| Tuesday, July
29, 2003
Begin with a letter
from Zurich about a mad scheme:
Dr Pournelle,
I've read every column you wrote in Byte since about
1982 (when I was 10 years old). I'm very fond of a number of your novels
as well. I haven't been keeping so closely up to date on your online
post-Byte writings, I'm afraid--grad school doesn't leave as much free
time.
I was curious about your thoughts on Poindexter's
latest mad plan: futures trading in the Middle East, sponsored in part
with DARPA funds ( http://www.nytimes.com/2003/07/29/politics/29TERR.html?hp
). I think it has some scientific merit, but is immoral and unethical. I
feel it would be immoral for any government to do such a thing, but it is
a particularly outrageous conflict of interest for a government so deeply
involved in the Middle East, the scope of the current plan.
I find it deliciously ironic that Poindexter may be
poindextered: Two Democratic Senators are fighting to have the budget for
that item zeroed.
Highest regards, Scott
P.S. Soon after I joined ETH as a postdoc in May, I
inquired about Niklaus Wirth; he has retired, but still comes to some
colloquia and such. I haven't seen a Lilith machine here at the
Elektroteknik building, nor at the main building, but perhaps there is one
on display at the computer science building. My first "real"
programming language was Modula-2 on my Amiga 1000.
|-| | Scott A Centoni
<scentoni @iis.ee. ethz.ch> | | ETH Zürich Integrated Systems
Laboratory | | Gloriastrasse 35 ETZ J88 | | CH-8092 Zürich
If you see Dr. Wirth give him my regards. We
have not forgotten his visit to Chaos Manor where I showed him Wing
Commander...
My thought on reading about the market
scheme is that it probably would work and whatever were they thinking of?
RE: Something else altogether
Dr. Pournelle, I try not to bother you more than
once in a day but I found this on The Register and had to pass it on.
http://theregister.co.uk/content/6/32024.html
Kill a Middle East head of state, win prizes!
- Pentagon shows how By Andrew Orlowski in San Francisco Posted:
29/07/2003 at 08:45 GMT
"Poor people aren't necessarily
killers," the current President of the United States tells us.
"Just because you happen not to be rich, doesn't mean you're willing
to kill."
Phew! However, the poor now have an
additional incentive to take up arms, thanks to an extraordinary
initiative from the Pentagon-funded research agency DARPA. Long ago DARPA
brought you the Internet, although its more recent windfall has gone on
projects that range from the sinister to the whimsical, from Admiral
Poindexter's Total Information Awareness surveillance research, to
invisible body suits, and a self-healing minefield, complete with winking
knight.
Now DARPA is launching an online gambling
site called the "Policy Analysis Market". However, this one is,
in its own words, "A Market in the Futures of the Middle East."
What does that mean?
<snip>
Douglas Knapp
I have a hundred letters on this madness,
and all I can say is, whatever were they thinking of?
Subject: We are all lawyers now....
http://www.theregister.co.uk/content/6/32004.html
===== Tiomoid M. of Angle JD MBA
Indeed!
========================================
And now two long and
complex letters on tariff.
They present a good explication of the
"orthodox" economic view of tariff and free trade. [Note I do
not use orthodox as a pejorative; I am fairly
orthodox myself. I do believe that the standard economic analysis doesn't
take account of inescapable political realities.]
Dear Dr. Pournelle,
I've been following the trade discussion, and I've
noticed that the argument doesn't concur with some basic economics. To
explain my view I thought I'd go back to the basics of International trade
and why we do it.
The first principle of any Economics is scarcity.
You can tell that some good is scarce if you made it free to everyone and
there wasn't enough of that good available to everyone. So you can tell
that cars, or trucks, or computers are scarce, because if they were free
there would not be enough to go around. In a free market economy who gets
what goods is regulated by price ( and it generally works pretty well. )
On the other hand things like dirt and tumbleweeds -which are free- are
not scarce, because you can have as much as you want.
Goods sold anywhere in the world require various
amounts of capital (the machinery of production), labour, land, and
resources (things that are used up in producing a good, like rubber for
tires.) Because of scarcity the production of any good requires giving up
some other good. For instance if someone from Idaho decided to build a
computer factory, he would have to give up land that could be used very
well for producing potatos, he would also be required to get raise money
to buy his factory (instead of buying a John Deere tractor for plowing the
fields), the people to staff his factory would not be able to work in the
fields growing potatos. In a very real way the cost of producing one thing
is what you could have produced instead.
The final idea that makes trade work is different
concentrations of the factors of production. In America we have an
abundance of capital, and plenty of skilled laborers (college graduates in
all manner of fields.) Whereas Mexico has a smaller ratio of capital to
workers, and a very tiny percentage of those laborers would count as
skilled. These different proportions of factors determine what a nation is
really good at. For example Idaho with a lot of land to a few people
(compared to say California) is a very good place to grow potatos,
California with a high number of skilled laborers to a smaller proportion
of land is a better place to assemble computers, or program games, etc.
Economists are kind of fond of examples, so I
thought I'd explain the simplest trade example. Two countries two goods.
America and Mexico are the coutries, the goods are clothing and grain.
Lets say that America can produce 2000 units of grain, and 1000 pairs of
pants. Mexico can only produce 200 units of grain and 800 pairs of pants.
Now in this model you discover that in America to produce grain you have
to give up the resources to produce 1/2 a pair of pants, this will cause
the price of grain to be 1/2 a pant. In Mexico to produce the same unit of
grain it costs 4 pair of pants. Now the differences in these prices gives
incentive for trade. If the price of grain was two pair of pants for one
grain, than America would focus on producing grain, and Mexico would
produce pants. So America has 2000 grain and they want 400 pants which
costs 200 grain; giving them 1800 grain and 400 pants. Mexico has 400
pants and 200 grain. Both of these results are outside what the country
could produce on their own.
Both countries profited by speicializing in the
goods they had an advantage in. Economists like to draw two dimensional
graphs showing the two goods being traded, different slopes show trade is
possible. The real world would probably have some hyper curve (millions of
variables representing millions of goods for trade), but the principle of
trade is still the same. To produce one good you have to give up resources
that could be used to produce something else. So trade allows you to
consume more than you produce by specializing in things that you can make
well.
In the modern world we don't actually exchange one
computer for say 50 pairs of pants. But the principle still works for
international exchange. Countries sell things to Americans not because
they like dollars, but because the want to be able to purchase things with
those dollars. At this point the trade deficit is often used as an example
of the failure of international trade. However if you track US dollars the
money does in fact find its way back in to Americaa as investments in the
US economy. The trade deficit is actually quite convenient. Americans are
getting goods and the goods to pay for it aren't being sold, and the
excess dollars floating around are being invested here in American
business.
Now a tariff does several things: First it lets more
domestic firms enter the domestic marketplace by pushing up the price.
Second by pushing the price up domestic consumers buy less. Now with a
simple supply demand graph it can be shown that consumers lose as a result
of the price going up ( why don't we do anything? There are 300 million
consumers in this country and if each us of loses $1 who cares?) producers
gain, and the government gets more revenue. But the graph also will show
there are areas of consumer benefit that no one gets part of this is lost
because inefficient firms are selling goods, and part is lost because some
consumers choose to leave the marketplace. It turns out that even with the
tariff revenue, the economy as a whole is worse off. We could have free
trade, tax everyone $1 and pay the workers to do nothing and the economy
would be better off than without the tariff.
Why don't people do this? I'm sure President Bush is
aware of the fact that his steel tariff is bad for the country. Plenty of
politicians who pass tariffs know the economics is against them. So why do
tariffs still get passed? Its a strait forward answer, the benefit from
cheaper products being sold here is spread over every single person who
buys something. The penalties for inefficient firms are concentrated in a
very few places, the workers in that industry. So no one is even going to
notice the benefits or even care all that much if they do see them, but
the whole benefit to consumers outweighs the loss to producers. Also no
one notices the jobs created by free trade, because if something is going
well its not really worth commenting on. The squeaky wheel gets the grease
(and gets noticed).
In conclusion I would like to appologize for the
length and lecture-like tone of this letter. I was just looking at my Econ
notes from last semester, and since I got them as a lecture they sort of
came out that way as well. I like this site and have enjoyed the books
I've read by you.
Sincerely, Jon Nielsen
To which I replied:
You know, I have read Ricardo. And I note
you haven't said one word about the cost of supporting the unemployed
worker.
I did teach econ 101. I am thoroughly aware
of the theory.
The Steel tariff is far higher than
what I advocate; although steel is a strategic good and may need more
protection.
Defense is more important than opulence said
Adam Smith...
Dear Dr. Pournelle,
I apologize, I didn't realize how familiar you were
with Economics. There is however another type of economic analysis called
partial equilibrium analysis. The model is useful for demonstrating what
Government policy will do in a given market. The following site has a
graph which helps to explain the gains and losses from tariffs. I have
also included an explanation of the graph to emphasize some of the points
this document sites.
http://gias.snu.ac.kr/wthong/course/relation/re6.pdf
Some quick explanation of the graph. This is a
representation of the supply and demand of a single product. Price (the
independent variable) is on the vertical axis, Quantity (the dependent) on
the horizontal (most math majors cringe when they see this, but Economists
have been doing this for a while.)
What these lines mean: The line labeled P represents
the world price. P* represents world price with a tariff. Q is domestic
production Q* is domestic production with a tariff in place. M represents
consumption. M* is consumption with the tariff.
Now to properly analyze the tariff we need to see
how welfare changes once the tariff is emplaced. We begin with consumer
surplus in a non-tariff situation. The triangle described by the world
price line (P), the demand line (D), and the vertical axis (Px) represents
consumer surplus. The idea is that many of the people would buy a given
resource at a higher price if they had to, but since the price is so low,
they save money, or get some kind of net benefit. The next area to analyze
is producer surplus pre-tariff. This triangle is described by the world
price line (P), the supply line (S), and the vertical axis (Px). This area
is the profit domestic producers (including both firms and their
employees) get from selling a product.
The next step is to look at the market with the
tariff in place. The first thing we analyze is consumer surplus. The new
consumer surplus with the price P* runs from P* to F to Px. Consumers have
lost the area described by P*, F, D and P. The next thing we analyze is
producer surplus. Producers have gained the area P*, C, A, and P. The
final group to analyze is the government they gain the rectangle B, C, F,
E ( The line B-C represents the difference between consumption and
production or imports, the height of the rectangle is the price of the
tariff ( this is computed differently depending on whether the tariff is a
specific duty -say $5 on all goods imported- or a percentage tax). Now
tallying up the net benefits and net losses of the tariffs we see that 2
triangular areas are lost to the economy. A,B,C, and D,E,F these used to
be consumer surplus but no one gets the benefits now.
The effects of the tariff work out like this:
P-A-C-P* went from consumers to producers (this is exactly like a tax of
consumers and a subsidy of producers) area B-C-E-F went from consumers to
the government (exactly the same as if a tax had been levied on consumers)
triangles A-B-C and D-E-F disappear. This analysis suggests a better
government policy: Tax consumers some amount equal to the area of P-A-C-P*
give that money to the producers (owners and employees) this compensates
them for the jobs they lose to lower prices (it might even be used for
education and re-training.) If the government wants the revenue it picked
up from the tariff, it can go ahead and tax consumers again to get the tax
revenue a tariff might have given it. The consumers still keep the two
triangles they would otherwise lose, so the economy as a whole is better
off.
The issue of strategic/defense items is a good one.
The idea is to guarantee a certain amount of domestic production in key
industries. But there is another bit of economic analysis that’s useful
in describing what to do. We’ll look at what our economic policy (a
tariff) is trying to do (increase production) and what it actually does
(increases domestic production, and decreases domestic consumption.) We
can call a policy efficient if it only impacts areas we are trying to
modify. In this case the tariff is less efficient then another option a
subsidy. A subsidy is worthwhile because it lets domestic producers make
more (that was our goal) but it also allows consumers to pay the world
price instead of the price adjusted by the tariff.
Now the assumptions of this model need to be
explained. First, it is assumed that consumers will buy more of some good
if the price falls. Second, we assume that producers will make more of
something as the price rises. Third, we assume that all government
employees are equally efficient. That means that the tariff revenue
B-C-E-F will be used just as effectively as the money the government would
get by taxing consumers. Fourth, we assume that goods are homogenous; if
textiles from one country could be readily substituted for textiles from
another than textiles are homogenous.
Shortcomings of the model: Supply and demand aren’t
lines, they are curves. This means that consumer and producer surplus are
more difficult to calculate and thus taxation is a trickier issue (The
department of commerce employs economists though, and I’m sure they
could figure it out eventually.)
These shortcomings and exceptions do not however
negate the fact that a subsidy is a generally better way to influence
production than a tariff. Also a tariff is still an inefficient way to
transfer funds to producers (if we decide that’s what we would like our
government policy to be.)
Thanks for responding so quickly to my last
long-winded e-mail.
Sincerely, Jon Nielsen
[Emphasis added]
At which point I have run
out of time. The key sentence is given in BOLD above; Jim Baen (who is
pretty smart for a publisher -- I'll tell that story another time) and I
had this tariff argument years ago, and he came to that conclusion:
subsidies are better than tariffs, particularly for preserving key
industries.
I don't agree, but my arguments are not
economic, they are political-philosophical. I do not want American workers
to be dependent on subsidies and government payments. I want them to feel,
and be, important, and productive; and tariff has always been the means
for accomplishing this, and I think still is.
There is also a place for arsenals, and
subsidies for key industries, but they aren't really the answer. What I
want is competition under a protective umbrella. I don't care which
manufacturing companies survive, I am willing to leave that to the market:
but I want to be sure that SOME of them survive.
I do want to make it clear that I understand
the Ricardo argument about comparative advantage. It is also the case that
Ricardo, like economists until very recently, thought of
"goods" as just that: things, which were consumed. They didn't
live in an age when much of the world's wealth was in speculation and
bubbles that could vanish in an eyeblink, and in which one of the best
managed energy production companies in the world, Southern California
Edison, could be turned into a hollow shell without energy production
facilities, while the facilities were sold off to companies that make more
0n speculation than generating energy: and this at a time when energy was
one of the most important goods of all.
The United States is losing its
manufacturing base. The great plants symbolized by the name
"Detroit", which defeated Germany and Japan, are pretty well
gone. The implications of that for national defense have not yet been
thought through, and this in a time when we have overseas adventures on a
scale hardly contemplated in the past. The Cold War is over but it was not
the End of History.
I will leave it to others to analyze the
"model" above. At least it does try to look at what most
economists ignore, that exporting jobs has a price, and the price is not
paid by those who benefit from the job export. It's paid by everyone
including the chap whose job was exported.
I will remind everyone that half the
population is below average in intelligence. Few of them read this web
site or indeed any web site. They have been, however, the backbone of
America, the shop workers and assembly line workers, farmers before that,
laborers whose labor is less and less needed -- but who remain as
citizens, and are not "the great unwashed" or the "stupids"
or clients despite what the intellectual class seems to believe (at least
they act as if they believe that).
And I have work to do. But see
below
One nit to pick in Jon's article
(I generally favour free trade if only on the ground that you shouldn't
interfere with the market unless you are sure you are doing good):
"We could have free trade, tax everyone $1 and
pay the workers to do nothing and the economy would be better off than
with the tariff."
This assumes that raising the $1 tax in another way
would have no effect. As Schroedinger pointed out anything we do is going
to have some effect. Raising the money by income tax discourages earning
in the legitimate economy & encourages accountants. My favoured taxes
are on alcohol, cigarettes, pollution & other things which I
personally think should be discouraged but I recognise there would be an
effect)
CRG
And it assumes that paying people to do
nothing -- bread and circuses -- is a good thing.
Economists often think this way. People are not people they are
"workers" and "consumers": units in a model.
But in the real world it doesn't work quite
that way. And see below
===========================
And on another favorite
subject:
Subject: Global Warming Hype
Jerry
Thought you might find this article on Global
warming interesting. This brainiac has came up with the brilliant idea
that global warming is actually a weapon of mass destruction and of course
it is our fault. The not so subtle, underlying message is that our
culpability in global warming makes the 9-11 attacks justified. I suspect
that this is the kind of political hype that set the stage for your book
"Fallen Angels." This kind of political posturing makes it
understandable why someone in the developed world might become arrogant
and vicious enough to launch the kind of biowarfare attack that Niven
described in "Saturn's Race."
James Crawford
http://news.yahoo.com/news?tmpl=story2&cid=1538&u=/afp/20030728/wl_
uk_afp/britain_environment_030728155726&printer=1
Why am I not astonished?
Thanks
TOP
CURRENT
VIEW |
CLICK HERE for
a Special Request. 
