Friday, May 27, 2016

Before capitalism...

Yep:

Do we take free(ish) markets for granted?

Judging by the popularity of certain politicians, the answer is yes. But in places where they can't take them for granted, markets are overwhelmingly popular (WP via Cato):

Another Pew poll found that 95 percent of Vietnamese felt that people were better off in a free-market economy
Another irony is that while supporters of a certain politician have been touting "democratic socialism", claiming that this imaginary breed of socialism isn't the 'government ownership of the means of production', in practice, their vision of the world is more accurately described as "democratic fascism" (Thomas Sowell) - "government control of the economy, while leaving ownership in private hands". I'm guessing that doesn't quite have the same marketing ring to it. On a hopeful note though, from the original WP article:
Millennials tend to reject the actual definition of socialism — government ownership of the means of production, or government running businesses. Only 32 percent of millennials favor “an economy managed by the government,” while, similar to older generations, 64 percent prefer a free-market economy.
More: Tweet from Garry Kasparov:

Thursday, May 26, 2016

Why are [Americans] so rich?

Because "ordinary" people are allowed to pursue their dreams to get rich. For some perspective when you read the news (WSJ):

An American earns, on average, $130 a day, which puts the U.S. in the highest rank of the league table. China sits at $20 a day (in real, purchasing-power adjusted income) and India at $10, even after their emergence in recent decades from a crippling socialism of $1 a day. After a few more generations of economic betterment, tested in trade, they will be rich, too.

Actually, the “we” of comparative enrichment includes most countries nowadays, with sad exceptions. Two centuries ago, the average world income per human (in present-day prices) was about $3 a day. It had been so since we lived in caves. Now it is $33 a day—which is Brazil’s current level and the level of the U.S. in 1940. Over the past 200 years, the average real income per person—including even such present-day tragedies as Chad and North Korea—has grown by a factor of 10. It is stunning. In countries that adopted trade and economic betterment wholeheartedly, like Japan, Sweden and the U.S., it is more like a factor of 30—even more stunning. And these figures don’t take into account the radical improvement since 1800 in commonly available goods and services.

[...]Once we had the ideas for railroads or air conditioning or the modern research university, getting the wherewithal to do them was comparatively simple, because they were so obviously profitable.

If capital accumulation or the rule of law had been sufficient, the Great Enrichment would have happened in Mesopotamia in 2000 B.C., or Rome in A.D. 100 or Baghdad in 800. Until 1500, and in many ways until 1700, China was the most technologically advanced country. Hundreds of years before the West, the Chinese invented locks on canals to float up and down hills, and the canals themselves were much longer than any in Europe. China’s free-trade area and its rule of law were vastly more extensive than in Europe’s quarrelsome fragments, divided by tariffs and tyrannies. Yet it was not in China but in northwestern Europe that the Industrial Revolution and then the more consequential Great Enrichment first happened.
Read the whole thing.

Thursday, May 19, 2016

The crazy potential of the Hyperloop

While most people are excited about travelling in the Hyperloop, it would be logistics and freight that pave the way for people travel that would come later (TechnologyReview):

[T]he upfront installation costs will be outrageously expensive, even compared with rail, and especially compared with Internet infrastructure, despite Hyperloop Tech’s favored analogy. “Laying optic fiber is not really pricey,” says Genevieve Giuliano, a transportation professor at the University of Southern California. “Laying Hyperloop tube is going to be pricey.” But she and the other economists and transportation experts I spoke to perked up when I explained Hyperloop Tech’s interest in freight. “The concept is right,” says Giuliano. Freight rail in the U.S. is already quite profitable and efficient (Warren Buffett invests heavily in it). But a high-speed freight backbone—broadband for goods—linking major population centers could make economic sense, she says.

Saturday, May 14, 2016

How markets and competition - not unions - created better working conditions and higher wages

The ideas of weekends, 8 hour work days, a "living wage" and 5 day, 40 hour work weeks are ones we have Henry Ford to thank (in order to compete for the best workers at the time) - not unions.

Personally, I've always been a big believer in free association and have no issues with the formation of unions. I question though the monopoly they generally demand and wonder if they are an anachronism today. But maybe they always were (theFederalistPapers):

On this day in 1926, Ford Motor Company becomes one of the first companies in America to adopt a five-day, 40-hour week for workers in its automotive factories. The policy would be extended to Ford’s office workers the following August.Henry Ford’s Detroit-based automobile company had broken ground in its labor policies before.

In early 1914, against a backdrop of widespread unemployment and increasing labor unrest, Ford announced that it would pay its male factory workers a minimum wage of $5 per eight-hour day, upped from a previous rate of $2.34 for nine hours (the policy was adopted for female workers in 1916).

The news shocked many in the industry–at the time, $5 per day was nearly double what the average auto worker made–but turned out to be a stroke of brilliance, immediately boosting productivity along the assembly line and building a sense of company loyalty and pride among Ford’s workers.

The decision to reduce the workweek from six to five days had originally been made in 1922. According to an article published in The New York Times that March, Edsel Ford, Henry’s son and the company’s president, explained that “Every man needs more than one day a week for rest and recreation….The Ford Company always has sought to promote [an] ideal home life for its employees.

Is "organic" agriculture just a big lie?

Apparently new studies suggest that organic food, doesn't taste better, is a lot more expensive and can actually harm the environment (Delish). Apparently organic produce isn't even safer (2011) - and with the public recent recalls/"issues" with Chipotle and Costco, one wonders if it's used as an excuse to cut corners in food safety/prep? More from Forbes (2015). Personally, organic doesn't generally sway me at the counter - I usually go for cheap.

The limitations of economic models

From the host of EconTalk (WSJ):

The models have been run and the numbers crunched: Bernie Sanders’s presidential platform, if enacted, would create 26 million jobs and 5.3% growth. An economist has done the calculating, and there’s no use arguing with mathematics. CNN’s headline reads: “Under Sanders, income and jobs would soar, economist says.”

When I run that line by Russ Roberts, he replies with a joke: “How do you know macroeconomists have a sense of humor? They use decimal points.”

Tuesday, May 03, 2016

Would you trade $1 billion for having to live 100 years ago?

The choice isn't nearly as easy as you might think. Economist Don Boudreaux's answer (CafeHayek via HumanProgress):

Honestly, I wouldn’t be remotely tempted to quit the 2016 me so that I could be a one-billion-dollar-richer me in 1916. This fact means that, by 1916 standards, I am today more than a billionaire. It means, at least given my preferences, I am today materially richer than was John D. Rockefeller in 1916. And if, as I think is true, my preferences here are not unusual, then nearly every middle-class American today is richer than was America’s richest man a mere 100 years ago.

Sunday, May 01, 2016

Economic illiteracy on parade

True - but is it really any worse than usual? (IBD)

The problem is that leaders in neither party have done an effective job of educating the public on the truth, since there’s more political mileage to be gained by bashing trade, bashing “big banks,” bashing Wall Street, and bashing “greed” than there is explaining the benefits of a free market.

The free market principles that created the nation’s unprecedented prosperity won’t last long if no one is willing to defend them.

Smashing a few tax myths

A much needed reminder of tax myths some people cling to (Cato):

A stubborn myth of the pro-tax left (exemplified by Bernie Sanders) is that the Reagan tax cuts merely benefitted the rich (aka Top 1%), so it would be both harmless and fair to roll back the top tax rates to 70% or 91%.

Nothing could be further from the truth. Between the cyclical peaks of 1979 and 2007, average individual income tax rates fell most dramatically for the bottom 80% of taxpayers, with the bottom 40 percent receiving more in refundable tax credits than paid in taxes. By 2008 (with the 2003 tax cuts in place), the OECD found the U.S. had the most progressive tax system among OECD countries while taxes in Sweden and France were among the least progressive.
Read the whole thing.

Friday, April 29, 2016

Quote of the Day

My favorite quote of the moment - both for its timelessness and insight from CS Lewis:

Of all the tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under the omnipotent moral busybodies. The robber barons cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

Thursday, April 21, 2016

Do "Buy America" policies really help Americans?

No (Reason.com):

Lindell's Buy-American policy raises other questions. Are American parts more expensive than foreign parts? If so, does he try to pass the higher costs to his customers? If so, he makes it harder for poorer Americans to buy his pillows. A higher price also puts his product—and therefore his company and employees—at a disadvantage in the marketplace. Does he think American consumers care where products are made? Whatever they may tell pollsters, what Americans really care about—judging by their actions—is the combination of price and quality. Let Lindell advertise: "Every part of my product is made in the USA—so we charge you more than our competitors do." The response would be informative.

However, maybe he doesn't pass along the extra cost. Maybe he accepts lower profits. If so, how does he improve his factory, increase employee productivity, and pay competitive wages? If his profit is lower, he also has less money to spend on other American and foreign products and less to invest.

Again, my point is not to criticize Lindell. It's to show that he's not helping America as a whole.

Wednesday, April 20, 2016

Even the poorest countries are getting wealthier, so it's time to redefine poverty?

That's the argument Bill Gates makes (WSJ):

Today, more than 70% of the world’s poorest people—those living on less than $1.90 per day—live in countries defined as middle income, according to the World Bank. Once countries cross the threshold from low-income to middle-income status, the grants and below-market loans that have helped them rise often come to an end. Countries with huge pockets of poverty like Nigeria, India, Pakistan, Ghana and Vietnam could lose as much as 40% of their development assistance in the next few years, a study sponsored by our foundation found.

For example, the average income in Nigeria is nearly twice what it is for sub-Saharan Africa as a whole. Yet, more than half of Nigerians still live in extreme poverty. And although Nigeria has a higher average income than countries like Ghana and Vietnam, World Bank data indicate it ranks lower across a range of human development indicators such as life expectancy, literacy, and maternal and child mortality.
Isn't that the point that aid is meant, not as a crutch, but as a path to sustainable development? Further, how much of the improvement in the condition of these poorest countries are the result of aid? Shouldn't that be the argument made? And why isn't it?

Sunday, April 17, 2016

What passes as a successful government intervention...

Marc Levinson critiques "The Smartest Places on Earth" (Amazon) at the WSJ:

Albany is now a hub of nanoscale science. But getting it off the ground was expensive: Every job created cost taxpayers nearly $1 million. [...] The authors seem unworried by the possibility that some brainbelts may prove as ineffectual as Massachusetts’ centers of excellence. Rather blithely, with no evidence whatsoever, they assert that “there are far more examples of successful government participation in helping innovation than there are of misfires.” That confidence is not reassuring to anyone who wonders whether the $1.2 billion of public funds used to build a semiconductor plant was well spent.

Wednesday, April 13, 2016

Remembering Massachusett's Barbara Anderson

Reason has a write up on a remarkable woman who was at the forefront of reforming Taxachusetts with lessons for us all:

How did Anderson achieve her remarkable success?

Particularly refreshing in the context of the current presidential campaign is that she did it with civility. A leftist activist and radio host, Jim Braude, told the Eagle-Tribune that the two traveled the state together debating tax policy. "People find this hard to believe but we drove to every debate together," he told the paper.

She was nonpartisan. The Eagle-Tribune reports that while she "generally espoused libertarian to conservative political views," she "was not a member of any political party." That's an increasingly popular stance, and, again, in the context of the current presidential race, some might find it understandable.

She was a bottom-up person, not a top-down person. "Everything starts at the grass roots level,'' she told The New York Times for a 1985 article. "None of the important issues start at the government level."

She was not an "expert." Anderson's success disproves the idea that you need a Nobel prize or a Ph.D. in economics from some fancy university to influence the tax policy debate. Governor Weld was inducted into Phi Beta Kappa at Harvard as a junior. Governor Romney has both a J.D. and an M.B.A. from Harvard. Anderson dropped out of Penn State. Before joining Citizens for Limited Taxation part-time, she had been, by the Globe's account, working as a swim teacher and lifeguard at a YMCA.

Finally, as skeptical of big government as Anderson was, she was never cynical about the people that really matter most in a democracy—the voters and the citizen-activists. Rather than shrugging and complaining about high taxes or mediocre politicians or grinning and bearing it, she actually tried to do something to improve things, getting people to join her organization, sign petitions for ballot questions, and turn out to vote.

How Germany reformed its labor markets

It's relative but the change Germany has undergone is remarkable (CityJournal):

Prompted by Hartz’s analysis and a clear record of economic failure, Germany’s socialist government asked him to lead the newly formed Commission for Modern Labor Market Services.

At some political risk, the government quickly adopted the group’s recommended pro-market reforms. To give firms more flexibility, Germany slashed labor regulations, making it easier to fire and lay off workers—and far less risky to hire new ones. Allowing labor contracts to settle on a firm-by-firm basis, rather than insisting on a national settlement, the government empowered individual firms to adjust to changing economic conditions. Another reform gave management more freedom to hire temporary workers and write fixed-term contracts with individuals, introducing flexibility into management decision-making and further reducing the risks of hiring.

The Hartz reforms set quantitative goals for placing the unemployed in jobs and authorized unemployment offices to serve as temporary work agencies. As a further spur to job placements, the new system encourages unemployment offices to use private-placement services, which job-seekers pay for using government-issued vouchers. Perhaps most significantly, the reforms ended the old system’s no-questions-asked benefit system. The new system focuses on what reformers call “rights and duties.” The unemployed can collect full benefits for six to 12 months, but after that, the able-bodied are obliged to enroll in training programs and take any “suitable work” offered. Failure to comply could cost them all or some of their benefits. Disabled and older workers can get stipends to compensate for declines in pay, but they must work to get them, and the payments diminish over time. Similar stipends are available to unemployed workers looking to start new businesses, provided their plans pass muster with the local chamber of commerce.

In good Teutonic fashion, the government has rigorously monitored outcomes. More than 20 research institutions and 100 researchers have worked on the reform project, and—remarkably, for anything in the political-economic realm—independent research, detailed econometric work, and qualitative institutional assessments have all judged the reforms to be successful. An independent assessment by the International Monetary Fund (IMF) concurs. Since the Hartz measures took effect in 2005, the German economy has closed the growth gap with its global competitors. And at 4.5 percent, Germany’s unemployment rate is lower than that of every other major Western economy.

Puerto Rico is only the beginning...

As Glenn Reynolds is fond of saying, things that can't go on forever, won't AmericanInterest via Instapundit

Puerto Rico’s rolling bankruptcy crisis is just a taste of the fiscal storm that lies ahead if American state and local governments can’t find a way to bring their own gaping pension shortfalls under control. For decades, rapacious public sector unions and craven politicians on the mainland have also been also been propping unsustainable state employee retirement systems, and—crucially—using accounting tricks to dupe the public and conceal the magnitude of their unfunded obligations. Congress’s proposed relief package for Puerto Rico would require the island to be more forthright about its pension costs going forward, but it would allow state and local governments to continue downplaying the size of their debts…

The resistance to honest accounting is apparently coming not from Congressional Democrats, but from Republican state legislators eager to keep their pension Ponzi schemes in place—a reminder that corrupt blue model practices are thoroughly bipartisan. Hopefully Congressional Republicans will have the good sense to reverse course and require state and local governments to come clean as well.

Yes, people really do "go Galt"...

From New Jersey (BusinessInsider):

Tepper, the founder of the hedge fund Appaloosa Management, moved to Florida last fall. This, according to Bloomberg, has leaders of his former state very concerned. [...]

New Jersey relies on personal income taxes for about 40 percent of its revenue, and less than 1 percent of taxpayers contribute about a third of those collections, according to the legislative services office. A one percent forecasting error in the income-tax estimate can mean a $140 million gap, Haines said.
And Minnesota (TCB):
During the last two years, Minnesota lost or began losing an estimated $2.1 billion in taxable income from 3,099 taxpayers, according to a research study on wealth migration conducted by Twin Cities Business with help from research firm The Morris Leatherman Company (see “The Research” at the bottom of this page). These same individuals have $17 billion in median net worth and $31 billion in median gross estate value.

In almost three-quarters of those moves, respondents said the reason for leaving had to do with Minnesota’s tax policy and collection practices. This amounts to an estimated loss of approximately $1.5 billion in annual taxable income, $12 billion in average net worth and $22 billion in gross estate value due to Minnesota’s tax and collection activities.

The TCB study also found this trend will continue for at least the next five years, during which time an estimated 12,172 Minnesotans will leave, taking with them a combined $5.2 billion in taxable income, $65 billion in net worth and $122 billion in gross estate value.

Tuesday, April 12, 2016

The real lesson of the Panama Papers

Megan McArdle: It's not that capitalism is to blame... but the opposite (Bloomberg):

What we seem to have learned from the documents so far is that this particular sort of corruption isn’t a big local problem for the U.S. We do of course have some law breakers, because there is no such thing as a law that won’t be broken. But it seems to be a minor, furtive thing, rather than the mass habit you see in parts of the developing world. The IRS is very good at finding offshore tax cheats, and getting better all the time. I am confident that if U.S. scofflaws should be revealed by these documents, the tax authorities will waste no time ensuring that they get what is coming to them.

Other governments may fail to enforce their laws, perhaps because the named figures sort of are the local government. That is a big problem. But that doesn’t mean that it’s our problem. Global capitalism didn’t create the issues plaguing weak states. And global anti-capitalism won’t fix them, either.
More (Reason.com): "Instead of going after countries such as Panama and the important and legal structures they offer to international businesses and investors, high-tax nations and the media should wait to see whether any laws were actually broken. And while they're waiting, they should reform their own governments' self-destructive fiscal systems. That's the real financial scandal."

Saturday, April 09, 2016

Is China artificially cheapening its currency?

According to Barron's, the RMB is "way overvalued" (Barrons):

Indeed, the yuan is overvalued, as shown by capital flight totaling upwards of $1 trillion last year. Rich Chinese are voting with their pocketbooks to get their money out of the country, buying up property in Canada and the U.S. Chinese businesses also are striving to repay dollar loans before the greenback becomes dearer. And China corporations are seeking to acquire foreign properties, exemplified by Anbang’s attempt to buy Starwood Hotels & Resorts (ticker: HOT ), the operator of the Sheraton and Westin hotels, for $14 billion.

Goldman points out that the real effective exchange rate of the yuan (which takes into account China’s trade and differences in inflation with its trading partners) is twice as high as two decades ago and 40% higher than it was in 2008. The latter rise is largely because the trade-weighted dollar rose by 25% since early 2014, when the Federal Reserve said it would end its quantitative easing policy. After China’s currency moved up in the wake of the dollar, Beijing let it ease slightly last summer.

But China’s previous refusal to let its currency fall against the greenback had two, deleterious effects on that nation’s economy. It forced the People’s Bank of China to impose the highest real interest rates in the world to prop up the yuan. That, in turn, throttled back exports, especially those to the U.S.
Interesting times ahead...

More here: "The more circuitous the routes to propping up its currency, the less conviction investors may have in its stability." (WSJ)

Are payday loans evil?

Not according to the people who want them - so does that make the regulators who want to take away their free choice evil? (Freakonomics)

If we take an objective look at the folks who use payday lending, what we find is that most users of the product are very satisfied with the product. Survey results show that almost 90 percent of users of the product say that they’re either somewhat satisfied or very satisfied with the product afterwards.

Sunday, April 03, 2016

Why the Canadian government will fail at building the "next Silicon Valley"

From Reason.com:

Canada is not alone in their push to create the next great hub of genius. Dubai, London, Rwanda, and Shenzhen are just a few cities investing in the idea. But according to Eric Weiner, author of The Geography of Genius: A Search for the World's Most Creative Places, From Ancient Athens to Silicon Valley, these attempts will inevitably fail. "I wish I could sit here and tell you that there was a formula and if you applied that formula you could create the next Silicon Valley," he explained during an interview with Reason TV earlier this year. "There is no formula."