Posts tagged ‘economy’

US Temperature Trends, In Context

There was some debate a while back around about a temperature chart some Conservative groups were passing around.

Obviously, on this scale, global warming does not look too scary.  The question is, is this scale at all relevant?  I could re-scale the 1929 stock market drop to a chart that goes from Dow 0 to, say, Dow 100,000 and the drop would hardly be noticeable.  That re-scaling wouldn't change the fact that the 1929 stock market crash was incredibly meaningful and had large impacts on the economy.  Kevin Drum wrote about the temperature chart above,

This is so phenomenally stupid that I figured it had to be a joke of some kind.

Mother Jones has banned me from commenting on Drum's site, so I could not participate in the conversation over this chart.  But I thought about it for a while, and I think the chart's author perhaps has a point but pulled it off poorly.  I am going to take another shot at it.

First, I always show the historic temperature anomaly on the zoomed in scale that you are used to seeing, e.g.  (as usual, click to enlarge)

click to enlarge

The problem with this chart is that it is utterly without context just as much as the previous chart.  Is 0.8C a lot or a little?  Going back to our stock market analogy, it's a bit like showing the recent daily fluctuations of the Dow on a scale from 16,300 to 16,350.  The variations will look huge, much larger than either their percentage variation or their meaningfulness to all but the most panicky investors.

So I have started including the chart below as well.  Note that it is in Fahrenheit (vs. the anomaly chart above in Celsius) because US audiences have a better intuition for Fahrenheit, and is only for the US vs. the global chart above.  It shows the range of variation in US monthly averages, with the orange being the monthly average daily maximum temperature across the US, the dark blue showing the monthly average daily minimum temperature, and the green the monthly mean.  The dotted line is the long-term linear trend

click to enlarge

Note that these are the US averages -- the full range of daily maximums and minimums for the US as a whole would be wider and the full range of individual location temperatures would be wider still.   A couple of observations:

  • It is always dangerous to eyeball charts, but you should be able to see what is well known to climate scientists (and not just some skeptic fever dream) -- that much of the increase over the last 30 years (and even 100 years) of average temperatures has come not from higher daytime highs but from higher nighttime minimum temperatures.  This is one reason skeptics often roll their eyes as attribution of 15 degree summer daytime record heat waves to global warming, since the majority of the global warming signal can actually be found with winter and nighttime temperatures.
  • The other reason skeptics roll their eyes at attribution of 15 degree heat waves to 1 degree long term trends is that this one degree trend is trivial compared to the natural variation found in intra-day temperatures, between seasons, or even across years.  It is for this context that I think this view of temperature trends is useful as a supplement to traditional anomaly charts (in my standard presentation, I show this chart scale once and the standard anomaly chart scale further up about 30 times, so that utility has limits).

More Evidence Against My Least Favorite Legislation of the 20th Century

I have written about the National Industrial Recovery Act many times, a love-note from FDR to Mussolini's fascist economic system that was thankfully overturned by the Supreme Court.  Its intent was to make the corporate-crony state the default economic system of the US.

Essentially, the NIRA cartelized the US economy, creating government-sponsored cartels in every industry that would set prices and wages as well as output and quality.  You can imagine exactly how well upstart competitors would have fared under this system.  I am pretty sure, for example, that the government mainframe cartel would never have let apply, or even DEC, see the light of day.

Now, a couple of academics have laid the blame for the long duration of the Great Depression at the NIRA's doorstep.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Hmm.  Certainly wages and prices are going to be especially "sticky" if the government creates cartels to keep them that way.

A Media Article Actually Highlights the Trouble with A Falling Currency

If you listened to the media and political candidates, you would quickly come to the conclusion that the quickest way to prosperity and wealth is to have a worthless currency.  Every politician the world over argues for devaluing their own currency vs. other nations, with the logic that this helps domestic manufacturers by making imported competitors more expensive and making their own products less expensive to buy in other countries.  **

While the latter two statements are nominally true, the only way this actually helps an economy is if one ignores everyone except manufacturers in markets dominated by international trade.  What it ignores is that a falling currency makes purchases more expensive for everyone else.  Consumers and service industries and even manufacturers who depend on imported raw materials all suffer from a falling currency.  And this is not even to mention the effect on wealth -- if one's savings are all in assets denominated in the falling currency, one is clearly losing wealth as the currency falls.

Well, for the first time in a really long time, I actually saw an article this week that focuses on some of the problems of having a falling currency.  via zero hedge.

“I’ve never seen it that high. It’s usually $6.99, maybe $8 but that seems like quite a jump.”

Grapefruit isn’t the only produce to soar in price as fresh fruit has increased by 12.4 per cent since December 2014, and fresh vegetables are up 14.4 per cent, according to data from Statistics Canada released Friday. Led by those surging produce prices, Alberta’s annual inflation rate rose last month by 1.5 per cent, year over year.

The high prices are a direct result of adverse weather in the United States and the lower Canadian dollar since most produce is imported, said Jason Wiebe, president of Chongo’s Market at the Crossroads Farmers Market.

“Tomatoes trade the same as the TSX. It’s a commodity, too, and all produce is traded in U.S. dollars. In November, the retail cost of tomatoes on the vine was $1.99 a pound. Now I have to sell the same box at $3.99 pound.

“What’s going to be really interesting going forward is what happens to local growers come summer. With the dollar, they can make one and half or two times as much exporting than selling here.”

And that may only be the beginning of higher food costs, according to ATB chief economist Todd Hirsh.

“Going forward I think we’ll see even higher upward pressure on imported fruits and vegetables. If not for weather conditions, certainly that low Canadian dollar will affect it. Because the numbers we’re talking about today are from December and now in January we’re almost five to six per cent lower on that dollar….If people insist on eating fresh tomatoes and pineapple in January, they’ll be forced to pay for it.”

 

** To my eye, every government in the industrialized world is working as hard as they can to hammer down the value of their own currency.  As a result, a rising currency tends to mean only that the country in question has a central bank that is not working as hard and as fast as other countries to trash their currency.  All of which makes accusations that China is manipulating its currency an enormous joke.  Several trilling dollars in QE here and they are the ones manipulating their currency?

China as a Test of Keynes vs. Hayek

Let's start by saying that I have an imperfect layman's view of Keynes and Hayek.  This is my understanding and over-simplification of how these camps deal with economic downturns.

  • Keynes:  Economic downturns result from some sort of failure of aggregate demand.  There are positive feedbacks in the system such that a small downturn can lead to a larger downturn if left unchecked (but on the flip side mean that a small stimulus can have a disproportionately large effect on demand).  The proper government response to a downturn is to create demand through government deficit spending.   Failure to emerge in a timely manner from a recession likely is the result of the government not being aggressive enough in its spending.
  • Hayek:  Economic downturns result from mis-allocation of savings and investment capital, often due to government policy by not necessarily so (one can argue the housing bubble was driven by government policy, but the first Internet bubble likely was not).  The proper government response to a recession is to stop any distorting government policy that drove it and let the economy sort itself out by restructuring.  Failure to emerge in a timely manner from a recession is likely due to interventions that slow this necessary restructuring (e.g. bailouts, government-directed investment programs).

I will say that if my Hayek description is not correct for the Austrians, it is correct for me -- this is what I believe happens.

That said, I have long thought the Japanese lost decade(s) were pretty much final proof of the Hayek vs. Keynes explanation, and I am sort of amazed people still argue about it.  I remember in the 80's people in the US admired the Japanese MITI system of industrial management that carefully directed investment into government-preferred industries and, by the way, stomped on the Japanese consumer (including laws that kept both the retail and agricultural sectors backwards) in favor of promoting the export market.

In the 20+ years since Japan slid into a downturn, they have been the poster child for Keynesian stimulation.  They have deficit spent like crazy and have driven up -- by a longshot -- the largest government debt as a percent of GDP of any of the industrialized nations.  Yet still they flounder -- I would argue precisely because they had an Austrian recession, based on years and years of government-enforced mal-investment, but have refused the Austrian solution.  Watching it evolve over the years, I have thought it impossible to miss the point, but it appears that Krugman-Keynesians can always argue, not matter how much government debt was run up, that the problem was that they just didn't spend enough.

Well, in my view we have another such test coming, perhaps even more stark -- in China.  China, perhaps more than Japan, has filled their economy with investment distortions -- the huge empty cities that get shown on the Internet seem to be one example.

China empty city

And over the past year or two, China has been deficit spending and stimulating like hell -- both at the central government level as well as with policies that have encouraged the accumulation of debt both locally and in industry.

This is why I think the crash is coming in China, and the longer they manage to delay it by artificial means, the worse and longer the crash will be.  There is probably a bet that could be had here, but I am not sure how it would be structured.

Quote of the Day -- On Intellect in Politics

From Chris Dillow via Arnold Kling:

I would rather have second-rate politicians who know they are duffers than ones who believe they are brilliant.

I am sympathetic with this statement but for a reason that Dillow does not mention.  No one is smart enough to try to manage certain complex systems, like the economy.  They don't have the information or the ability to set prices, fix (or even correctly identify) "market failures, assess the preferences of 300 million individuals, or any of the other things politicians try to do -- no matter how freaking brilliant they are.   Really smart people in politics (or people who think they are really smart) also have a tendency to want to substitute, by force, their judgement and decision-making for my own.

Great Wealth is Bad Only When It Comes from Cronyism Instead of Creating Consumer Value

I book marked this long ago when I was in Europe and forgot to blog it.  From the Washington Post

You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.

Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.

A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.

Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.

Arizona Near Last in Local Food Consumption -- Good!

Our local fishwrap laments:

The local food movement in Arizona needs just that – movement.

While some shoppers enjoy spending their Saturday mornings at local farmers markets, new research indicates Arizona lacks per-capita sales in the local food industry.

The 2015 Locavore Index found that of the 50 states and Washington, D.C., Arizona has the second lowest per-capita sales for local foods.

Here is a scoop for you:  We live in the middle of the freaking Sonoran desert.   It is a terrible place to grow most foods.  In fact, it is an environmentally awful place to grow food.   Local food folks somehow have gotten locked into transportation costs as the key driver of food sustainability that they want to focus on, but transportation costs are 10% or less of most food costs.  A small savings on transportation is absolutely dwarfed, from a productivity and resource use standpoint, by the productivity of the soil and the fit of the climate with whatever is being grown.

Here is one way to think of it -- yes, locally grown food may not have to be transported very far, but every drop of water for food grown here in the Phoenix area has to be brought hundreds of miles from declining reservoirs to grow that food.

The movement seems to imply that locally grown food is more healthy.  Why?  Why is an Arizona tomato healthier than a California tomato?

Finally, the micro-trade-protectionism is pretty funny:

If local Arizonans start buying more local food, the economy may benefit as well.

When buying local grown food, “the money stays here in the local economy, as opposed to buying something in a national chain,” said R.J. Johnson, a sales representative for Blue Sky Organic Farms in Litchfield Park. “You buy something locally, 75 percent of that money stays here in town.”

This is so economically ignorant as to be beyond belief.  If more people are growing food here locally (something that is likely a fairly unproductive task given our climate), what productive tasks are they giving up.  And this is a national effort -- are they really with a straight face telling every single state that they should buy more locally so their money stays at home?  Isn't that just one big zero sum game (actually a negative sum game because you lose benefits of specialization and comparative advantage).

I Have This Argument All The Time With The US Forest Service

I operate recreation areas in the US Forest Service and from time to time get criticized that my profit adds cost to the management of the facilities, and that the government would clearly be better off with a non-profit running the parks since they don't take a profit.  What they miss is that non-profits historically do a terrible job at what I do.  They begin in a burst of enthusiasm but then taper off into disorder.    Think about any non-profit you have ever been a part of.  Could they consistently run a 24/7/365 service operation to high standards?

Don Boudreaux has a great quote today that touches on this very issue

from page 114 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism.  The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency.  Put differently, profit is a price paid for efficiency.

It is also the "price" paid for innovation.

Keynesians Have Shot Their Only Bolt -- How Will They Spend Their Way Through The Next Crisis?

Governments have spent so much, to so little effect, to try to stimulate the current economy, I wonder where they will find the resources to spend more the next time?  Because you can be sure that despite the fact that we are likely near the top of a weak cycle, no one is paying back what was spent in the last recession or proposing to reduce central bank balance sheets.

This is a couple of years old, but tells the story pretty well:

The financial crisis that began in late 2007, with its mix of liquidity crunch, decreased tax revenues, huge economic stimulus programs, recapitalizations of banks and so on and so forth, led to a dramatic increase in the public debt for most advanced economies. Public debt as a percent of GDP in OECD countries as a whole went from hovering around 70% throughout the 1990s to almost 110% in 2012. It is now projected to grow to 112.5% of GDP by 2014, possibly rising even higher in the following years. This trend is visible not only in countries with a history of debt problems - such as Japan, Italy, Belgium and Greece - but also in countries where it was relatively low before the crisis - such as the US, UK, France, Portugal and Ireland.

So over a third of the debt that has been built up in all of history by Western nations was added in just a few years from 2007-2012.  At the same time, the central banks of these countries were adding to their balance sheets like crazy, essentially printing money in addition to this deficit spending.  In the US, the Fed's balance sheet as a percent of GDP hovered around 6% until the second half of 2008.   That had tripled to over 18% in 2012 (source).  At the same time, European central bank assets grew from about 7% to over 16% of GDP.

James Taranto has a regular feature named after a reporter named Fox Butterfield.  The feature takes statements such as "Despite Mary getting a PhD in Peruvian gender studies from Harvard, she has struggled to find a job" and argues that the "despite" should be replaced by "because".

This is certainly true of the statement that "despite record stimulus and Fed balance sheet expansion, the economy has remained sluggish".  That "despite" should be "because of".  The government continues to distort the allocation of capital and wonders why investment is sluggish and tends towards bubbles in certain assets.  Japan has stimulated for 25 years to absurd levels of debt and has gotten 25 years of sluggishness in return.

All this reminds me of a story in one of my favorite business books, "Barbarians at the Gate."  Back in the day, tobacco companies had a practice of jamming inventory into the channel just ahead of the semi-annual price increase.   They called this "loading."  The channel liked it because they got cheap product to sell at the new higher prices.  The tobacco companies liked it because it boosted quarterly revenues at the end of the quarter.  But that boost only happens once.  To show growth the next quarter, one must load even more.  Over time, they were jamming huge amounts of inventory into the channel.  I have never been a smoker, but apparently freshness is an issue with cigarettes and they can go stale.  Eventually, the company was loading so much their sales started to drop because everyone was buying stale cigarettes.

In find this a powerful metaphor for government interventions in the economy today.

Postscript:  I will give another example.  In Arizona, we are on a July-June fiscal year.  Years ago, some government yahoo had the bright idea to close a budget hole by passing a law that all businesses had to pre-pay their estimate of sales taxes due in July a month earlier in June.  For that one glorious year, politicians had 13 months of revenue to spend rather than 12.

But to set things aright the next year, they would have to live with just 11 months of revenue.  No way they were going to do that!  So they did the pull-forward thing again to get a full 12 months.  And they have done it every year since.  It has become an institution.  All this costs a ton of money to process, as the state must essentially process a 13th return each year, presumably paying overtime and temp costs to do it.  All for the benefit of one year where they got the use of one month of revenue early, we have been stuck with higher state operating costs forever.

Worried about your privilege? Want to be treated like an abused underclass? Start a business!

John Scalzi tries to explain privilege to non-SJW-types by saying that being a white male is like playing life on "easy" difficulty.

I'll grant I benefited from a lot of things growing up others may not have had.  I had parents that set high standards, taught me a work ethic, taught me the value of education, had money, and helped send me to Ivy League schools (though the performance there, I would argue, was all my own).

Well, for those of you concerned about living down a similar life of privilege, I have a solution for you: start a business.  Doing so instantly converted me into a hated abused underclass.  Every government agency I work with treats me with a presumption of guilt -- when I get called by the California Department of Labor, I am suddenly the young black man in St. Louis called out on the street by an angry and unaccountable cop**.  Every movie and TV show and media outlet portrays me as a villain.  Every failing in the economy is somehow my fault.   When politicians make a proposal, it almost always depends on extracting something by force from me -- more wages for certain employees, more health care premiums, more hours of paperwork to comply with arcane laws, and always more taxes.

Postscript:  I will add an alternative for younger readers -- there is also a way to play college on a higher difficulty:  Try to be a vocal male libertarian there.  Write editorials for the paper that never get published.  Sit through hours of mindless sensitivity training explaining all the speech limitations you must live with on campus.  Learn how you can be charged with rape if your sex partner regrets the sex months later.  Wonder every time you honestly answer a question in class from a libertarian point of view if you are killing any chance of getting a good grade in that course.  Live every moment in a stew of intellectual opinion meant mainly to strip you of your individual liberties, while the self-same authoritarians weep and cry that your observation that minimum wage laws hurt low-skilled workers somehow is an aggression against them.

 

** OK, this is an exaggeration.  I won't likely get shot.  I don't want to understate how badly abused a lot of blacks and Hispanics are by the justice system.   I would much rather be in front of the DOL than be a Mexican ziptied by Sheriff Joe.  But it does give one the same feeling of helplessness, of inherent unfairness, of the unreasoning presumption of guilt and built-in bias.

Me Then, Hillary Now: Progressives Are Too Conservative to Accept Capitalism

Coyote, in Forbes, December 2010 (excerpts):

My contention is that what drives most progressives, at a very fundamental level, is a deep conservatism.  Of course, most “progressives” would freak if they were called conservative, but what I mean by conservative in this context is not donate-to-Jesse-Helms capital-C Conservative but fearful of change and uncomfortable with uncertainty conservative.

Because capitalism is based so completely on individual decision-making, because its operation is inherently chaotic, and because its rewards can’t possibly be divided equally and still be “rewards”, progressives are hugely uncomfortable with it.  Ironically, though progressives want to posture at being “dynamic”, it turns out that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our notion of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it....

I am sure, if asked, most  progressives would profess to desire iPod’s and cures for cancer.  But they want these without the incentives that drive men to invent them, and the disruption to current markets and competitors and employees that their introduction entails.  They want to end poverty without wealth creation, they want jobs without employers, they want cars without unemployment for buggy whip makers.

Hillary Clinton in July, 2015:  via Instapundit

In her first major economic policy address of the 2016 campaign, Democratic presidential frontrunner Hillary Clinton raised questions about the effect that companies like Uber and Airbnb are having on American workers. . . .

Later in the speech, Clinton vowed to “crack down on bosses who exploit employees by misclassifying them as contractors” — a possible reference to something like the recent California Labor Commission decision that threatens to undermine Uber’s business model.

To be sure, Clinton does not want to destroy the sharing economy. She acknowledged that “these trends are real” and “none is going away.” But she may believe that, with the right application of political muscle, the new economy can be forced to conform with the antiquated blue social model — that is, the midcentury vision of steady, regulated, unionized employment with generous benefits.

As we have argued again and again, this notion is unrealistic. Like it or not, this 1950s model of economic organization is breaking down, and has been for several decades, thanks to globalization, demographic changes, technological innovation, and other trends that simply cannot be reversed. Measures like the California decision are futile and counterproductive. We should treat the emergence of a more entrepreneurial, dynamic landscape as an opportunity to be engaged with productively, not a danger to be henpecked by regulations better suited to the last century.

The Greek Problem is Not a New Thing

I found this quote from an older Finem Respice article about Greek financial problems in the mid-20th-century to be pretty funny:

So hopeless was the state of Greek finances that, even as [the Nazis] routinely hung with piano wire prominent citizens and officials on the thinnest of provocations, and even given three years to do it, the Nazi's were somehow unable to compel what amounted to a totally subservient collaborator government to put its fiscal house in order.

The Axis administration soon realised it would be a waste of effort to get the Greek government to balance its accounts.

Later, in 1945, it was a British problem.  These problems from the late 1940's should sound really familiar:

Fortunately for Germany, by the time the matter came to a head the Germans had RSVP'd to Scobie and Greece was Britain's problem. It wasn't just partisans the British would end up having to fight....

What followed could only be described as a comic progression of populist pandering, the spread to the national economy of a series of parasitic labor unions and cabals, and a confidence on the part of the Allies in their own fiscal administration abilities that was as enduring as it was inflated.

At first [British Treasury Secretary] Waley sold gold to support the drachma, conditioning the sale on a series of fiscal and monetary reforms the Greeks adopted in principle and promised to implement– at some later date when it was somewhat more convenient. It was around this time Waley quipped:

...the Greek government are in effect paying doles to a large part of the population who spend all day parading in the streets in idleness with political demonstrations as their chief occupation.9

Liberation governments, fearing popular backlash were terrified of taxing the Greeks. Instead they continued to look for sources of wealth to redistribute, and were happy to resort to even the most gamey monetary policies to buy time. After raiding "punitively" the only entities with wealth of any kind (businesses) in 1945 in order to buy popular support with cheap food and wage increases, the Greeks were, again, running out of options.

The whole thing is interesting, and depressing.

Dear Paul Krugman: Please Explain Labor Demand Elasticity in Puerto Rico

Paul Krugman and a surprisingly large portion of Leftish economists have staked out a position that labor does not act like any other commodity, such that higher minimum wages have no effect on demand.  I have had people on the Left tell me that this absurd, common-sense-offending position is actually "settled".  So explain Puerto Rico:

Another problem is that just 40 percent of the population [of Puerto Rico] has a job—or is even looking for one. That figure has plummeted in recent years. In the United States as a whole, it is 62.9 percent....

The report cites one surprising problem: the federal minimum wage, which is at the same level in Puerto Rico as in the rest of the country, even though the economy there is so much weaker. There are probably some people who would like to work, but because of the sickly economy, businesses can't afford to pay them the minimum wage.

Someone working full time for the minimum wage earns $15,080 a year, which isn't that much less than the median income in Puerto Rico of $19,624.

The report also cites regulations and restrictions that make it difficult to set up new businesses and hire workers, although it's difficult to know just how large an effect these rules might or might not have on the labor market.

By the way, the fact that the author thinks this is "surprising" just goes to show how far this anti-factual meme of a non-sloping labor demand curve has penetrated.

As pointed out in several places today, Puerto Rico has a surprising number of parallels to Greece.   It seems to have zero fiscal restraint, it has structural and regulatory issues in its economy that suppress growth, and has its currency pegged to that of a larger, much richer nation.  It is apparently facing a huge $70+ billion potential debt default.

My Five Causes of the Decline and Fall of the Roman Empire

Rocochet asks this question over the weekend:  What are your top 5 causes of the fall of the Roman Empire.  OK, I will take a shot at this from my decidedly amateur perspective:

  1. Demographic collapse, caused by a series of plagues (perhaps even an Ur version of the black death) and possibly climate change (colder) that depopulated the western half of the empire
  2. A variety of policies (e.g. grain dole) that shifted population from productive farms to the cities.  In the 19th century, this shift was to be growth-inducing as farm labor was moving into growing factories, but no such productivity revolution existed in Roman cities.  The combination of #2 with #1 left huge swaths of farmland abandoned, and the Romans dependent on grain ships from North Africa to feed the unproductive mouths in large Italian cities.  It also gutted the traditional Roman military model, which depended strongly on these local farmers for the backbone of the army.
  3. The Romans lost their ability to be innovative in including new peoples in their Empire.  The Romans had a bewildering array of citizenship and tax statuses for different peoples who joined or were conquered by the empire.  For hundreds of years, this innovation was hugely successful.   But by the 4th and 5th centuries they seemed to have lost the trick.  The evidence for this is that they could have solved multiple problems -- the barbarians at the gates and the abandonment of farm land and the need for more soldiers -- by finding a way to settle barbarians on empty farm land.  This is in fact exactly what the barbarians wanted.  That is why I do not include the barbarian invasions as one of my five, because it did not have to be barbarian invasions, it could have been barbarian immigration.  Gibson's thesis was that Christianity killed the Roman Empire by making it "soft".  I don't buy that, but it may have been that substituting the Romans' earlier incredible tolerance for other religions in their Pagan period with a more intolerant version of Christianity contributed to this loss of flexibility.
  4. Hand in hand with #3, the Roman economy became sclerotic.  This was the legacy of Diocletian and Constantine, who restructured the empire to survive several centuries more but at the cost of at least an order of magnitude more state control in every aspect of society.  Diocletian's edict of maximum prices is the best known such regulation, but in fact he fixed most every family into their then-current trades and insisted the family perform the same economic functions in all future generations.  Essentially, it was Ayn Rand's directive 10-289 for the ancient world, and the only reason these laws were not more destructive is that the information and communication technologies of the time did not allow for very careful enforcement.
  5. Splits in the governance of the empire between west and east (again going back to Diocletian) reduced the ability to fund priorities on one side of the empire with resources from the other side.  More specifically, the wealthy eastern empire had always subsidized defense of the west, and that subsidy became much harder, and effectively ended, in the century after Diocletian.

I will add, as a reminder, that to some extent this is all a trick question, because the Roman Empire really did not totally fall until the capture of Constantinople in 1453.  So I should have stated at the outset that all of the above refers to the fall of the western empire in the late 5th century, which in part explains why #5 is there in the list.

And, if you were in a room of historians of this era, you could quickly get into an argument over whether the western Roman empire really fell in the late 5th century.  For example, the Visigothic Kingdom in the area of modern southern France and Spain retained a lot of Roman practices and law.  But I have gone with tradition here and dated the "fall" of the empire to 476 when the Roman Emperor was deposed and not replaced.

Megan McArdle on California Declaring Uber Drivers to be Employees

Megan McArdle is one of my favorite writers on the web.  So it was fun to see my recent post on California and Uber drivers get a mention from her.  I just focused on the implications for Uber and its customers, but she goes further to say that the likely results for its drivers will be negative as well, comparing their likely plight to that of freelance writers.

On the face of it, this ruling seems ludicrous. Raise your hand if you've ever had an employer who said: "Hey, as long as you don't actively alienate the customers, you can just show up and work whenever you feel like. No need to let me know when you're coming, just show up and I'll pay you for any work you do. Just put in a couple of hours every six months, m'kay?" Yeah, I never had that job either, and neither did anyone else who wasn't blackmailing the boss or working for a family member.

Not even freelance writers or contract columnists have this job......

Uber has to worry about not just the expense of complying with all these mandates, but also the expense of documenting that it has complied with these mandates -- which will mean more paperwork and hassle for Uber's HR staff and for the drivers themselves. The effect would be to introduce a substantial wedge between what Uber spends to keep a driver on the road and what drivers actually get in their checks. How many people will still be driving when their work starts to be micromanaged and their checks are docked to pay for all the new requirements?

In other words, the possibilities for Uber drivers are probably not "status quo" or "status quo plus paid sick leave"; the possibilities are probably "status quo" or "figure out what to do next because Uber just went out of business." Since economists generally assume that whatever that is, it's a less attractive option than driving for Uber, that's not a happy answer for the driver.

And in fact, these are exactly the complaints we are hearing from freelance writers as more places rely more heavily on staff, because with the economics of the Internet, it makes more sense to manage a small number of staffers than a large number of freelancers. The staffers are happy, because they're working. The freelancers are miserable, however, because here the new version of our old "gig economy" does not support that many people

Trade and The World's Most Misunderstood Accounting Identity: Y=C+I+G+X-M

Repeat after me:  Y=C+I+G+X-M is an accounting rule.  It does not explain anything about the economy.  It is as useful to telling us anything interesting about the economy as the equation biomass=plants+animals+bacteria tells us anything about the ecosystem.

Which is why this kind of article in the press makes me crazy (emphasis added)

The U.S. trade gap narrowed in April as the effects of a West Coast port slowdown faded, easing one of the biggest drags on economic growth during the opening months of the year....

This year’s volatile import and export figures worked out to an overall drag on the economy in the opening months of 2015....

A surge in imports and falling exports subtracted 1.9 percentage points from the headline figure. As measured by GDP, exports are a positive for economic growth, while imports are a negative...

“The huge drag on GDP from trade in Q1 will almost certainly not be repeated in Q2,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

Here is the logic.  The GDP is calculated by adding Consumer spending + Industrial spending + Government spending + eXports and then subtracting iMports.  Because imports are subtracted in the GDP equation, they look to the layman like they shrink the economy.  How do we grow the economy?  Why, let's reduce that number that is subtracted!  But this is wrong.  Totally wrong.   I have tried many times to explain this, but let me see if I can work by analogy.

Let's say we wanted an equation to count the amount of clothing we owned.  To make things simple, let's say we are only concerned with the total of Shirts, Pants, and Underwear.   Most of our clothes are in the closet, so we say our clothes are equal to the S+P+U we count in our closet.  But wait, we may have Loaned clothes to other people.  Those are not in our closet but should count.  So now clothes = S+P+U+L.  But we may also have borrowed clothes.  Some of those clothes we counted in the closet may be Borrowed and thus not actually ours, so we need to back these out.  Our final equation is clothes = S+P+U+L-B.  Look familiar?

Let's go further.  Let's say that we want to increase our number of clothes.  We want wardrobe growth!  Well, it looks like those borrowed clothes are a "drag" on our wardrobe size.  If we get rid of the borrowed clothes, that negative B term will get smaller and our wardrobe has to get larger, right?

Wrong.  Remember, like the GDP equation, our wardrobe size equation is just an accounting identity.  The negative B term was put in to account for the fact that some of the clothes we counted in S+P+U in the closet were not actually ours.  But if we decrease B, say by returning our friend's shirt, the S term will go down by the exact same amount.  Sure, B goes down, but so do the number of shirts we count in the closet.  So focusing on the B term gets us nowhere.

But it is actually worse than that, because focusing on reducing B makes us worse off.  If B rises, our wardrobe is no larger, but we get the use of all of those other pieces of clothing.  Our owned wardrobe may not be any larger but we get access to more choices and clothing possibilities.  When we drive B down to zero, our wardrobe is no larger and we are worse off with fewer choices.

Returning to the economy, I don't want to say that it's impossible for increases in imports to drag the economy.  For example, if oil prices rise, the imports number measured in dollars will likely rise, and the economy will likely be worse off as we have to give up buying other things to continue to buy the oil we need.  But, absent major price changes, drops in exports more likely just mirror drops in C+I+G.  If consumers are hurting, they spend less on everything, including imported goods.   At the end of the day, none of these numbers (Mr. Keynes, are you listening?) are independent variables.

Postscript:  By the way, the trade deficit is a mirage in another way - it looks at only a subset of trans-national financial transactions.   The flow of dollars is (mostly) always in balance.  So if we are net sending dollars overseas when trading hard goods, the dollars come back in foreign purchases of investments and financial goods (which aren't included in the trade numbers).  Saying we have a trade deficit is the same as saying we have a net investment surplus.  For you physical scientists out there, measuring the trade deficit is like drawing your box around the process wrong such that you miss some of the forces.

If you really want to know our trade problem, it's not the trade deficit per se, but the fact that the funds coming back via investments are largely invested in value-destroying government debt rather than productive investments.

Celebrate the Strong Dollar

We are already seeing articles bemoaning the strong dollar as somehow a threat to the American economy.  Don't believe it.  Maintaining a weak dollar is yet another crony government program that benefits a tiny minority of admittedly vocal and politically connected Americans.

First, a bit of an aside.  It is amazing to me that the US dollar can be strong at all right now, given the actions of the Fed.  With its near infinite QE and zero-interest rate programs, one would expect the dollar to be weak (Oversimplifying, driving down the returns on financial assets reduces the overseas demand for them, thus reducing the demand for dollars, driving down the price of dollars).  But it turns out that the rest of the world (esp. Japan and the EU) are actually working twice as hard to trash their own currencies (they are actually heading into negative interest rate territory, not just zero) and thus on a relative basis, the dollar is stronger.

Companies that export or compete a lot with manufacturers in other countries hate the strong dollar.  It makes their domestically produced products more expensive vis a vis products manufactured in other countries.  Many of these companies have powerful political voices, and some have large unions with even more powerful political voices.  They lobby for a weaker dollar.  Part of that lobbying is often to portray other countries as nefariously "manipulating" their currencies to hurt the US.

What these countries that are weakening their own currencies are actually doing is trashing the prosperity of the vast majority of their citizens to protect the earnings of a few politically powerful producers.  Japan is a great example.  Japan is a country in which consumers have been stomped on from decades in order to reduce the price of the country's exports.  Japanese consumers pay far more for everything than we do, all so their exporters can lower their prices in the US.

This is the same in China.  We frequently host visiting Chinese students.  You know what every one of these kids do on their trip to the US?  They bring an empty suitcase that they fill up with electronic and fashion goods they buy here, many of which were actually manufactured in China  (I have never, ever have hosted a Chinese student that did not buy at least one Chinese-manufactured iPhone here).

So, we must oppose this currency "manipulation" that impoverishes Japanese, Chinese, and European citizens in favor of giving much lower prices to Americans -- Why?

We should celebrate the strong dollar.  It makes every one of us richer.  Not just when we buy Chinese electronics, but even when we buy American-made products that now must be less expensive to compete with foreign products and which benefit from cheaper inputs in their own manufacturing.

Years and years ago I wrote a hypothetical post about Chinese interventions to maintain a trade surplus form a Chinese consumer's perspective in a post from our sister publication Panda Blog.  I think it holds up really well.  It said in part:

It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers.  A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese.  So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts.  And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange.   Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.

OK, I Relent: I Will Support A Carbon Tax If Y'all Will Stop the Torrent of Stupid

President Obama is preparing to unleash a Colorado-River-sized torrent of stupid.  He wants to spend tens of billions of dollars on goofy green energy projects that will have an indiscernible affect on world temperatures but will have a very robust effect on some crony bottom lines.   Here is one example:

As part of President Obama’s plans to combat climate change, the White House announced a program on Friday for the U.S. Department of Energy to train 75,000 people to work in the solar power industry by 2020, many of whom will be part of a military veterans jobs initiative called Solar Ready Vets.

Seriously, is the training costs of workers really a substantial portion of a solar installation?

Andrea Luecke, president and executive director of the Solar Foundation, which publishes the annual National Solar Jobs Census, said that Obama’s announcement will not likely increase the size of the solar industry’s workforce but will instead ensure that the industry will be able to find highly skilled workers to fill jobs.

“We’re experiencing difficulty finding more skilled and qualified workers to install and do design work required,” she said, adding that the industry’s workforce has a “skills gap” as well-trained electricians and other workers go back to other construction jobs as the economy gains momentum.

I will translate that trade-group speak for you:  We like to pay our workers less than similarly-skilled construction workers so we lose a lot of skilled workers to higher paying construction companies. This program will not add any net employment to the economy but will help us keep wages lower by increasing the supply of qualified workers.

I can't help but think of Henry Ford, who famously raised the wages of his employees substantially.  The fake story is that he did this so all his workers could buy his product.   The real reason he did this was that he had horrendous labor turnover problems.  Like the solar industry, he was training folks who then left for higher paying jobs.  So he had to raise his wages to retain trained people.  How history would have changed if Ford had instead been able to call Obama and ask him to have the taxpayer pay to feed him with new, trained workers so he wouldn't have to raise his wage rates!

Seriously, did a bunch of technocrats get together and study the whole solar industry and come to the conclusion that solar installation skills were the keystone problem that was holding back the whole industry?  Of course not.  The solar industry will sink or swim based on panel costs and efficiencies.   What happened is someone said, "well the public always seems to like job training programs.  Those poll well."  And then they called the solar crony association or whatever it is called and they said, "sure, we would love to have taxpayers pay some of our training costs.  Thanks, we will be very supportive." And then someone said, "well, won't the Republicans pitch a fit over this?" And then someone had the brilliant idea of making it a veterans program -- "Republicans love soldiers, that will help defuze their opposition."  And an expensive crony giveaway was born.

About 5 years ago I said I would be willing to accept a carbon tax whose proceeds were used to reduce various labor tax rates (e.g. social security).  Substituting an energy consumption tax for a labor consumption tax was probably at least neutral and maybe even a net positive.

Now, I want to come back to that idea.  I don't believe any more than I did then that CO2-driven global warming will be catastrophic.  In fact, I am more confident than ever that while CO2-induced warming is a reality, the sensitivity of temperatures to CO2 levels is relatively low.  But please, I am willing to fully support a carbon tax that offsets some other existing tax if only we will stop all this stupid crony useless green energy stuff.  At least with a carbon tax, the markets will reduce fossil fuel use in the most efficient ways possible.  As opposed to programs like this one that will reduce fossil fuel use not at all but will cost a lot of money.

Cronyism, State by State

I get sent a lot of infographics and I generally just delete them but I thought this one was pretty good.  The largest recipients of corporate welfare from state governments.  Perhaps appropriately given the tilt of our economy here, our largest recipient in AZ is a real estate developer.

click to enlarge

Scenes from the Last Chapters of Atlas Shrugged

I have always read Atlas Shrugged not as a character story (and thus I don't get bent out of shape by the stiff black and white characters) but as a story about the world itself changing and crashing under socialism and cronyism.  As such, my favorite scene in the book is the hobo's tale of the socialist experiment on the 20th Century Motor Company.

Anyway, the final chapters of the book are full of more and more outrageous state interventions that build to a point that they are hard to believe anyone would actually ever try such things.   Unbelievable, until one looks at Venezuela

Venezuelans soon may need to have their fingerprints scanned before they can buy bread and other staples. This unprecedented step was proposed after Maduro had the brilliant idea of proposing mandatory grocery fingerprinting system to combat food shortages. He said then that "the program will stop people from buying too much of a single item", but did not say when it would take effect.

Privacy concerns aside (clearly Venezuelans have bigger, well, smaller fish to fry) there was hope that this plunge into insanity would be delayed indefinitely, as the last thing Venezuela's strained economy would be able to handle is smuggling of the most basic of necessities: something such a dramatic rationing step would surely lead to.

Unfortunately for the struggling Venezuelan population, the time has arrived and as AP reported over the weekend, Venezuela "will begin installing 20,000 fingerprint scanners at supermarkets nationwide in a bid to stamp out hoarding and panic buying" as of this moment.

The government has been selectively rolling out the rationing system for months at state-run supermarkets along the western border with Colombia where smuggling of price-controlled goods is a major problem.

On Saturday, President Nicolas Maduro said that seven large private retail chains had voluntarily agreed to install the scanners.

Last month the owners of several chains of supermarkets and drugstores were arrested for allegedly artificially creating long queues by not opening enough tills.

It gets better: Maduro also accused Colombian food smugglers of buying up price-controlled goods in state-run supermarkets along the border.

What a mess.  An entirely predictable mess.

Republicans Are Crazy for Wanting Dynamic Scoring at the CBO

Dynamic scoring of budget proposals has been on the Republican wish list for decades.  They have always been frustrated that tax cut proposals look like such budget losers with static scoring.  In their supply-side bones, Republicans know that tax cuts will stimulate economic activity and thus increase future tax revenues.  Taking this second order effect into account is what they mean by dynamic scoring (see: Laffer Curve).

I have some sympathy for this argument, but in making it Republicans are falling for the "this will work great when our guys are in charge" fallacy  (I need to find a name for that).  Democrats fall into this all the time, expanding government power only to be shocked at what their political enemies do with this power once in charge.

Because it is pretty clear what dynamic scoring will mean in a Democratic Congress.  Remember that stimulus bill?  Democrats all thought that expanded the economy, so its costs would, by their Keynesian assumptions, appear much lower under dynamic scoring.  The Left thinks the auto bailout was stimulative.  They even think that Obamacare was stimulative.  Do you really want some BS Keynesian fudge factor obscuring the true cost of such proposals in the future?

Related:  Greg Mankiw discusses why, if I read him right, dynamic scoring is impossible to do correctly

 

What Musicians and ExxonMobil Have in Common: Both Get "Ripped Off" By Consumers

We have all heard that artists make very little money from their songs, and get "ripped off"by record labels and other folks in the chain.  I have always had mixed reactions to this.  I have no doubt that, with zero power and a burning desire to "make it big", young acts sign uneven deals with record labels.  However, I find it hard to believe that Beyonce is getting hosed in that negotiation.

I saw this chart in TechDirt about where the money consumers spend on music goes (I think this is for a CD sale):

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So the performers themselves get about 9% of the retail price after everyone in the chain is paid.  That certainly seems paltry -- after all, they are the owners and creators of the music.  Everyone else is just in the service chain to make sure the music reaches the customers, all the accounting is done, the legal documents are correct, etc.

But it turns out that they may not be doing that badly.  I am a shareholder of ExxonMobil (XOM).  I own a piece of all the oil that XOM owns and controls, along with all the other shareholders.  Think of us as the band, though a really big band with lots of players.   That oil we own, like the band's music, has a ton of value.  When sold as raw crude, it goes for $40-$60 a barrel nowadays.  When sold in pieces (such as gasoline, or asphalt, or lubrication oil) it can sell for hundreds of dollars a barrel.

But out of those proceeds, we have to pay people to help us.  We have to pay managers, and lawyers.  We have to pay oilfield services companies and equipment companies and transportation companies.  We have to pay retailers.  When all those payments are made, before taxes, in 2014 we were left with just under 8% of every dollar we sell.  We own all this oil and we are not even getting as much as a musician!

And XOM shareholders do pretty well.  Owners of Wal-Mart only get about 3% of every dollar they sell.   In my company, I get about 5% of every dollar I sell.   And those evil health insurers?  Their shareholders get just over 2% of every dollar sold (all based on 2014 full-year financials).

Does that mean that Exxon shareholders are getting "ripped off" by Haliburton and Burlington Northern?  Is Wal-Mart getting ripped off by Proctor and Gamble?  Is Humana getting ripped off by GE imaging?  No?

I will reveal the ugly secret:  There is one person who is "ripping off" all of these folks, from Exxon to Rihanna to me.  That person is.... the consumer.  Yep, there are certainly many examples of people signing bad contracts in all these businesses, but the only entity systematically and consistently ripping all these folks off is us.  Because in a capitalist economy, we have the ultimate power.  We drive down the street to get the gas that is 10 cents cheaper, we now shop for our books and TVs at Wal-Mart and Amazon rather than at Borders and Best Buy, and we buy 99-cent individual songs on iTunes instead of buying a whole CD of songs we don't want for $14.99.

Worst Argument for Regulation Ever

We generally use startup activity as a proxy for positive innovation and future increases in productivity and consumer value.  But it is only a proxy - based on the theory that in a free economy new startups generally add new value or die.  Startups per se are not inherently positive, especially when all they are doing is fixing the inefficiencies and mandates imposed by government regulation

I wrote about a new study suggesting that new federal regulation doesn't inhibit the creation of new startup companies in an industry. In fact, it might actually stimulate the creation of startups. This seems counterintuitive, but a reader with some experience in the education and health care sectors—which were influenced by NCLB and Obamacare, respectively—proposes an explanation for this:

Healthcare startups have absolutely exploded post-ACA....This was pretty well anticipated by venture capital; a bunch of Sand Hill firms started putting together ad-hoc health IT teams shortly after the ACA was passed, on the basic logic that anything that changed an industry as much as the ACA did would necessarily create a lot of startup opportunities.

Drum says, well this may be good or may be bad.  Look, it HAS to be bad.  All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value.  This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.

The language he is using, of shaking things up, is a bit like that of chemistry.  He seems to imagine that markets can reach and get stuck in local maxima, so that government action that shakes the system out of these maxima (like annealing in a metal) is positive in that it allows the system to progress to a better state over time even if the government's action initially makes things worse.  I know of absolutely no evidence for this being true, and my strong suspicion given how many industries the government has trashed is that this is rare or non-existent.  And impossible to spot, even if it did exist.  Not to mention the fact it is a total joke to talk of health care as if it was some pristine untouched-by-government industry before Obamacare.

What Exactly Is the Conservative Theory of Free Markets?

Conservatives say they are for free markets and free enterprise, but then I read stuff like this (have have added the bold):

Lynch supports Obama’s unconstitutional amnesty, believes illegal immigrants should have the same rights to employment as American citizens, opposes voter ID laws, advocates federal intrusion in local law enforcement under the guise of civil rights, supports the government taking private property on flimsy grounds, and offers no opposition to using drones against American citizens.

I agree with some of these concerns, but the one in bold is a real head scratcher.   What theory of free markets do Conservatives hold that accepts as valid the government licensing of labor?  On what possible grounds should a government bar me from hiring, say, a Russian immigrant to do my programming?  Or crazier still, why can I hire a Mexican in my Mexico office but can't have the same person working for me in my Phoenix office?

I have a theory about the Romans that is probably shared by nobody.  The Romans were strong and powerful and vital when they were creating a variety of citizenship types to accommodate multiple peoples who entered the empire in multiple ways.  In particular I think of civitas sine suffragio or citizenship without the vote.  But this was just one of many variations.   By the first century AD  (or CE per the modern academic trend), a lot of people of a lot of cultures and races and over a wide geography called themselves Romans.

By the end of the empire, the "reforms" of Diocletian and Constatine purged all flexibility from both governance and the economy (in sum, their laws amounted to the Directive 10-289 of the ancient world).  By the time the Empire started falling apart, they had lost all ability to integrate new peoples or innovate with citizenship models.  What was eventually called the Barbarian invasions began decades earlier as the attempted barbarian migrations.   The barbarians wanted to just settle peacefully.  And Rome desperately needed them -- their system was falling apart as their farms and countryside was depopulated from a combination of government policy and demographic collapses (e.g. plagues).  Rome desperately needed new people to settle their farms and form the new backbone of the army and the barbarians desperately wanted to settle and had a lot of military skill, but they couldn't make it work.

The Parasite Economy

I had an argument with someone of the Left last night.  We both agreed that crony government protections and favors of businesses were one of the worst problems in the country.  But we couldn't agree on solutions.   It was a chicken and egg thing.  She thought corporations were at fault for seeking them.  I argued that the problem was given the government the power in the first place to grant such requests.  She thought the only way to fight it was by empowering government to put more restrictions on business.  My argument was that increasing the power of government to intervene in the economy only increased the problem.    No resolution.  I run into this all the time and need to think my way through a better way of expressing my concerns.

Anyway, I am reminded of all this because Stossel has a nice piece on the parasite economy and cronyism.

Postscript:  I can say from this discussion that OFA and Media Matters and Common Cause and the like have really done their job on the Kochs because this particular person was absolutely convinced the #1 best thing we could do to improve the future of America was to shut the Kochs up and prevent them from spending any more money on politics and speech.   My son says that is nearly impossible to argue any issue at all on campus without someone laying into the Kochs at some point in the conversation.   I find this whole tendency to conduct politics by vilifying individuals rather than discussing issues -- individuals with absolutely no political position -- totally depressing.  But it must work, because the Republicans did it too, in fact really pioneered this when they went after George Soros and made him the the secret villain behind everything Conservatives hated.   People like Rush Limbaugh may get on the Left nowadays for vilifying the Kochs but go listen to his radio shows from 5 or 10 years ago -- he couldn't go three sentences without saying "Soros".