Free Trade - Laotian Style

There’s been a lot of talk about free trade lately. Almost every economist thinks that free trade is a big positive for societies. The positive effects are obvious and dramatic for a poor country like Laos. It’s not because they are making cheap goods - it’s because they are buying cheap goods. The benefits are also great for a rich country like ours, but they aren’t as obvious or dramatic - except for the poor. The politicians who want to restrict free trade would, if they had their way, also diminish the poor.

Corruption? Or Business As Usual?

This list of the ten worst corruption cases in government is pretty depressing - but at least it’s bi-partisan! And charges made are not charges proven. Nevertheless, it’s pretty depressing, even if Public Choice Theory predicts such behavior.

Golden Arches

Here’s some really interesting facts about McDonalds.

The Other Surge

Is the surge working? To find out, follow the money. As the man said, “Money may be mis-informed, but it is never insincere.”

Holiday Musings

I like the Wall Street Journal for a number of reasons: they have great financial information, they have a great editorial page, and they often have interesting offbeat articles. An example of an offbeat article is this piece about the flight attendants on Air Force One (did you know that there’s two of them?) and the fleet of planes used for various dignitaries.

I enjoy reading interesting articles that have no apparent utility. But sometimes these interesting article might have some slight utility, such as some new research on obesity. As a Grand Champion Putterer, I find this news very encouraging.

It’s hard to keep up with all the new things happening in medical research. Do you know what proteomics is about? This article illustrates some amazing and very beneficial medical technology coming soon to a clinic near you.

And I can’t resist pointing you to this handy one page collection of timeless political humor.

Heroic Conservatism

This critique of Michael Gerson’s “heroic conservatism” strikes a chord with me. I guess my thinking has become very Burkean.

Large scale governmental attempts to change human behavior, no matter how well intentioned, don’t work. The results are always something very different from what was intended. This may not be apparent for a long while, which constantly gives hope to the naive and historically illiterate, but in the end, social engineering doesn’t work.

At least we know why it can’t work, at least partially. Hayek’s famous “knowledge problem” points out that all knowledge is local, incomplete and imperfect, which severely limits the scope and scale of how well a society can be ordered. Order will emerge, and a naturally emerging order more fully reflects the sum of knowledge than the best intentioned “intelligent design”. Order imposed from above can work when it is limited to protecting us from thugs and providing infrastructure, but imposing order to solve “social problems” can’t work.

But having said that, I’m not as critical of Bush’s foreign policy as Mr. Hulsman. We haven’t tried to impose much order on either Afghanistan or Iraq; instead, we’ve created a framework where order can emerge. From where I sit, that seems to be a viable, if painful, option. Nor am I opposed to Bush’s huge effort to combat AIDS in Africa: public health is a critical form of infrastructure and disease doesn’t respect geopolitical boundaries.

Almost Free

How can all these companies offering free stuff on the Web do it? This article has a nice explanation and has some background. The payoff: because it is so cheap to offer digital services online, it doesn’t matter if 99% of your customers are using the free version of your services so long as 1% are paying for the “premium version”.

Temporary Work

The story of Michelle Rhee is inspiring. But it makes me wonder why more school superintendents don’t behave in the same way. Perhaps this excerpt provides a clue:

Ms. Rhee says that her mission is not incremental change, and she doesn’t plan on making being a school superintendent a career. “This is a one-time gig for me,” she laughs, “so I can make every single decision in a way in which I think is in the best interests of the kids–without the politics, without owing people, just with that in mind.”

In other words, Ms. Rhee doesn’t expect this to be her last job. The typical school superintendent is concerned about career and is careful not to rock the boat too much for fear of jeopardizing their chance of future employment.

I’ve had similar thoughts before: why are some industries unionized and others not? It seems to me that there may be a similar answer. Perhaps union members believe that their current job is the best they’ll ever have and will therefore want to protect against anything that threatens it. Perhaps non-unionized workers see their jobs more as a stepping stone to something different and better, so why spend the time and money to protect it?

Could it be that the degree of worker aspiration contributes to the nature of supporting institutions?

Noting Global Warming

I love Google Notebooks as a way of capturing, organizing, and publishing information. In addition to my Political Economy Notebook and my War On Terror Notebook, I’m adding a Global Warming Notebook.

You might ask why I’m using Google Notebooks rather than Zoho Notebooks. Well, unlike their competing word processing, spreadsheet, and presentation services, Google Notebooks and Zoho Notebooks are two distinctly different kinds of things. Google enforces a rigid format and is easy to use with a minimum of fuss. Zoho allows much greater flexibility, but requires a lot of format management. It’s more like a scrapbook than a notebook. Zoho Notebook is great for some things, Google Notebook is great for others.

The Gold Standard

Well, who would have thought that the gold standard would become a political issue? There are arguments for and against, and some people even think it’s crazy. As it happens, I’ve studied this quite a bit and do believe that, in a rational world, the gold standard makes a lot of sense. Unfortunately, it’s not a rational world.

The primary appeal of the gold standard is that gold is a fixed store of value. Since the quantity of gold in existence changes very slowly, inflation in gold occurs very slowly. But things can go wrong. When Spain began increasing it’s gold supply by taking it from the New World in the sixteenth and seventeenth centuries, Europe was struck by inflation. The supply of gold grew faster than the supply of everything else. Inflation is a monetary phenomenon: when the supply of money grows faster than the supply of everything else, inflation happens. It doesn’t matter whether the money is gold, paper, or seashells.

In the modern world, the quantity of gold is growing more slowly than the supply of everything else. When that happens, deflation happens. And that’s the problem.

Neither inflation nor deflation is a big problem if it occurs at a steady rate: both are manageable by rational people. But people aren’t rational. In a deflationary world, the price of everything goes down. This includes the price of labor.

Now suppose that every year, instead of getting a raise, you received a salary decrease! You would be better off if the price of everything else was falling more rapidly than your salary. But the psychology is all wrong. People would not take kindly to a declining wage, even if they were becoming more prosperous. Face it: most people don’t grasp simple economic concepts such as free trade and comparative advantage. They would never tolerate wage deflation.

That’s why I favor fiat currency and mild inflation, even with all the attendant problems. It seems the lesser of two evils.