1980s through an export-led development mode underpinned by a deliberately undervalued currency, and Germany’s unprecedented trade surplus accrued from the stringent austerity imposed on its economy to sustain competitiveness in the aftermath of the euro crisis.
Compared to those national triumphs of classic mercantilism, there is a less visible showroom, but one in which mercantilism presents itself over and over again in the form of legal mercantilism. This would be free trade agreements (FTAs), negotiations of which are usually kept in the dark. In bilateral FTA negotiations, legal mercantilist governments endeavor to impose their own (or desirable) trade rules and economic policies on other sovereign countries, usually with the aid of a combination of economic immensity, political hegemony, and asymmetric trade dependence, to create a sort of “international best practice,” favorable trade rules, and legal gains that can be leveraged and multilateralized at a regional and/or global level. The “competitive liberalization” strategy aptly pursued by the U.S. since 2002 is one such legal mercantilist policy, which aims to create another “gold standard” in international trade standard setting to project U.S.-friendly economic policies all over the world. In short, the U.S. expects the trade policies of other nations to follow those of the U.S., in the same way that their currencies used to peg to the U.S. dollar.
The U.S.–Peru FTA (PTPA) marks the very first success of Washington’s attempts to subordinate other countries’ sovereignty to its own national interest by squeezing non-trade-related provisions into a bilateral trade liberalization agreement and overriding foreign national laws. To provide a level playing field for American companies, the PTPA lays out detailed measures that Peru is obliged to take to govern its forest sector. The Forest Annex of the PTPA requires Peru to set up an independent forestry oversight body and even enact new Forestry and Wildlife Laws to legalize key provisions of PTPA. The U.S.–Colombia FTA (CTPA)’s labor provisions represent an “even more blatant assault on another country’s sovereignty.” Meanwhile, Colombia was forced to agree to establish a dedicated labor ministry; endorse legislations outlawing interference in the exercise of labor rights; double the size of its labor inspectorate; and set up a phone hotline and an internet-based system to deal with labor complaints. Examples of similar provisions abound: Don’t forget that the U.S.-Panama FTA has “helped” revamp Panama’s tax policy on behalf of Panamanians.
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February 11, 2014
Quebec’s anti-capitalist heritage
At The Gods of the Copybook Headings, Richard Anderson looks at the problem Quebec has with entrepreneurial and capitalist tendencies:
The hatred of capitalism in the “Quebec Dark Ages” had little to do with Anglo economic dominance. That most quintessential of Canadian capitalist icons, the coureur de bois, was a black marketer who flouted the authority of the colonial government and the sanctioned merchant class. Official French society, on both sides of the Atlantic, has always despised businessmen, except for those rent seekers who paid homage to the powers that be. In New France these licensed traders were known as voyageurs.
This is a never resolved tension in Quebecois society, between the pure entrepreneur represented by the coureur de bois and the official capitalist represented by the voyageur. There has been no shortage in modern economic history of talented Quebecois entrepreneurs, but their efforts are widely regarded as being some how suspicious. There is something slightly unwholesome about turning a profit and speaking French at the same time.
This is not unique to French society. In most Catholic, or post-Catholic countries this suspicion of capitalism and free markets is endemic. To their credit the French-Canadians, unlike the Portuguese, never burnt businessmen at the stake for displaying “Jewish tendencies.” It was only in some of the Protestant societies that capitalism became somewhat respectable. My own suspicion is that this had less to do with theology and more to do with social dynamics.
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April 16, 2013
Six political talking points on international trade that are myths
In Maclean’s, Stephen Gordon collects six of the most common myths politicians use to justify trade distorting policies:
1) Exports are good. Not true; exports are the costs we pay for engaging in international trade. Diverting domestic productive resources to producing more things for foreigners doesn’t increase our standards of living.
2) Imports are bad. This is point one restated: imports are the benefits from trade. The reason we engage in international trade is to obtain goods and services more cheaply than we can produce them for ourselves.
3) Trade deficits are bad. I went though this at length in this post: noting that a country has a trade deficit (or, more properly, a current account deficit) is the same thing as noting that domestic investment is larger than domestic savings. It’s not obvious why this is necessarily a bad thing.
4) Trade deficits are a sign of a slowing economy. The Canadian trade balance is generally counter-cyclical: falling during expansions and rising during recessions. A trade deficit is standard fare for Canadian expansions, not something to get concerned about.
5) Liberalized trade increases employment. Again, this is point one restated. Liberalized trade may increase the number of workers in certain export-oriented sectors. But the effect on total employment in the economy is zero.
6) Liberalized trade reduces employment. Again, this is point two restated. Liberalized trade may reduce the number of workers in certain sectors vulnerable to foreign competition. But the effect on total employment in the economy is still zero.
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April 2, 2013
QotD: In praise of cheap, gimcrack, run-of-the-mill manufacturing
For the first time ever, labourers were able to purchase cheap goods for themselves. The first factories focused on mass production of cheap goods for the poor. Shoes, for example, were produced for the proletariat — the rich bought made-to-measure shoes. This was different from France, where the government’s mercantilist product standards, designed to uphold quality, ensured that nothing was produced for the poor at all. In France, mercantilism continued to be state policy for much longer than in England. This is the reason why industrialisation took fifty more years to arrive on France’s shores.
J.P. Floru, Heavens on Earth: How To Create Mass Prosperity, quoted by Brian Micklethwait at Samizdata, 2013-03-29.
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March 10, 2013
September 29, 2012
Disabusing Canadians about mercantilism, one tweet at a time
Stephen F. Gordon is waging a lonely campaign to persuade Canadians that free trade is better than the managed, mercantilist “free trade” most of our governments have wanted since the NAFTA negotiations:
Not enough people understand the benefits from the unilateral opeining of borders. (1/2)
— Stephen Gordon (@stephenfgordon) September 29, 2012
The benefits we get from foreign investment are not conditional on how the other govt treats foreign investment.
— Stephen Gordon (@stephenfgordon) September 29, 2012
The gains from the Nexen takeover have *nothing* to do with how China treats foreign investment.
— Stephen Gordon (@stephenfgordon) September 29, 2012
Martin Wolf once called GATT a mutual disarmament treaty for mercantilists. That mindset is still too dominant.
— Stephen Gordon (@stephenfgordon) September 29, 2012
Too many people think that Canadian investors are our hostages and that we should demand some form of compensation for releasing them.
— Stephen Gordon (@stephenfgordon) September 29, 2012
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September 8, 2012
QotD: The European Project
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
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June 23, 2012
Trade deals as mutual disarmament pacts
It’s a very sad commentary that the only way the current “pro-business” federal government can even consider scrapping our supply management monopolies is because “our trading partners forced us to”:
If the government were of a mind to get rid of supply management — it swears it is not — that is perhaps the only basis on which it could: our trading partners made us do it. Certainly it would not dream of doing so otherwise. Such is the power of the supply management lobby, especially dairy, that a suffocating consensus has settled over the issue, of a kind rarely seen in a democracy. Consensus is not even the word. Every party strives to outdo the others in the fulsomeness of its support. And not just every party: every member of every party, in every province and at every level of government. It’s quite creepy.
Yet virtually every economist or policy analyst of note agrees that supply management is a disgrace. The primary effect of the quotas — the intended effect — is to drive up the price of these foods, staples of most Canadians’ diets, to two and three times the market price. The burden of these extraordinary price differentials, of course, fall most heavily on the poor, a fact that ought to trouble self-styled “progressives” but evidently doesn’t.
But it isn’t only consumers who pay. Since the quotas are tradeable, the premium over market prices gets capitalized into the value of the quota. The right to a cow’s worth of milk production, for example, runs to about $28,000, meaning a farmer looking to get into the industry faces an initial outlay, for the typical 60-cow farm, in excess of $1.5-million — just for the quota, never mind the cows, the barn and the rest.
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January 28, 2012
Deirde McCloskey on the “Bourgeois Virtues” that sparked the modern world
Writing in the Wall Street Journal, Dalibor Rohac reviews some of the key arguments in McCloskey’s recent book Bourgeois Dignity: Why Economics Can’t Explain the Modern World (which I’m currently reading — and very impressed with).
Unlike “Bourgeois Virtues,” “Bourgeois Dignity” makes a historical argument. Modern economic growth, she claims, is a result of an ideological and rhetorical transformation. In the Elizabethan period, business was sneered upon. In Shakespeare’s plays, the only major bourgeois character, Antonio, is a fool because of his affection for Bassanio. There is no need to dwell on how the other bourgeois character in “The Merchant of Venice,” Shylock, is characterized.
She contrasts this with attitudes 200 years later. When James Watt died in 1819, a statue of him was erected in Westminster Abbey and later moved to St. Paul’s cathedral. This would have been unthinkable two centuries earlier. In Ms. McCloskey’s view, this shift in perceptions was central to the economic take-off of the West. “A bourgeois deal was agreed upon,” she says. “You let me engage in innovation and creative destruction, and I will make you rich.” A commercial class that was not ostracized or sneered at was thus able to activate the engine of modern economic growth.
Ms. McCloskey insists that alternative explanations for the Industrial Revolution fail, for a variety of reasons. Property rights, she says, could not have been the principal cause because England and many other societies had stable and secure property rights for a long time. Similarly, Atlantic trade and plundering of the colonies were too insignificant in revenue to have made the real difference. There had long been much more trade in the Indian Ocean than in the Atlantic, moreover, and China or India had never experienced an industrial revolution.
By elimination, Ms. McCloskey concludes that culture and rhetoric are the only factors that can account for economic change of the magnitude we have seen in the developed world in past 250 years.
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