Quotulatiousness

January 5, 2025

“Everything humans build starts with human and social capital. This includes everything economic.”

Filed under: Economics, Education, History, Technology — Tags: , , , , , — Nicholas @ 05:00

Lorenzo Warby explains why he has always disagreed with the “standard model” of economic growth, as it fails to include the biggest cultural variables that matter enormously for economic development:

“Hyderabad bazaar” by ruffin_ready is licensed under CC BY 2.0 .

The seminal theory of economic growth is the Solow Growth Model (technically, the Solow-Swan model). The model can be easily expressed mathematically.

I have never liked the model, nor its later variations.1 The intuition behind my dislike was that societies — and indeed different ethnic groups within societies — obviously varied enormously in their capacity to use, to “put together”, the factors of production. They also vary enormously in their capacity to generate factors of production: specifically capital, the produced means of production. The model implies that there will be a general convergence between economies that has not happened.

Updating the model by including human capital was a gesture in that direction but did not fix the problem with the model, which is much more basic. The update attempted to grapple with the failure of investment to flow to poorer countries and, by implication, the long-term, systematic failures of foreign aid. The failures of foreign [aid] also supported my intuition.

The most recent (2024) Nobel memorial was for work that also directly supports my intuition — how much institutions matter for economic growth. The long-term economic growth literature — identifying culture as very much mattering for economic growth — also supports my intuition.

Skills and knowledge (human capital) are basic

To explain why the entire approach — basically, fiddling with some version of the Cobb-Douglas production function — is fundamentally mistaken, we need to go back to the origins of human economic growth. I mean, right back — all the way to foragers.

What are the original forms of capital? Well, there are tools, which are the original form of physical capital. But without the skills to make and use the tools, they either do not exist, or they are useless.

So, we start with skills and knowledge, with human capital. It takes almost 20 years to train a young human forager to be a subsistence adult — that is, to forage as much nutrition as they consume. The need to stuff the human brain with skills and knowledge — and the need to grow a brain that can be so stuffed — is why we have the most biologically expensive children in the biosphere. The need to impart skills to biologically expensive children is fundamental to the dynamics of all human societies.

Human capital — skills and knowledge — is not an “add on”. It is basic.

So are social connections (social capital)

Foragers do not live as atomistic individuals. They live in families and (fluid) foraging bands. Families and foraging bands are vehicles for our highly cooperative subsistence and reproduction strategies.

That we are the tool-making and tool-using species lacking tearing teeth and claws with the most biologically expensive offspring is why we have highly cooperative subsistence and reproduction strategies. It is also why we are so much the normative species — enabling robust cooperation based on convergent expectations — and why we have prestige and propriety as forms of status.

Both these forms of status represent currencies of cooperation. Prestige grants people status for doing things which are risky, clever, hard, entertaining. It is status by conspicuous competence. It provides a way to reward people for engaging in activities which generate wider social benefits — what economists call positive externalities. It also encourages people to want to associate with you.2

The other form of status — propriety — grants status to those who uphold the norms of the group. In particular, it wields stigma against those deemed to have violated those norms. It provides a way to punish people for engaging in activities which generate wider social costs — what economists call negative externalities. It helps solve the free-rider problem regarding the effort to enforce norms.

Reversing (i.e. perverting) status patterns so that people get prestige from victimhood — extending to various forms of failures of competence or even wildly anti-social behaviour — while stigmatising people who conspicuously successful (as oppressors or exploiters) is deeply destructive of human flourishing.3 We can see this pattern currently operating in “progressive” US states, and especially cities, but murderous versions of it operated in various Communist states. These things affect economic activity, but cannot be discerned by a Cobb-Douglas production function.

It is not true that scientists have never discovered Homo economicus. Unfortunately, Homo economicus is not a member of genus Homo. It is Pan troglodytes (chimpanzees) playing strategy games in a lab. It is precisely because we Homo sapiens are more normative, allowing us to encapsulate the social conquest of the Earth, that there are billions of us and only a few thousand of them.

We — as a highly social, indeed ultra-social, species — engage in both individual and social calculations. Different cultures notoriously generate different patterns for, and balances between, such calculations.

    1. The model has some utility for short-term calculations of growth.

    2. As with any social benefit, the knock-on dynamics of prestige can be complex, but status from conspicuous competence is at the heart of it.

    3. The November 2014 Shirtgate controversy — where a rocket scientist who had led the technically incredibly difficult task of landing a probe on a comet was publicly humiliated over the shirt he wore (a gift from a female friend it turned out) — represented conspicuous achievement (prestige) being trumped by feminist stigmatisation (propriety).

December 30, 2024

RIP Jimmy Carter, “The Great Deregulator”, 1924-2024

Filed under: Economics, Government, History, Liberty, Politics, Railways, USA — Tags: , , , , , , — Nicholas @ 04:00

ReasonTV
Published 29 Dec 2024

Nobel-Winning Economist Vernon Smith says the 39th president radically improved air travel, freight rail, and trucking in ways that still benefit us immensely.
______

Jimmy Carter was perhaps the most successful ex-president in American history, winning the Nobel Peace Prize in 2002 for his work promoting human rights and economic and social development.

But his single term as president (1977–1981) is largely remembered as a series of failures and missteps, sometimes literally. Gas lines, a record-high combination of unemployment and inflation on the “misery index”, and Americans being held hostage by Iranian revolutionaries for over a year all fueled the perception that Carter was a weak and ineffective leader. When he collapsed during a six-mile run, it personified for many the exhaustion of the country under his leadership.

But there was at least one way in which Carter excelled as president. He was, in the words of 2002 Nobel–winning economist Vernon Smith, the great deregulator. Carter forced the airline industry, along with interstate trucking and freight rail, to compete for business, with powerful and positive effects that continue to this day.

I talked to Smith about Carter, whom he met at a White House event for American Nobel Prize winners, and what it was like to fly in the days when the government controlled air travel.

December 16, 2024

Winners and losers from free trade

Filed under: Economics — Tags: , , , — Nicholas @ 04:00

At the Foundation for Economic Education, Patrick Carroll responds to a recent Robert Reich rant about the winners and losers under free trade:

Image Credit: YouTube screenshot – Robert Reich

Myth #6 on Robert Reich’s list of economic myths is called “Global Trade Benefits Everyone”.

“Have you heard this lie?” Reich opens. “‘Global trade is good for everyone.'” His pants then light on fire. “Ahh!” he screams. “That’s bunk!”

Watching that opening sequence was an immediate déjà vu moment for me, because I had recently come across an article making the same claim as Reich. The article argued that free market economists are simply wrong to claim that “everyone gains” from free trade, because clearly there are some losers.

The ironic part is, that article was written by none other than Bryan Caplan, one of the world’s leading free market economists.

“What makes me so sure that ‘Everyone gains from X’ is invariably a blatant falsehood? Because every change causes price movements, which are automatically bad for someone or other,” Caplan writes. “The Industrial Revolution was great overall, but hurt traditional craftsmen. The Internet is great overall, but hurt travel agents. Congestion pricing is great overall, but bad for cheapskates with high traffic tolerance. Free trade is great overall, but not for workers and investors in industries that can’t survive at world prices.”

[…]

This would be a rather short article if Reich were simply making the same point as Caplan. “I agree, but Caplan said it better,” would probably be my thesis. But alas, Reich goes in a rather different direction than Caplan does, and that’s where some more rigorous analysis is needed. Here’s how he presents his argument:

    Many economists believe in the doctrine of comparative advantage, which posits that trade is good for all nations when each nation specializes in what it does best. But what about costs to workers and the environment? What if a country’s comparative advantage comes from people working under dangerous or exploitative conditions, or from preventing them from forming labor unions, or allowing employers to hire young children? Or from polluting the atmosphere or the ocean, or destroying rainforests and polluting groundwater?

Reich makes a fair point that global trade isn’t all sunshine and roses. Working conditions in some places are atrocious, and environmental damage is also a very real problem. But the fact that working and environmental conditions are far from ideal in many parts of the world does not mean that restricting trade will necessarily make things better. In fact, it’s quite likely that less trade would make things worse, because it would cut off the global poor from opportunities for production and economic growth.

Reich highlights the costs of trade, but there are also immense benefits that the global poor reap from the arrangement. If these benefits outweigh the costs — as they likely do in most cases — then who’s really the advocate of the downtrodden: the ones cheering on mutually beneficial trade, or the ones trying to stop it because they can only see the downsides?

To be fair, Reich doesn’t come out and advocate for cutting off trade. But this raises the question: what exactly is he advocating for? Anyone can point out problems, but the real question is: what solution are you proposing? Maybe he’ll tell us in the next section:

    My old boss Bill Clinton called globalization “the economic equivalent of a force of nature, like wind or water”. But globalization is not a force of nature. Global trade is structured by rules negotiated between nations about which assets will be protected and which will not. These rules determine who benefits and who is harmed by trade. Over recent decades, trade deals such as the North American Free Trade Act (NAFTA) and agreements under the World Trade Organization (WTO) have protected the assets of US corporations, including intellectual property.

Reich goes on to list a few ways that these rules have helped large corporations, such as oil companies, financial institutions, Big Pharma, and Big Ag.

Watching this part of the video ushered in a second instance of déjà vu. I remembered reading somewhere, just recently, that NAFTA was rotten to the core, just like Reich was saying.

Yet again, it was a staunch free market economist making this point — Murray Rothbard, in a number of incisive articles that were part of his 1995 anthology Making Economic Sense. The problem, said Rothbard, is that NAFTA was really the opposite of free trade.

November 1, 2024

“[H]er plan will mean the obliteration of your savings, the end of banks and even the destruction of ‘money as we know it'”

Filed under: Bureaucracy, Economics, Environment, Germany, Government, Politics, Railways — Tags: , , , , , — Nicholas @ 04:00

It’s astonishing how many highly placed bureaucrats, NGO functionaries, and the very, very wealthy are super gung-ho for reducing the rest of us to the status (and living conditions) of medieval serfs:

“German flag” by fdecomite is licensed under CC BY 2.0 .

This week, VW announced plans to cut tens of thousands of jobs and to close three factories. That is a very big deal, because they have never closed a single German factory before. I try to avoid economic topics, but this story is so much bigger than economics. As Daniel Gräber wrote in Cicero last month, “the VW crisis has become a symbol for the decline of our entire country“.

The Green leftoid establishment are eagerly blaming management for these failures, which is on the one hand not entirely wrong, but on the other hand not nearly an absolution. The German state of Lower Saxony holds a 20% stake in Volkswagen, and so they also manage the company. Recently, in a fit of virtue, they placed a Green politician – Julia Willie Hamburg – on its supervisory board. Hamburg does not even own a car and has used her position to argue that Volkswagen should regard itself not as an automobile manufacturer but as a “mobility services provider” and shift its focus away from “individual transport”.

The absurdly named Julia Willie Hamburg is merely symptomatic of a broader phenomenon. Germany has succumbed to political forces that have nothing but indifference and disdain for the industries that have made us prosperous. Our sitting Economics Minister, Robert Habeck, gave an interview to taz in 2011 in which he said that “fewer cars will not lead to less economic growth, but to new industries”, and attacked “the old growth theory, based on gross domestic product“. And behind Green politicians like Habeck are even more radical forces, like Ulrike Herrmann, the editor of taz, for many years a member of the Green Party and also an open advocate of wide-scale deindustrialisation. Because I am going to quote Herrmann saying some very crazy things, you need to know that she is in no way a fringe figure. She appears regularly on all the respectable evening talkshows and every politically informed person in the Federal Republic knows who she is.

Herrmann has outlined her political views in various books like The End of Capitalism: Why Growth and Climate Protection Are Not Compatible – and How We Will Live in the Future. From these monographs, we learn that Herrmann sees climatism as a means of imposing a centrally planned economy in which we will own nothing and be happy. Happily, Herrmann also talks a lot, and in her various speeches and interviews she states her vision for decarbonising Germany in very radical terms. I am grateful to this twitter user for highlighting typical remarks that Herrmann delivered in April of this year before a sympathetic audience of climate lunatics.

There, Herrmann elaborated on her vision for a future economy in which all major goods would have to be rationed:

    Talking about rationing: It’s clear that if we shrink economically, we won’t have to be as poor as the British were in 1939; rather, we’d have to be as rich as the West Germans were in 1978. That is a huge difference, because we can take advantage of all the growth of the post-war period and the entire economic miracle.

    The central elements of the economy would have to be rationed. First of all, living space, because cement emits endless amounts of CO2. Actually, new construction would have to be banned outright and living space rationed to 50 square metres per capita. That should actually be enough for everyone. Then meat would have to be rationed, because meat production emits enormous amounts of CO2. You don’t have to become a vegetarian, but you’ll have to eat a lot less meat.

    Then train travel has to be rationed. So this idea, which many people also have – “so okay then I don’t have a car but then I always travel on the Intercity Express trains” – that won’t work either, because of course air resistance increases with speed. Yes, it’s all totally insane. Trains won’t be allowed to travel faster than 100 kilometres per hour, but you can still travel around locally quite a lot. This is all in my book, okay? But I didn’t expand on it there because I didn’t want to scare all the readers.

At this point Herrmann begins to cackle manically, ecstatic at the thought that millions of Germans will be stuck riding rationed kilometres on slow local public transit.

July 26, 2024

QotD: Comparative advantage

Filed under: Economics, Europe, Quotations, Wine — Tags: , , , , — Nicholas @ 01:00

To produce wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.

David Ricardo, On the Principles of Political Economy and Taxation (1817), quoted on the Library of Economics and Liberty site.

July 25, 2024

David Friedman on the economics of trade

Filed under: China, Economics, USA — Tags: , , , , , , — Nicholas @ 04:00

David Friedman discusses how, for example, the US and China manage their trading relationship:

“United States Balance of Trade Deficit-pie chart” by Shirishag75 is marked with CC0 1.0 .

I recently read a thread about US/China trade on a forum occupied mostly by intelligent people. As best I could tell, all participants were taking it for granted that things that make it more expensive to produce in the US, such as regulations or minimum wage laws, make the US “less competitive”, increase the trade deficit, give the Chinese an advantage. Reading Project 2025, the Heritage Foundation’s battle plan for a future conservative president, I observed the same pattern, with only one exception.

It did not seem to have occurred to any of the forum posters that US costs are in dollars, Chinese costs in Yuan, and what determines the exchange rate between them is the cost of producing things. Discussing trade policy in terms of absolute advantage, pre-Ricardian economics, isn’t quite as bad as discussing the space program on the assumption that the Earth is at the center of the universe with sun, moon and planets embedded in a set of nested crystalline spheres surrounding it — Copernicus was about three centuries earlier than Ricardo — but it is close. It is a point that I made here about a year ago, but since the question came up in my most recent post and in a thread on my favorite forum, it is probably worth making again.

The Economics of Trade

It is easiest to start with the simple case of two countries and no capital flows. The only reason Americans want to buy yuan with dollars is to buy Chinese goods, the only reason Chinese want to sell yuan for dollars is to buy American goods. If Americans try to buy more yuan than Chinese want to sell, the price of yuan in dollars goes up, if Chinese want to sell more yuan than Americans want to buy, the price goes down, just as in other markets. The price of yuan in dollars, the exchange rate, ends up at the price at which supply equals demand, which means that Americans are importing the same dollar (and yuan) value of goods that they are exporting.

Suppose the US government, inspired by the mercantilist view that countries get rich by exporting more than they import, tries to produce a “favorable” balance of trade by imposing a tariff on Chinese imports. Chinese goods are now more expensive to Americans. Since they want to buy less from China they don’t need as many yuan so the demand for yuan goes down, the price of yuan in dollars goes down, which reduces the cost of Chinese goods to Americans. Just as before, the exchange rate ends up at a level at which the dollar value of US exports equals the dollar value of US imports. Both imports and exports are now less, since trade is being taxed, but the balance of trade is exactly what it would be without the tariff.

Suppose the US becomes less good at making things due to an increase in government regulation or some other cause. Dollar prices of US goods in the US go up. That makes US goods more expensive to Chinese purchasers so they buy fewer of them, decreasing the demand for dollars on the dollar/yuan market. The exchange rate shifts — dollars are now less valuable so their price falls. Trade still balances. The US is not “less competitive”, merely poorer.

Now add in more countries. One reason Chinese want to buy dollars is to sell them to Germans who want dollars with which to buy American goods. We end up with a trade deficit with China, since some of the dollars they get for their exports are being used to import goods from Germany instead of the US, but a matching trade surplus with Germany, since they are using both the dollars they get by selling things to us and the dollars they get from China to buy goods from us. The same logic applies with more countries.

To explain how it is possible for the US to have a trade deficit we now drop the assumption of no capital movements. One reason Chinese want dollars is to buy goods and ship them to China but another is to buy assets in America — government bonds, shares of stock, real estate. Dollars bought and dollars sold are still equal but exports of goods no longer equal imports of goods. Part of what the US is “exporting”, selling to foreigners, is assets located in the US.

Suppose the US government wants to reduce the trade deficit. One way would be to reduce the budget deficit, since if the US is borrowing less it will not have to pay lenders as high an interest rate, which will make US bonds less attractive to Chinese buyers. Another way would be to block capital movements, make it illegal for foreign buyers to buy US assets. Doing that, however, means less capital investment in the US, hence higher interest rates. With fewer lenders to buy US bonds, the government will have to offer a higher interest rate to sell them.

One argument sometimes offered for restricting foreign investment is that if the Chinese own a lot of US assets that gives them power over us. The same argument was offered in the early 19th century when European investors were paying to build railroads and dig canals in the US. Daniel Webster pointed out that, if there was a conflict with European powers, their assets were sitting on our territory under our control. It wasn’t like they could repossess the Erie canal.

What about imposing a tariff in order to reduce imports? The logic of the previous argument still applies — the exchange rate will shift to make imports more attractive, exports less. Any effect on the deficit will depend on what happens to the attractiveness of US assets to Chinese investors. Figuring out the net effect is complicated, depending in part on what people expect trade policy and exchange rates to be when they collect on their capital investments.

July 4, 2024

Argentina’s inflation rate

Filed under: Americas, Economics — Tags: , , , , — Nicholas @ 03:00

As you may have noticed, my interest in Argentinian affairs increased a lot with the election of Javier Milei as President. His first six months in office, while turbulent, do seem to have the economic indicators moving in the right direction for ordinary Argentines:

Argentina’s inflation rate has recently dropped to its lowest point since January 2022, registering a monthly increase of 4.2 percent in May according to the National Institute of Statistics and Census (INDEC). Although annual inflation has slowed for the first time since mid-2023, it still stands at 276.4 percent, one of the highest rates globally.

When Javier Milei assumed the presidency in December 2023, monthly inflation had skyrocketed to an unprecedented 25.5 percent. Within five months, Milei’s administration managed to reduce this figure by more than 20 percentage points. Despite the persistently high annual inflation rate, the trend indicates potential stabilization of the Argentine economy.

Javier Milei’s reforms have been described as aggressive. In his inaugural speech, he emphasized the need to clean up the economy before implementing his promises to dollarize and close the central bank.

To achieve a zero deficit, Milei enacted a 35 percent reduction in public spending. He achieved this by closing half of the ministries and secretariats, suspending public works for a year, reducing subsidies for energy and transportation, canceling government advertising, and maintaining the 2023 budget for 2024 despite an inflation rate of 300 percent. Essentially, the government drastically cut its expenditures.

These measures, although unpopular, yielded results. Milei’s government not only avoided a deficit, but achieved a surplus, and most importantly, inflation began to decline.

Following the inflation story in Argentina recently brought to mind Henry Hazlitt’s famous 1978 article “Inflation in One Page“. As the title suggests, Hazlitt summarizes the causes and remedies of inflation in a brief and simple explanation. He argued that inflation is a consequence of government monetary policies, specifically excessive money printing due to unbalanced budgets caused by extravagant government spending.

June 25, 2024

In all places and at all times, the true minimum wage is zero

Filed under: Business, Economics, Food — Tags: , , , — Nicholas @ 03:00

Tim Worstall explains why fast food restaurants like McDonalds and Burger King are reported to be introducing new low-priced value meals to try and attract and keep more customers in the current economy:

“McDonald’s restaurant, Toledo OH, 1967” by DBduo Photography is licensed under CC BY-SA 2.0 .

It’s terribly unfashionable to say that minimum wage rises have any effects — other than that the minimum wage workers earn more, of course. It’s supposed to be one of those areas where only good things can come from poking a stick in the market. The justification is that the only jobs these folks can get are slinging fries (If that is the case then I’d probably start with education system reform so that grievance studies graduates are skilled enough to do something else but maybe that’s just me), therefore MaccyD’s and the like have a monopoly on employing them (a “monopsony”) and so omniscient and caring politicians and bureaucrats can correct this market error without there being any side effects.

Hmm. Seems unlikely but that is the story.

[…]

The standard economics of a minimum wage rise is — well, was before the progressive smokeblowing about monopsony — that the money’s got to come from somewhere. It could be that profits fall and therefore there’s less investment — even a move away from having invested in — that activity and so employment falls. Or, wages are higher for those fewer people employed and some lose their jobs — also known as rising productivity and also known as fewer jobs. Or, customers get to pay higher prices, fewer now buy the item and so employment falls as the sector shrinks.

Hmm, well, we can get all serious about monopsony but that one doesn’t work to my mind either as even if profits were excessive a fall in them will still lead to less investment in the sector and we’re back at option 1) above. But, many have convinced themselves.

But here we’ve got a general agreement that Americans are eating fast food less. They’re eating at home more. The only thing that’s changed in the varied cost structures is the price of fast food labour. Sorry, the only thing that’s changed in the *relative* cost structures is that labour as the minimum wage is pushed up. Whatever food inflation has been it’s been no better or worse for MaccyD’s than it has been in Albertsons or King Super. It’s also true that US real incomes have been rising so it’s not a general retreat on the part of consumers. The price of fast food relative to home prepared has risen, people are buying less fast food. The only cost pressure causing this is the pushing up of the minimum wage in recent years (for chains, in California, it’s now $20 an hour).

Myself I take that as being proof of the original and base minimum wage argument in standard economics. Trying to recoup that fall in sales is what is leading to these special offers — and don’t forget they’re special, not for all time and so should be considered advertising, not a long term change in price levels.

As a larger lesson I take it to mean that we should be very wary indeed of those claiming that there’s some special little economic trick that makes what they want to do anyway such a good idea. Why, yes, that does include any special little tricks I might want to claim. But many really did convince themselves that fast food wages were different, that pushing them up would have only good, not ill, effects.

Seems it ain’t so.

Over the weekend, there were a few stories about a small fancy coffee chain whose employees had successfully unionized to get better wages, only for the owners to shut down all three stores because even before the workers unionized, they were losing money on the business. Rather than the higher wages the employees were expecting (while keeping their unusually generous benefits for such entry-level jobs), all their jobs were lost and nobody won. Small businesses like restaurants operate on a far smaller profit margin than most people believe … according to Statistics Canada, the average restaurant of all types made a 4.3% profit in 2022.

June 21, 2024

“Neoliberal ideology is antidemocratic at its very core. Its aim is to give free-reign over our societies to corporations, not citizens”

Filed under: Economics, Government, Liberty, Media, Politics — Tags: , , , , , , — Nicholas @ 03:00

Tim Worstall responds to a recent Medium essay by Julia Steinberger which illustrates that “neoliberal” has joined “fascist” as a generic term to indicate strong disapproval of a person, organization, or idea:

The idea that an adult woman can believe these things is just amazeballs. But here we are. A tweet from Julia Steinberger leads to her Medium essay about what’s wrong with the world.

An upheaval in 10 chapters:

    1. The cause. We know the climate crisis is brought to us by highly unequal and undemocratic economic systems.

Err, no? Emissions are emissions. 100 people emitting one tonne each is exactly the same as 1 person emitting 100 tonnes. Sure, it’s true that a more unequal society will have more people emitting those 100 tonne personal amounts. But a more equal society will have more people able to emit another 1 tonne each. For, more equality is by definition the movement of some of those assets of the richer to those poorer — the economic assets which either allow or do the emitting. Sure, Jim Ratcliffe’s £50,000 private jet flight emits more than my £100 Easyjet one. But if we take the £50k off Jim and give it to 500 folk like me then all 500 of us might spend the marginal income on an Easyjet flight each — which would be more emissions than Jim’s spending of the money.

It simply is not true that economic inequality is the heart, the core or the cause of climate change. It’s idiocy to think it is too.

Of course, we know what’s happening here. Climate Change is Bad, M’Kay? Which it is, obviously. Economic inequality is Bad, M’Kay? Well, there the evidence is a great deal more mixed but whatever. But in the minds of the stupid all bad things have the same cause. So, if inequality is bad, climate change is bad, then they must be the same thing because they’re Bad, M’Kay?

    2. The rise. The recent history of these economic systems, in the Americas and Eurasia, is dominated by the ascendance of neoliberal ideology.

Oh, that is good. Given that I am a neoliberal — a fully paid up one, Senior Fellow at the Adam Smith Institute and all — that’s very good. Given HS2, looming wealth taxation, the increased bite of idiot regulation and all that I can’t say that I see neoliberalism as winning right now but that might depend upon your starting point. If you’re a socialist — or an idiot but I repeat myself — you might well regard the plenitude of bananas in the supermarket as neoliberal. After all, that is something that socialism never did achieve.

    3. The threat. Neoliberal ideology is antidemocratic at its very core. Its aim is to give free-reign over our societies to corporations, not citizens.

And, well, you know, bollocks. The very beating heart of neoliberalism is that corporations need to be controlled and they’re best controlled by the citizens. In the form of free markets rather than voting on which bureaucrats get the gold plated pension, true. But neoliberals are between indifferent and actually against capitalist power. The whole nub of the idea is that markets do the job of controlling capitalists better than bureaucrats, politicians or, obviously, capitalists.

There’s not really any way for her thesis to survive after getting so much of the basics wrong, is there?

But just one more tidbit:

    Hayek and his neoliberal colleagues now needed another, antidemocratic way, to organise society. They didn’t want democracy, but they wanted some kind of self-maintaining organisation — by which they meant hierarchy. Organisation was supposed to be supplied by the market, and hierarchy by competition within markets. (It’s worth noting that neoliberals in the 1950s did not, although they should have, predict that unfettered markets lead to concentrations in monopolies or cartels. They would arguably disapprove of the vast corporations running our current economies, even though their market-above-democracy policies predictably brought them into being.)

Well, that wasn’t actually the last tidbit. But the idea that Friedman, Mises, Menger, Hayek and the rest didn’t worry about monopolies? Jesu C is really bouncin’ on that pogo stick right now. And then the idea that democracy will be better bulwark against monopolies than markets? Can you actually do backflips on a pogo stick?

June 4, 2024

QotD: “Let the market handle it”

Filed under: Economics, Government, Quotations — Tags: , — Nicholas @ 01:00

The argument is quite common. It’s also wrong. Its error is that it incorrectly identifies the set of choices for dealing with problems (and with “problems”).

Rodrik’s argument appears to be the height of reasonableness. “It is dogmatic and dangerous,” the argument’s champions rightly note, “to assume that one solution or one approach is the answer to every problem. Some problems call for the use of screwdrivers, others call for the use of hammers. Only a benighted fool insists on using a screwdriver to hammer in nails and on using a hammer to insert screws. The wise, non-ideological, enlightened, open-minded, reasonable, and scientifically aware person sometimes uses a screwdriver and other times uses a hammer. What could be more reasonable?!”

The error in this formulation is that markets are many tools. Markets are a toolkit with far more tools in it than government has access to. While government has only a few tools – mostly hammers (some sledge), saws, and clamps – the market is filled with many, almost countless, tools. And the market’s tools are much more varied, nuanced, specialized, and creative than are the government’s simple set of tools.

Put differently, to say “Let the market handle it” is just a shorthand way of saying “Let whoever is most willing, most able, most experienced, most knowledgeable, and best equipped be free to try his or her hand at dealing with each specific problem.” And to say “Let the market always handle it” is not – contrary to what Rodrik’s argument suggests – to propose a single, simple fix for all problems; it is to propose that the field be left open for as many fixes as are feasible to be tried. To say “Let the market always handle it” is to warn that using government as a fix crowds out – prevents – experimentation with many other possible fixes.

In short, the choice is not between only two alternative possible fixes: the market or the government. Instead, the choice is between a gigantically large and varied set of possible fixes (the market, with its many detailed specialized carpenters and master builders) or a tiny set featuring one possible fix (the government, with its hammering, sawing, and clamping officials, none of whom – unlike the case with market participants – can be reasonably presumed to know enough of the finer details of any of the problems that they are called upon to “fix”).

The truly reasonable person – the one who understands the benefits of having access to as many “solutions” to problems as possible – supports the market because he or she knows that to turn to government solutions is to drastically reduce the number of “solutions” that will be tried.

Don Boudreaux, “Very Bad Framing, or In Defense of ‘Let the Market Handle It'”, Café Hayek, 2016-08-12.

June 3, 2024

QotD: Economic feedback

Filed under: Economics, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

Well, now I think about it, most feedback is annoying.

Economics is full of it — as are other economic systems — and humans find it so annoying they have devised various means of shutting it down, and then become puzzled and do crazy stuff when the system goes out of control.

Take price controls. They deliberately shut down feedback. The idea is “people need to eat and the essentials should be cheap”. We went tons of rounds on this in the seventies in Portugal. It was FUN — not — and responsible for empty grocery shelves and problems getting the essentials. Because when cooking oil was dirt cheap by price control, everyone who had ridden this pony before (with bread, with toilet paper, with …) would buy everything in the grocery shelves. Meanwhile, because it was impossible for merchants to make a profit on the thing, they didn’t stock it. Which was okay, because the factories that made it couldn’t afford to at that price, so they stopped. And all the way down the line.

This is because what the idiot politicians were shutting down was the feedback. Prices are many things — and sometimes annoying when you really want a good pair of noise-cancelling headphones but your bank account is crying, to use a totally random example — but MOSTLY? They’re information. They’re feedback.

Because, yes, people work for profit, and profit — things that Warren and Sanders will never get — is not dirty, it’s what people live on, when prices go up — meaning there’s more demand than supply — people go “hey, you can make a profit in this” and start making more, until the supply and demand match, and you can’t make as much money, so people wander off to do other stuff.

You shut down the signal, and things go insane. You keep it shut down long enough while handing down lists of things that the government wants you to make, and vast famines sweep the land but you have a surplus of size 35 shoes for the left foot only. Because the directive handed the factory made that the easiest thing to do.

But it is not just in economics (though eh, everything is a branch of economics, as my reading in my 30s informed me. Which means that’s probably when I started going insane) that humans love shutting down feedback.

The truth is we don’t like reality very much, and are more or less perpetually at war with it.

We have this image of how things should be, and because we imagine it so clearly we think it’s a moral imperative.

Sarah Hoyt, “Shutting Off Feedback or How We Got Into This Fine Mess”, According to Hoyt, 2019-11-04.

April 23, 2024

Debating the economic impact of the Raj on India

Filed under: Books, Britain, Economics, History, India — Tags: , , , , , — Nicholas @ 05:00

At The Daily Sceptic, Nigel Biggar looks at a few books making or refuting the narrative on how much or how little British rule in India extracted or contributed to the economic life of the subcontinent:

Beyond slave-trading and slavery, what were the economic effects of British imperial dominance? Can they be reduced to Britain’s leeching wealth from exploited subject peoples?

For over a century, that is what Indian nationalists have claimed. It is also what the politician Shashi Tharoor claims in his 2016 book, Inglorious Empire: What the British Did to India. Against him, however, the Bengali-born, LSE-based economic historian Tirthankar Roy has declared of the nationalist critique that “generations of historians … have shown that it is not [true]”. Pace Tharoor, the statistic that India produced 25 per cent of world output in 1800 and 2–4 per cent in 1900 does not prove that India was once rich and became poor: “[i]t only tells that industrial productivity in the West increased four to six times during this period … The proposition that the Empire was at bottom a mechanism of surplus appropriation and transfer has not fared well in global history”.

On the contrary, the British Empire’s commitment to free trade gave Indian entrepreneurs new opportunities to grow. Some of them visited England in the late 19th Century, observed the workings of manufacturing industry, imported machinery and expertise to India, built factories employing Indians, and then outcompeted Manchester. This is exactly how the Tata Iron and Steel Company began in Bombay – the same company that now owns what remains of the British steel industry.

What is more, colonial governments often protected native producers against British business, in order to moderate economic and social disruption, partly because they genuinely cared for the welfare of native people and partly because they didn’t want to have to manage the political unrest that foreign commercial intrusion could excite. Famously, in 1910-11 colonial officials barred Lever Brothers from acquiring concessions in Nigeria on which to establish palm-oil processing mills with widespread hinterlands, since Africans were already producing for the world markets and generating tax revenue and because the alienation of large areas of land risked provoking native opposition.

Further still, the British were the leading exporters of capital from the mid-19th Century to at least 1929. Between 1876 and 1914, Britain invested over a third of its overseas capital in the Empire, over 19% of it in India. Of course, British investors often made a profit out of this. That’s the thing about investment: you tend to want to grow your money, not waste it. But if the British gained, so did colonial peoples. Take railways. By 1947, British India had 45,000 miles of railway track, most of it constructed with private capital, whereas five years later un-colonised China still had less than 18,000 miles. For sure, the railways served military purposes. But they also served commercial and economic ones: one estimate reckons that when the railway network reached the average district, real agricultural income rose by about 16%. And it served the welfare purpose of efficient famine relief, too.

A basic reason why the British sent their capital overseas to the Empire, enabling the growth of businesses and the building of infrastructure, was that colonial states provided sufficient political stability and legal certainty to make the risks of financial ventures worth taking. (Badenoch hints at this in her reference to the economic effects of the Glorious Revolution of 1688.) That explains why Australia’s economic growth compares so favourably with that of many Latin American countries, and why, between the 1860s and 1890s, Australia was the richest country on earth.

In sum, the considered judgement of the Swiss historian Rudolf von Albertini, whose work – according to the world’s “leading imperial economic historian”, David Fieldhouse – was based “on exhaustive examination of the literature on most parts of the colonial world to 1940”, was simply this: “colonial economics cannot be understood through concepts such as plunder economics and exploitation”.

QotD: Who cares about you?

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

During my student days at a UCLA economics department faculty/graduate student coffee hour in the 1960s, I was chatting with Professor Armen Alchian, probably the greatest microeconomic theory economist of the 20th century. I was trying to impress Alchian with my knowledge of statistical type I and type II errors. I explained that unlike my wife, who assumed that everyone was her friend until they prove differently, my assumption was everyone was an enemy until they proved otherwise. The result: My wife’s vision maximized the number of her friends but maximized her chances of betrayal. My vision minimized my chances of betrayal at a cost of minimizing the number of my friends.

Alchian, donning a mischievous smile asked, “Williams, have you considered a third alternative, namely, that people don’t give a damn about you one way or another?” Initially, I felt a bit insulted, and our conversation didn’t go much further, but that was typical of Alchian — saying something profound, perhaps controversial, without much comment and letting you think it out.

Years later, I gave Alchian’s third alternative considerable thought and concluded that he was right. The most reliable assumption, in terms of the conduct of one’s life, is to assume that people don’t care about you one way or another. It’s an error to generalize that people are friends or enemies, or that people are out to either help you or hurt you. To put it more crudely, as Alchian did, people don’t give a damn about you one way or another.

Walter E. Williams, “Who Cares About You?”, Townhall.com, 2019-10-01.

April 3, 2024

QotD: Optional economic reality

Filed under: Economics, Government, Quotations — Tags: , , , , — Nicholas @ 01:00

A majority of politicians and pundits believe that economic reality is optional. Of course, they don’t express this belief in any manner so direct. But one can logically infer this belief from their policy proposals.

Take, for example, support for rent control. Having the state keep the monetary prices of rental units below the values that would arise in free markets is believed by many pols and pundits – and by nearly all “Progressives” – to effectively keep the actual market values of rental units at whatever low prices the state sets. In this reality-is-optional world, when the state pushes down nominal rental prices, the quantity of rental units supplied not only does not fall, it increases to match the increase in the quantity of rental units demanded.

    Want more housing for folks with modest incomes? No problem! We’ll just push the rental prices lower to increase ordinary folks’ access to housing. See, the world is such a simple place!

Similar reality-is-optional “solutions” are minimum-wage statutes (for increasing the pay of low-skilled workers) and mandated paid-leave (for increasing the welfare of all workers).

Pondering this strange notion that the state can make market values be whatever the state wants them to be merely by dictating changes in the names of market values – that is, changes in nominal prices – I wondered what the world would be like if miracles more broadly could be worked merely by changing nominal designations. […]

Of course, all such scenarios are ludicrous. Reality isn’t changed merely by reporting that reality is other than what it is. In fact, reality is made worse by false reports because, unable to learn the truth about reality, people act in ways that are inconsistent with reality, thus worsening their situations.

Yes – but why, then, do so many people believe that economic reality is optional? Why do so many people believe that economic reality can be made to be whatever the state wants it to be merely by having the state order that reports of economic reality lie about that reality? All state-imposed price controls – rent control, minimum wages, you name it – are state-dictated lies about reality.

Don Boudreaux, “What if All Reality Were Optional?”, Café Hayek, 2019-09-13.

March 18, 2024

Life among the WEIRD

Filed under: Books, Economics, History — Tags: , , — Nicholas @ 04:00

Rob Henderson reviews The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous by Joseph Henrich:

The word “WEIRD” stands for “Western, Educated, Industrialized, Rich, Democratic.” It is also a convenient way to communicate that people from such societies are psychologically different from most of the rest of the world and from most humans throughout history.

In short, the Western Church (Henrich’s term for the branch of Christianity that rose to power in medieval Europe) enacted a peculiar set of taboos, prohibitions, and prescriptions regarding marriage and family. This dissolved Europe’s kin-based institutions, and gave rise to a more individualistic psychology, which in turn spurred the creation of impersonal markets in which people grew used to interacting with and trusting unrelated strangers, and propelled the development of voluntary institutions, universally applicable laws, and innovation.

Characteristics of WEIRD people

WEIRD people are hyper-individualistic, self-obsessed, nonconformist, analytical, and value consistency. We try to be “ourselves” across social contexts and prize “authenticity”.

The book reviews research indicating that Americans rate those who show behavioral consistency during interactions in different contexts as more “socially skilled” and “likable” compared to those who are more behaviorally flexible. In contrast, non-WEIRD people view personal adjustments as reflecting social awareness and maturity.

In addition to valuing behavioral consistency, WEIRD people are more likely to feel guilt than shame. In contrast, non-WEIRD people are more likely to experience shame as opposed to guilt. Shame is the result of not living up to the expectations of one’s community. Guilt is a private emotion that results from falling short of our own expectations, rather than the community’s.

Relatedly, a recent study found that people can experience shame for being accused of actions they didn’t commit. The accusation alone was enough to elicit this powerful emotion. Shame is a reaction to others believing we did something bad rather than a reaction to actually doing something bad.

Delayed gratification also appears to be more prevalent in WEIRD societies. When researchers offered WEIRD people the choice between a smaller monetary payment up front, or a larger sum later, they tended to choose the larger sum. In contrast, most non-WEIRD people preferred the immediate, smaller, reward.

Interestingly Henrich relays data suggesting that greater patience is most strongly linked to positive economic outcomes in lower-income countries. Put differently, the tendency to defer gratification seems to be especially more important for economic prosperity in countries where formal institutions are less effective. This pattern holds within countries as well, such that patient people obtain higher incomes and more education. Patience is related to success after controlling for IQ and family income, and, even within the same families, more patient siblings obtain more education and higher earnings later in life.

Moreover, WEIRD people are more likely to adhere to rules even in the absence of external sanctions. The book reports that until 2002, U.N. diplomats from other countries were immune from having to pay parking tickets in New York City. Diplomats from the UK, Sweden, Canada, and other countries received a total of zero parking tickets. But diplomats from Bulgaria, Egypt, and Chad, among other non-WEIRD countries accumulated more than 100 tickets per member of their respective delegations. When diplomatic immunity was lifted, parking violations declined, but the gap between countries persisted.

But while they may be patient and rule-following, WEIRD people are more likely to be fair-weather friends. Relative to other populations, WEIRD people assign higher value to impartiality and show less favoritism toward friends, family members, and co-ethnics. We are more likely to abhor nepotism and believe in universally applicable principles.

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