Archive for the ‘Economics’ Category

What America needs: more competition

April 5, 2016

imagesUnfashionably, I am an unrepentant advocate for free market capitalism. Vocal “progressive” and populist critics assail the system as rotten, rigged against ordinary people, aggravating inequality. Their cure: more regulation and government intervention, protectionism, curbing free trade, forcing wages higher, and banning corporate money from politics.

Unknown-1Well, the system is indeed rigged. Corporate money does suborn government. And, as a recent piece in The Economist explains, not only have overall profits been strong,* but particularly profitable companies have, in this century, been able to sustain their dominance. That’s contrary to economic theory, which says fat profits in a sector will soon attract competitors, driving prices down and squeezing profits.

However, the cited “progressive” agenda would actually make things worse. Indeed, a lot of it is already part of the problem. The true problem is insufficient competition. And everything “progressives” seek would lessen competition.

When I wrote my Rational Optimism book in 2009, the airline industry was Exhibit A for the virtue of competitive free markets. Now it exemplifies what’s gone wrong. The industry once was pervasively regulated and government-cosseted, but in the 1970s Alfred Kahn (my former leader at the NY PSC) heroically swept all that aside. Unknown-2The resultant flowering of new small airlines and open competition slashed fares so much that flying was no longer for the rich alone. The skies opened to millions of travelers, a vast public boon. And, as of 2009, the industry’s cumulative profits, over its entire history, were approximately zero. In other words, all the benefits of airline investment were captured by consumers, with nothing for the “greedy capitalists” who made it possible!

But then a wave of consolidations and mergers drastically reduced airline competition. Carriers now have far more pricing power, becoming very profitable indeed. Their fuel costs recently collapsed – in competition’s heyday, that would have triggered huge fare cuts – but now airlines get to keep the windfall.

images-1So, as The Economist argued, what we need is not the anti-competitive “progressive” agenda but, rather, lower barriers to competition. One example they cited is the proliferation of licensing requirements, afflicting a host of trades from hairdressing to interior decorating. Supposed consumer protection masks the real purpose: squelching competitors to existing businesses. A hair salon can charge a lot more if there’s not another nearby. Likewise, incumbent taxi firms and hotels try to get government regulators to shield them from Uber and Airbnb.

Protectionism is the same story: protecting businesses against competition, so they can charge more. Sure, free trade means some job losses. They’re very visible, like when Carrier moves a factory to Mexico. Less visible is the benefit to consumers, of lower prices, adding trillions to their wallets – whose spending means vast job creation, making up for those lost. Protectionists ignore this.

Unknown-3I’ve written before how government regulation hurts competition. Coping with massively complex regulatory regimes like Dodd-Frank and Sarbanes-Oxley is doable for huge corporations with armies of lawyers and accountants. For small start-up firms, not so much. This has caused a big decline in our rate of new business creation.

Higher minimum wages too impede competition. Governor Cuomo’s $15 plan has brought forth a parade of small businesses explaining how it will hurt their viability, for self-evident reasons. “Progressives” dismiss such concerns, as if the money will just come out of fat profits, as if all business earn fat profits. Most in fact don’t. And driving some out of business, reducing competition, will make big ones even stronger, harming consumers.

I’ve recognized how campaign cash corrupts government to favor some businesses over others, again undermining competition. But opposing Citizens United is anti-competitive on the part of the political class itself. Government regulation of political campaigns will always be an incumbent-protection scheme, stifling electoral competition. I’ve advocated instead a tax credit for political donations, to unleash a flood of citizen contributions, freeing politicians from servitude to big money donors. The savings from reduced corporate welfare would dwarf the cost, to the Treasury, of the tax credit.

images-3Competition makes people better, do better, and live better.

 

 

The truth about immigration

March 30, 2016

My local community is having a celebration of immigrants. It’s timely, given our national panic attack over immigration. Unknown-1Forgetting Ronald Reagan’s “Tear down this wall,” now a presidential candidate wants to build a new one.

Do immigrants take jobs from Americans? Many think there are only so many jobs to go around, and anyone hired means someone else unemployed. Economists call this the “lump of labor fallacy.” It assumes a static, unchanging economy, whereas the reality is constant dynamic change.* Add productive capability, and uses for it will be found.

Immigrants do add to such capability, thus making our nation economically stronger, not weaker. Especially since they have more drive than the pre-existing population’s average. Countries like Mexico are not sending us “wretched refuse.” To the contrary, anyone willing to face all the hazards of emigrating is among the most courageous, ambitious, enterprising, resourceful, capable of people. We need them. They come here to get ahead, not to get hand-outs.

images-1In fact, we have a huge problem with a growing imbalance between our rising elderly population, collecting benefits, and those working and paying taxes to fund those benefits. Young work-hungry immigrants help redress that imbalance. Thusly replenishing our work force is a key factor making America’s economy stronger than Europe’s (actually more anti-immigrant than we are).

America believes in freedom. A fundamental freedom is to live where you want. Should we then let everybody in? It’s not a crazy idea. Economists have estimated – get this – worldwide free movement of people would double global GDP. Because migrants would multiply their earning power by going to where their work is more productive (often because of better technology). Most poor people are poor because they’re trapped where their productive potential is vastly underutilized. Remedying that, through freer movement, would go far toward eradicating poverty. And the resulting more efficient production of goods and services, globally, would make everyone richer.

Some fear immigrants will degrade our culture.

Learn English or get out

Learn English or get out

But successive waves of immigrants have enriched U.S. culture, continuously rejuvenating it; our polyglot diversity is what makes our culture the world’s most vibrant and attractive. Ironically, those who fear this cultural flux are not themselves paragons of cultural refinement. No, it’s not immigrants who threaten America with cultural degradation – it’s the immigrant-haters, who would hand the presidency to a braying, bragging brute.

Real Americans love apostrophes!

Apostrophes belong to Americans too!

*Automation is a similar jobs bugbear. So far employment has always actually expanded. But is technological progress finally leading to all production needs met without jobs for all? Ever fewer people are employed making stuff — but more in services. Unskilled work is disappearing, hurting the less educated. Our challenge is to make everyone productive.

Morocco: open for business

March 25, 2016

UnknownSince our daughter had a gap between jobs in Jordan and Afghanistan, we met up for a hastily booked Morocco tour.

We had been to this North African country before, a brief side excursion. I remember exiting the tourist bus in Tetouan and saying, “Toto, we’re not in Kansas any more” – it was like stepping back in time a thousand years. But that was not representative of Morocco, whose modernity, this time, surprised me.

photo by Elizabeth Robinson

photo by Elizabeth Robinson

It’s overwhelmingly Muslim, with two main ethnic groups, the indigenous Berbers, and Arabs who came later. Ethnic tensions seem minimal. I asked our tour guide about this, in light of sectarian strife in other Islamic lands. “Those people aren’t Muslims,” he said, “they’re fanatics.”

Moroccans are bilingual, equally using Arabic and French (this was a French colony, 1912-56). The distinctive Berber script is seen occasionally; and of course there’s Globalspeak (English).

Berber script

Berber script

Morocco is a constitutional monarchy, not what you’d call a free country; but while the King, Mohammad VI (since 1999), is really still the boss, he’s done a fair bit to modernize, liberalize and democratize Morocco.

Volubilis - photo by Elizabeth Robinson

Volubilis – photo by Elizabeth Robinson

It was part of the ancient kingdom of Mauretania; later, of the Roman Empire. A nice surprise was visiting the extensive ruins of the Roman city of Volubilis – off my radar screen because (unlike the typical ancient city), Volubilis issued virtually no coinage.

We spent quite a few hours in the “medina” (old city) of Fes – a vast labyrinth of narrow streets. Here, and elsewhere, one finds an incredible profusion of little stores and seller stalls; the country is like one gigantic flea market, offering every sort of edible, wearable, or useable. One stall might have nothing but a mountain of peanuts; others with pyramids of dates, or cookies, or spices, etc. Even bathtubs! People mostly do their shopping, and many earn their living, through these markets.

My wife wanted to try a sizable disk-shaped bread loaf. The quoted price was Two Dirhems – about 20 cents. But for that we actually received two loaves.

I wondered aloud how they all could sell enough to stay in business. But my daughter pointed out the obvious: they wouldn’t be there otherwise.

Then we went to Marrakech, where the souk (marketplace) was orders of magnitude larger, with the profusion of goods bordering on unbelievable: mountains of shoes, foodstuffs, handbags, electronics, souvenirs, jewelry, handicrafts (one entire section, for example, with stall after stall selling brasswork); a lot of the production was being done on site too, making for quite a humming scene.

imagesI had fantasized finding a pile of those cool cast 19th century Moroccan coins, but didn’t see any. At the end I asked our local guide, and he took me back to one gnarled ancient fellow who came forth with a bagful of about 30. But his price was way high. Then our guide knocked on a closed door, which opened into an antique shop, with a bucketful of silver coins. I bought a few Moroccan ones in unusually choice condition – and a 1929 Italian 10 Lire – good date! – and a steal. Meantime my daughter bought a handbag and some boots, proving herself better than me at haggling.

Photo by Elizabeth Robinson

Photo by Elizabeth Robinson

We also had the obligatory tourist visit to a carpet emporium. Once on a similar excursion in Turkey, I made the mistake of agreeing to sign in with my phone number. I couldn’t believe how often those carpet pushers called me in subsequent years, despite my increasingly angry brush-offs.

The overall impression of Morocco was one of basic prosperity. There were, admittedly, a fair number of beggars. But many looked no scruffier than a typical seller in the souk. I suppose that holding one’s hand out is actually a more effective way of getting passersby to part with cash.

UnknownBut Marrakech is also a very modern city, whose main drags might be hardly distinguishable from, say, Lille, or Dusseldorf. We visited one glitzy shopping mall, very different from the chaotic souk, with beautiful Moroccan décor, and the poshest brands. I remarked to my wife, “I must be the shabbiest looking person in this mall.”

And the Moroccan economy is not all souk sellers flogging kitsch. Everywhere you looked it was evident that every sort of modern business was thriving. The roads were jammed with vans and trucks displaying a profusion of their logos. If not politically free, this is manifestly a very open, free economy. I am always energized visiting countries like this. It’s part of a worldwide phenomenon, of recent decades, which many people fail to grasp amid all the gloom and doom talk. Economic openness, free enterprise, and trade, are transforming, for the better, the lives of billions of people.

I couldn’t help pondering the contrast with a country like Venezuela, where folks stand in line for hours outside the few stores, hoping for a rare chance to buy some meager necessities – thanks to their “21st century socialism.”

“Our Kids” and the real inequality

March 5, 2016

imagesInequality is a big issue. But focusing on the 99%-versus-1% is misguided. The idea that if the 1% had less the 99% would have more is incorrect.*

unknown3America’s real inequality problem is addressed in Robert Putnam’s recent book, Our Kids: the growing divide between two very different cultures, and decreasing mobility between them. It’s not the 1%-versus-99% but, roughly speaking, the top third versus the lower third.

Putnam’s departure point is the 1950s Ohio town where he grew up, where the phrase “our kids” was used by both rich and poor talking about all the town’s kids. Because they really all lived in a unified community. That kind of social solidarity is a bygone, sundered by a wall of separation.

Affluent well-educated people tend to marry well-educated mates and provide their kids with a stable, nurturing, well-resourced path for repeating the process.unknown-31 The other culture comprises those who don’t go to college and consequently earn much less. The divide is widening because the workplace value of education is increasing. It’s not some conspiracy by the rich to keep down the rest. Rather, it’s a raw economic reality that in today’s world unskilled work just isn’t worth what it used to be.

But the problem isn’t just money. Today’s lower income Americans actually have more income (when you count government benefits) than in Putnam’s 1950s town. And way more than in the Depression and before. Yet those poorer people nevertheless mostly managed to maintain stable, nurturing family structures. Today’s do not.

UnknownThis is the heart of Putnam’s book. In contrast to the Ozzie-and-Harriet child-supportive marriages of the educated class, today’s less educated tend to have more chaotic family situations, often without marriage at all, in which children don’t get comparable nurturing and support. And those kids are similarly set up to repeat the picture; it’s extremely hard to break out of that culture to obtain the education and personality traits needed for rising into the affluent class.

Drilling down into the reasons, Putnam sees parenting styles as crucial. For the affluent, the social norm has shifted from the relaxed Doctor Spock approach to “intensive parenting,” influenced by well-publicized research revealing the importance of early parent-child interactions in personality development.** Less educated parents haven’t gotten this memo, or else aren’t able to follow it, due to financial and other stresses in their own lives. images-1Compared to the affluent, their parenting is more restrictive and punitive – less hugging and more spanking.

One researcher contrasts the affluent’s “promotive” parenting strategies, aimed at encouraging children’s talents, with poorer parents hewing toward “preventive” strategies to cope with the dangers of a rough environment. Further, affluent parents not only speak vastly more words to their kids, but the vast majority are encouragements, whereas for parents on welfare the great majority are discouragements.

Not surprisingly, all these parenting differences have been shown to affect children’s brain and personality development. (See my post on the marshmallow test.) That’s how poor families get stuck reprising their trajectories.

What is to be done? Good schooling might ideally compensate for parenting disparities; but for a cat’s cradle of reasons, which Putnam explores, schools in disadvantaged neighborhoods tend to exacerbate rather than rectify cultural disparities. For example, because their environment is more stressful, good teachers flee them.

Putnam does conclude with a list of suggested fixes, but basically it’s all doing more of the well-intentioned things that are already done, generally inadequately. Unknown-1But here’s a more radical thought. It’s also clear from the book that less affluent kids do badly partly because they live in bad neighborhoods. Let’s move families to better neighborhoods. This has actually been tried and shown to produce good results.

* The mistake is thinking there’s a fixed amount of wealth to go around, so anyone’s gain is another’s loss. Wrong. Steve Jobs got rich selling gizmos for more than they cost to make, to people who valued them more than they paid. That’s how societal wealth is increased. Buyers of his products would not have been richer had Jobs not gained wealth, they’d have been poorer.

 ** Putnam acknowledges that “helicopter parenting” has its own problems; but still insists they’re dwarfed by the problems he documents in lower class families.

Can money buy happiness?

February 14, 2016

UnknownMoney does buy a lot of things that enhance well-being; and many of life’s problems can be solved if you have enough money. But past that point, scientific evidence suggests, more money may not make you happier. (Though still the quality of life is better, and I’d rather be rich and miserable than poor and miserable.)

Some profess bafflement why people who have enough still want more. As if that were not fundamental to human nature. Yet wanting more is labeled “greed;” and wanting more, globally, in the form of economic growth, likewise gets tarred as a kind of greed. There are even those (like climate activist Bill McKibben) who deem economic growth a bad thing. But that’s supercilious in a world still far from the point where everyone has enough to live decently.* (And, no, redistributing all the wealth of the rich wouldn’t do it.)

It’s also argued that wealth inequality actually reduces everyone’s well-being. At least some wish that were so, to bolster their anti-wealth political agenda. But I doubt the rich are much perturbed by inequality. Indeed, there’s evidence that on average they’re stingier, less charitable, and just less nice. It’s not clear whether wealth makes one mean, or being mean helps make one richer. But either way, many (though not all) rich people feel superior and disdainful.

UnknownHowever, if lefties then arguably have a point that wealth tends to go to the “wrong” people, that seems to be a basic fact of human society that cannot be undone without destroying the sources of economic growth and progress – that is, people striving to better their personal situations – that have meantime made the world as a whole so much richer, especially in the last century, eliminating so much squalor and misery.

Getting back to happiness, what the word actually means is a big and difficult question. But people generally seem born with (or to develop) a set-point along the happiness/unhappiness spectrum, to which they tend to revert eventually after the impact of any vicissitude. One element of a happier personality is a sense of gratitude – not taking one’s blessings for granted.

images-1A related key reason why, beyond a certain point, added wealth doesn’t increase happiness is what social scientists call the “adaptation effect.” One adapts psychologically to a new higher living standard; the surprise wears off and the “new normal” becomes what you now expect and take for granted.

Also relevant here is a set of Kenyan socioeconomic experiments reported by The Economist. In small villages, sizable cash grants were given at random (echoing the typically unequal distribution of economic growth). Recipients’ feelings of well-being measurably rose. But for neighbors, they fell, by even more. (Though all these deviations wore off after a while; the adaptation effect.)

But notably, as The Economist explained, “it was not inequality in general that bothered the unlucky, so much as a decline in their own wealth relative to the mean.” That is, their sense of well-being was governed not by their absolute wealth levels but, rather, by the comparison against their peers. The cash grants raised a village’s average wealth, making the non-recipients poorer compared not just to the recipients but to the average.

images-2“Keeping up with the Joneses” is a very real psycho-social force. As The Economist further says, in evaluating one’s relative position one tends to look at those above rather than below; so, “when our own lot improves, we shift our reference group to those who are still better off. In other words, we are never satisfied, since we quickly become accustomed to our own achievements.” The adaptation effect again. “Perhaps that is what spurs people to earn more, and economies to grow.” (My emphasis.)

imagesConclusion: to keep people from getting rich would not be good for the poor, but bad.

 

Regulation, poverty, and hot sex

January 9, 2016

imagesTacna is an industrial park set up by Peru’s government. It even offers exemption from corporate income tax. Yet Tacna stands empty. Why? Because of the red tape for setting up there.

I read this recently in The Economist, discussing Latin America’s economic stagnation. The article also mentions that to build a gas pipeline in Peru requires 4,102 separate permits.

We constantly hear about world poverty and inequality, and remedies as economically clueless as they are radical. But the more I learn how the world actually works, the larger looms the unsexy yet critical issue of excessive regulation.

UnknownFirst of all, “unfettered capitalism” is a straw-man caricature. Nobody believes business should have no restraints. Just as individuals are subject to societal laws, against littering and murder, to protect us all, so too for businesses.

But that actually concerns only a tiny fraction of business regulations. They have a natural tendency to metastasize, with the idea that if a little regulation is good, more is better. Unknown-1Thus we get OSHA regulating how many inches apart a ladder’s rungs must be.

There is a psychology that fears and hates life’s uncertainty and disorder, imagining they can be controlled with sufficient regulation. And believes “society” somehow knows better than individuals and should supplant their decisions and choices, putatively to make a more orderly world.

But there’s a huge downside. Like in Peru’s case, all this regulation stifles economic activity. My local newspaper, the Times-Union, recently had a piece very revealing about how New York’s governmental regulation impedes would-be small business entrepreneurs.

Over-regulation is much worse in many other countries, especially – seemingly counter-intuitively – poorer ones, making it difficult if not impossible to do business. Many have sought to emulate the rich nations in establishing elaborate bureaucratic rule-books, indeed outdoing them in an orgy of regulation for regulation’s sake.

images-1You think I exaggerate. But look at Peru; Nigeria; Egypt. India is the standout poster boy, with a jungle of nonsensical rules (the “License Raj”), many actually the product of an anti-business mentality. For example, that same Economist issue elsewhere mentions an Indian law banning storage of large quantities of various commodities – supposedly to deter “hoarding.” It actually deters investment in warehouses and cold storage, so much farm produce just rots (in the land with the most malnourished people on Earth).

images-2Also, some poor countries intentionally create a morass of fiddly rules to give officials opportunities to extort bribes to bend or overlook those rules. Or else rules may be well intentioned but fall victim to the law of unintended consequences. Many nations (especially in Europe) have regulations making it difficult and costly to fire employees. The aim is job security. But the result is unemployment because businesses become reluctant to hire people in the first place.

In many places it’s so difficult and costly to comply with all the nitpicking regulations that businesses just give up and operate, if at all, in the black market – limiting their access to finance and growth, and of course neutering the consumer safeguards regulation ought ideally to provide. No way to run an economy.

If you have scant sympathy for the businessmen stymied by over-regulation, consider all the jobs that might otherwise be created. And how much regulatory costs add to the prices of goods and services purchased by the poor. images-3Those prices are also inflated by lack of business competition – another true aim of much regulation, at the behest of politically powerful firms. (Taxi companies worldwide are mobiilizing to squelch the competitive threat of Uber – often by means of regulation.)

Bottom line: over-regulation hurts the poor. It limits their opportunities to rise to better lives through honest toil and commerce, and aggravates inequality. This is a bigger issue than anything in Piketty.

The world (and especially its poorest) would – literally – be better off with no regulation of business (apart from obvious criminality like fraud). Wouldn’t many people be harmed? Certainly. But that would be vastly outweighed by the benefits of more jobs, lower prices, more goods produced more cheaply and more consumption, thus overall greater economic growth.

images-4This isn’t just theoretical. I give you China – despite its “Communist” label (and authoritarianism), China in fact is the closest thing in the world to that mythical creature, “unfettered laissez faire capitalism.” It’s a wild west where private business is just about not regulated at all. Yes, there have been some scandals. But China’s average real-dollar per-person income has soared, since 1979, more than THIRTY-FOLD – over 3000%. Human betterment on a vast scale, unprecedented in history, with hundreds of millions rising out of poverty. That’s what you get with no business regulation.

So what about the “hot sex” of my title? Well, no one (few anyway) would read something prosaically titled “Regulation and poverty.”

Do you believe poverty is worsening?

November 28, 2015

UnknownThe global population living in extreme poverty has risen in the last 20 years – indeed has almost doubled – say two-thirds of Americans in a recent survey. Nearly all the rest guessed poverty has merely stayed the same.

“Rising poverty” is a pessimist idee fixe, so ubiquitous that most folks unthinkingly consider it an obvious truism, to be sanctimoniously deplored. I have actually seen people’s eyes sparkle when talking of “rising poverty;” puffing up one’s moral vanity feels good.

Unknown-1Well, sorry to be a killjoy, but global poverty has in fact plummeted in recent decades. If world poverty were a stock, you’d have lost your shirt on it. The 95% of Americans who believe otherwise are misinformed.

This little known secret was revealed by Nicholas Kristof in a recent New York Times op-ed, citing World Bank figures: since 1993, the proportion of world population living in extreme poverty (defined as earning less than $1.00-$1.25 daily) fell by more than half, from 35% to 14%. Adding insult to injury, Kristof also noted the child death rate, before age five, dropped by more than half since 1990.* And whereas in the ‘80s only half of girls in developing countries completed elementary school, now 80% do. Literacy is rising and disease rates are falling. And so on. (Bill and Melinda Gates similarly argued in the Wall Street Journal in 2014 that pessimists are wrong and global conditions are improving markedly.)

imagesYet still there’s rising inequality, we’ve still got that for moralizing lamentation, no? Well – Kristof’s data refute that “the rich get richer and the poor get poorer.” The rich are getting richer, yes, but so are the poor, though not as fast, which does increase wealth gaps. However, globally, inequality between poor countries and rich ones is indisputably lessening, simply because the former have higher economic growth. (Even with today’s big slowdown, the Asian Development Bank projects 5.8% 2015 growth for the region, minus Japan. For advanced countries, 3% is considered sizzling.)

images-1The left, wedded to a mantra of rising poverty and inequality, is all about wealth and income redistribution to fix it. But part of why developing economies are growing faster than advanced ones, reducing the gap between them, is because wealth is in fact being redistributed from the latter to the former. This is what Trump yaps about with his China bashing. And, ironically, the left hates it too – all the whining about “shipping jobs overseas.” That redistributes wealth from richer to poorer people. Shouldn’t the left love it?

Unknown-2But of course poorer countries aren’t simply sucking our wealth away. To the contrary, a more integrated global economy with fewer artificial barriers enables goods and services to be produced where it is cheapest and most efficient, and this makes the whole world richer – including us. Cheaper production in China or India or Vietnam reduces prices for U.S. consumers (to the tune of trillions of dollars in fact), enabling more spending on other things, which stimulates job creation, making up for jobs lost. Everybody wins.

Further illuminating what is happening and why, author Ronald Bailey provided a commentary (on Reason.comon Kristof’s piece. What has enabled many developing countries to improve by taking advantage of global trade opportunities is better economic policies – in a nutshell, more economic freedom for their people to do so – phasing out dysfunctional old socialist nostrums (this is the “neoliberalism” lefties condemn). Bailey cites a 2015 Fraser Institute report giving countries economic freedom ratings, based on various measures. The 102 countries continuously rated averaged 5.31 in 1980, rising to 5.77 in 1990, 6.74 in 2000, and 6.86 in 2013.

Bailey notes that such economic freedom, and its handmaid, rule of law, tend to flourish in politically and economically stable countries. And it should be no surprise that all those conditions combine to unleash human ingenuity and enterprise, creating wealth and reducing poverty. Bailey also cited data showing that such nations tend to have markedly reduced fertility rates (thus controlling population growth), better environmental stewardship, and higher life expectancies than in more repressive and misgoverned lands.

Bailey concludes by saying that it is in “democratic capitalist countries that the air and water are becoming cleaner, forests are expanding, food is abundant, education is universal, and women’s rights respected.”

images-2Free market capitalism admittedly produces uneven results – as will any economic system – but is far better than any alternative for giving the greatest number of people the best opportunities and quality of life. The gigantic poverty reduction and welfare improvement of recent decades was not the product of socialism, but of getting away from such economic folly. And a market economy is also ethically superior because it works by increasing freedom rather than restricting it. That’s what I call social justice.

(All of this was already covered in my own very excellent 2009 book, The Case for Rational Optimism. I thank Scott Perlman for pointing me to the cited articles.)

*Meantime, Bernie Sanders saying America has the world’s highest child poverty rate is ridiculous. We measure it in relation to average U.S. incomes – which top worldwide scales. Of course child poverty is much worse in many countries that still are much poorer.

What Is “Socialism?”

October 20, 2015

imagesBernie Sanders calls himself a “democratic socialist.” The word “socialist” has gotten much use in the past century. “Nazi” was actually short for “National Socialist.” Not that Sanders uses the word in the same sense as Hitler.

There’s a lot of effort to sugar-coat it, to persuade voters it’s nothing to fear. Sanders says it means nothing more than economic fairness. UnknownHumpty Dumpty said, “When I use a word, it means just what I choose it to mean.” One caller on a radio forum chirped, “Do you like the fire department, the police, military, run by government? Why, that’s socialism!”

Well, no. That’s simply government. Not everything government does is “socialism,” so that if you like government doing anything then you must be a socialist.

Time for some Political Science 101.

Why was government invented in the first place? Philosopher Thomas Hobbes explained: in a “state of nature” your neighbor could bash your head in and grab your food, or wife. Unknown-2Imagine people getting together to discuss this predicament. The answer is for each to give up his* freedom to bash a neighbor in return for others giving up theirs. Now you can devote less time and effort on self-defense, and tending your wounds, and more on getting food or nookie. But this system of law (the “social contract”) needs an enforcer. That’s government.

But notice this is a faustian bargain. You give up your right to use violence, to government – which can now use it against you. That’s a terrible power, and you want to be very careful it’s limited. And while we have found many other worthy functions for government (like fire protection, mentioned by that caller), government doesn’t work by voluntary cooperation, but through its ultimate power to put non-cooperators in jail. Unknown-3With all the talk these days about “corporate power,” remember that no corporation can put you in jail.

What “socialism” really means is government performing not only its social contract function, via a legal system, and communal functions like fire protection, but also economic functions; in the lingo, “owning the means of production, distribution and exchange.” What, in a market economy, is done by people individually or, more commonly, grouped together in businesses. A purely socialist economy doesn’t even allow that.

Now, of course, just as we don’t have a purely market economy, and America actually is already partly socialist, so too one can imagine a socialist economy that isn’t pure but is still partly capitalist. But that doesn’t negate the basic dichotomy between the socialist and market economic concepts. Though you can have a mix, socialism means government taking the place of private business activity.**

images-1Sanders’s “democratic socialism” is really something of an oxymoron, because it is, once more, the essence of socialism to supplant private activity. And the more pervasive government becomes, in running society, the harder it is to be democratic. While a market economy entails numerous non-government institutions (importantly, businesses and corporations) as independent power centers, a counterweight to government power, a socialist economy undermines that power dispersal and concentrates power in government hands.

And so it has indeed been the experience that countries with basically socialist economies have not been what we would recognize as democratic. The two ideas are fundamentally incompatible. This is one key reason why the world so decisively turned away from socialism in the late twentieth century.

The other reason was that it just didn’t work. While the idea of socialism is purportedly to give ordinary people better economic outcomes, in practice it did the opposite. Government has proven itself incapable of creating wealth, as does a market economy of enterprises competing with each other to give consumers better products and services at better prices. You can redistribute till the cows come home, but without a market economy creating wealth in the first place, people will be poorer. Whine all you like about the unfairness, the “harshness” of capitalism fueled by greed, but the ordinary person is still better off than under socialism.

Unknown* One is supposed to use gender-neutral language nowadays. But of course women don’t bash anybody.

** Socialists talk of “common ownership.” However, in reality that means nobody except government owning anything.

Hollow Hillary’s Trade Terrors

October 11, 2015

Republican presidential candidates are falling over themselves pandering to a right-wing activist base that dominates party primaries – exemplified by Scott Walker advocating a northern border wall. Though he quit, so maybe that out-crazied the party’s crazy wing.

unknown-12The Democratic party has likewise been captured by a left-wing activist base, which explains Hillary Clinton’s disgraceful attack on President Obama’s TPP (Pacific nation trade deal), even though she advocated the concept while Secretary of State. It’s one of the few really good things Obama has achieved. That a big trade deal could be concluded at all in today’s complicated world is almost a miracle. Failure to approve it would be yet another blow to America’s tattered international credibility, while China’s role is growing. Recall how our friends all ignored Obama’s plea to shun China’s new regional development bank.

imagesAnd it’s a good deal for America – the benefits to our consumers through lower prices on imports will vastly outweigh any jobs lost – and that furthermore will stimulate more spending on other things, creating new jobs, making up for the ones lost. It’s good for the world too, making people in other countries more prosperous. A more prosperous world, with wealthier trading partners, is also obviously good for America.

But none of this registers with the anti-trade – frankly, anti-market – anti-economic-growth – Democratic left wing which Hillary feels she must coddle. At one time it was actually the Republicans who were the protectionists, while Democrats were for free trade, recognizing that protectionism was a scam to protect businesses from economic competition, and free trade benefited the broader public. UnknownDemocrats’ newfound hostility to trade trashes the good of the many for the interests of a few. How did they get their heads so far up their rears on this issue?

Hillary, trying to justifying her betrayal on the TPP, claimed its provisions are too cushy for pharmaceutical companies. Funny that when the deal was announced, pharmaceutical stocks plunged because those companies were seen to be screwed.

Telling It Like It Is: My Presidential Campaign Speech

September 12, 2015

Unknown-1My fellow Americans:

I didn’t want to run for president, but alas now I must. Mr. Trump supposedly “tells it like it is.” Unfortunately he – and other candidates – tell it like it isn’t. But I believe Americans can face reality.

This is a great country, but it wasn’t anointed by God to be that always. It requires work and even sacrifice. It’s not “morning in America” now – it’s getting late in the day.

Problem One: we face financial ruin. Social Security, Medicare and Medicaid were great programs, as long as three or four times as many people were working (and paying taxes) as collecting benefits. Unknown-2But that ratio is inexorably falling as lifespans rise. If nothing is done, these programs will swallow up the entire federal budget, leaving no money for anything else.

As a nation, we’ve actually been spending way more than our income for years, borrowing the difference (much from China). We could do this thanks to historically low interest rates. But at some point the debt’s size will outgrow what the financial markets can tolerate, causing our interest costs to balloon. Then we’re fucked.

Ignoring all this is the Obama administration’s seminal, historic failure.

Like Winston Churchill, I offer nothing but blood, sweat, toil, and tears. However, we remain a very rich people, who can afford to take care of the less fortunate. What we cannot afford is welfare for the better off. Social Security and Medicare will be phased out for higher income people. Taxes will rise too.

imagesSome of that money will go to infrastructure, on which we’re way behind, threatening our status as a world-class country. That spending will create a lot of jobs. I call the program “America Works.”

Another reality is that we cannot insulate ourselves from global economic competition. But free trade benefits more Americans than it hurts. No more stupid whining about “shipping jobs overseas.” If a product or service can be produced better and/or cheaper in India or China, that’s where it will be produced. American businesses that cannot match them will fail and won’t be able to employ anybody.

And did you know our rate of creation of small businesses (responsible for most job growth) is way down? images-1We’ve made it increasingly hard for businesses to operate, what with all the taxation and regulatory hassles. For starters, Sarbanes-Oxley and Dodd-Frank must be repealed.

A lot of folks, concerned about inequality, think businesses make people poorer, with “profit” a dirty word. That thinking must end. It’s successful, thriving businesses, making money by producing things people want, that make everybody richer. Otherwise nobody has a job.

images-2But job skills that used to assure a good life increasingly don’t cut it in today’s world. The real inequality problem is not the 1% versus the 99%, it’s the well educated versus the less educated. I know, people have been yakking about education forever, and there’s no magic bullet. But a quarter of Americans dropping out of high school cannot be tolerated. A great expansion of school choice would inject a much needed competitive ethos. And we need a rethink on college costs, because subsidizing tuition only enables colleges to raise it.

On all these issues, I will work with both parties, seeking compromise and consensus. We must end the culture of partisan demonizing, and recognize that Americans of all political stripes all sincerely want what’s best for everyone, disagreeing only on how to achieve it. Nobody’s evil (or very few).

Unknown-3Foreign Affairs: no more “leading from behind.” That doesn’t mean rushing into wars. But President Obama got the balance wrong between caution and assertiveness, shredding American credibility and making a world much more disorderly and dangerous. America must take the lead and act resolutely to nip conflicts in the bud. There must be no reprise of Ukraine. And if we decide ISIS must indeed be fought, then Heaven help ISIS.

The UN, as a vehicle for international order, has long been broken, due to bad guy vetoes. I will push to create a new “League of Democratic Societies,” with strict membership criteria (like the EU’s), to assume the role the UN cannot.

One last thing.

On May 14, 1938, my mother stood on the deck of a ship as it passed the Statue of Liberty. She was a refugee from a murderous tyranny. America has always been the go-to place for people seeking better lives; and that’s been one of the key things that has made America great. images-3Because such people, willing to give up everything comfortable and familiar, with the ambition to start life anew, even risking their lives to get here – those are the best people. We need more of them.

Elect me and we’ll keep America great.


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