Archive for the ‘Capitalism’ Category



August 30, 2017

Here’s one of Prof. Mark Perry’s internet-famous Venn diagrams.




August 27, 2017

What is seen and what is not seen.


Go taxpayers!

August 26, 2017

This is sort of a low-priority topic but it’s a funny video.


Trade, automation, and employment

December 17, 2016

This is sort of a rambling post about items I’ve come across recently that are loosely related.

ReasonTV released this clip this week.

This pretty much confirms what I’ve read about NAFTA. And that’s one reason I’ve never been happy about Trump’s bashing free trade agreements, NAFTA in particular.

Trade’s not a case of one-side-wins-while-the-other-side-loses. Trade works to mutual advantage: that’s why people engage in it, after all.

The only point I can take from Trump’s comments is that the U.S. is big enough to gain concessions by threatening to stop trading so freely. (He may be correct about that but I think it would be a bad idea.)

Being a free trade kind of guy, I was more than a little surprised to read about Stephen Moore’s turn to "the Dark Side."

If you know anything about Moore’s background, his new position is a fundamental shift for him. (For example, the Wikipedia article about him says, "Moore is known for advocating free-market policies…")

But read this whole thing to find out why Moore now backs Trump’s approach to trade and the economy.

Welcome to the Party of Trump

I stirred up some controversy last week when I told a conference of several dozen House Republicans that the GOP is now officially a Trump working-class party. For better or worse, I said at the gathering inside the Capitol dome, the baton has now officially been passed from the Reagan era to the new Trump era. The members didn’t quite faint over my apostasy, but the shock was palpable.

I emphasized that Republicans must prioritize delivering jobs and economic development to the regions of the country in the industrial Midwest — states such as Michigan, Pennsylvania, Ohio, Indiana, Wisconsin, Iowa, and Missouri. These are places that, for the most part, never felt the meager Obama recovery and where blue-collar Reagan Democrats took a leap of faith this election and came back to the Republican party for the first time since 1984. The GOP will be judged in 2018 and in 2020 on whether they deliver results for this part of the country and for the forgotten middle-class men and women (“the deplorables”) whom Democrats abandoned economically and culturally. This is all simply a political truism.

What roused the ire of some of my conservative friends was my statement that “just as Reagan converted the GOP into a conservative party, with his victory this year, Trump has converted the GOP into a populist, America First party.”‎

One friend lamented that I must have been drunk when I said this.

No. I meant exactly what I said, but I will clarify. […]

And here’s an interesting TED Talk by David Autor, professor of Economics and Associate Head of the MIT Department of Economics. It was published at the end of last month.

Prof. Autor has some explanations for the fact that the more we automate, the more people we have working. There are more jobs, not fewer.

Near the end of the clip, he makes a good point about the influence of culture on the employment picture.

Update 12/19/16:

I ran across an interesting post at pseudoerasmus that goes into detail on Prof. Autor’s topic. Despite its mocking tone and focus on conspicuous consumption, I think it’s a pretty fair explanation of how employment can increase despite increasing automation. (It doesn’t have a lot to say about people working in fields that weren’t even possible before automation enabled them, unfortunately.)

The emptiness of life will save us from mass unemployment

I don’t I have much to add to the debate about the dystopian robot future scenario envisioned by many people. But I do think the nightmare scenario is less mass unemployment than a kind of revamped neo-mediaevalism. I’m not predicting that, so much as saying that’s the worst-case scenario. {Edit 28/12/2016: This was written more than 2 years ago as a half-joke to mock trends in luxury consumption more than anything else.}

In the past 250 years, technological progress has not caused unemployment because human wants have been infinite. Every time productivity (output per unit of input) rises, the implied extra income in the economy still gets spent on something (at least when there isn’t a recession), and extra work gets created to produce that something. In other words, fewer inputs may be used to make one unit of output, but more output always gets desired / created. (OK, that sounds Say’s Law-ish, but please be patient.)

Environmentalists understand keenly that when energy prices fall, people frequently just drive more or fly more, or the savings get spent, ultimately, on something else that uses energy. Productivity growth produces the same effect. Which is why, as of now, we’ve never had permanent mass unemployment from technological displacement.

After the basic needs of food and shelter are satisfied, people go in search of other fulfillments — more caloric, varied, and exotic diets; more living space to fill with ever more stuff; 58 changes of clothes instead of 2 per year; more leisure in the form of vacations and entertainment; and ever more marginal extensions of life expectancy. That’s all very obvious.

But as people get wealthier, they demand not only more quantity of stuff, but also ever more trivial and even imaginary increments to the quality of goods and services. How else to explain the market for, say, honey in a jar that’s ‘raw’, unfiltered, unpasteurised, ‘fair-trade’, non-GMO, single-country-origin, single-bee-colony, and single-flower-species? […]

Finally, I learned yesterday that the Cato Institute has a session scheduled next month with the author of Men Without Work: America’s Invisible Crisis. From the descriptive blurb at Amazon:

Today, nearly one in six prime working age men has no paid work at all—and nearly one in eight is out of the labor force entirely, neither working nor even looking for work. This new normal of “men without work,” argues Eberstadt, is “America’s invisible crisis.”

I have to wonder if all these people are really unemployed or whether some of them are simply working off the books in the underground economy.


How crony capitalism works

December 2, 2016

Kevin Williamson has a good article about how Trump ‘saved’ jobs at a Carrier plant in Indiana. RTWT.

The Economic Stupidity of the Carrier Bailout

One particularly tough and indigestible nugget of talk-radio stupidity afflicting the guts of conservatism is the idea that there is some sort of fundamental difference between bribing a business with tax cuts and bribing it with a wheelbarrow full of cash. The Trump-Pence bailout of Carrier’s operations in Indiana provides an illustrative case. […]

Republicans might have had a little bit of a point in the question of general tax cuts: A tax cut and spending are different things, even if the budgetary effects are exactly the same.

But in the matter of industry-specific or firm-specific tax benefits of the sort extended to Carrier in Indiana, they do not have a leg to stand on. These are straight-up corporate welfare, ethically and fiscally indistinguishable from shipping containers full of $100 bills. […]

For Carrier’s accountant, any pecuniary benefit will do. So far as the bottom line is concerned, a $7 million tax credit is the same as a $7 million check or $7 million in Apple stock or $7 million in gold. It’s all +$7 million on the line where you want it. […]

This is a case of Frédéric Bastiat’s problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.

But the math is the math is the math. Trump and Pence are trying to sell you a free lunch, the same way the Keynesians and their magical spending multiplier do when they promise that government stimulus programs (Trump is pushing one of those, too) will somehow magically pay for themselves. […]

I suppose the good news for most of us is that the State of Indiana (and its taxpayers) will be the ones picking up the tab for this.

Bastiat’s That Which is Seen, and That Which is Not Seen.


How a market works

December 2, 2016

This is an interesting story that I read on Dan Lewis’s Now I Know list. (Now I Know is worth a look, if you’re not already a subscriber.)

To set the scene: Herbert Dow, founder of Dow Chemical, came up with a new way to refine bromine in 1891. That was the good news; the bad news was that he got into a trade war with an international cartel when he tried to sell his bromine outside the U.S.

Here’s the bulk of Dan’s article, called The Bromine Gambit:

Before Dow came onto the bromine scene, a German government-backed cartel named the Bromkonvention had a monopoly on bromine. As Investopedia explains, the Bromkonvention “sold bromine at a fixed price of 49 cents per pound, but it would implement a predatory pricing strategy quickly, if challenged.” And Dow Chemical posed such a challenge.

Dow Chemical operated independently of the Bromkonvention, which didn’t make the Germans all that happy, but they were willing to coexist so long as Dow kept its bromine sales within the United States. And considering that Dow was selling bromine at 27 cents per pound — about 45% less than what the Bromkonvention priced it at in Europe — the Germans saw Dow as a real threat. So the Bromkonvention made a threat of their own: if Dow entered markets outside the United States, the Bromkonvention promised to use its huge supplies of bromine to force Dow out of business by selling it cheaply — below cost — in the States.

Dow called their bluff, selling bromine to England. And the Bromkonvention retaliated. The cartel began dumping bromine in America, offering it for sale at 15 cents per pound. Dow couldn’t compete, and it didn’t have any other products to make up for the shortfall. This put Dow’s business in jeopardy — in theory at least.

In practice? Something went wrong, at least from the perspective of the Bromkonvention. American demand for bromine went up, as expected, but by leaps and bounds — no matter how much bromine Bromkonvention sold there, it would sell out, and Dow was still able to find customers at its 27 cents/pound price point. Not only did Dow not go out of business, but it expanded. Dow began selling its bromine — still at 27 cents per pound — in Germany itself.

How was this possible? Instead of dropping its price to meet that set by the Bromkonvention, Dow became buyers, as Investors Business Daily (via the Indianapolis Recorder) explains: “[Herbert Henry Dow] had an agent secretly buy up hundreds of thousands of pounds of the cut-rate imported bromine.” And what do you do with that bromine? IBD continues: Dow would then “repackage [the cheap bromine] and export it back to Europe.”

The Bromkonvention, at first, wasn’t sure where the cheap European bromine was coming from; in that interim period, they also continued their price war against Dow and continued to lower the price in the U.S. (ultimately to 10 cents/pound). In the end, there wasn’t a price low enough to force Dow out of business, as Dow was well-enough capitalized to buy up the dumped bromine and arbitrage its way to success. (And besides, the Bromkonvention made it easier and easier by lowering the price.) A century plus later, Dow is still around; the Bromkonvention is long gone.

Dan writes that Dow Chemical had the capital reserves to buy up the "dumped" bromine. But I’ll guess that in this case it wouldn’t have been to hard to find speculators – or banks – willing to loan the money to buy the under-priced bromine.


What’s it worth to you?

September 19, 2016

Mark Perry at Carpe Diem has a good post about what I’ll call the Information Economy (for lack of a better term). He starts out writing about the different ways music has been delivered for sale and then moves on to the more general point of how information of all kinds gets delivered now.

I particularly liked the "What’s the internet worth to you?" question.

[t]he limitations of GDP accounting

Thanks to the advances in computer technologies, the Internet and smartphone apps, consumers are getting more and more services like GPS for free (or at a significantly reduced cost compared to the past) today and displacing services that used to get accounted for as market-based production (maps and road atlases). In past decades like the 1950s, maybe economic output measured by GDP was a pretty good measure of both economic performance and Americans’ economic well-being. In 2016, that may no longer be the case.

Finally, the video below captures the point I’m trying to make by asking people:

How much would someone have to pay you to give up the Internet for the rest of your life? Would a million dollars be enough? Twenty million? How about a billion dollars?

“When I ask my students this question, they say you couldn’t pay me enough,” says Professor Michael Cox, director of the O’Neil Center for Global Markets and Freedom at Southern Methodist University’s Cox School of Business. The free market, says Cox, creates a huge gap between what consumers would be willing to pay for Internet access and how much it actually costs.
From the video: Since we’re getting something that we really value that is almost free, and wouldn’t give it up for even $1 million or more, “In some ways, maybe we’re all millionaires and billionaires, if we have something that’s worth that much to us… You might just be richer than you realize…”

Update/Related (HT: Joe Sullivan): From a July 2015 WSJ interview with Hal Varian, Google’s chief economist — “Silicon Valley Doesn’t Believe U.S. Productivity Is Down: Contrarian economists at Google and Stanford say the U.S. doesn’t have a productivity problem, it has a measurement problem”:

“There is a lack of appreciation for what’s happening in Silicon Valley,” says Hal Varian, “because we don’t have a good way to measure it.” One measurement problem is that a lot of what originates here is free or nearly free.

Take, for example, a recent walk Mr. Varian arranged with friends. To find each other in the sprawling park nearby, he and his pals used an app that tracked their location, allowing them to meet up quickly. The same tool can track the movement of workers in a warehouse, office or shopping mall. “Obviously that’s a productivity enhancement,” Mr. Varian says. “But I doubt that gets measured anywhere.”

Consider the efficiency of hailing a taxi with an app on your mobile phone, or finding someone who will meet you at the airport and rent your car while you’re away, a new service in San Francisco. Add in online tools that instantly translate conversations or help locate organ donors—the list goes on and on.

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