23 May
There is much wisdom in this post.
…capitalism’s primary function is not to generate an endless stream of jobs, even if this is one of the beneficial byproducts.
One only wishes we could apply the same lesson to government. Government’s primary job is to defend life, liberty, and property rights. If it restricts itself to these functions, there may be a stream of new jobs. But as with private equity, it is one of the beneficial side effects, not its primary function.
Indeed.
21 May
Ship Garthsnaid, ca 1920s (Photo credit: National Library NZ on The Commons)
I am very much enjoying browsing through Cyclopædia of Political Science, Political Economy, and the Political History of the United States, circa 1870. There’s a lot of fascinating history and important lessons in this old work.
At one time, the USA was a leading player in international shipping, rivaling Great Britain. It helped having vast supplies of timber. The lack of an established merchant marine tradition seemed to allow a great deal of innovation which made US shippers tough competitors.
It did not last. The age of steam power and steel ships saw the dimming of the American ocean shipping. British technology was better early in the Industrial Revolution. And, although the British happily sold their technology all over the world, America could just not make a go of it.
What went wrong?
There were a lot of contributing factors, but mostly it was government actions, tariffs, regulations, and taxes. Two motives seemed to be behind most of the terrible policy.
The first was a desire to save American jobs. Sound familiar? Policies did save jobs for a while, but as everyone other than politicians should know, saving today’s jobs usually sacrifices tomorrow’s jobs.
The second was a desire to tax the rich. And boy, did they – not through an income tax, which didn’t exist, but through a complex set of tariffs, fees, excises, duties, etc. The result was that being an American shipper wasn’t as profitable as a lot of other lines of business, which in turn meant a decline in capital investment, which made American shippers less competitive, which meant fewer shippers, which meant fewer jobs. Wash, rinse, repeat.
It’s anyone’s guess as to how much more prosperous we’d be today if we hadn’t abandoned the shipping business through bad policy. This sad story paints a picture (one of many, actually) of where “save American jobs” and “tax the rich” really leads.
18 May
Pose Lake in the Boundary Waters Canoe Area Wilderness. Sunset over Pose Lake, a small lake accessible only by foot. Boundary Waters Canoe Area Wilderness, Minnesota. עברית: אגם פוז. Svenska: Pose Lake in the Boundary Waters Canoe Area Wilderness. English: A photograph of a lake with trees. (Photo credit: Wikipedia)
Well, maybe not by the calendar, but certainly by the thermometer. In Minnesota, a 90 degree day is all you need to declare summer.
My summer plans include writing less and reading more. Furthermore, I hope to read more older stuff. We think we’re so modern and innovative, but I’ve been reading some 1860’s stuff that make some of our contemporary “thinkers” sound like barbarians.
So, don’t expect me to post as often – but when I do, expect it to be better!
Have a nice summer!
16 May
Moral Compass (Photo credit: psd)
If you’ve been reading me for any time at all, you know that I have slowly trying to integrate my understanding of economics with Haidt’s moral foundation theory. To recap, my interpretation of moral foundation theory is that there are a set of moral foundations from which everyone builds their own view of morality. Some of these moral foundations conflict with one another and we each must create a hierarchy where some moral precepts trump others. This is very similar to the economic condition of subjective valuation and suggests that the whole question of morality might be subject to the expansive view of economics known as praxeology.
Now I have some new understandings to lay over this: relational models theory. For a good introduction, read this article. In brief, there are multiple broad types of human relationships which we all experience. All kinds of mischief happens when people have different understandings of the nature of a particular relationship. (The article has a revealing story about Mitt Romney).
If you accept relational models theory, it adds a new level of complexity to the issues raised by moral foundations theory.
I’ve just started thinking about this, so I only have one conclusion to offer: be very very cautious in questioning people’s motives.
15 May
USPS service delivery truck in a residential area of San Francisco, California (Photo credit: Wikipedia)
Much is being made of J. P. Morgan’s two billion dollar trading loss. There has been little mention of the fact that this loss occurred inside of a profitable portfolio (or so I’m told).
Every trader takes losses sometimes. The smarter ones examine every loss and try to learn from it. Traders that survive do so by not repeating mistakes. You can bet the folks at Morgan will do so in spades.
As a trader myself, I view this story as barely interesting.
Meanwhile, the US Postal Service is on track to lose 9 billion dollars this year. Why this causes less angst than much small private losses in private markets mystifies me. Morgan may have lost money for stockholders; government support of the USPS loses money for taxpayers.
The government overall loses billions and billions on it’s “investments”. J. P. Morgan is a piker by comparison.
Maybe instead of the government investigating Morgan, we should be investigating the government.
11 May
Keynes on Saving and Investment. (Photo credit: Wikipedia)
I read a lot of economics: books, journals, and blogs. For me, it’s a hobby. Some days I find a bit of economic insight that is especially rewarding. Today’s is from Cafe Hayek:
Keynes implicitly assumed that all the microeconomic relationships in a slumping economy are just dandy or are insignificant and so, either way, can be ignored by manipulators of macroeconomic policy. Relative prices; the structure of relationships between different capital goods; the time necessary for capital to be reconstituted and redeployed (history does matter); and the legal, political, and cultural underpinnings of economic activities and relationships – these are not incidental doohickies in an economy. Nor are these phenomena ones that can be legitimately scientifically cabined off by themselves, labeled “microeconomic,” and safely ignored while “macro” economists focus on “aggregate demand” independently of these other phenomena. But that’s what too many modern macroeconomists – especially Keynesians – do.
10 May
This damn market economy!.. (Photo credit: iwfx)
Jim Manzi, in his book Uncontrolled, argues correctly that a market economy requires wide social consent. He then asks “Why should those who lose out in market competition give it?”
I think the answer is simple: those who “lose out” in a market economy would probably lose out even more in any alternative arrangement.
You might be tempted to dismiss my answer as some kind of simple right wing ideology (as opposed to a simple left wing ideology), but there are reasons behind my answer that I find compelling.
The first is empirical: we have lots of evidence of market economies, limited market economies, and non-market economies. Evidence suggests that the least well off are usually better off in a market economy. Data matters. But, correlation is not causation, so we must not rely too much on history.
The second is logical: economic theory, particularly that based on deductive logic, predicts that the least well off will be better off in a market economy. I can’t reproduce an entire introduction to economics in a single blog post, but with work, you can explore this and convince yourself. Don’t take my word for it!
In short, both logic and evidence say that the least well off fare best in a market economy. Those who prefer alternatives should be given a hearing, but they must bring logic and data, not just emotion.
7 May
Members of the Socialists and Democrats in the European Parliament protest austerity measures at the Parc du Cinquantenaire in Brussels, Belgium on September 29, 2010. (Photo credit: Wikipedia)
There’s joy in the streets of Paris due to the election of a Socialist leader. No austerity for us, mon ami.
The alternative to European austerity strikes me as austerity under a different name. There ain’t no free lunch and you can’t forever consume more than you produce. You can steal from Peter to pay Paul, but sooner or later, Peter runs out of money. Someone has to clean up after the party is over.
Enough clichés? One way or another, the overspending economies will have to adjust. The only question is how. All of the options are painful. Politicians can pretend otherwise and voters can be clueless, but reality will not be denied.
6 May
With all the emphasis on income and consumption inequality, it’s timely that an economist reminds us that these are not the only measure of well being. There is declining inequality in mortality rates and growing inequality in leisure time, although the distribution of leisure time is probably inversely related to to the distribution of income. After all, if you want one of those high income jobs, you’d better be prepared for a 70 hour work week!
I know too many people, involuntarily unemployed or retired, who would not choose to return to the world of full time work. They think this would not improve their overall well being.
It is important to remember that none of our economic data captures well being. Some researchers are trying to measure happiness, but it’s not clear that happiness equates to well being.
Well being is very subjective. The foundation of Austrian economics is that people act to improve their well being. This may or may not have anything to do with wealth, income, consumption, happiness, or status. We also know, from the behavioral sciences, that we are not terribly good at translating our desires for well being into appropriate actions. Our mental processes are flawed in well known ways. And few of us pursue well being in an organized and thoughtful way. There is plenty of room for improvement, but it may not be in the ways we expect.
5 May
Fenton Wind Farm near Chandler, Minnesota (Photo credit: Wikipedia)
It’s not every day that Minnesota makes the editorial page of the Wall Street Journal, but today is such a day.
The editorial questions the wisdom of Minnesota’s renewable energy mandate. The author notes (correctly) that the mandate increases the cost of electricity and that the burden of the cost increase falls mainly on the poor and middle class. They also claim that the environmental benefits are almost zero. Whatever the benefits, they certainly have direct costs to households.
The Journal fails to mention the indirect costs. The high cost of electricity in Minnesota makes it less appealing to businesses, especially those that are heavy users of electricity. This used to mean big manufacturing operations or aluminum smelters, but it increasingly includes outfits with big server farms such as Google, Microsoft, and Amazon. Discouraging both traditional and high tech industries from locating here seems like a dubious economic development strategy.
This strikes me as another attempt to make things better that actually make things worse.
You might think it would be a “no brainer” to reverse course, but I doubt it. There is such a thing as institutional inertia and every bad idea has a core of supporters. For some, environmental concerns trump everything else and they won’t retreat from victories, no matter how small the benefit or how great the cost.
Minnesotans will continue to be gouged by the wind.
