Archive for the ‘Economics’ Category

Venezuela’s tragedy: lessons for America

April 18, 2019

Javier Corrales is the Dwight Morrow professor of political science at Amherst. I recently heard him give a talk about the situation in Venezuela, divided into three parts: what he called “democratic backsliding;” economic collapse; and lessons for America.

Corrales explained that the democratic decline preceded and led to Venezuela’s economic disaster. And he saw reasons for concern that the story could repeat even in well-established democracies like ours.

Corrales started with “Democracy 101.” America, in the 1700s, basically invented the modern concept of liberal democracy. (Not to be confused with the “liberalism” that’s a political orientation of some Americans.) It’s rooted in the Enlightenment, with government accountable to people, and limited, to prevent tyranny by either a minority or a majority. A key means is to divide power among different government branches to check each other, with constraints upon government as a whole to leash its authority.

For a time, after WWII, and especially after the Cold War, liberal democracy was spreading. But then came a “democratic recession” beginning around 2006. Notable cases are Turkey and Hungary, and of course Venezuela. What we see is not the “old fashioned” putsch, but something that more insidiously starts in ambiguity — what Corrales called “executive aggrandizement,” with other centers of power being neutered or co-opted. The picture may ostensibly seem at first more democratic, with a majority thinking they’re getting what they voted for.

Then the regime uses and abuses laws, and creates new ones, to make an uneven political playing field. Elections are still held, but they’re manipulated by a host of measures to produce the desired results. The ruling party becomes a rubber stamp cheering section. The opposition is demonized and delegitimized. Press freedom and public debate are suppressed.

Political scientists use a host of criteria to measure a nation’s degree of democracy. Corrales presented a graphic timeline of Venezuela’s scores. They started low, with a dictatorship until the 1950s, when they jumped to a sustained democratic plateau. Then in 1999 Hugo Chavez (a former would-be putschist) got elected president, and Venezuela’s democratic score fell off a cliff. (Corrales also displayed Cuba’s graph — basically flatlined since the 1959 Castro takeover — and America’s, starting high and rising higher through the period, but with a noticeable drop in the last few years.)

Another set of criteria encompasses all the specific ways in which undemocratic regimes subvert fair elections, and here again a detailed chart was presented for Venezuela. At the start of the Chavez era, voting was still pretty much fair. But then the regime utilized ever more of the measures on the chart, to the point where today, Venezuela’s voting is a cynical charade.

The manipulation became necessary because whereas Chavez was actually popular for a while, the regime’s popularity faded, and nosedived under his successor Maduro. This leads us to the matter of the economic disaster. Venezuela is an oil state; that is, almost all its national earnings are from oil. Chavez was the beneficiary of a big spike in the global oil price, and he used the windfall to buy off political support from the poorer classes. Then the oil price collapsed with the 2008 global financial crisis. As Warren Buffet said, when the tide goes out, you see who’s been swimming naked.

In Venezuela’s case, the regime’s economic mismanagement became tragically evident, plunging the once-rich nation into poverty, with an inflation rate measured in millions of percent, and a tenth of the 30 million population escaping to other countries. Corrales explained that Chavez not only imprudently spent all the oil windfall (saving nothing), but went deep into debt besides. While some of this profligacy did trickle down to the poor, most was frittered away through corruption and incompetence. None was allocated to investment to build the economy.

So Venezuela suffered from an unrestrained state — and that was combined with a restrained private sector. The regime’s “socialism” led it to regulate private business so as to destroy it. Thus food, medicine, and all sorts of other goods (which Venezuela, so oil-concentrated, used to import) have disappeared from the shelves. While the regime’s fiscal indiscipline brought forth hyper-inflation. It made things worse by responding with price controls and even more punitive anti-business measures.

Corrales rejected any idea that America somehow bears responsibility for Venezuela’s travail. To the contrary, he said, the U.S. actually helped finance the regime by buying its oil (now stopped). Meantime its oil income has plunged due to its mismanagement, stuffing the state oil company with political hacks.

We keep hoping Venezuela’s military will oust Maduro. After his talk, I suggested to Corrales it won’t happen because the generals too are profiting from the corrupt system. He agreed. So, I said, the only path is the opposition taking up arms and starting a war. He smiled and nodded (somewhat to my surprise). Then I added, “Some things are worth fighting for.” He smiled and nodded again (ditto).

The lessons here for America should be obvious by now. I have written about the burgeoning phenomenon of political populism (https://rationaloptimist.wordpress.com/2017/12/28/what-is-populism/.) Corrales said the world’s democratic backsliding is driven by populism, defined by its perceived political betes-noires. On the left (epitomized by Venezuela) it’s anti-capitalism, anti-imperialism, anti-Americanism. Bernie-style populism inveighs against “neoliberalism,” corporations, and the rich. Right-wing populism typically demonizes the intelligentsia, elites, immigrants, ethnic minorities, and crime. For both right and left, the stomping on hated enemies can excuse the stomping on democratic norms. (Many Western lefties still defend Maduro.)

Also obvious is Trump’s following the playbook Corrales outlined: executive aggrandizement, undermining governmental checks and balances, demonizing and delegitimizing opponents and the free press. We even see election manipulation, with voter suppression. All this is how it starts. Be afraid. Be very afraid.

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Irrationality in the U.S. Coin Market

March 9, 2019

This is posted mainly for my numismatic friends. It concerns crazy high prices being paid for coins based on increments of condition perfection that are actually meaningless. The “slabbing” mentioned refers to coins in sealed capsules whose authenticity and grade is assigned by certification services. A version of this piece was just published in Coin World, but much condensed, omitting some significant points (and, oddly, the first line). So here is my complete text:

This Emperor has no clothes.

The U.S. coin market, that is — when it comes to the highest grades — especially for modern coins and the “top of the pop” thing (coins graded highest in the slabbing services’ population reports).

Let’s start with what’s rational about coin prices. They’re keyed to rarity and quality.

Rarity is a matter of supply and demand. The fewer the examples available to desirous buyers, the higher they’ll bid the price up.

The quality factor might seem similarly straightforward: better quality brings a higher price. That’s true of any goods. Numismatics in particular entails an aesthetic aspect. Better condition coins are nicer to look at. Thus, “eye appeal.” But note the complication that beauty is in the eye of the beholder, and collectors differ in what attracts them. There’s also a pride-of-ownership factor. Our collecting is a reflection of ourselves. (In my own collecting of world and ancient coins, I’m something of a condition snob.)

The rarity and quality factors are synergistic: in general, higher quality is rarer. Though not always. For 1883 “No Cents” nickels, or 1997-S Proof dimes, lower quality is actually the rarer. Of course, nobody will pay extra for that kind of rarity (except those pursuing “worst of” sets for the sake of numismatic perversity). But in the more usual situation — say, 1897-S dimes — high grade (mint state) coins are far rarer than well-worn ones, and command correspondingly higher prices.

There is also the concept of “condition rarity” where a coin otherwise common is hard to find in the best grades.

In all such cases the price disparity is rational and understandable to anyone. But what about, say, MS-67 versus MS-66 for modern coins? PCGS may have graded ten times more 66s than 67s. Does that make 67 a condition rarity? Should the price be ten times that of 66? Let alone a hundred times or more?

Basic human psychology comes into play here. I’ve mentioned pride of ownership. There’s a part of us — especially men, and coin collectors are mostly men — that wants to be the best and have the best. We call it “bragging rights.” And there’s also competitiveness, the desire to beat out the other fellow and thump one’s chest.

I see this in my own auctions. Some guys just don’t like the idea of being outbid, as though it’s losing a competition, even a knock to their manhood. They will top someone else’s bid just for the sake of claiming a victory. Probably they don’t consciously think this way, it’s unconscious. But it sure helps my prices realized.

Hugely feeding this is the advent of registry sets (a cunning invention by the grading services, to get fees on many common date coins that wouldn’t otherwise be worth slabbing). Now one can actually literally be certified as having the best collection of, say, Lincoln cents. So if you’re in that game, and suppose there’s only a few 1954 cents slabbed as MS-67, you’ve gotta have one. And you’ll pay way more than for a “common” MS-66. Way way more. Would you believe $31,200? That in fact is what an MS-67 1954 cent realized at Heritage’s 2018 FUN auction.

To be clear, 1954 is not even a scarce date. The bid price for MS-66 red is $55; though outside of a slab a BU, even if really nice, goes for maybe a buck. Meantime, for $31,200 you could literally buy a full roll of key date 1885 nickels — in Proof!

Something is seriously out of whack.

This carries the concept of condition rarity to an extreme that’s beyond irrational. Let’s take a deep breath and remember that while the difference between, say, EF and mint state 1897-S dimes is obvious and material (and the price difference is not huge), the distinction between MS-66 and MS-67 1954 cents is nothing of the kind. I am talking not about the market difference, but the actual physical quality difference. It’s awfully close to being a distinction without a difference.

We must also remember that this is all ultimately about aesthetics. People do not need coins. We collect them only because it is in some way pleasing to do so. Upon this foundation a gigantic economic edifice has been built, but at the end of the day, coins have no value except insofar as they confer pleasure on their owners. (Thus I sometimes say in my auction catalogs, “Love your coins for what they are, not for what they’re worth.”)

We do, once more, pay higher for better quality coins because they confer more pleasure. Again a matter of how a coin looks to the eye. But distinguishing between MS-66 and MS-67 requires close examination under magnification with special lighting. Otherwise they look just about identical — apart from any toning, which may actually have a far bigger impact on visual appeal than the bare number grade. Moreover (as Q. David Bowers keeps reminding us), those numbers don’t take account of strike either, a big aspect of a coin’s true quality. Thus the number grades reflect what is really a peculiar sort of tunnel vision. And still further, the numbers falsely imply a sort of scientific precision, when in fact they are a matter of subjective judgement, upon which even experts typically disagree.

Given all that, it might make sense to pay a little bit more for a coin that a grader at some grading service, on a particular day, after a particularly good lunch, decided to call MS-67 than for one in an MS-66 slab. But to pay multiples more — indeed, many hundreds of times more — is insane. In the fullness of time, collectors will come to their senses. As did the Dutch tulip speculators.

The original Sheldon scale contemplated just three quality levels for mint state coins (with one of them an almost impossible nirvana of perfection). Maybe a couple of finer differentiations would be reasonable. But expanding it to 11 (and even more, really, with pluses and Wings) stretched the concept of quality differentiation beyond what makes reasonable sense, given the subjectivity involved. Especially when a fetishistic obsession has emerged over distinguishing among inconsequential gradations of virtual perfection. This has sent U.S. numismatics down a rabbit hole pursuing an illusory holy grail (if I may mix my metaphors, and alliterate).

The Green New Deal

February 18, 2019

Green Nude Eel

It’s green. It’s new. And it’s a deal. What’s not to like?

Ah, the power of words. These three do make for a potent combo that’s caught the zeitgeist of today’s Democratic party. Don’t even try running for president if you’re not for the GND.

Columnist David Brooks writes that while “[t]he productive dynamism of capitalism is a wonder to behold,” this doesn’t today give the middle class, and the less skilled, economic security; nor help address “social decay.” Democrats in particular are increasingly disenamored of free market economics, blaming it for inequality and also seeing capitalism as the culprit behind climate change.

Their Green New Deal is intended as a response for all this. It envisions broad-scale government mobilization to reduce carbon emissions — to zero within a decade or two — with jobs-for-all thrown in.

Climate change is real, human activity is a cause, and the ill-effects will be costly. But the GND is a bad answer, for several fundamental reasons.

First, it does behoove us to reduce planet-warming carbon emissions, to the extent it’s reasonably possible. (Leaving the Paris agreement was brainless.) But zero is not reasonably possible (given existing or foreseeable technology) without sacrifices vastly disproportionate to the resulting climate benefit. Climate zealots seem to regard economic growth, indeed wealth itself, as an evil, urging us to scale back our lifestyles. (As though humankind is a criminal deserving punishment.) Yet these are the same people who bemoan inequality and poverty. They seemingly imagine both reversing economic growth yet also redistributing its fruits.

Economic growth, in recent decades, has in fact tremendously reduced world poverty. We shouldn’t want to reverse that, which zeroing out global carbon emissions would currently require. Indeed, the costs of basic poverty, to human well-being, far exceed climate change’s potential damage. Moreover, to deal with that damage, we’ll need the resources economic growth provides. So we must accept some temperature rise, as a necessary price to sustain our economies and global living standards.

In fact it’s not a choice. Because rising temperature is already baked in, even if emissions are cut to zero. Global warming will still continue, just a little less rapidly than if we do nothing. Thus the hair-on-fire zealotry for emission reduction is misplaced.

But if we really want to reduce emissions, nuclear power produces none. Yet greens ignore that option because . . . well, because it’s “nuclear.” (Dangerous? Fossil fuel power generation is estimated to kill around 20,000 Americans annually with lung disease. Nuclear power’s U.S. death toll: zero.)

And if we really want to stop warming, we’d have to consider geo-engineering initiatives to cool the planet. It could be done, maybe even cost-effectively. But climate zealots oppose even researching such options, because it would undermine their emissions fixation and (the horror!) enable economic growth to continue. So the GND ignores geo-engineering too.

Meantime, absent action to reverse otherwise inevitable warming, our main focus should be not on largely futile emissions reductions but, rather, preparations to combat warming’s effects. This the GND also ignores.

But meantime too, if we do insist on emissions reduction as the aim, economics gives us a clear answer for achieving it: to reflect, in the prices of things, the societal cost of their associated climate impacts. That is, a carbon tax. It would give people proper price incentives to reduce carbon and seek alternatives. (A scheme of emission permit trading would be somewhat analogous.)

However, efforts to enact a carbon tax have gone nowhere. Well, nobody likes taxes. But recently, a group of leading economists proposed, in the Wall Street Journal, a carbon tax whose revenue would be rebated via a universal dividend. That wouldn’t negate the tax’s carbon-reducing incentives, thus a win-win.

But the Democratic lefties behind the GND aren’t interested in such economic rationality, using markets and creating incentives to do right. Instead they want government giving us marching orders. Government would design and create massive new energy and transport infrastructures (“air travel stops being necessary”). These gigantic command-and-control institutions would replace much of what we’ve got now. Including most of our cars. There may also be a job for anyone unemployed (no skills needed, presumably).

This hugely consequential policy package is not the product of a careful broad-based consultative process. While lefties and greenies have long been talking in general on such lines, the GND seems to have been slapped together on the fly, on the back of an envelope, in a very short time, by a few members of Congress (including the over-hyped and under-experienced AOC). Paying for it all is another thing left unaddressed.

Brooks says the GND reflects “a faith in the guiding wisdom of the political elite,” with technocratic government planners in effect mastering the running of a huge and enormously complex part of America’s economic machine. How often must we see such hubristic faith come to tears? Remember the Solyndra fiasco? That was just a teensy foretaste of what the GND envisions. And Soviet central planners too fantasized being economic masterminds. Brooks wryly notes that the GND comes from “people who couldn’t even successfully organize the release of their own background document.”

The Economist moreover points out that the GND’s governmental behemoth would entail a massive redistribution of political and economic power, making big winners and losers. Lobbying and special interests will go into overdrive. While actually, the GND “largely dispenses with analysis of the costs and benefits of climate policy. It would create large opportunities for rent-seeking and protectionism, with no guarantee that the promised climate benefits will follow. [And with] growth-throttling taxes and dangerously high deficits” too.

Is this “Socialism?” The word doesn’t merely mean anything government does (libraries, road building), as some disingenuously suggest. It’s government taking over functions that, in a free economy, nongovernmental actors perform. And while lefties like to call it “democratic socialism,” such concentration of power is quintessentially anti-democratic and elitist.

This is the platform Democrats seem eager to run on.

Republicans, having destroyed their own brand with lies, bigotry, and thrall to a very bad man, have also managed to radicalize the Democrats into being the party of the GOP’s worst nightmare. When Democrats consolidate power — which Republican horribleness makes likely — “the era of big government,” that Bill Clinton said was over, will be back with a vengeance.

I dream of Election Day 2020 as a triumph of good over evil. But it may instead be a Hobson’s choice between Trumpian evil and everything about the left I’ve always opposed.

An immodest proposal for reducing inequality

December 15, 2018

Inequality — the cri de coeur of the left. The rich get richer while the poor get . . . actually richer too, in fact, though not as fast. We should stop obsessing enviously that the top 1% or 0.1% are so rich, as if their wealth makes others poor (it’s not so). Instead, the concern should be to give more people more opportunities to get rich(er).

America’s real inequality is between the well educated and the less educated. And that gap inexorably grows as the economy increasingly demands smart workers. So education ought to be the big equalizer. But U.S. education does the opposite — instead of giving the poor a hand up, it slaps them down. The education they get is worse than what the better-off receive.

And they only get it for half the year! What with weekends, holidays, and, mainly, the summer vacation which — at three months in America — is just about the world’s longest.

Fixing all that’s wrong in education for poorer kids is a huge challenge. But here’s one extremely simple thing we could do: cut the summer break. The education poor children get isn’t what it should be, but it’s better than nothing, yet for three months of the year we do give them nothing.

Poor kids fall further behind during those months. Studies have shown that such a prolonged hiatus causes children to lose a lot of what they learned in the preceding term. Affluent parents can offset this with enriching summer activities, which poorer ones can’t afford. Even just letting kids range free outdoors can aid development, but even this is curtailed by safety fears (largely overblown; though in the worst neighborhoods it is indeed dangerous for kids to be in the streets). Summer jobs too have largely become a thing of the past. The result is that poorer kids often spend summers as couch potatoes, rotting their brains.

A 2007 Baltimore study found the summer learning fall-off could account for two-thirds of the achievement gap between rich and poor students, by their mid-teens.

It even actually makes poor families poorer. During summers their kids miss free meals in schools, so their grocery bills rise, and they face added child care costs too.

Lengthening the school year would cost money, but would benefit all American children — the poor especially, reducing the opportunity gap. We can afford the added cost. Indeed, this investment in our kids and their future ability to contribute to the economy would surely more than pay for itself in the long run.

At the very least, we ought to do much more to provide summer activities, including meals, for poorer kids. Instead, Trump (who in the campaign challenged black Americans, “what the hell have you got to lose?”) has sought to cut all funding for such programs from the federal budget. Better educated citizens aren’t good for today’s Republican party.

Bitcoin: a solution in search of a problem

November 12, 2018

Since coins are my business, perhaps I should discuss Bitcoin.

It’s a “cryptocurrency” or digital currency. Or supposed to be. Existing only in cyberspace but worth money of the more conventional sort. It has a whiff of underground rebellion, breaking free from the system of government-run money supply — and all its associated regulation. The idea is to make transactions untraceable by snooping government. Thus, Bitcoin payment has featured in some shady doings, notably the “Silk Road” venue for, mainly, illegal drug trades, and in ransomware attacks (where bad guys hack into your computer and lock you out unless you pay them).

This Satoshi Nakamoto denies it

How does Bitcoin actually work? Such a system’s main challenge is to prevent the equivalent of counterfeiting. People spending Bitcoins they don’t own, spending the same coin twice, etc. Bitcoin’s solution is what’s called a “blockchain,” invented by a mysterious, probably pseudonymous “Satoshi Nakamoto,” who has since vanished. A blockchain, or “distributed ledger” is a kind of database which isn’t centrally controlled, but accessible to everyone, such that when a new transaction is recorded, it cannot thereafter be altered. Thus every Bitcoin transaction ever occurring is indelibly encoded into the blockchain.

Bitcoins are created by “mining.” This entails beating other punters to the solution of a complex mathematical puzzle requiring vast computer power, the winner garnering a reward in fresh Bitcoins. That serves to limit expansion of the “money supply.” In fact, it’s ultimately capped at 21 million coins. Mining Bitcoins consumes so much electricity that this has become a real problem for power supply in areas where miners locate (usually places with low electric rates).

Bitcoin’s value started at nine cents on July 18, 2010. With much fluctuation, it topped $19,000 in December, 2017, then fell by about two-thirds.

That huge run-up in value prompted numerous copycats to jump in with their own “cryptocurrencies,” introduced via “initial coin offerings” (ICOs), mimicking “initial public offerings” for securities. But they aren’t shares in a business or promises to pay (like bonds). They are only worth . . . well, what the market decides they are worth. Not much, it often turns out.

But what makes a Dollar worth a Dollar? A tautological question. Writer Yuval Noah Harari likes to call this a fiction kept aloft because a lot of people believe it. You accept a Dollar as payment because you expect you’ll be able to similarly spend it. But that web of expectation is its only value; you actually can’t take it to the government and exchange it for some commodity of tangible value, like gold. (And what makes gold so valuable, except our mutual understanding to so treat it?)

Anyhow, that ready universal acceptance is what makes a currency a currency; and cyptocurrencies singularly fail that test. A currency must also be a store of value, and the wild fluctuations in cryptocurrency prices fail that too. Nobody wants to accept a currency that could lose half its value in a short time. (Of course, this does happen occasionally with national currencies, like Venezuela’s right now — a huge economic disaster.)

Add to that the lack of what might be called consumer protections. The cryptocurrency world is rife with fraud and sharp practice. Most ICOs are really nothing more than scams.

A lot of people made a lot of money on Bitcoin; a lot of people lost their shirts. The reality is that Bitcoin has become not a currency but, mainly, an object of speculation, which is not at all what “Satoshi Nakamoto” had in mind. And the fact is that Bitcoin, after all, has no objective value that can be ascertained. The mining process is costly, but that expenditure does not somehow confer intrinsic value on the results. Nobody will value a Bitcoin based on its creation having entailed solving an abstruse mathematical puzzle.

Indeed, why it should have any value at all remains a salient question.

Richard Wolff in sheep’s clothing, on capitalism versus socialism

September 14, 2018

I heard Richard Wolff again on “Alternative [left-wing] Radio.” He’s the “Marxist” economics professor whose LOL take on first class airplane seats I wrote about. Wolf saw them as though created by God but unfairly handed out by dastardly airlines to rich folks, forcing plebeians to suffer in coach. In actuality, the rich subsidize the rest. That’s how airlines make their money. Without milking richies via vastly overpriced premium seats, they’d have to charge coach travelers far more, which wouldn’t fly — literally.

Wolff couldn’t see that reality. But he is a glib talker. His latest was on capitalism versus socialism. He thinks capitalism’s badness will cause socialism to triumph.

A chief theme was “socialism” getting a bum rap because people don’t understand it. This is part of the effort to sugar-coat socialism, making it seem innocuous — a wolf in sheep’s clothing. (We saw this with the Bernie campaign.) It’s the trope that if you like public roads and libraries and fire departments, etc., anything government does, why, that’s socialism!

Except that it isn’t. Providing necessary services that a free market cannot (at least not well) is just any government’s job. Socialism instead is government substituting for (and disallowing) a capable free market.

Now, if you think that’s a good idea, fine, try to persuade us. But socialists must doubt its persuasiveness, else why do they constantly hide what they really advocate, under false camouflage about roads and fire service?

Richard Wolff-in-sheep’s-clothing epitomizes this, again saying people misunderstand “socialism.” He repeatedly mocked the idea of any association with Stalin’s crimes. He stressed that “socialism” is not limited to any single categorical definition. But did he ever actually say what it does mean?

Nope.

But, talking about “capitalism,” Wolff did exactly what he criticized — painting it as one limited thing — which, typically, was a gross caricature.

I was struck by the contrast with a book I happened to be reading, Relentless Revolution: A History of Capitalism, by historian Joyce Appleby.* Indeed, its key theme is that “capitalism” has been not one discrete concept but endlessly flexible, adaptive, and evolving, with vastly varying iterations — its great strength.

This is clear from the first great book on the subject — titled Capital — by Karl Marx. I will not deride Marx as a fool. He was in fact a brilliant thinker, observer, and analyst, who had some important insights. But he was fundamentally wrong in predicting capitalism’s future. Marx saw an “iron law of wages” always pushing them down to bare subsistence, just enabling workers to stay alive to produce the golden eggs for the capitalists, until they’d revolt. Marx did not imagine the mass affluence capitalism (and the associated industrial/technological revolutions) would bring forth. Even amid all today’s lamentations about inequality, and capitalism’s supposed injustice, the fact is that workers in industrialized societies were able to gain a large enough share of the economic pie to give them living standards unimaginably cushier than the bare subsistence Marx posited.

That’s because the pie has grown so spectacularly. And because of democracy. “Democratic socialism” is really a contradiction in terms because the two ideas have proven in practice to be fundamentally incompatible. That’s due to socialist systems concentrating so much power in government, whereas free market societies distribute power widely. Socialism is not the antithesis of fascism or communism. All three have the central idea of valorizing the collective over the individual, thus being inherently coercive and repressive.

No type of society or system will deliver justice and equality free from the depredations of people who will always try to exploit it for their own advantage. That’s certainly been true in all socialist or communist systems, wherein some individuals always amassed great power over others — using the machineries of the state and its monopoly on violence (legitimate in free societies, but not in others). A free enterprise system at least does not allow that. Instead, there you gain advantage by (in the main) creating value others voluntarily pay you for, making society as a whole wealthier. That’s how Steve Jobs, for example, got so rich. It’s how the whole industrialized world — including its workers — got so much richer than Marx foresaw.

Richard Wolff (Yes, socialism IS for dummies)

Such prosperity has never been produced by socialism. China is a very instructive case. It has two economic systems functioning side-by-side: a socialist one of state-owned firms, and another of very free enterprise. The latter runs rings around the former. It is the source of China’s phenomenal economic advancement, lifting hundreds of millions out of poverty in the last few decades.

* She’s no right-wing free marketeer; plenty critical of capitalism’s negative aspects, especially environmental. Appleby is often a trenchant observer, but I can’t let pass how many annoying bloopers I noticed. Like, “Ingenuous people found a new way to exploit electromagnetism.” Really? I thought that was disingenuous.

The Trump Tax on cars

September 6, 2018

NAFTA was a bad deal, the worst deal ever, sending jobs to Mexico. Our imports exceed exports, a bad thing. Trump’s tough talk of tariffs against Mexico made them give us a better deal. A big win. So much winning!

That’s the Trump story. Every word is a lie, including “the” and “to.”

NAFTA reduced trade barriers among Canada, Mexico, and America. This enabled Mexico and Canada to produce and export more — thereby becoming richer, and hence a bigger market for stuff we produce. (After NAFTA we export more to Canada and Mexico than we import from them.) Low production costs in Mexico enable Americans to buy stuff cheaper, and thus to buy more. Which creates more jobs — more than the ones lost to Mexico. That’s how free trade makes everybody better off.

That’s Economics 101. Which Trump flunked. (He got rich as a con artist.)

But isn’t Trump’s new deal with Mexico better for America? No, it’s worse — and worse for Mexico as well. Mexico agreed to it because the Trumpian alternative of full punitive tariffs was worse still (and Mexico’s incoming and outgoing presidents both wanted this issue resolved before the handover).

Cars are the main target. Trump’s deal will make Mexican car production costlier, so more production will occur in America. Good, no? No, because North American car makers don’t compete just against each other, but against the whole rest of the world. Making North American car production more expensive makes it less competitive against cars from all those other countries. And Trump’s idiotic trade policy raises the costs of not only Mexico’s car production, but our own. Cars use a lot of metal, and tariffs on metal, like aluminum, raise prices for it. Surely a plan for killing both U.S. and Mexican jobs and making us all poorer.

We don’t know yet how things will wind up with Canada. But meantime it’s estimated that Trump’s “great deal” with Mexico will add over $2000 to the cost of your next car purchase. Call it the Trump MAGA tax. (But don’t forget the big tax cut he gave millionaires.)

America’s eviction problem

August 21, 2018

A trivial incident — kids throwing snowballs at a car. Next thing you know, Arleen, a single Milwaukee mother, is evicted. Sheriff guys give her a choice: all her stuff dumped on the sidewalk, or taken to storage, where she can pay $350 to reclaim it.

Arleen doesn’t have $350.

So begins Matthew Desmond’s book, Evicted: Poverty and Profit in the American City.

Words like “profit” and (on the cover flap) “economic exploitation” set a tone. “Landlord” has always been a dirty word too. Landlords are way outnumbered by renters, so the politics, and the common narrative, are against them. Stalin and Mao demonized them to justify their murder. Desmond doesn’t go so far, but does think landlords “exploit” poor tenants and make excessive profits.

There seems to be an idea that housing is somehow “out there,” like handed down from God, with landlords sort of leeching onto it to suck profit. Not that housing is a good that landlords provide to tenants, earning some just compensation for their investment and efforts.

But a few pages into the book we meet Sherrena — a black woman of middle years and Arleen’s landlord. And just as Desmond does depict the trials and tribulations of renters, so too does he show those of landlords. “Profit?” Maybe — if they can manage to overcome all those things that can and do constantly go wrong. (I’m thankful to have my own different and very smooth business.) In the landlord-tenant relationship, it was often arguable who was “exploiting” whom. The “system” has a lot of aspects hostile to landlords. In Milwaukee, if there are more than three 911 calls in a month, the landlord faces fines, property forfeiture, and even jail. She has to file a plan for “abating the nuisance.” Usually that means eviction.

And what was Sherrena earning? Desmond estimates her net at about $10,000 a month, on three dozen inner city units. A nice income, yes, but not much above middle class par. Which she really worked hard to earn, negotiating hurricanes of hassles and headaches. (Desmond does profile another guy making about half a million running a trailer park with 131 units.)

New York has actually had a “Rent is Too Damn High Party.” And that theme seemed to pervade Desmond’s book, with poor people paying high proportions of their incomes in rent. Implying this contravenes social justice. The author even notes that rents for wretched slum dwellings are not greatly lower than for nice one ones in better neighborhoods.

So are the poor being gouged to subsidize better-off tenants? Of course not. As the book shows, slum apartments actually entail a lot of operating costs landlords don’t face in nicer areas. Like apartments constantly being trashed. (One flat incurred repeated plumber visits because the tenants kept throwing crap down the drain.) All the court costs for frequent evictions. The mentioned 911 problems. The constant hassle of chasing after overdue payments. Et cetera. Excessive profits? Considering what landlords have to put into the business? If rents were lower, who’d want to supply tenants with apartments?

In the final analysis, this is a highly competitive free market, with multitudes of suppliers, and rents determined by supply and demand. I kept wondering: if profits are so great, why aren’t guys rushing to build more apartments? (Expanding the supply, which would drive down rents. That’s how markets work.)

But again, being a slumlord is actually a fraught business. A lot of it is due to the life dysfunctionality rampant among lower income renters. The picture is sadly familiar from books like Hillbilly Elegy and Our Kids. Drugs, alcohol, lack of education, casual violence, marital/family/relationship chaos, and much involvement with the criminal justice system. It’s wrong to blame the poor for their poverty. Anyone born into such an environment is greatly handicapped in life from the start. Yet in so many of Desmond’s stories, folks make some really bad choices. He offers the psychologically understandable explanation that, with lives full of difficulty and uncertainty, poor people tend to prioritize the “now” over the future, while also withholding their full energies from today’s problems, to keep some in reserve for tomorrow’s.

Yet there’s actually a simple, almost foolproof formula for avoiding poverty: finish high school (at least), don’t have kids before you do, and stay sober. Easy to say, hard to do, if you’re born into poverty.

Desmond makes a good case that the eviction problem is huge: poor Americans just cannot afford market rents. They juggle rent bills with utility bills, unable to keep their heads above water. In all the book’s many stories, the main income sources were government benefits of one kind or another; very little earned by working. Many people are just not realistically employable in today’s economy. Government hand-outs aren’t enough to keep their heads above water. The result is rampant evictions, which devastate their lives, psychologically as well as materially. They often lose their possessions. An eviction makes it much harder to find new digs. Landlords don’t like to rent to people with evictions on their records. It even disqualifies them from government housing assistance programs!

I am no “bleeding heart” liberal. In reading a book like this it’s hard to project myself into the skins of the people portrayed. For me a big hassle is when the DVR doesn’t work. What can it feel like to be evicted, made homeless, all your stuff dumped at the curb? With small children no less. Yet I can imagine it at least a little bit; and it’s really really bad. These are human beings, like you or me. I’ve been lucky. The cosmic lottery could just as easily have given me a life like theirs. And don’t say with all my brains and character I’d have surmounted it. That’s nonsense. Born into such circumstances, I would not be the me I know.

One seemingly obvious answer to the mess that is the housing picture for poor people is for the government to step in and, instead of trying to regulate the market, to simply provide housing itself. In fact, we tried that; it proved a massive disaster. So nowadays the government’s intervention largely takes the form of “Section 8” vouchers, paying part of some poor tenants’ rent. Though Desmond notes the voucher amounts are calculated by reference to average rents in an area — including both slums and nice districts. Thus they’re above the average for slum housing — seemingly a windfall for landlords. (On the other hand, many landlords refuse to accept “Section 8” tenants.)

The book doesn’t mention rent control. It’s been said that the two most effective ways to destroy a city are carpet bombing and rent control. Because it disincentivizes landlords from maintaining properties and developing new ones, so the housing supply doesn’t meet demand. Googling, I found that Milwaukee does have some rent controls, but couldn’t readily find details. I stumbled upon the Milwaukee Housing Authority’s web page, which mentions providing some public housing. Also that the waiting list for Section 8 vouchers is currently closed!

Desmond doesn’t mention this either, but for all the chatter about “affordable housing,” cities typically defeat that by also restricting supply through zoning rules, height and density limits, etc. A study by economists Tang-Tai Hsieh and Enrico Moretti estimates that removing such restrictions in just three cities (NY, SF, San Jose) could boost U.S. GDP by 9% by enabling more people to live in them. Some cities have made a “grand bargain,” removing building restrictions in exchange for requiring developers to offer some units at below-market rents.

Desmond’s main recommendation is to expand the voucher program to simply cover all families below the 30th income percentile. He cites a 2013 estimate that this would cost $22.5 billion nationwide, even without changing the averaging formula that he says favors landlords, and without considering offsets like less homelessness with its associated public costs. That $22.5 billion is hardly more than a rounding error in a federal budget with trillion dollar annual deficits.

The book shows government programs for the poor are a convoluted cat’s cradle with highly arbitrary results. Desmond’s proposal for a simplified and widely available housing voucher program might be a step in the right direction. However, it’s become obvious that federal college tuition help has had the perverse effect of enabling colleges to ramp up their fees. I’d fear that expanded housing subsidies would similarly push rents up.

A better approach would actually go further: ditch all the Rube Goldberg welfare programs (and all the huge bureaucratic costs they entail), supplanting the whole mess with one simplified program: a guaranteed annual income.

This would face up to a growing reality. Increasing technological sophistication makes the world richer, but many people are left behind. Simple humanity demands sharing with them a part of those riches. We can afford it. The cost would be a fraction of what’s spent for far less compelling purposes.

Visiting sunny tropical Iceland

April 23, 2018

Years back we made the mistake of visiting Washington, D.C., over Christmas. It was bitterly cold. I vowed no more icy vacations!

My wife’s windblown selfie

So this time we chose . . . Iceland. Well, how cold could it be in April? And wet, and windy? I didn’t realize it’s supposedly the third windiest place on Earth. The other two are uninhabited.

But it was fun. Long underwear helped.

Iceland is a small country, and sparsely settled; population only a third of a million (about equal to Anaheim’s). Partly because it is indeed fairly inhospitable. Its first settlers, in the Ninth Century, could just barely eke out survival. They came from Norway. How awful must Norway have been?

During Iceland’s next thousand years things only got worse. They quickly consumed all the island’s trees, thereafter making do with driftwood. And it grew colder.

The only saving grace was self government, of a sort, embodied in the Althing, an annual gathering for making laws and settling disputes (which seemed to be legion), presided over not by a king but the “law speaker.” Iceland’s Althing continued more or less continuously since the year 930; today the parliament still bears that name. We visited the place where the ancient Althings were convened.

Luxurious traditional Icelandic homes

But otherwise Iceland’s history was grimly depressing. Windy though the place is, the winds of progress passed Iceland by, and the Middle Ages continued there until the middle of the Twentieth Century. Epitomizing this is the language being virtually unchanged over the millennium. Try reading or understanding Ninth Century English (if you could call it “English”).

Also, Iceland never developed the modern convention of people having last names. Instead, Bjorn’s son Eric goes by Eric Bjornsson; his daughter Ingrid is Ingrid Bjornsdottir. (I suppose transsexuals change both their names.) This makes it fun trying to look someone up in a phone book.

Iceland was finally blasted from a medieval existence into modernity during World War II. A possession of Denmark, which was occupied by the Nazis, Iceland was preemptively occupied by the Brits and Americans. Then it took the opportunity to declare independence from Denmark in 1944. Foreign investment, and tourists, poured in, and Iceland, in a few decades, vaulted into First World ranks.

Seeking some breakfast our first morning in Reykjavik, we went into what looked like a very modest little place. A chocolate covered croissant seemed tempting until we saw it was $17! Such prices are very typical, showing how “advanced” Iceland has become. The Economist has a “Big Mac Index” gauging how over- or under-valued a nation’s currency is by reference to the local price for a Big Mac. That’s a universal commodity — except in Iceland, which has no McDonalds restaurants. But according to one analysis based on comparable burger prices, Iceland’s currency is actually the most overvalued in the world (i.e., its prices are the highest).

Nevertheless, its people are imbued with a very positive attitude. We got a wool-making demonstration, by a gal named Harpa who characterized herself as “hyper.” She was so animated and bubbly that it made this wool demonstration a highlight of the trip for me.

Speaking of positive attitude, my wife’s, as always, greatly enhanced the experience. She enthusiastically appreciates everything and never complains about anything.

Me, under a waterfall

Another trip highlight was our glacial lagoon boat ride. That glacier is the biggest in Europe. The lagoon had only just unfrozen, and was still full of ice crunching under our open rubber boat. We were encased in rubber ourselves — looking like astronauts in space suits. Getting suited up took longer than the boat ride. And it didn’t keep us from getting wet in the cold rain. But . . . you had to be there.

We also visited the Eyjafjallajokull Volcano, whose 2010 eruption messed up European air travel. Actually, we couldn’t see the volcano itself; but a farm at its foot had set up a visitor center, showing a really excellent home-made film about the eruption’s impact on them. Our visit was just about the last before the facility was closing so the family could get back to full-time farming.

Then there was the Blue Lagoon, touted as the world’s biggest jacuzzi. It’s heated by geothermal action and clouded with silica and other minerals. It was a weird sensation to have one’s body in hot water with the head (slathered with mineral goop) exposed to a cold breezy drizzle, while the whole scene is enveloped in a steamy mist (so I couldn’t see much of the bikinied babes). But, again, you had to be there.

The one key attraction we missed was Reykjavik’s Penis Museum. Maybe next time.

It’s your economy, stupid

March 25, 2018

Presidents are usually judged mainly on the economy, which most voters care most about. (“It’s the Economy, stupid.”) Yet in truth a president’s economic performance is mainly just luck. He doesn’t run the economy; his actions normally have very little impact on it.

The start of Obama’s term was a rare exception, an economic crisis where he was looked to for leadership. Influencing the economy more than the actual measures he took was their psychological effect. You can argue all day about those measures, but they did combat pessimism, which shaped people’s behavior, and thus boosted the economy. So it’s fair to give Obama some credit.

Trump came into office lucky on the economy. It was doing great. And the prospect of tax cuts and deregulation added to the fizz. All Trump had to do, really, was not screw things up. Which — given a president’s limited ability to actually impact the economy — should have been a piece of cake.

But Trump is a poster boy for the Dunning-Kruger effect I’ve written about: the dumber people are, the less they recognize their dumbness. Trump understands nothing about the global economy while feeling certain he understands everything. A deadly combination.

And he managed to find the one thing within his power to screw up the economy. He can’t set interest rates, regulate the money supply, or by himself make tax and spending policy. But he could start a trade war.

I’ve explained before why this is so dumb. It doesn’t take a PhD in economics to understand that import tariffs — virtually always — hurt more people than they help and weaken the overall economy in multiple ways. U.S. businesses mostly become less competitive, consumers pay higher prices, jobs are lost not gained, interest rates rise, our exports become costlier and hence fall, so our trade deficit is more likely worsened than improved.

And that’s even without other countries retaliating. When they do, as China and others are, that hurts U.S. businesses, jobs, consumers, and our trade position even more.

But do those other countries also take a hit? Oh yes. Tariffs make the whole world poorer. It is a “beggar thy neighbor” policy. An overall poorer world is not good for America — not for our economy, nor our national security.

It’s true that China is guilty of bad things in the realm of trade and commerce (like stealing intellectual property, to name just one). But the self-inflicted wounds of tariffs are surely not the right answer. A far better one would have been the Trans-Pacific Partnership trade deal, which America had negotiated with 11 other Asian nations, precisely to combat China on trade. Trump pulled out of TPP on his first day.

His tariffs make Trump like the character in “Blazing Saddles” who took himself hostage by pointing a gun at his own head. Trump has pulled the trigger.

Dow down another 1150 points.