Quotulatiousness

September 29, 2024

Fleeced: Canadians Versus Their Banks by Andrew Spence

Filed under: Books, Business, Cancon, Economics — Tags: , , , — Nicholas @ 05:00

In the latest SHuSH newsletter, Ken Whyte talks about one of Sutherland House’s most recent publications:

I could write about eight versions of this post based on the many revelations in Andrew Spence’s Fleeced: Canadians Versus Their Banks, the latest edition of Sutherland Quarterly, released this week. I’m going to run with the version most relevant to my fellow publishers and small business people in Canada.

Andrew lays out in aggravating detail how Canadian banks, although chartered by the federal government to facilitate economic activity in the broader economy, do all they can to avoid lending to small and medium businesses, never mind that small and medium businesses employ two-thirds of our private-sector labour force and account for half of Canada’s gross domestic product.

By OECD standards, small businesses in Canada are starved of bank credit, and when they are able to secure a loan, they pay through the nose. The spread between interest rates on loans to small businesses and large businesses in Canada is a whopping 2.48 percent, compared to .42 percent in the US—more than five times higher.

Why? Because Canada’s banks are a tight little oligopoly, impervious to meaningful competition. Their cozy situation allows them to be exceedingly greedy. Their profits and returns to shareholders are wildly beyond those of banks in the US and UK (and, as Andrew demonstrates, their returns from their Canadian operations are far in excess of those from the US market, meaning they screw the home market hardest.)

Our banks never miss an opportunity to impose a new fee, or off-load risk. From their perspective, small business involves too much risk — some of them will inevitably fail. The banks prefer that publishers and dry-cleaners and restaurateurs either finance themselves by pledging their homes, or use their credit cards to cover fluctuations in cash flow or make investments that will help them hire, expand, and grow. And that’s what entrepreneurs do. According to a survey by the Canadian Federation of Independent Business, only one in five respondents accessed a bank loan or line of credit. Half of respondents financed themselves, tapped existing equity and personal lines of credit, and about 30 percent used their high-interest credit cards.

(The banks, incidentally, claim they need to keep credit card rates around 20 percent because their clients are high credit risks when their own data shows the risk is minimal. They simply prefer to gouge customers. To a banker, forcing hundreds of thousands of small businesses to use their credit cards to finance their businesses rather than giving them proper small business loans at reasonable rates is great business.)

By severely rationing credit and making it exceedingly expensive, Canada’s banks siphon off an ungodly share of entrepreneurial profit to themselves while leaving the entrepreneur with all the risk. Their insistence on putting their own profits above service to the Canadian economy is one of the main reasons Canada has such a slow-growing, unproductive economy and a stagnant standard of living.

There is much else in this slim volume to make your blood boil: exorbitant fees on chequing and savings accounts; mutual fund expenses that torpedo investments; ridiculous mortgage restrictions, infuriating customer service …

The “Foundations” essay could apply equally to Canada’s doldrums as it does to Britain

Earlier this week, I linked to the “Foundations” essay by Ben Southwood, Samuel Hughes, and Sam Bowman and it struck me that so much of what they discuss about Britain’s stagnation applied at least as well to Canada. In the National Post, John Ivison concurs:

The “Foundations” essay pointed to moribund GDP per capita growth, among other data points, to make the argument that Britain is standing still economically. (Britain’s economy grew 0.7 per cent a year between 2002 and 2022, Canada’s increased 0.6 per cent a year in the same period, while U.S. output swelled 1.16 per cent a year.)

In relative terms, both countries are getting poorer: in 2002, Canada’s GDP per person was 81 per cent of the U.S.; in 2022, it was 72 per cent. The same figures for the U.K. against the U.S. are 78 per cent in 2002 and, 70 per cent in 2022.

The reason for Britain’s stagnation, the authors argue, is that it has effectively banned investment in transportation, energy and housing — “the foundations it needs to grow.”

Sound familiar?

“The most important economic fact about modern Britain is that it is difficult to build almost anything, anywhere. This prevents investment, increases energy costs and makes it harder for productive economic clusters to expand,” the authors write, saying the result is lower productivity, incomes and tax revenues.

They argued that Britain needs a program of reform with the scale and ambition of the liberalization of the 1980s that focused on cutting taxes, curbing union power and privatizing state-run industries.

“This time we must focus on making it easier to invest in homes, labs, railways, roads, bridges, interconnectors and nuclear reactors,” they write.

That’s a difficult proposition for politicians who are able to resist anything except the temptation to use resources for immediate electoral gratification, rather than investing for a time after they have left office.

Both Canada and Britain are laggards when it comes to investment in infrastructure. While China spent more than five per cent of its GDP on roads, bridges and other infrastructure in 2021, Canada invested just 0.5 per cent (down from 1.3 per cent in 2010) and the U.K. 0.9 per cent.

But the lack of dynamism is not simply political expediency. Rather, it is motivated by an indifference, even a hostility, toward building critical infrastructure.

The Foundations report noted that Britain has not built a reservoir for 30 years, yet faces chronic water shortages in the east of England. Its environmental agency has blocked new development on the basis that it could only be supplied with water by draining environmentally valuable chalk streams. The result is that England’s innovation hub, Cambridge, is barred from expanding, which threatens to strangle the country’s life-sciences industry.

Similar impulses are at work in Canada. Federal Environment Minister Steven Guilbeault said in February that Ottawa would stop investing in new road infrastructure — a position he later clarified to say meant the federal government would not fund large projects like a highway tunnel connecting Quebec City and Levis, Que.

That same sentiment is reflected in the federal Liberal government’s Impact Assessment Act, passed in 2019, which slowed the pace and increased the cost of major project approvals.

On the housing front, a generation of activists emerged who were intent on preventing urban sprawl yet were also opposed to building mid-rise buildings of the kind that eased housing pressures in continental Europe. Constraints on approval are a major contributor to the 3.5-million-unit housing gap because supply has not kept pace with demand.

The consequence of Canada’s regulatory sclerosis is what business veteran Paul Deegan and former clerk of the Privy Council Kevin Lynch in an FP Comment article earlier this year referred to as “an insidious stealth tax on Canadian jobs and growth“.

Taking each of the “foundations” in turn, the depth of the problem becomes clearer — but so do the solutions.

This Bridge Should Have Been Closed Years Before It Collapsed

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

Practical Engineering
Published Jun 18, 2024

Why Fern Hollow Bridge collapsed.

This is a crazy case study of how common sense can fall through the cracks of strained budgets and rigid oversight from federal, state, and city staff. And the lessons that came out of it aren’t just relevant to people who work on bridges. It’s a story of how numerous small mistakes by individuals can collectively lead to a tragedy.
(more…)

September 26, 2024

Glimmers of hope for lower taxes on US taxpayers

J.D. Tuccille welcomes the discussion among the Presidential candidates about lowering the taxes Americans have to pay, and points out that the economic distortions of the current tax code (including “temporary” measures introduced during WW2) make everyone less well-off:

Three months after proposing to end federal taxing of tips — an idea promptly confiscated without compensation by Kamala Harris’s campaign — Donald Trump doubled down by saying “we will end all taxes on overtime” if he’s elected president. Without a doubt, millions of Americans who resent government’s ravenous bite out of their paychecks immediately began contemplating just how much of their income they could shield from the tax man that way.

Tips and Overtime for Everybody!

“Can someone get paid in primarily tips and overtime?” quipped the Cato Institute’s Scott Lincicome. “Asking for a few million friends.”

On a more serious note, the Competitive Enterprise Institute’s Sean Higgins thought exempting overtime pay “wouldn’t necessarily be a bad idea … but, overall, it is not likely to make that much of a difference to most workers because overtime isn’t that common”. He’d been more strongly supportive of exempting tips because that “would put more money directly in the pockets of working Americans without either costing employers more or raising prices for customers”. He also liked that freeing tips from taxation would “keep tipping out of the reach of the regulatory state”.

But what if overtime pay becomes more common precisely because it’s not taxed?

The people at the Tax Foundation expect that’s exactly what will happen, just as Lincicome joked. Thinking through the implications of exempting overtime pay from taxation, Garrett Watson and Erica York warned that “exempting overtime pay from income tax would significantly distort labor market decisions. Employees would be encouraged to take more overtime work, and hourly or salaried non-exempt jobs may become more attractive if the benefit is not extended to salaried employees who are exempt from Fair Labor Standards Act (FLSA) overtime rules.”

The Tax Foundation’s Alex Muresianu had a similar reaction to the proposals to exempt tips from taxes from both Trump and Harris. He thinks “the proposal would make more employees and businesses interested in moving from full wages to a tip-based payment approach”. He foresaw “substantial behavioral responses, such as previously untipped occupations introducing tipping”.

Of course, a world in which more Americans receive their pay beyond the reach of the tax man is a welcome prospect to many of us. If politicians want to phase out income taxes, even unintentionally, who are we to complain? Hang on a minute while I set up my virtual tip jar. In fact, there’s precedent for government policy around wages to cause major unintended consequences. Take, for example, employer-provided healthcare coverage.

Government Policy Has Distorted Compensation Before

“One of the most important spurs to growth of employment-based health benefits was — like many other innovations — an unintended outgrowth of actions taken for other reasons during World War II,” according to the 1993 book, Employment and Health Benefits: A Connection at Risk. “In 1943 the War Labor Board, which had one year earlier introduced wage and price controls, ruled that contributions to insurance and pension funds did not count as wages. In a war economy with labor shortages, employer contributions for employee health benefits became a means of maneuvering around wage controls. By the end of the war, health coverage had tripled.”

Given that health benefits became a substitute form of compensation to escape a wage freeze, it’s not difficult to imagine the United States moving toward a situation in which a lot more people receive the bulk of their pay from untaxed tips and overtime pay.

September 24, 2024

British stagnation – “at some point it becomes impossible to grow when investment is banned”

Ed West reviews a new essay by Ben Southwood, Samuel Hughes, and Sam Bowman which tries to identify the underlying reasons for British economic stagnation:

The theme running through the essay is that the British system makes it very hard to invest and extremely expensive and legally difficult to build, making housing and energy costs prohibitive.

While we all know we have fallen in status, “most popular explanations for this are misguided. The Labour manifesto blamed slow British growth on a lack of “strategy” from the Government, by which it means not enough targeted investment winner picking, and too much inequality. Some economists say that the UK’s economic model of private capital ownership is flawed, and that limits on state capital expenditure are the fundamental problem. They also point to more state spending as the solution, but ignore that this investment would face the same barriers and high costs that existing infrastructure projects face, and that deters private investment.”

The problem is that “all of these explanations take the biggest obstacles to growth for granted: at some point it becomes impossible to grow when investment is banned”.

Even before the Russian invasion of Ukraine, the industrial price of energy had tripled in under 20 years. Per capita electricity generation in Britain is only two-thirds that of France, and a third of the US, making us closer to developing countries like Brazil and South Africa than other G7 states. Transport projects are absurdly expensive, mired by planning rules, and all of this helps explain why annual real wages for the median full-time worker are 6.9 per cent lower than in 2008.

In one of the most notorious examples, the authors note that “the planning documentation for the Lower Thames Crossing, a proposed tunnel under the Thames connecting Kent and Essex, runs to 360,000 pages, and the application process alone has cost £297 million. That is more than twice as much as it cost in Norway to actually build the longest road tunnel in the world.”

Britain’s political elites have failed, they argue, because they do not understand the problems, so “they tinker ineffectually, mesmerised by the uncomprehended disaster rising up before them”.

Even “before the pandemic, Americans were 34 percent richer than us in terms of GDP per capita adjusted for purchasing power, and 17 percent more productive per hour … The gap has only widened since then: productivity growth between 2019 and 2023 was 7.6 percent in the United States, and 1.5 percent in Britain … the French and Germans are 15 percent and 18 percent more productive than us respectively.” The gap continues to widen, and on current trends, Poland will be richer than the United Kingdom by the end of the decade.

Britain began to fall behind after the War, but after decades of relative stagnation, its GDP per capita had converged with the US, Germany and France in the 1980s, and our relative wealth peaked in the early Blair years. (Personally, I wonder if one reason for the great Oasis nostalgia is simply that we were rich back then.) If Britain had continued growing in line with its 1979-2008 trends, average income today would be £41,800 instead of £33,500 — a huge difference.

France is the most natural comparison point to Britain, a country “notoriously heavily regulated and dominated by labour unions”. This is sometimes comical to British sensibilities, so that “French workers have been known to strike by kidnapping their chief executives – a practice that the public there reportedly supports – and strikes are so common that French unions have designed special barbecues that fit in tram tracks so they can grill sausages while they march.” Only in France.

It is also heavily taxed, especially in the realm of employment, and yet despite this, French workers are significantly more productive. The reason is that France “does a good job building the things that Britain blocks: housing, infrastructure and energy supply”.

With a slightly smaller population, France has 37 million homes compared to our 30 million. “Those homes are newer, and are more concentrated in the places people want to live: its prosperous cities and holiday regions. The overall geographic extent of Paris’s metropolitan area roughly tripled between 1945 and today, whereas London’s has grown only a few percent.” One quality-of-life indicator is that “800,000 British families have second homes compared to 3.4 million French families“.

They also do transport far better, with 29 tram networks compared to seven in Britain, and six underground metro systems against our three. “Since 1980, France has opened 1,740 miles of high speed rail, compared to just 67 miles in Britain. France has nearly 12,000 kilometres of motorways versus around 4,000 kilometres here … In the last 25 years alone, the French built more miles of motorway than the entire UK motorway network. They are even allowed to drive around 10 miles per hour faster on them.”

September 2, 2024

There’s no limit to how progressive politicians want to control your life

In the National Post a couple of days ago, Carson Jerema provided many examples of how the Canadian federal government — despite failing and fumbling so many of its existing responsibilities — still wants to increase control over the daily lives of Canadians:

After a decade or so, progressives are on the defensive in Canada and elsewhere because regular people, as in those who are not activist weirdos, are tired of the agenda to control every aspect of our lives. Point this out to a progressive, and they will deny that anyone’s life is being interfered with and claim only some far-right monster would think otherwise. They can’t believe there are people out there who share a different view. They don’t understand how this could be.

But progressive governments are trying to control our lives in ways big and small, and in ways that range from subtle to a punch in the face.

In Canada, the federal government’s environmental policies are the most obvious example of this interference. The Liberals have banned plastic straws and plastic bags; even compostable bags are banned in grocery stores because they resemble plastic. Such bans are pointless irritants that make shopping more expensive, and life slightly less enjoyable as paper straws dissolve in one’s drink. People might dismiss these concerns as simply minor inconveniences, but this is how most people experience government policy, by being forced to replace their bag of plastic bags that they were already reusing, with more expensive, less useful options.

Next up, the Liberals are exploring options to bring in environmental regulations for clothing. The cost of clothes has actually gone down in recent years, so leave it to Ottawa to look for ways to bring the cost back up and to limit options.

There is also the plan to essentially force Canadians to purchase electric vehicles, that nobody would otherwise want, through government mandates to phase out the sale of gas-powered cars and trucks.

On a larger scale, the government is attempting to restrict the kind of work people do, specifically work in the oil and gas industry, through steep emissions targets, which will close off lucrative job opportunities in western oilfields. It will also limit the kinds of fuels people will be able to use to heat their homes.

There are also policies that the Canadian government hasn’t implemented, but which green activists have endorsed, such as the banning of gas stoves and the ludicrous suggestion from some academics that “climate lockdowns” be implemented to help cut emissions.

It is possible to be supportive of all these policies, despite their paternalistic and job-killing nature, but pretending that no one is trying to, or that no one wants to, interfere with our liberty is not a credible position to take.

August 19, 2024

If you’ve never worked in the private sector, you have no idea how regulations impact businesses

In the National Post, J.D. Tuccille explain why Democratic candidates like Kamala Harris and Tim Walz who have spent little or no time in the non-government world have such rosy views of the benefits of government control with no concept of the costs such control imposes:

The respective public versus private sector experiences of the 2024 Presidential/Vice Presidential candidates.
New York Times

In broad terms, Democrats have faith in government while the GOP is skeptical — though a lot of Republicans are willing to suspend disbelief when their party controls the executive branch.

The contrast between the two parties can be seen in stark terms in the resumes of the two presidential and vice-presidential tickets. The New York Times made it easier to compare them earlier this month when it ran charts of the career timelines of Trump, J.D. Vance, Kamala Harris and Tim Walz. Their roles at any given age were colour-coded for college, military, private sector, public service or politics, federal government and candidate for federal office.

Peach is the colour used by the Times to indicate employment in the private sector, which produces the opportunities and wealth that are mugged away (taxation is theft by another name, after all) to fund all other sectors. It appears under the headings of “businessman” and “television personality” for Trump and as “lawyer and venture capitalist” for Vance. But private-sector peach appears nowhere in the timelines for Harris and Walz. Besides, perhaps, some odd jobs when they were young, neither of the Democrats has worked in the private sector.

Now, not all private-sector jobs are created equal. Some of the Republican presidential candidate’s ventures, like Trump University, have been highly sketchy, as are some of his practices — he’s openly boasted about donating to politicians to gain favours (though try to do business in New York without greasing palms). I’m not sure I’d want The Apprentice on my resume. But there must be some value to working on the receiving end of the various regulations and taxes government officials foist on society rather than spending one’s career brainstorming more rules without ever suffering the consequences.

In 1992, former U.S. senator and 1972 Democratic presidential candidate George McGovern penned a column for the Wall Street Journal about the challenges he encountered investing in a hotel after many years in government.

“In retrospect, I … wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day,” he wrote. He bemoaned “federal, state and local rules” passed with seemingly good intentions but little thought to the burdens and costs they imposed.

The lack of private sector stints in the career timelines of Harris and Walz means that, like pre-hotel McGovern, they’ve never had to worry about what it’s like to suffer the policies of a large and intrusive government.

That said, it’s possible to overstate the lessons learned by Republicans and Democrats from their different experiences. Vance, despite having worked to fund and launch businesses, has, since being elected to the U.S. Senate, advocated capturing the regulatory state and repurposing it for political uses, including punishing enemies.

Not only does power corrupt, but it does so quickly.

August 6, 2024

The CrowdStrike outage and regulatory capture

Filed under: Business, Technology, USA — Tags: , , , , , , — Nicholas @ 03:00

Peter Jacobsen discusses the July technical and financial fiasco as a faulty software patch from CrowdStrike took down huge segments of the online economy and how regulatory capture may explain why the outage was so widespread:

“CrowdStrike outage at Woolworths in Palmerston North” by Kiwi128 is marked with CC0 1.0 .

On July 19th, something peculiar struck workers and consumers around the world. A global computer outage brought many industries to a sudden halt. Employees at airports, financial institutions, and other businesses showed up to work only to find that they had no access to company systems. The fallout of the outage was huge. Experts estimate that it totaled businesses $5 billion in direct costs.

The company responsible, CrowdStrike, was also severely impacted. Shareholders lost about $25 billion in value, and some are suing the company. The outage has led to expectations of, and calls for, stricter regulations in the industry.

But how did the blunder of one company lead to such a massive outage? It turns out that the supposed solution of “regulation” may have been one of the primary culprits.

Regulatory Compliance

CrowdStrike, ironically, is a cybersecurity firm. In theory, they protect business networks and provide “cloud security” for online cloud computing systems.

Cloud security, in and of itself, is likely a service that businesses would demand on the market, but the benefit of increased security isn’t the only reason that businesses go to CrowdStrike. On their own website, the company boasts about one of its most important features: regulatory compliance.

[…]

When experts who have relationships with companies are called in to help write regulations, they may do so in a way favorable to industry insiders rather than outsiders. Thus, regulation is “captured” by the subjects of regulation.

We can’t say with certainty that this particular outage is the result of an intentional regulatory capture by CrowdStrike, but it seems clear that CrowdStrike’s dominance is, at least in part, a result of the regulatory environment, and, like most large tech companies, they’re not afraid to spend money lobbying.

In any case, without cumbersome regulations, it’s unlikely that cybersecurity would take on such a centralized form. Despite this, as is often the case, issues caused by regulation often lead to more calls for regulation. As economist Ludwig von Mises pointed out:

    Popular opinion ascribes all these evils to the capitalistic system. As a remedy for the undesirable effects of interventionism they ask for still more interventionism. They blame capitalism for the effects of the actions of governments which pursue an anti-capitalistic policy.

So despite the reflexive call for regulation that happens after any disaster, perhaps the best way to avoid problems like this would be to argue that in terms of regulation, less is more.

August 4, 2024

The rise and (rapid) fall of the Levittown model

Filed under: Business, History, USA — Tags: , , , , — Nicholas @ 05:00

Virginia Postrel linked to this interesting post at Construction Physics which traces the brief heyday of William Levitt’s “Levittown” model for mass-producing modern housing:

Prefabbed components and appliances for a Levittown home.
Image from Construction Physics.

For decades, people have tried to bring mass production methods to housing: to build houses the way we build cars. While no one has succeeded, arguably the man that came closest to becoming “the Henry Ford of homebuilding” was William Levitt, with his company Levitt and Sons. Levitt is most famous for building “Levittowns”, developments of thousands of homes built rapidly in the 1940s, ’50s, and ’60s. By optimizing the construction process with improvements like standardized products and reverse assembly line techniques, Levitt and Sons was able to complete dozens of homes a day at what it claimed was a far lower cost than its competitors. William Levitt styled his company as the General Motors of housing, and both he and it became famous. Levitt graced the cover of Time magazine in 1950, and Levittowns became a household name.

For a time, it appeared that Levitt might actually sweep away the old way of building and become the Henry Ford of housing through modern mass production techniques. Levitt boasted that he could build more cheaply than anyone else, and for decades Levitt and Sons was the largest homebuilder in the U.S., and probably the world.1 But Levitt’s success unraveled. By the late 1970s, Levitt and Sons had barely escaped bankruptcy, and it emerged as a small, conventional homebuilder, which it would remain until it went out of business for good in 2018. Levitt himself would leave Levitt and Sons in the early 1970s, lose his fortune after a series of failed development projects in the U.S. and abroad, and die penniless in 1994.

Levitt’s model of large-scale, efficient homebuilding using mass production-style methods worked for a brief window in the 1950s, but by the end of the 1960s a changing housing market and increasingly strict land use controls meant that such methods were no longer feasible. And even at its peak, Levitt likely pushed large-scale building beyond what could be justified on pure economic terms. Levittown was ultimately a response to a temporary set of housing market conditions, not the herald of a new, better way of building.

[…]

First Levitt homes at Levittown.
Image from Construction Physics.

At Levittown, the construction process was broken down into 26 separate steps, each performed by a separate crew. Crews would go to a house, perform their required task (using material that had been pre-delivered), then move on to the next house. Within the crew, work was further specialized: on the washing machine installation crew, William Levitt noted that “one man did nothing but fix bolts into the floor, another followed to attach the machine”, and so on. By breaking down the process into repetitive, well-defined steps, workers didn’t have to spend time figuring out what they should do (what Levitt described as “fumbling and figuring”).

In addition to task and product standardization, Levitt and Sons took advantage of machines and mechanization wherever possible. It had its own cement trucks, and operated its own foundation-digging machinery and cinder block-making machinery. Levitt and Sons was an early user of power tools like paint sprayers, power saws, routers, and nailers. The company also made extensive use of what at the time were relatively novel factory-produced materials, like plywood and drywall.

Like any mass production process, the ultimate enemy of building Levittown was delay: keeping construction on track meant a steady, uninterrupted stream of material that arrived at the jobsite exactly when needed. On a typical construction site, as much as half the time was wasted while workers wandered around looking for needed material. In Levitt’s operation, wasted time was close to zero. To ensure timely material deliveries (and to cut out middlemen), Levitt and Sons had its own distribution company, the North Shore Supply Company, which stretched for half a mile along a railroad stop near the jobsite. To avoid delays, North Shore Supply kept a sufficient supply of material on-hand to build 75 houses, and pre-assembled items like plumbing trees, stairs, and cabinets. North Shore was also where lumber was pre-cut to the correct size. By using standardized designs, planned work sequences, and carefully controlled precutting, Levitt and Sons was able to almost entirely eliminate rework during the construction process.

But assuring an uninterrupted flow of material required far more than just owning a distribution company. William Levitt described some of the extreme measures the company went to avoid delays or slowdowns:

    We wouldn’t let ourselves be stopped by shortages. When cement was unavailable in this country we chartered a boat and brought it in from Europe. When lumber was in short supply, we bought a forest in California and built a mill. When nails were hard to come by, we set up a factory in our backyard and made them ourselves.

At its peak Levitt and Sons was completing 36 homes in Levittown a day. And the huge backlog of demand meant that housing was sold quickly. Months before the first Levittown homes were completed, families stood in line for the opportunity to rent one (roughly the first 2,000 Levittown homes were built as rentals). On a single day in 1949, Levitt and Sons sold 1400 homes, some to families who had been waiting in line for days. At $7,990 for a 800 square foot home, Levitt boasted that he could sell his houses for $1,500 less than the competition and still make $1,000 in profit.2

[…]

William Levitt tried harder than anyone else to make housing mass producing happen, and for a brief moment it looked like he might succeed. But Levitt’s dreams were predicated on a particular set of housing market conditions — a huge backlog of demand, relatively few competitors, compliant building jurisdictions and little public opposition — that quickly dissipated. In The Merchant Builders, Ned Eichler notes that as early as the mid-1950s, the Levitt model of a single, enormous project built rapidly with mass production-style methods no longer made sense. Says Eichler, “There simply was no market in which an appropriate site could be bought cheaply enough or in which demand was great enough to sustain such a pace”. Many of Levitt’s innovations — slabs instead of basements, power tools, drywall and plywood — did not require large volume production, and were adopted by other, smaller builders (and have since become standard). The enormous increase in land use controls starting in the late 1960s only further inhibited the sort of large-scale developments that Levitt favored.


    1. Levitt and Sons was at least the largest in the U.S. in 1950, and was in 1968 when it was acquired by ITT, and probably for some years after that.

    2. The first Levittown demonstration homes were sold for $6,990.

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 2, 2024

The Chevron decision

Filed under: Bureaucracy, Business, Law, Politics, USA — Tags: , , , — Nicholas @ 03:00

On his substack, Glenn “Instapundit” Reynolds discusses the recent US Supreme Court decision on “Chevron deference” and how it is going to impact the administrative state (and their business victims) going forward:

Goodbye, Chevron deference. Larry Tribe is already mourning the Supreme Court’s overturning of NRDC v. Chevron, in the Loper Bright and Relentless cases, as a national catastrophe:

Oh, the humanity!

Well, speaking as a professor of Administrative Law, I think I’ll bear up just fine. I’ve spent the last several years telling my students that Chevron was likely to be reversed soon, and I’m capable of revising my syllabus without too much trauma. It’s on a word processor, you know. As for those academics who have built their careers around the intricacies of Chevron deference, well, now they’ll be able to write about what comes next. And if they’re not up to that task, then it was a bad idea to build a career around a single Supreme Court doctrine.

And that wasn’t the only important Supreme Court decision targeting the administrative state, a situation that has pundit Norm Ornstein, predictable voice of the ruling class’s least thoughtful and most reflexive cohort, making Larry Tribe sound calm.

Sure, Norm, whatever you say.

But how about let’s look at what the Court actually did in Chevron, and in the Loper Bright and Relentless cases that overturned it, and in SEC v Jarkesy, where the Court held that agencies can’t replace trial by jury with their own administrative procedures, and in Garland. v. Cargill, where the Court held that agencies can’t rewrite statutes via their own regulations. I don’t think you’ll find the sort of Russian style power grab that Ornstein describes, but rather a return to constitutional government of the sort that he ought to favor.

At root, Chevron v. Natural Resources Defense Council is about deference. Deference is a partial abdication of decisionmaking in favor of someone else. So, for example, when we go out to dinner, I often order what my son-in-law orders, even if something else on the menu sounds appealing. I’ve learned that somehow he always seems to pick the best thing.

Deference doesn’t mean “I’ve heard your argument and I’m persuaded by it”, (though something like that is misleadingly called “Skidmore deference”, but isn’t actually deference at all). Deference means “even if I would have decided this question differently, I’m going to go with your judgment instead”.

Under Chevron deference, when an agency interprets a statute it administers (e.g., the EPA and the Clean Air Act), a court will uphold its interpretation so long as it is (generously assessed) a reasonable one, even if it is not the interpretation the court would have come up with on its own. As you might imagine, this, at least potentially, gives agencies a lot more leeway, particularly when, as is often the case, Congress has drafted the statute ambiguously.

With Chevron overturned, courts will now apply their own judgment instead of deferring to agencies. Of course, this isn’t as big a deal as Larry and Norm seem to think, because Chevron has been dying the death of a thousand cuts for a while. Under the “major questions doctrine”, courts already decline to defer to agency interpretations where the issue has major social or economic ramifications.

June 29, 2024

Oh no! The filthy proles are getting too many calories! Let’s re-impose rationing!

Tim Worstall suggests that the regular “viewing with alarm” thumbsuckers about purchased meals having “too many calories” are actually an indication of a strong desire by the great and the good to stick their regulatory noses into the lives of ordinary people:

“Indian take away in Farrer Park” by Kai Hendry is licensed under CC BY 2.0 .

This headline is, of course, wrong.

    Some takeaway meals contain more calories than daily limit, UK study finds

There is no daily limit. We do not have laws stating how much food we are allowed to eat. Of course, there are those who want there to be such laws but there aren’t, as yet. What there is is a series of recommendations about the limits we should impose upon ourselves:

    Some takeaway meals contain more calories in one sitting than someone is advised to consume in an entire day, a study of British eating habits has revealed.

That’s better.

    Cafes, fast-food outlets, restaurants, bakeries, pubs and supermarkets are fuelling the UK’s obesity crisis because so many meals they sell contain dangerously large numbers of calories, it found.

That’s not better. Because a plate of food containing a lot of calories is not a danger. Eating many of them might be but that the average household can get a gutbuster for some trivial portion of household earnings is a glory of modern civilisation, the very proof we require that we’re all as rich as Croesus.

And this is actually true too. That we are gloriously rich and it’s our food supply that proves this. As Brad Delong likes to point out back 200 years (yes, about right, 1820s is as it was really changing but 300 years would be better) it took a full day’s work to be able to gain 2,000 calories a day for a day labourer. There are 800 million out there still living at that standard of living. We can buy 2,000 calories — if we go boring stodge — for 30 minutes work now.

By history and by certain geographies we are foully rich these days. Which is the complaint of the wowsers of course. They’re a revival of the puritans and their sumptuary laws. How dare it be true that people fill their bellies with food they actually like?

    Six out of 10 takeaway meals contain more than the 600-calorie maximum that the government recommends people should stick to for lunch and dinner in order to not gain weight, according to the research, which was carried out by the social innovation agency Nesta.

    One in three contain at least 1,200 calories – double the recommended limit.

And? So, folk can buy lots of food for not much money. This is the very thing that makes having a civilisation possible — cheap food. My wife and I do indeed partake of an Indian occasionally — and find the takeout portions rather large. So, we have one amount for lunch or dinner and we’ve a refrigerator in which to keep the excess for a supper or snack another day. This is not beyond the wit of man to organise.

We don’t order in food very often, but when we do we usually manage to get both dinner on the night and lunch on the morrow from a typical order. If the nosey parkers have their way, they’d limit what we were allowed to buy — for our own good, of course — so we’d almost certainly still pay the same amount for less food. Such a deal!

June 27, 2024

The Toronto Star wants Ontario to adopt Scottish booze regulation (but ignore the failure)

Filed under: Britain, Cancon, Government, Law, Liberty, Media, Politics, Wine — Tags: , , , , , — Nicholas @ 05:00

The Toronto Star always loves a good moral crusade, and if it also happens to fly in the face of whatever Premier Ford wants to do, then so much the better:

The Toronto Star is looking to Scotland to teach it how to reduce alcohol-related deaths. In an article titled “How Scotland started to kick its alcohol problem — and what Ontario could learn from it“, it pushes back on plans to liberalise Ontario’s state monopoly on alcohol retail, saying:

    Ontario officials say they are fulfilling a 2018 election promise to increase “choice and convenience for shoppers and support Ontario retailers, domestic producers and workers in the alcohol industry”.

    But Scotland has cut alcohol-related hospital admissions by 40 per cent and deaths by almost half. While in Ontario, alcohol-related admissions have risen by a third and deaths by almost half, according to the Canadian Centre on Substance Use and Addiction.

How did Scotland supposedly achieve this public health miracle?

    The key part of Scotland’s landmark policy was aimed at reducing drinking by introducing minimum unit prices to make drinking more expensive.,/p>

Ontario already has minimum pricing and Scotland doesn’t have a state alcohol monopoly, so it is not obvious what lessons Ontarians are supposed to be learning, but put that to one side for a moment and consider the main claim.

Anyone who has been following events in Scotland knows that alcohol-specific deaths have risen since minimum pricing was introduced in 2018 and have generally risen since 2012 following a significant downturn in the years prior.

It is that drop between 2006 and 2012 that the Toronto Star must be referring to when it claims that deaths fell by “almost half” (actually a third). But the Scottish government didn’t pass any anti-alcohol legislation in those six years and it certainly didn’t have minimum pricing. The newspaper mentions that the drink-drive limit was cut, but that didn’t happen until 2014 and the evidence is clear that it had no effect on road accidents.

Since the Toronto Star doesn’t mention when the decline in alcohol-specific deaths took place, it is leading its readers to believe that it coincided with the introduction of minimum pricing and the lowering of the drink-drive limit. I call that lying.

It is strangely fitting that Canadians are being lied to about the “success” of Scotland’s alcohol strategy since the Scottish public were conned into accepting minimum pricing, in part, on the basis of lies told about the “success” of minimum pricing in Canada. The neo-temperance academic Tim Stockwell, who is quoted in the Star article, published a series of studies in the 2010s making some absurd claims about minimum pricing that were parroted by campaigners in the UK.

June 23, 2024

The amazing range of things Britain’s Ofcom gets its tentacles into

Earlier this week, Mark Steyn discussed the British government’s Office of Communications (Ofcom) and the way it rigs regulates who can say what during British election campaigns:

Why do I think the UK state censor Ofcom should be put out of business? Because there are very few areas of British life that this strange, secretive body does not “regulate”. Take, for example, this current UK election campaign, which the media are keen to keep as a torpid Potemkin struggle between TweedleLeft and TweedleRight. So, on Thursday night, BBC bigshot Fiona Bruce will host a debate between the four party leaders – that’s to say, the head honchos of the Conservatives, Labour, the Liberal Democrats and the Greens.

Wait a minute: what about Nigel Farage, leader of the Reform party? Since the beginning of the year, Reform has been third-placed in the polls, ahead of the LibDems and Greens, and last week they rose to second place ahead of the unlovely Tories.

So why wouldn’t the second-place party get a spot in the leaders’ telly debate?

Ah, well, you’re looking at it all wrong, you hick. Here’s how the Beeb explain it:

    The Ofcom guidance gives “greater weight on the actual performance of a political party in elections over opinion poll data” taking into account the “greater uncertainty associated with support in opinion polls”.

The “actual performance of a political party” refers to their results in the two previous elections — 2019 and 2015 — when Reform didn’t exist. A lot of other things didn’t exist in 2015: Brexit, Covid, lockdown, the Ukraine war, legions of vaccine victims, the massed ranks of Albanian males occupying English country-house hotels …

But, per “Ofcom guidance”, Campaign 2024 has to be conducted on the basis of how things stood a decade ago.
You know who would also be ineligible to participate under Ofcom’s rules? Everyone’s favourite Lana Turner sweater-girl in Kiev, Volodymyr Zelenskyyyyy. He only formed his Servant of the People party in late 2017, so no election debates for you, sweater-girl. And don’t try blaming it on Putin, because it’s “Ofcom guidance” so we all know it’s on the up-and-up.

Because, as their barrister assured the High Court, Ofcom are “expert regulators”. Lord Grade and Dame Melanie Dawes probably did a module in regulation at Rotherham Polytechnic or whatever.

I can see why the likes of Naomi Wolf’s creepy stalker-boy Matthew Sweet like this system: it’s a club and they get to decide who’s admitted. It’s less obvious why the generality of the citizenry put up with it. At any rate, get set for another thrilling BBC election debate in which all four “opponents” agree on Covid, climate, Ukraine, the joys of mass Muslim immigration and the inviolability of the NHS … but ever more furiously denounce each other for not tossing enough money that doesn’t exist into the sinkhole.

Don’t get me wrong, I quite like that pixie Green leader who describes herself as a “pansexual vegan”, and I certainly don’t have the personal baggage with her that I have with Nige. But under what rational conception of media “regulation” does the six per cent basement-dweller get guaranteed a seat at the table but not Reform?

And you wonder why nothing changes?

June 15, 2024

W.H.O. the hell do they think they are?

Christopher Snowden on what he calls a “new low” for the World Health Organization (WHO) in a report issued earlier this week that sounds like Karl Marx was one of the writers:

The WHO European Region published a new report today, written mostly by British ‘public health’ academics. It is quite revealing. For example …

    This requires, at a minimum, that governments recognize that the primary interest of all major corporations is profit and, hence, regardless of the product they sell, their interests do not align with either public health or the broader public interest. Any policy that could impact their sales and profits is therefore a threat, and they should play no role in the development of that policy. Similarly, governments must also recognize the now overwhelming evidence (see also chapters 4, 6 and 7) that HHIs [“health-harming industries”] engage in the same political and scientific practices as tobacco companies and that voluntary or multistakeholder partnership approaches do not work where conflicts of interest exist. Instead, they must regulate other HHIs [“health-harming industries”], their products and practices, as they do tobacco.

That’s just one paragraph, but there’s a lot it in.

Firstly, they are clearly not just opposed to “health-harming industries” but to private industry and the free market in general.

Secondly, they want to exclude all industries from the policy-making process, as already happens with the tobacco industry.

Thirdly, they want to regulate all “health-harming industries” in the same way as they regulate tobacco. These industries include alcohol, food and fossil fuels, but the report also mentions pharmaceuticals, infant formula, gambling, firearms, healthcare (!) and sugary drinks. As the quote above makes clear, they think that all private industry damages health in some way.

This is all there in black and white and there is much more of the same in the report. This is not scaremongering or the slippery slope fallacy. It is in an official WHO document.

When people show you who they are, believe them.

I have written about this for The Critic

    If this sounds to you like Bolshie talk, you might be onto something. It is further confirmation that the modern “public health” movement is an arm of the hard left presented as an arm of medicine. It would be tempting to tell the authors to stay in their lane, but anti-capitalist nanny statism is their lane. For over a decade, such academics, mostly from Britain and Australia, have been pumping out studies about the “commercial determinants of health” and the “corporate political activity” of “unhealthy commodity industries”. The new WHO report is a sort of greatest hits collection. Last year they published a whole series of articles in the Lancet in which they claimed that there is “growing evidence that neoliberalism has been damaging to health” and called for “a normative shift away from harmful consumptogenic systems”.

    Half-baked Marxist rhetoric has been rife in the social sciences for decades, but these people have a vaguely coherent point to make and are pursuing a serious, if terrifying, agenda. Since they do not believe in human agency, they assume that people only make “unhealthy choices”, such as eating processed ham, because the system that controls them has been rigged by big corporations. They say in today’s report that “consumers do not have capacity (time or resources) to make the ‘right’ choice”. Fortunately, public health academics know what the right choice is and could impose it on a grateful population if it were not for the pesky free market. Hence their rage against capitalism, which extends to suspicion of intellectual property, international trade, share buybacks, impact assessments (because they allow businesses to engage with policy-makers) and even the EU single market.

Further to what I say in the article, I’d add that it is to the UK’s shame that so many of the authors of this report are British. They include quackademics that I have been making fun of for years, such as Anna Gilmore, Mark Petticrew and May van Schalkwyk. Between them, they constitute a small clique of talentless, fanatics and/or grifting social scientists who have constructed a world of unreality for themselves by publishing endless low quality journal articles which they and their colleagues then reference and self-reference. It is profoundly depressing that they are now dangling the corpse of the WHO — which was once a great institution — on pieces of string.

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