Posts tagged ‘trade’

If I Were President, On The Day After Vote for Brexit...

I would propose a free-trade agreement with the UK.    No loss of sovereignty, no stupid EU regulations and bureaucrats, no restrictions on what can be called "sausage" -- just trade.  I would offer a similar deal to anyone else who wanted to leave.

Actually, when Obama visited, I would have been tempted to offer it to Britain at that time.  Why was the US President so hell-bent on encouraging closer ties between Britain and Germany when he should have been working to improve the relationship between the UK and the US.

I will admit that I am not thrilled with the anti-immigration tone of the Brexit vote, but the EU is a package deal, and there is a lot of bad with the good in the package.  Here is a good list of reasons to vote for Brexit (hat tip maggies farm)

2016 Presidential Election: Battle of the Crony Capitalists

I am not sure that many politicians are good on this score, but Hillary Clinton and Donald Trump are likely as bad as it gets on crony capitalism.  Forget their policy positions, which are steeped in government interventionism in the economy, but just look at their personal careers.  Each have a long history of taking advantage of political power to enrich themselves and their business associates.  I am not sure what Cruz meant when he said "New York values", but both Trump and Clinton are steeped in the New York political economy, where one builds a fortune through political connections rather than entrepreneurial vigor.   Want to build a new parking lot next to your casino or start up a new energy firm -- you don't bother with private investors or arms length transactions, you go to the government.

With that in mind, I particularly liked Don Buudreaux's quote of the day:

First, we labor under a ubiquitous threat of being shackled by crony capitalists.  [Adam] Smith wondered how internally stable a free market could be in the face of a tendency for its political infrastructure to decay into crony capitalism.  (The phrase “crony capitalism” is not Smith’s.  I use it to refer to various of Smith’s targets: mercantilists who lobby for tariffs and other trade barriers, monopolists who pay kings for a license to be free from competition altogether, and so on.)  Partnerships between big business and big government lead to big subsidies, monopolistic licensing practices, and tariffs.  These ways of compromising freedom have been and always will be touted as protecting the middle class, but their true purpose is (and almost always will be) to transfer wealth and power from ordinary citizens to well-connected elites

The Trade Deficit is Not A Debt

If you search Coyoteblog for the title of this post, you will see a number of others with the same title.  It seems to be a theme we keep having to come back to.  Here is one example of where I tried to explain why the trade deficit is not a debt.

Take the Chinese for example.  One thing that people often miss is that the Chinese buy a LOT more American stuff than the trade numbers portray.  The numbers in the balance of trade accounts include only products the Chinese buy from the US and then take back to China to consume there.  But the Chinese like to buy American stuff and consume it here, in the US.  They buy land and materials to build factories and trade offices.  They buy houses in California.  They buy our government bonds.  None of this stuff shows up in the trade numbers.  Is it somehow worse that the Chinese wish to consume their American products in America?  No.  How could it be.  In fact, its a compliment.  They know that our country is, long-term, a safer and more reliable place to own and hold on to things of value than their own country.

Dollars paid to a Chinese manufacturer have to get recycled to the US -- they don't just build up in a pile.   If I am a construction contractor in LA and build that manufacturer a new office or a local home and get paid with those recycled dollars, I am effectively exporting to the Chinese, only the goods and services I sold them never leave the country and so don't show up in the trade numbers.  So what does this mean?   In my mind, it means that the trade deficit number is a stupid metric to obsess over.

Another way I think about it is to observe that the US is winning the battle of stuff.   Money as money itself does not improve my well-being -- only the stuff (goods and services) I can purchase with it can do so.   So i t turns out that other countries ship far more stuff to the US than we ship out. And then these folks in other countries take the money they earn from this trade and buy more stuff in the US and keep keep that stuff here!

I am reminded of all this because several other folks are taking a swing at trying to make this point to the economically illiterate.   Don Boudreaux does so here, and Dan Ikensan here.  And here is Walter Williams as well.

Thank God We Have Unionized Government Workers and Not Some Damn Private Company

The TSA, which apparently stands for Theater of Security Absurdity, apparently is completely useless:

According to a report based on an internal investigation, "red teams" with the Department of Homeland Security's Office of the Inspector General were able to get banned items through the screening process in 67 out of 70 tests it conducted across the nation.

The test results were first reported by ABC News, and government officials confirmed them to CNN. Mark Hatfield, acting deputy director, will take over for Melvin Carraway until a new acting administrator is appointed. It was not immediately clear Tuesday where Carraway would be reassigned.

Fortunately, the TSA has been successful in creating accountability-free sinecures with stupendous pension and benefit plans for thousands of people who apparently learned the security trade from Sargent Schultz.

My New Worst Business Ever: YP

YP is the modern name for what used to be the Yellow Pages.  Obviously, yellow pages are a dying business.  Ten years ago the Phoenix Yellow Pages had to be broken up into two books, each a couple inches think.  I happened to see one the other day, and it was the size of a short novel.  They tried to move to the web, but who goes to (vs. google or Yelp) to find a business?

Even in the glory days of yellow pages, it was always hard to cancel their service.  If you did not tell them by like August, they would start billing you for the next year and sic a collection agency on you if you disputed it.

However, it appears that now that YP is a dying business, and knows that each lost customer will likely never be replaced, it has turned into the Hotel California.

In 2013, I left a location in Ventura County.   We had advertised in the Yellow Pages for years (back when it made sense) and had never been able to cancel it in time -- by the time we remembered it each year it had already auto renewed.   Soon after we left, I notified them that we needed to cancel.  At the time, I tried to negotiate a reduction in the 2014 charges but figured I probably would have to pay them, which I did.

Then, in 2015 I started getting bills.  I called each month patiently explaining and sending letters that we had already cancelled.  They would say that they had no record of my ever calling, but they swore they would mark the account as closed and that it would be fixed.  Then the next month it would all repeat -- a bad customer service Groundhog Day.

Finally this week I started getting legal threats and collection agency notices that I owe $499 for 2015 and that my life would be left in ruins with the ground salted if I did not pay immediately.  So I called today and AGAIN they had no record of my cancelling -- in fact, it was on a path to renew again for 2016.

Look, I am the first to tell folks to never chalk up to conspiracy what can as easily be explained by mass incompetence.  But at some point one has to suspect there is fraud going on here to retain customers as long as possible for a dying service.

So here is what I am left with -- I found someone in their organization who may be willing to settle my non-debt for non-services for a couple of hundred.  I told them this was absurd, since I did not owe it, but that I would pay a couple hundred dollars if they would give me a letter that said the account is closed and fully settled.  From the outside, this may seem a bad trade.  But I have enough lawyers in my life and hiring lawyers would be the only way to solve this any other way.  And besides, $200 is cheap compared to the thousands of dollars of my personal time I have spent farting with this.

Update 9/27/15:  God, this is Groundhog Day!  YP said that I should send a certified letter to such and such address to make absolutely sure that my account was cancelled.  I sent it to that exact address, braving a 30-minute line at the post office to do so.   So of course, the letter just came back undeliverable.  I have held off saying this, but these guys are total scam artists.  They seem to have no intention of ever letting me leave.

Memo to Vox: You Know How This Prosperity Was Achieved? We Let it Happen.

Vox shares what is perhaps the greatest achievement in human history, the continuing disappearance of absolute poverty:



Readers of this blog will likely  have seen this before (though it may well be new to Vox readers).  Here is the amazing thing about the Vox article:  It never once mentions capitalism, trade, economic freedom, or any synonym.  Here is a sampling of the tone of the accompanying article:

There's still much work to be done: 14.4 percent of the world amounts to 1 billion people who still need to be lifted out of extreme poverty. And making sure everyone's making at least $1.25 a day isn't the end of the fight either. The world's median income is still only $3 to $4 a day. By comparison, the poverty line in the US for a family of four is $16.61 per person per day. Once under-$1.25-a-day poverty is eradicated, the world needs to set about eradicating under-$15-a-day poverty, which will be a substantially harder task.

Vox is treating this like it is the result of some top-down effort, using the same language one might use to describe the eradication of Yellow Fever in Panama.  As if this resulted (and as if future progress depended on) some all-hands-on-deck technocratic government program.

No one "set about" eradicating poverty.  It happened because governments, at least to some extent, got out of the way and didn't stop it.  China is a great example.  Mao "set about" trying to eliminate poverty using many of the approaches likely favored by the Vox staff, and killed a few tens of millions of people in the process.

Here is my theory of the world's accelerating wealth formation that I have written on a number of times before.  This chart largely results from:

  • There was a philosophical and intellectual change where questioning established beliefs and social patterns wentfrom being heresy and unthinkable to being acceptable, and even in vogue. In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs and appeals to authority.
  • There were social and political changes that greatly increased the number of people capable of entrepreneurship. Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth. Whereas before, perhaps 1% or
    less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom.

So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.

China Slashes Costs for American Consumers

My headline is probably the most accurate description of how China's devaluation of the yuan yesterday affects this country.  But I bet you will not see it portrayed that way in any other media.  What you are going to see, particularly as the Presidential election races heat up, are multiple calls to bash China in some way to punish it for being so generous to American consumers.  Why?  Because the devaluation of the yuan will negatively affect the bottom line of a few export sensitive companies.  And if we have learned anything from the Ex-Im battle, things that GE and Boeing like or hate are much more likely to affect policy than things that benefit 300 million consumers.  Make no mistake, protectionist measures are the worst sort of cronyism, benefiting a few companies and workers and hurting everyone else (look up concentrated benefits, dispersed costs).

By the way, aren't the worldwide competitive devaluation sweepstakes amazing?  If everyone is doing it, then devaluations have no substantive effect on trade (except to perhaps decrease its magnitude in total), which just adds to the utter pointlessness of the game.  And it is hilarious to me to see US elected officials criticizing China for "manipulating" its currency, as if the US Fed hasn't added several trillion dollars to its balance sheet over the last few years in a heroic attempt to manipulate the value (downwards) of our own currency.

Dispatches from the Crony State

From the Daily Beast

For some wealthy donors, it doesn’t matter who takes the White House in 2016—as long as the president’s name is Clinton or Bush.

More than 60 ultra-rich Americans have contributed to both Jeb Bush’s and Hillary Clinton’s federal campaigns, according to an analysis of Federal Election Commission data by Vocativ and The Daily Beast. Seventeen of those contributors have gone one step further and opened their wallets to fund both Bush’s and Clinton’s 2016 ambitions.

After all, why support just Hillary Clinton or just Jeb Bush when you can hedge your bets and donate to both? This seems to be the thinking of a group of powerful men and women—racetrack owners, bankers, media barons, chicken magnates, hedge funders (and their spouses). Some of them have net worths that can eclipse the GDPs of small countries.

Ideology, policy prescriptions, legislative plans -- nothing matters except influence.  This will always happen as long as we give politicians so much power.  Its why the Coke and Pepsi party look so similar today.   At least a few people are noticing:

Is there a single person alive who believes that corporations, trade associations, NGOs, unions, and the like pay the Clintons enormous sums for speeches because they believe their members actually want to hear the Clintons say the same tedious talking points they have been spewing for years? If that were the only value received no profit-minded enterprise would pay the Clintons these vast fees because they would earn, well, a shitty rate of return.

No, the Clintons are not paid to speak. Businesses and other interest groups pay them for the favor of access at a crucial moment or a thumb on the scale in the future, perhaps when it is time to renew the Ex-Im Bank or at a thousand other occasions when a nod might divert millions of dollars from average people in to the pockets of the crony capitalists. The speaking is just a ragged fig leaf, mostly to allow their allies in the media to say they “earned” the money for “speaking,” which is, after all, hard work.

We have such people as the Clintons (and the tens of thousands of smaller bore looters who have turned the counties around Washington, D.C. in to the richest in the country) because they and their ilk in both parties have transformed the federal government of the United States in to a vast favors factory, an invidious place that not only picks winners and losers and decides the economic fates of millions of people, but which has persuaded itself that this is all quite noble. Instead, the opposite is true: This entire class of people, of which the Clintons are a most ugly apotheosis, are destroying the country while claiming it is all in the “public service.” It is disgusting. We need to say that, at least, out loud. . . .

Tear down the aristocracy of pull. This may be our last chance.

Dodd-Frank a Disaster for the Poorest People in Africa

Yeah, that headline seems a bit odd -- Dodd-Frank is about banking, right?  Well, apparently buried within Dodd-Frank are conflict minerals rules which I suppose were spurred by the efforts of a few dim-bulb celebrities who have a knack for latching onto poorly thought out "solutions" for Africa that tend to have staggering unintended consequences.

In this case, the logic was that minerals sales to western companies were  propping up dangerous warlords and militias, particularly in the Congo.  The law imposed huge penalties on American companies that did not purge their supply chain eight, ten, twelve steps deep of any suspected bad actors in the mineral world.

The problem for US companies is that this imposes a ton of cost, and is very hard to do.  So hard that the US government has not been able to successfully differentiate conflict from non-conflict suppliers.   However, as we learned on issues like cybersecurity, the US Government is still more than willing to impose enormous penalties on private businesses for failing at tasks the government can't even do itself.  So companies play it safe and don't buy from any source anywhere near places like Congo, even avoiding neighboring countries that have no such conflict issues.

Because what Progressive supporters forgot in patting themselves on the back for their sensitivity in passing such laws is that minerals extraction and related labor is about the only source of income for citizens of these countries, which are among the poorest in the world.  We may cut have off some of the money flowing to warlords (though not much as they turn out to do pretty well in the new bootlegging environment), but we are cutting off all the money that went to the struggling population.   Further, by driving the trade underground, it becomes impossible to impose event he most basic rules on the trade.   Dodd-Frank turned the mineral trade in these countries into the cocaine trade.

Via Overlawyered, from the CEI

The 2010 Dodd-Frank Act increased violence in the Congo by 143 percent (and looting by 291 percent) through its “conflict minerals” rule, which has backfired on its intended beneficiaries. So concludes a new study by Dominic Parker of the University of Wisconsin and Bryan Vadheim of the London School of Economics.

As we noted earlier, Dodd-Frank conflict minerals regulations have also caused starvation in the Congo, harmed U.S. businesses, and resulted in increased smuggling—even as they punish peaceful neighboring countries in Africa just for being near the Congo, whose civil wars have killed millions over the last 20 years. They have inflicted great harm on a country that was just beginning to recover from years of mass killing and had the world’s lowest per capita income. The new study is consistent with a 2013 paper by St. Thomas University law professor Marcia Narine that criticized the conflict minerals rule for its dire consequences for the Congolese people.

To his credit, David Aronson was on this four years ago:

For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.


Meanwhile, the law is benefiting some of the very people it was meant to single out. The chief beneficiary is Gen. Bosco Ntaganda, who is nicknamed The Terminator and is sought by the International Criminal Court. Ostensibly a member of the Congolese Army, he is in fact a freelance killer with his own ethnic Tutsi militia, which provides “security” to traders smuggling minerals across the border to neighboring Rwanda.


The people of eastern Congo agree that it would be beneficial to bring greater clarity and transparency to the mineral trade. A variety of local and international initiatives to do so were under way when the embargo hit. Those efforts may now become a casualty of the Dodd-Frank law.

Globalization and Start-Ups

In a comment on this article about declining startup activity and the growing average size of businesses, a commenter wrote:

The high foreign trade deficit is also a barrier to the formation of small new companies. The annual trade deficit of the US is greater than the rate of GDP growth, which explains a lot of things. Probably more companies are being destroyed than created in the US. Legislate and reverse the foreign trade deficit and there will be a massive surge in small companies.

I wrote in return

As for wolf-dogs comment on the trade deficit, I think this is totally wrong. Most of the trade imbalance is with stuff like cars and steel which are unlikely startup businesses. The easy availability of Asian manufacturing sources for nearly anything you want to make or can dream up facilitates startups and entrepreneurship. My gut feel, just seeing what entrepreneurs around me are doing but not from any hard data, is that globalization and easy international sourcing is a net positive for small business formation.

I have never seen any data on this though.  Thoughts?

Why Greek History Reminds Me of California and Illinois

From the WSJ, an article on how politicians who tried to point out the unsustainability of Greek finances years ago where not only ignored, but villified and marginalized.  Sort of like in places like California and Illinois.

In the past quarter century, Greece has had a handful of reformist politicians who foresaw the problems that are now threatening the nation with bankruptcy.

Their reform proposals were fought by their colleagues in parliament and savaged by the media and labor unions. They invariably found themselves sidelined....

Tassos Giannitsis is no stranger to this kind of war: His tenure as labor minister was more short lived, and the battles against him even more visceral. Mr. Giannitsis in 2001, again in the Pasok government led by Mr. Simitis, put forward a comprehensive proposal to reform the pension system.

Trade unions, opposition parties and Pasok itself unleashed menace on Mr. Giannitsis.

“Giannitsis was annihilated after his pension-reform proposals. There are few precedents for this kind of universal attack on a politician,” said Loukas Tsoukalis, a prominent economics professor here.

Mr. Giannitsis’s proposals, which would have reduced the pension levels Greeks receive and made the system overall more sustainable given the country’s demographic and labor-force trends, were never taken to parliament.

“From the fridge to the bin!” said the front page of newspaper To Vima on April 28, 2001, as the frozen pension-reform plan was scrapped for good.

“When I told my colleagues in the cabinet about the reforms I was proposing—which mind you were not the toughest available—the attitude I got was that I was spoiling the party,” Mr. Giannitsis said in an interview.

“They were, like, ‘everything is going great right now, why are you bothering us with a problem that may implode in a decade?’”

There are many other examples.


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.

Currency Manipulation

One of the critiques of any trade deal of late is that there should be penalties for countries guilty of "currency manipulation."  The concern is that countries will devalue their currency in an effort to make their own exports cheaper to other nations while making it harder for other countries to export back to them.  As an example, if the Chinese were to do something that cuts the value of the Yuan in half vs. the dollar, their products look very cheap to American consumers while American-produced goods suddenly look a lot more expensive to Chinese consumers.

I have two brief responses to this:

  1. I find it hilarious that anyone in the United States government, which has a Federal Reserve that has added nearly $2 trillion to its balance sheet in the service of cramming down the value of the dollar, can with a straight face accuse other nations of currency manipulation.  In practice in today's QEconomy, currency manipulation means another country is doing exactly what we are doing, but just doing it faster.
  2. As an American consumer, to such currency manipulation by other countries I say, Bring it On!  If China wants to hammer its own citizens with higher prices and lower purchasing power just to subsidize lower prices for me, I am happy to let them do it.  Yes, a few specific politically-connected export businesses lose revenues, but trying to prop them up is pure cronyism.  Which is one reason I think Elizabeth Warren is a total hypocrite.  The constituency of the poor and lower middle class she presumes to speak for are the exact folks who shop at Walmart and need very price break on everyday goods they can get.  Senator Warren's preferences for protectionist trade policies and a weak dollar will hurt these folks the most.

Nestle: Private Company Getting Blamed for Government Incompetence

The story begins with a discovery that the permit under which Nestle's Arrowhead Water has been collecting water in the San Bernardino National Forest expired in 1988.  LOL, oops.  Environmental and other Leftish sites are calling for Nestle's head and somehow blaming Nestle for this.

As a permittee with the US Forest Service (USFS) in California and across the country, I can guess with pretty high confidence exactly what happened here.  For years I was head of a trade group of recreation concessionaires (think lodges and guides and such) who do business in the USFS under permit.  Most of these were located in California.  For years, the biggest problem we have had with the USFS in California is that they are years and years behind in nearly all their permit renewals.  There are literally hundreds of expired permit in the USFS in California alone.

For reasons that probably go to bureaucratic incentives, despite the Forest Service's huge budget, they are loath to allocate resources to renewing these permits -- they want to fill their organization with biologists and archaeologists and arborists, not contracts people.  Making the situation worse, Forest Service and other Federal rules have burdened the permit renewal process with so many legal requirements that each one, even if trivial in size and impact, is absurdly time-consuming to complete.

This is not a new situation -- it has obtained for years.  Almost five years ago I met personally with the Chief of the Forest Service in DC and begged for more resources to be assigned to permit renewals, but to no avail.   I did the same in a meeting barely a month ago with the head of the USFS's Region 5 (basically California).   All of us permittees have been vociferously complaining about this for years.

When you look at these situations, then, what you will see is not some evil private business trying to get over on the public, but a business that is literally screaming in frustration, year in and year out, begging the US Forest Service to address its permit renewal.   Generally, local Forest Service staff will give the company verbal assurances that they should keep operating, so they do, continuing to pay their fees and operate within the guidelines of the old, expired contract.

I would be willing to bet a fair amount of money that this is exactly what happened to Nestle.

By the way, the usual groups seem to be piling on Nestle about bottled water from the Sacramento tap water system.  A couple of comments:

  • Environmentalists seem to obsessively hate bottled water, but ignore what a trivial, trivial percentage of total water use is bottled.
  • Critics are accusing Nestle of making obscene profits on Sacramento tap water.  But if they really think the spread between tap water and bottled water is too large, isn't the real issue that Sacramento is under-pricing its tap water?  After all, Nestle is paying what everyone else in the town is paying for water.
  • Environmentalists have a misguided fetish for local foods, often ignoring that transportation costs and energy are a tiny percentage of most food production costs  (a percentage small enough to be dwarfed by differential productivity of soils and climates).  But here, all they can possibly accomplish is to chase Nestle's bottling plant out of California and then have the water trucked back into the state.  This might be a net gain depending on the differential value of California water vs. fuel, but we can't know that because California water pricing is so screwed up.

Yawning Through the Outrage

There are a lot of things out there that generate tons of outrage that do about zero to work me up.  A good example is the recent kerfuffle over a school district assigning kids a debating assignment to argue both sides of the question "Was there actually a Holocaust?"

Certainly this was a fairly boneheaded topic to choose for such an assignment out of the universe of potential topics.   But I will say that this assignment is the type of thing that should be done a LOT more in schools, both in primary schools and in higher education.  Too often we let students make the case for a particular side of an argument without their even adequately understanding the arguments for the other side.  In some sense this brings us back to the topic of Caplan's intellectual Turing test.

I did cross-x debate all the way from 6th grade to 12th.  There is a lot to be said for the skill of defending one side of a proposition, and then an hour later defending the other (that is, if cross-x debate had not degenerated into a contest simply to see who can talk faster).

I remember a few months ago when a student-producer called me for a radio show that is produced at the Annenberg School at UCLA USC.   She was obviously smart and the nature of her job producing a political talk show demanded she be moderately well-informed.  She had called me as a climate skeptic for balance in a climate story (kudos there, by the way, since that seldom happens any more).  Talking to her, it was clear that she was pretty involved in the climate topic but had never heard the skeptic's argument from an actual skeptic.  Everything she knew about skeptics and their positions she knew from people on the other side of the debate.  The equivalent here are people who only understand the logic behind Democrat positions insofar as they have been explained by Rush Limbaugh -- which happens a lot.   We have created a whole political discourse based on straw men, where the majority of people, to the extent they understand an issue at all, only have heard one side talking about it.

I think the idea of kids debating both sides of key issues, with an emphasis on nudging them into trying to defend positions that oppose their own, is a great process.  It is what I do when I teach economics, giving cases to the class and randomly assigning roles (ie you are the guy with the broken window, he is the glazier, and she is the shoe salesman).  The problem, of course, is that we have a public discourse dominated by the outrage of the minority.  It would take just one religious student asked to defend abortion rights or one feminist asked to defend due process rights for accused rapists to freak out, and the school would probably fold and shut down the program.

Which is too bad.  Such discourse, along with Caplan's intellectual Turing test, would be centerpieces of any university I were to found.  When we debated back in the 1970's, there was never a sense that we were somehow being violated by being asked to defend positions with which we didn't believe.  It was just an excersise, a game.  In fact, it was incredibly healthy for me.  There is about no topic I can defend better than free trade because I spent half a year making protectionist arguments to win tournaments.    I got good at it, reading the judge and amping up populism and stories of the sad American steel workers in my discourse as appropriate.  Knowing the opposing arguments backwards and forwards, I am a better defender of free trade today.

This Is Why Freaking Republicans Drive Me Crazy

From the WSJ

A little-noticed provision in a bill passed by the House this month calls for relying more on U.S.-flagged ships to deliver food aid to foreign countries—a change backed by labor groups and criticized by the White House.

The measure, tucked into a Coast Guard and maritime bill, would increase the proportion of food aid transported abroad on private ships flying the U.S. flag, which are required to employ primarily American mariners.

The Obama administration opposes boosting the requirement to 75% of food aid, in tons, from the current 50%, saying it would raise shipping costs by about $75 million a year—siphoning off funds that otherwise could be used to send food aid overseas.

Jeez, when President Obama of all people has to lecture you that protectionism and kowtowing to labor groups is costly, you have gone off the rails.   The Jones Act is one of the stupidest pieces of interventionist legislation on the books and the House should be working on its repeal to sort out the oil transport mess.  Instead, here are the Republicans in the House doubling down on it.  With so-called friends of capitalism doing this garbage, who needs enemies?  At least Progressives trash the economy without pretending that they are pro free market.

By the way, here is a bit from the Cato article on the Jones Act and oil and gas prices

First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products.  According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.”  As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity.  And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive.  According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.

It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers.  According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”

Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports.  As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada.  Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart.  One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices.  As a result, several recent analyses – including ones byCitigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.

Wherein I Almost Agree With Thomas Friedman on a Climate Issue

Thomas Friedman outlines what he would do first to attack climate change

Well, the first thing we would do is actually slash income taxes and corporate taxes and replace them with a carbon tax so we actually encourage people to stop doing what we don't want, which is emitting carbon, and start doing what we do want, which is hiring more workers and getting corporations to invest more in America.

Friedman is a bit disingenuous here, as he proposes this in a way that implies that deniers (and probably evil Republicans and libertarians) oppose this common sense approach.  Some may, but I would observe that no one on the alarmist side or the Left side of the aisle is actually proposing a carbon tax that 1:1 reduces other taxes.  The only person I know who has proposed this is Republican Jeff Flake, who proposed a carbon tax that would 1:1 reduce payroll taxes.

As I said back then, I am not a big fan of taxes and think that the alarm for global warming is overblown, but I could easily get behind such a plan.  Payroll taxes are consumption taxes on labor.  I can't think of anything much more detrimental to employment and economic health.  So Flake's proposed shift from a consumption tax on labor to a consumption tax on carbon-based energy sources is something I could get behind.  I probably would do the same for Friedman's idea of shifting taxes from income to carbon.  But again, no one is proposing that for real in Congress.  The only plan that came close to a vote was a cap and trade system where the incremental payments would go into essentially a crony slush fund, not reduce other taxes.

Of course, since this is Friedman, he can't get away without saying the government should invest more in infrastructure

 the federal government would borrow money at almost 0 percent and invest it in infrastructure to make our cities not only more resilient, but more efficient.

In TARP and the stimulus and various other clean energy bills, the government borrowed almost a trillion dollars at 0% interest.  How much good infrastructure got done?  About zero.  Most of it just went to feed government bureaucrats and planning studies or ended up as crony payments to well-protected entities (Solyndra, anyone?).  The issues with government infrastructure investments, which Friedman has never addressed despite zillions of articles on infrastructure, are not the borrowing rate but

  • The incentive and information problems the government has in making investments of any sort.
  • The vast environmental, licensing, and NIMBY factors that make it virtually impossible to do infrastructure projects any more, at least in any reasonable time frame.

Today's Lesson In Unintended Consequences: Safety Mandates That May Reduce Safety

Via the WSJ (emphasis added)

Nomar may be the most extreme example of a problem plaguing 911 response centers nationwide: false emergency calls made from cellphones that no longer have a contract or prepaid minutes with a wireless carrier and so can avoid being tied to a user. Under federal rules these disabled phones, which can't make ordinary calls, must retain the ability to dial emergency numbers.

Abuse of these phones has become enough of a concern that many 911 officials and some in the telecom industry are urging the Federal Communications Commission to shut off or phase out the emergency feature in the interest of public safety.

In the San Francisco Bay Area alone, anonymous dialers have made tens of thousands of false 911 calls since 2007—with Nomar alone believed responsible for over 30,000. (Call-center operators can detect a disabled phone in part because no phone number shows up on their screen.)

During a 24-hour period on Thanksgiving Day 2012, dispatchers at the city's Department of Emergency Management reported 1,527 false 911 calls—more than one a minute. They believed all the calls came from just five phones, based in part on the cellphone towers from which the calls were connected...

At the root of the problem is a 1997 FCC requirement that all carriers include emergency-dialing capability on cellphones whether they have working service or not. Back then, 911 centers supported the feature as a potential lifeline.

"Cell service was still a new thing," said Trey Forgety, director of government affairs at the National Emergency Number Association, a trade group of 911 centers in Washington. "We wanted people in dire straits to have reliable access to 911."

A Slightly Different Take on High Frequency Trading (HFT)

My guess is that HFT will soon become one of those bogeyman words that people automatically associate with "bad stuff" without ever actually understanding what it means.  But it is worth understanding the underlying problem, and that problem is not high speed or frequency per se.

As I understand it, when an order to buy, say, 10,000 shares of Exxon gets placed, the purchase will get pieced together by searching across multiple servers where offers are listed and putting together the 10,000 shares in bits and pieces from these various servers.  What HFT's are doing (and I am sure this is grossly oversimplified) is that once it sees this order pinging  a server, it runs ahead at high speed to other servers and buys up blocks of Exxon at price A and then offers it up to the pokey buying search when it finally arrives at those servers at A+a bit more.  That "a bit more" may be less than a penny, but the pennies add up and if done right, there is almost no trading risk.

This is bad, though generally not for us small investors but for our mutual fund companies.  For my little trade of 100 shares that might be cleared on the first server, HFT's have no opportunity to play.  Moreover, I may not even notice a penny or two difference in the price I get.  This is a much bigger deal for mutual fund companies and large investors clearing larger trades, where a few pennies can add up to a lot of money.

An exchange always has to be really careful to maintain its image of fairness, and systematically allowing such behavior, called front-running, is not good for the health of the market.   Which is why you are hearing a lot about this.

Here is what you are not hearing, and I will admit that it is all a hypothesis of mine.  But it may well be possible that HFT's actually reduce the total cost of front-running to investors.  It may be that HFT's real crime is that what they are doing is more transparent and visible than what market makers were doing in the past -- ie they are not increasing the volume of front-running, they are just making it more obvious.   I would not be at all surprised if such front-running always existed in market-making (certainly Goldman Sachs has been accused of it) and that HFT's are actually the Wal-Mart or Amazon of front-running -- not doing anything new but doing it cheaper on tighter margins.   Kind of ironically, I suppose this is what efficient markets theory would predict for the market in front-running.

If this is the case, while we would rather see front-running eliminated entirely, HFT's may actually be reducing the cost of front-running and making things more rather than less efficient.

Baptist and Bootlegger

I can't think of a better illustration of the "bootlegger and Baptist" coalition supporting prohibition than the case of California state senator Leland Yee.  By day, he was one of the most outspoken advocates of gun control.  By night, he was apparently trafficking in illegal weapons.

Smuggling only earns high rents if the underlying goods are illegal.  Who ever heard of cucumber smugglers, or dealers in the illegal cat 5 cable trade?  Every time Leland Yee took another action to make guns harder to own in California, he not only got pats on the back from gun control "baptists" on the Left, but he also made his criminal friends more money.

Occupational Licensing and Goldilocks

Don Boudreax has a good editorial up on occupational licensing

The first hint that the real goal of occupational licensing isn't to protect consumers' health and welfare is that far too many of the professions that are licensed pose practically zero risks to ordinary people. Among the professions that are licensed in various U.S. states are florists, hair braiders and casket sellers. What are the chances that consumers will be wounded by poorly arranged bouquets of flowers or that corpses will be made more dead by defective caskets?

The real goal of occupational licensing is to protect not consumers, but incumbent suppliers. Most occupational-licensing schemes require entrants into a trade to pass exams — exams designed and graded by representatives of incumbent suppliers....

But what about more “significant” professions, such as doctors and lawyers?

The case for licensing these professions is no stronger than is the case for licensing florists and hair braiders. The reasons are many. Here are just two.

First, precisely because medical care and legal counsel are especially important services, it's especially important that competition to supply these services be as intense as possible. If the price of flowers is unnecessarily high or the quality poor, that's unfortunate but hardly tragic. Not so for the prices and quality of the services of doctors and lawyers.

Too high a price for medical visits will cause too many people to resort to self-diagnosis and self-medication. Too high a price for legal services will cause too many people to write their own wills or negotiate their own divorce settlements. Getting matters wrong on these fronts can be quite serious.

Won't, though, the absence of licensing allow large numbers of unqualified doctors and lawyers to practice? No.

People are not generally stupid when spending their own money on themselves and their loved ones. Without government licensing, people will demand — and other people will supply — information on different physicians and attorneys. Websites and smartphone apps will be created that, for a small fee, collect and distribute unbiased information on doctors and lawyers. People in need of medical care or legal advice will be free to consult this information and to use it as they, rather than some distant bureaucrat, choose

One thing I think sometimes gets lost -- the critique of licensing often focuses on where licensing is too restrictive - e.g. hair braiding or taxis or simple medical procedures.

But it is just as likely to fail because it is insufficiently restrictive. People will always say to me that they certainly want their brain surgeon to be a licensed physician, implying that licensing is appropriate for certain extreme skills. But would you really choose a brain surgeon merely because he or she was licensed? I would do a ton of research in choosing a brain surgeon, research that would go well beyond their having managed to pass some tests 20 years ago.

The same applies for restaurants - my standards go way beyond whether they have a 3 basin cleanup sink and have sufficiently high temperatures in their dishwasher.

The criteria for licensing is never "just right". Either it is too restrictive and eliminates competition that would provide me value; or else it is insufficiently stringent such that I have to perform the same due diligence I would have in the absence of any licensing regime (though perhaps with less robust tools since licensing likely stunts development of such consumer tools). And even if it happened to be well-calibrated for me, it will not be well-calibrated for my neighbor who will have a different set of criteria and preferences.

Conflict of Interest

By the way, there is a reason for this choice (from an article on why unions are worried about the PPACA)

The second problem is that the 40 percent excise tax on especially expensive plans — the so-called Cadillac tax — is going to hit union plans especially hard. Unlike most people negotiating compensation, union negotiators make an explicit trade-off between wages and other benefits, and the benefit that they seem most attached to is generous health plans. Union plans are made more expensive still because union membership is heavily skewed toward older workers. They are thus very likely to get hit by the Cadillac tax, which takes effect in 2018.

The preference for health benefits over cash compensation makes some sense for tax reasons (as it shifts taxable income to nontaxable income).  And at some level it is typical of union thinking, which is often driven by seniority and by benefits for older workers over younger workers.  But there is another reason for this that is almost never stated -- the unions themselves run many of these health plans.  And because it is priced as a monopoly, the unions often earn monopoly rents on these plans, and use management of large health plans to justify much higher compensation levels for union leaders.  In Wisconsin, ending public union strangleholds on health plan management immediately saved the state and various local school districts millions of dollars when they were allowed to competitively bid these functions for the first time.

Can One Be A Principled Moderate? And What the Hell Is A Moderate, Anyway?

Sorry, this is one of those posts where I am still struggling to figure an issue out, so bear with me if we wander around a bit and the ideas are a bit unfinished.

Kevin Drum and other progressives have been bending over backwards to argue that the now three year delay in implementing PPACA standards for private insurance policies is no big deal.

Really?  The PPACA is likely, for Progressives, to be the most important piece of legislation passed during this Administration.  Hell, based on the discussion when it was passed, for many it is likely the most important piece of legislation passed in the last three or four decades.  And when Republicans suggested delaying these same rules and mandates, e.g. during the government shutdown, they freaked, arguing that people should not have to go another day with their old crappy health care policies.

But now they just roll over and say, yeah, ho hum, this thing that everyone supposedly wanted is a political liability so its fine to delay it, no big deal.

If this were a signature piece of libertarian legislation (yeah, I know its hard to imagine such a thing) that was not being implemented by somebody I voted for and supported, I would be pissed.  I would be raking the President over the coals.

This difference in outlook may be why the Republican leadership hates the Tea Party.  The Tea Party gets pissed when folks they elect punt on the ideological goals they got elected to pursue.  They have no tribal loyalty, only loyalty to a set of policy goals.  The key marker in fact of many groups now disparagingly called "extremists" is that they do not blindly support "their guy" in office when "their guy" sells out on the things they want.

I have friends I like and respect -- smart and worldly people -- who are involved in a series of activities to promote political moderation.  What I have written in this post is the core of my fear about moderation -- that in real life calls for moderation are actually calls for loyalty to maintaining our current two major parties (and keeping current incumbents in office) over ideas and principles.

Which leads me to an honest question that many of you may take as insulting -- can one be a principled moderate?  I am honestly undecided on this.  But note that by moderate I do not mean "someone who is neither Republican or Democrat," because I fit that description and most would call me pretty extreme.  So "fiscally conservative and socially liberal" is not in my mind inherently "moderate".  That is a non-moderate ideological position that is sometimes called "moderate" because it is a mix of Republican and Democrat positions.  But I would argue that anyone striving to intellectual consistency cannot be a Republican or Democrat because neither have an internally consistent ideology, and in fact their ideology tends to flip back and forth on certain issues (look at how Republican and Democrat ideology on Presidential power, for example, or drone strikes changes depending on whose guy is in the Oval Office).

Moderates in my mind are folks willing to, or even believe it is superior to, take average positions, eg. "the PPACA just went too far and we should have had a less-far-reaching compromise" or "free trade agreements go too far we need a mix of free trade and protectionism".  They value compromise and legislative action (ie passing lots of laws in a fluid and timely manner) over holding firm on particular ideological goals.  I guess the most fair way to put it by this definition is they value consensus and projecting a sense of agreement and teamwork over any individual policy goal.

Postscript:  One other potential definition of "moderate":  One could argue that in actual use by politicians and pundits, "moderate" effectively means "one who agrees with me" and "extremist" means "people who disagree with me."  The real solution here may be to accept that "moderate" is an inherently broken word and stop using it.

Update:  There are areas where I suppose I am a moderate.  For example, I think that making definitive statements about what "science" has been "settled" in the realm of complex systems is insane.  This is particularly true in economics.  Many findings in economics, if one were honest, are equivocal or boil down to "it depends."  The Left is insanely disingenuous to claim that the science is settled that minimum wage increases don't affect employment.  But it is equally wrong to say that minimum wage increases always have a large effect on unemployment.  For one thing, almost no one (percentage wise) actually makes the minimum wage so we are talking about changes in the first place that affect only a couple of percent of the workforce, and may be mitigated (or exacerbated) by other simultaneous trends in the economy.  So of course their impact may not be large (in the same way that regulations on left-handed Eskimo Fortran programmers might not have much of an impact on the larger economy).

We have gotten into this bizarre situation that the science is suddenly always settled about everything, where it would be safer to argue that given the complexity of the systems involved the science can't be settled.  I liked this bit I read the other day in the Federalist

One of the more amusing threads that runs through the conversation among the online left is the viewpoint that the science is settled in every arena, and settled in their favor. The data backs the leftward view, and if it doesn’t, there must be a flaw in the data, or in the scientist, or secret Koch-backed dollars behind the research. This bit of hubris leads to saying obviously untrue things – like “every economist from the left and right” says the stimulus has created or saved at least two million jobs. Or that there’s “no solid evidence” that boosting the minimum wage harms jobs. Of course the media knows that these aren’t true, but they largely give these politicians a pass, because dealing in data and with academic research is their turf.

Folks on the Left who want to blame the Tea Party for the destruction of civil discourse need to look at themselves as well, declaring the science settled on everything and then painting their opponents as anti-science for disagreeing.  As I have pointed out before, this sort of epistemology is not science but religion, the appeal to authority backed by charges of heresy for those who disagree.

If I were going to make a political plea, it would not be for moderation but for better more respectful practices in the public discourse.

A Proposal For Better Management of the (Soon to Be) California Climate Slush Fund

California is about to implement a new climate tax via a cap and trade system, where revenues from the tax are supposed to be dedicated to carbon reduction projects.  Forget for a moment all my concerns with climate dangers being overhyped, or the practical problems (read cronyism) inherent in a cap-and-trade system vs. a straight carbon tax.  There is one improvement California can and should make to this system.

Anyone who can remember the history of the tobacco settlement will know that the theory of that settlement was that the funds were needed to pay for additional medical expenses driven by smoking.  Well, about zero of these funds actually went to health care or even to smoking reduction programs  (smoking reduction programs turn out to be fiscally irresponsible for states, since they lead to reduced tax revenues from tobacco taxes).  These funds just became a general slush fund for legislators.   Some states (New York among them, if I remember correctly), spent the entire 20 year windfall in one year to close budget gaps.

If California is serious that these new taxes on energy should go to carbon reduction programs, then these programs need to be scored by a neutral body as to their cost per ton of CO2 reduction.  I may think the program misguided, but given that it exists, it might as well be run in a scientific manner, right?  I would really prefer that there be a legislated hurdle rate, e.g. all programs must have a cost per ton reduction of $45 of less -- or whatever.  But even publishing scores in a transparent way would help.

This would, for example, likely highlight what a terrible investment this would be in reducing CO2.


Triangle Trade and Physics

You have heard of the Atlantic triangle trade in school.  It is always discussed in terms of its economic logic (e.g. English rum to African slaves to New World sugar).  But the trade has a physical logic as well in the sailing ship era.  Current wind patterns:



Real time version here.  Via Flowing data.

Seriously, click on the real time link.  Even if you are jaded, probably the coolest thing you will see today.  One interesting thing to look at -- there is a low point in the spine of the mountains of Mexico west of Yucatan.  Look at the wind pour through it like air out of a balloon.