| Tuesday,
November 25, 2008
On Economis Policy
I have increasing evidence that people don't understand my position --
and the basic facts -- of free trade and economics. I received this
yesterday:
Current Economic Crisis
“They announced a suspension of all regulations and
restrictions”
Are you serious? A total lack of government
oversight and a dedication to deregulation at any costs is EXACTELY what
got us into the current mess.
The Government (Gov’ment) is not going to take over
the management of the auto industry (a bailout I am opposed to), there
just has to be a recovery plan in place before the feed at the public
trough. The Secretary of the Treasury has given out over $300 billion, NSA,
to banks who apparently are not going to use the public money to buy back
“toxic securities,” the original intentions. Again a shining example of
(the) suspension of all regulations and restrictions.
You apparently do not wish the upcoming
Administration well, you are setting the stage for “I told you so,” later
on.
Robert Grenadier
Note that what I said was the exact truth: Lucius Clay
and Konrad Adenaur suspended just about all economic regulations during
the occupation of a nation devastated by war and bombing, and the result was
what was known as the German Economic Miracle. From this Mr. Grenadier
infers, apparently, that I hope that Obama will fail so that I can have
whatever satisfaction their might be in saying 'I told you so.' How he
infers my motives from citing a well known fact is beyond my ken.
He also has the notion that deregulation was the only (exactly) cause of
the economic problems, and that I am somehow opposed to all regulation,
which would astonish the egregious Frum and other neocons. Now in fact
Lawrence Summers, former (briefly) President of Harvard and one time
Secretary of the Treasury, Obama's new economic advisor, warned long
ago that Fannie Mae and Freddie Mac were leading us to a disaster, and
proposed regulations -- today's Wall Street Journal has an editorial about
Summers' new appointment and it's hardly disapproving. I have explained here
more than once that the real estate bubble was created by government's
desire to do good by increasing the number of people who own their homes --
and thus become part of the middle class -- by setting up institutions to
allow higher-risk loans. The result was predictable: there was a race to the
bottom. Banks that made the riskiest loans got the largest fees, and there
was terrible pressure on conservative banks to get in on the action. The
result was a bubble. Once again I do not see how that conveys the
information that I don't wish the nation well, and that I will rejoice if
Obama's policies fail.
It is certainly the case that unregulated, unrestricted capitalism is the
best system for producing goods at the lowest prices. It is also the case
that unregulated unrestricted capitalism always generates a race to the
bottom, and the end result will be human flesh for sale in the market place,
and other horrors. (See Lawrence Durrel's Alexandria Quartet novels and
think about what is going on there.) Think on it: what we used to call the
underworld is a world in which regulations and laws generally do not apply;
and while novelists can romanticize it -- see The Syndic as an amusing
example
For the record: I'd love it if everything works as well as Obama hopes it
will. I'd love it if the US went over to Scandinavian style socialism and it
all worked as its advocates hope it will. For the record I don't think it
will work, but that's a conclusion I draw from my observations about human
nature. Some people work regardless of incentives, but most people need
strong incentives to get them to work day after day, year after year: if
there is an alternative such as easy to get welfare, many will prefer to
play World of Warcraft or go surfing or hang out at coffee houses or just
hang out all day. That costs, taxes rise, and the productive workers begin
to wonder why they are working so hard when they can join the gravy train.
Scandinavian socialism worked pretty well in Sweden for a long time because
they started with a people heavily imbued with the Protestant work ethic,
and it took generations before economic incentives prevailed. But that's my
view. Moreover, it may be that Obama doesn't have Scandinavian socialism in
mind: it's hard to tell just what he plans for America, and we can only make
inferences through examining his appointments and his few statements. But
only a monster would wish the nation ill just so that he could crow about it
later.
===================
Niven just called and is on his way here for us to go to lunch. I'll
finish this and do free trade and mail when we get back.
=======================
Definition of Combat
Wounds (Benefits) Is Hurting our Veterans
http://www.blackfive.net/main/2008/11/definition-of-c.html
"Marine Cpl. James Dixon was wounded twice in
Iraq -- by a roadside bomb and a land mine. He suffered a traumatic brain
injury, a concussion, a dislocated hip and hearing loss. He was diagnosed
with post-traumatic stress disorder.
Army Sgt. Lori Meshell shattered a hip and
crushed her back and knees while diving for cover during a mortar attack
in Iraq. She has undergone a hip replacement and knee reconstruction and
needs at least three more surgeries.
In each case, the Pentagon ruled that their
disabilities were not combat-related.
In a little-noticed regulation change in
March, the military's definition of combat-related disabilities was
narrowed, costing some injured veterans thousands of dollars in lost
benefits -- and triggering outrage from veterans' advocacy groups..."
I see no good excuse for a politically
connected chairwarmer to screw his betters in their hour of need. This is
a clear case where someone should beware the fury of the legions.
Name withheld.
I withhold the name for obvious reasons. I saw the article in today's
paper. Beware indeed. Have our masters gone mad? Will Obama reverse this
madness?
====================
================
According to GalleyCat, Houghton Mifflin has "temporarily stopped
acquiring manuscripts."
http://www.mediabistro.com:80/
galleycat/publishing/houghton_mifflin
_harcourt_temporarily_stops_
buying_new_books_101667.asp
Francis Hamit confirms
http://www.publishersweekly.com/article/CA6617241.html
==================================
Free Trade
This mail is reasonably typical:
I think in the view (but it might have been the
mail) you said free trade was a bad idea since we were sending our money
overseas. You quoted Lincoln to that effect.
You are right, of course. When I buy a Japanese car
or a Chinese microwave dollars do go overseas. What you miss is what
happens next.
Dollars are useless except as a means to buy
American goods. The Japanese or Chinese can stuff the dollars in a
mattress. In that case the car or microwave is as much a gift, and for the
same reason as if I buy a car from you and you never deposit my check.
They spend that dollar. They buy US goods and
services or they invest in US capital assets (such as auto plants or golf
courses). They may not buy the same things they sell to us, but they do
buy.
They can also loan the money to us which does not
change the above, merely postpones it. Or they can buy Saudi Oil or
Swedish steel which merely transfers the money. The Saudis or Swedes now
need to spend the money.
In other words, a true trade deficit is impossible.
Trade is just that, trading or exchanging one good or service for another.
Dollars/money are only the tool for accounting.
You mentioned Lincoln and, to some extent he was
right. At that time, though, we were sending gold out of the country.
However, excluding certain industrial and ornamental uses, gold is mainly
useful as a medium of exchange. If England had gotten all of our gold,
they would have had to trade it to someone for food. Quite likely the US.
Best,
John R Henry CPP
Of course I did not say Free Trade was a bad idea since we
were sending our money overseas. I do wonder if people read what I say. And
of course I am pretty well aware of the facts cited in the rest of the
letter.
What I did say was that I doubt the stability of an economy
based on opening containers of goods from China, and borrowing the money to
pay for those goods. I know that it is popular with some schools of
economists to say that foreign debt doesn't matter, there is no such thing
as hostile trade, and after all we can instantly go back to manufacturing
the stuff we now borrow money to buy. I don't find those assertions
compelling, and I suspect I am not alone in my suspicions.
Like unrestricted laissez faire capitalism, Free Trade is
the most efficient way to acquire stuff, and if acquiring stuff at the
lowest prices is the goal -- possibly the only goal -- of your nation then
unregulated Free Trade is the way to go. It will get you lots of stuff, and
as long as you have some way to generate the money to pay for the stuff,
you'll get it at the cheapest prices possible. The question is, how long can
you go on paying for it? What happens if your trade partners return the
money by buying your country's capital assets, and eventually own a good
part of the country in fee simple, and take the yields of their investments
overseas? Then use those to buy even more of your assets? Does this matter?
Does there come a time when you run out of assets? Is making a living by
selling capital assets a way to wealth? Is this what is being taught in the
schools? If you inherit property, is it wise to sell it off to pay your
current bills, then borrow more against what's left? We used to call people
who did that spendthrifts, and say that a fool and his money were soon
parted, but perhaps now that is no longer true?
Economists use models to study events. Let's make a very
simple one. Two countries, A and B. Country A has, we will say, excellent
schools that produce workers who, on average, can produce 5 times as many
widgets per hour as the workers of country B. The two have a common border,
so there are no transportation costs. They have a Free Trade agreement. Both
countries are pretty well self sufficient in food and necessities, but there
is a nearly infinite demand for widgets in each country.
The Country A widget corporations make money like mad.
Everyone is happy, but of course there are "excess profits" in the widget
business. Now Country A decides that its well educated workers are exploited
by their corporate employers who are making excess profits, and enacts some
regulations to make things more fair. They enact compulsory health care,
pensions, work safety, and minimum wages. This is known as the fairness
package. County B does not do this.
At this point we have to examine the costs of our fairness
package. If it turns out that Country A workers can still produce widgets
cheaper than Country B can produce them, A sells widgets both domestically
and in the export market. Country B thinks about this for a while and starts
an education program to make its workers more productive. As productivity
rises, there comes a point at which the real cost of making a widget in
Country B is lower than it is in Country A, because although B's workers are
less productive than A's, A's fairness regulations impose costs that B
doesn't have. The traffic in widgets reverses. They now flow from B to A,
and A's widget factories can't make widgets for less money than the current
widget price, and are about to go out of business.
A now has some choices. One is to try to increase
productivity, but they already started at high productivity, and the
fairness package has lowered the incentive for workers to learn more about
being productive.
Country A can invest in better widget machinery, but the
excess profits that might have gone into that investment were spent on the
fairness package.
Country A can nationalize the widget factories (bail them
out by taking equity positions in them) and hope that a government
bureaucracy will do a better job and raise productivity. Good Luck with
that.
Or A can borrow money from B to buy widgets from B, and
watch B buy up the productive food lands in A. With luck those who started
this process will be dead before there are serious consequences.
Another alternative is to cut the fairness package benefits
until the higher productivity of Country A's workers overcomes the
disadvantages of the fairness package. This turns out to be politically
impossible.
Perhaps they can impose a tariff on imported widgets that
exactly equals the cost per widget of the fairness package. Of course this
ends Free Trade.
Now of course this is greatly simplified, but surely you get
the idea. In essence, if you impose costs on production, you lower your
capability to compete with those who don't have those costs. I would not
have thought that controversial.
If your goal is economic growth without regard to social
disruption and displacement and you don't mind forcing people to change jobs
and restructure their lives in response to market place demands, then Free
Trade and laissez faire capitalism work very well together. If your goal is
full employment at "fair wages" then Free Trade may not be the way to go.
I would not have thought that difficult to understand.
Incidentally, the practice of living by selling one's
capital assets is not very stable. At some point you may need the revenue
from those assets. Or you run out of assets to sell. Then what?
IN the real world, the remedy would be to make the US
education system more responsive to requirements of a modern world. That
means educate the holy heck out of the bright and bright normal kids, and
make sure that your average kids learn a lot even if that means separating
them from the not so bright, and especially separating them from the
disruptive and destructive. It means teaching the average kids things that
are practical and suited to their capabilities so they can go out and do
something useful. Make goods. Do services. Service robots. Repair things.
Recycle stuff. Do things useful. Of course that's not possible in today's
political climate either.
Now Free Trade has the useful property of requiring domestic
producers to be more efficient, as US auto companies were changed; perhaps
Free Trade will do the same for our education system. But don't hold your
breath. The auto companies weren't able to change enough, even though there
was some real competition -- and the auto companies can't compel you to buy
their cars. The school system is harder to change, they can compel you to
pay for their services no matter how bad these services are, and they don't
permit any real competition. (Ask anyone in DC if they'd rather their kids
went to DC public schools or Sidwell. We know what the Obamas think about
that, and who can argue with them? No one wants the Presidential and
Congressional Children to have to go through what the average citizen of
DC's kids must endure.)
I'm not against Free Trade; but I'm not for it in all
circumstances either. There are good reasons (including revenue) for
tariffs. And that's enough for today.
=========================
follow up on bad flash memory
Dr. Pournelle,
A follow-up on the bad flash memory, and a reminder
why to buy from good retailers… Newegg.com will be shipping me another flash
memory card and they don’t even want the bad one back because it’s not worth
the shipping. Dealing with newegg is almost as good as going to a friendly
electronics store down the street, and I’ve had pretty good results with
their customer service.
Since I mentioned that I got the bad card from newegg,
I wanted the record set straight about what they did when it was brought to
their attention.
Sean
Uh -- if you haven't subscribed and can, this would be a
great time. It need not be platinum....
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