We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Anyone with the slightest knowledge of economics is aware what a scam a ‘minimum wage’ is. When an artificial bottom placed on hourly rates is raised ,there are only two rational responses an employer can make: fire anyone whose value is now less than their cost; or raise prices to cover the added cost of doing business.
The raising of prices following a minimum wage hike sends ripples through the economy, like those of a handful a pebbles tossed into a farm pond. At some point everything damps out and the steady state returns. No new value has been created by the higher wages so the end result is roughly enough inflation to wipe out the change.
This analysis misses a detail however. The economy does not respond instantaneously. There is a time lag during which recipients have more purchasing power. They will pay for it later of course: TANSTAAFL. But from the viewpoint of a politician if the gain can be timed to properly coincide with something of value to them, say an election, it is a win. The pain comes later and memories are shorter than the interval betwixt elections.
I realized this morning there is a way in which politicians can hide much of the pain indefinitely: illegal immigration. Think it through. Raise the minimum wage in an environment where there is cheap, willing labour, undocumented and outside the system. What is the rational employer response? Raise wages for legal employees and export the costs to the undocumented workers. Illegal immigrants are not voters so this is a win-win situation to both the ruling class and those who keep them there. The voters get a higher real wage and living standard because the inflationary cost has been shifted. The pain has been exported outside the political game.
Statist politicians cannot do anything about illegal immigration because if they stop it, the deferred inflation will cause prices to rise enough to erase the excess income of their constituents. Employers will have to either drop low end jobs or else raise prices to support them. Voters will not be happy and it is well known the wallet is a bigger determinate of election outcomes than just about anything else. So, QED, illegal immigration is now a structural requirement of the centralized Western bureaucratic state.
A second force drives the need for cheap labour: the demographic transition in modern societies leads to a lowering of birthrates and a consequent labour shortage. Some places, like Japan, are looking to solve this with robots: the real deal kind. Less closed societies are covering the short fall with immigration of both legal and illegal varieties.
There is simply no practical way out of the situation in the short run and politics is all about delaying pain in hopes it will either go away or happen after you are gone.
The question I ask in the headline may not have an affirmative answer but the world’s stock markets have a decidedly shaky look at the moment. The British bluechip index is now at the level where it was at the start of the year, erasing all its gains. Some emerging market bourses have fared even worse. What is going on?
Inflation – which some economists had claimed was ‘dead’ – is possibly back, created as a result of the vast amounts of monetary liquidity sloshing around the global economy at the moment. For a while, red-hot growth in China, India and continued robustness to the U.S. economy may have bred a dangerous amount of complacency. We have a new head of the powerful U.S. Federal Reserve, Ben Bernanke. Bernanke is clearly keen to establish his own policymaking persona after the long stretch of the Alan Greenspan years. There is a sense that interest rates could be headed up further. Gold prices have been above $700 an ounce, rising rapidly to a degree that has got some old-fashioned ‘gold bugs’ like me decidedly nervous.
So should we fear a recession is on the way? Not necessarily. The enormous motor power of the U.S. economy repeatedly counters the doomsayers. But there are clear risks. China’s state-dominated banking sector is stuffed with bad loans and investment is often wildly misallocated. The price of oil is acting like a tax on growth, although in time it may weaken if new energy supplies come on stream to slake demand (assuming governments allow it).
The economic sea may be choppy for a while yet. However, to counter some of the gloom read this sharp piece at the Mises Institute.
As I write this, it is raining in a slight but persistent drizzle outside my Pimlico flat, central London. It has been a mixed bag on the weather front recently: some spells of great warm weather but a fair amount of rain. The cricket match at Lords was briefly interrupted by it. One can bet that the Wimbledon tennis tournament later in the summer will undergo the familiar ritual of thrilling matches being interrupted by rain (although I hear there are plans afoot to put a giant cover over the Centre Court stadium in due course).
Despite all this, we are told that Britain faces an unprecedented drought. All manner of water restrictions are threatened, although thankfully, given the less-than-wonderful personal habits of Londoners (any Tube user will know what I mean) it is still allowed for us to take a morning shower. In short, shortages. This appears insane in a country famed or infamous for its damp summers. It is an island in which few places are more than 100 miles from the sea. In a wider context, most of the Earth’s surface is covered in the stuff. What’s the problem?
The ‘shortages’ we have now have a number of causes, from what I can glean. There has been a substantial population rise in the southeast of England. Greater affluence means more dishwashers, bigger washing machines. Increasingly, many people will often have more than one bathroom in a house. Other, wetter, parts of the UK like the famously wet area to the west of the Pennines have not seen the same sort of population growth. There is plenty of water in Scotland, Wales and Northern Ireland. → Continue reading: Water and some basic economics
One of the oldest refrains of those who bash capitalism is that speculators are bad people, inflating the ‘true’ price of X or Y from its supposed ‘correct’ level. It is no surprise that at the moment, those who speculate in the market for oil and other sought-after commodities like copper and gold are getting a lot of abuse. I guess they can take it. As I mentioned in this post on the same issue of the oil price, the level that crude oil is fetching in the market has been pushed to high levels for a whole host of reasons, with speculation playing a part, but not necessarily the major part.
In any field of endeavour where there are different appetites for taking on risk, you will get speculators. Speculators take the risk of a price going up or down that others are unwilling, for whatever reason, to shoulder. If it were not for speculators trading in those mysterious things like interest rate swaps or futures, I would not be able to have a fixed-rate mortgage on my house, for example. At the moment, hedge funds and other operators are willing to bet that the price of oil will go higher, and presumably could get cleaned out if the price turns, on say, a sudden discovery of a major oil reserve, an outbreak of peace in the Middle East, return to political sanity in Venezuela, or whatever. So just as one should not weep over the losses speculators make, it would be equally foolish to carp about the gains they are making now.
As for the Greens, they ought to be praising those strange-sounding investment vehicles called hedge funds. By pushing up oil to near $75 per barrel, they are doing their bit to show the folly of taking one’s children to school in those small trucks called SUVs, leaving the lights on all day and shunning alternative forms of energy. No wonder the share prices of alternative energy firms and even the nuclear sector are looking promising.
UPDATE: And this guy does not think much of the economic grasp of New York legal blowhard Elliot Spitzer, on a related topic.
How else? You might ask. But this abstract in McKinsey Quarterly caught my attention with its astounding wrong-headedness:
How Brazil can Grow –
The most important obstacle is Brazil’s huge informal economy which, distorts competition by putting efficient, law-abiding companies at a disadvantage. Macroeconomic instabilityreflected in the high cost of capitalis the second-most-important hurdle, followed by regulations (such as rigid labor laws) that limit productivity.
Could it possibly be that it’s the top-heavy regulatory state and shocking tax rates on officially recognised activities that are keep the poor poor, small companies small, and the poltically unconnected outside the system hoping not to be noticed? It couldn’t be state favouritism and that same capricious regulatory apparatus that keep the risks high and capital proportionately expensive? It would also be interesting to know in what sense ‘efficient’ and ‘law-abiding’ go hand in hand in such circumstances. It is implied that unlawful, invisible, enterprises are inefficient ones (in whatever sense that is). How do they know?
Sorry to keep banging on about J K Galbraith, but I just had to drag a gem of a BBC Radio 4 radio interview out of this comment thread – thanks to commenter John K (not Galbraith, one assumes) for bringing it to light. The Radio 4 producers were no doubt expecting hushed reverence for a crusty Keynesian warrior like Galbraith – much beloved by most BBC types – so I think they received rather a rude shock when the interviewee, Meghnad Desai, got into his free marketeering stride. My favourite part :
“So Galbraith was very much a 1950s man. And he still has fans, because lots of people are still stuck in the 1950s. You know, quite a lot of them in the Labour Party.”
I also particularly enjoyed the shocked pause before the interviewer, Greg Wood, thanked the eminent Professor for his heresy.
A firm friend of government interference passes on.
When people in public offices start bleating about a conspiracy of private firms to screw the public, it is usually a sign that said public official is trying to spread a profound misunderstanding of market forces, or is an idiot, or is trying to name a scapegoat to shore up public support. In the case of President George W. Bush – not exactly the brightest light in the harbour – it may be just be a combination of all three.
Anyway, veteran libertarian scholar and free marketeer Tibor Machan is having none of it.
Oil prices are high – though in inflation adjusted terms, not as high as in some periods. The reasons for this have nothing to do with the nefarious activities of Big Oil. It is caused by rising demand from the expanding Chinese and Indian economies; a lack of supply caused by low investment during the 80s and 90s when crude prices fell to below $10 per barrel at one stage; a lack of refining capacity for the same reason; regulations designed to cut pollution, which raise production costs, the interruptions to supplies from the Middle East because of the conflict there, and finally, an element of speculation from hedge funds and the like.
Adam Smith famously warned of the dangers of firms forming cartels to prop up the price of a particular good or service, although in practice such cartels tend not to last very long unless they can enlist support from governments in some ways to prevent new companies from entering a market. If Exxon, say, tried to do a deal with Shell to rig the price of gasoline at X dollars a gallon (not litres, dammit) then sooner or later another firm would see a market opportunity to undercut that price, and in an age when motorists can check prices on the internet, it is hard to see how this process could be stopped without State intervention.
Conspiracy theories are great fun, and I hate to be a party-pooper, but in 99 times out of 100, they are bunk.
Gary Jason – a writer I had not heard of before, has an interesting review about a book chronicling how filthy rich some prominent American leftists are. The usual collection of intellectual gargoyles are on show: Ralph Nader, Nancy Pelosi and Michael Moore. I must admit I was taken aback as to how much money Nader is worth, although that is probably my naivete. Jason asks the interesting question about how leftists who decry business are so easy with a life of affluence, and takes a stab at a few answers.
For example, I rather liked this paragraph:
I suspect that there is also a subtler phenomenon at work, one that I would call “warding off the evil eye.” I suspect that some successful people — here I have in mind certain businessmen who have become enormously rich — fear that the envious lower classes will possibly do them harm. Considering the long history of class warfare politics, this is not an irrational fear. To ward off envy, these captains of industry make a conspicuous show of being kind and caring, setting up foundations that prominently feature their names.
This sort of ground has been trodden a few times before. What intrigues me is why there are so few seriously, stinkingly, rich folk on the libertarian side of the street, so to speak. There are a few libertarian friends of mine with decent jobs, nice houses; some have inherited fairly serious money and do not have to work; but I don’t know any of our number who has the sort of wealth described in Jason’s book review. It is a paradox that celebrants of capitalism and market economics are often on their uppers, financially, in my experience, although my impressions are just that, impressions.
I guess it may be partly down to the fact that folk who are good at handling ideas and making arguments for this and that tend not to have the sort of skills to make pots of money. It may also be that, in today’s largely corporate world, being known as a holder of controversial ideas (such as legalising heroin, zero state welfare, etc) is not good for the prospects of a person trying to clamber up the corporate ladder. And if a person wants to create their own business, they tend not to have the time to ponder the Big Questions, write The Road To Serfdom or Atlas Shrugged.
Even so, it remains for me a bit of a puzzle why so few of us are not rolling in cash, given our views about the benefits of the marketplace.
On a related theme, I can recommend this article on why intellectuals often hate capitalism, by the late Harvard University professor, Robert Nozick, and this book, by Ludwig von Mises.
Frank Furedi, the British sociologist who has already established a bit of a record for trashing doomongering of various types, lays into what he sees as the misanthropy of so many of today’s glum authors. I cannot do justice to it in one short comment, so make yourself a coffee or pour your favourite alcoholic beverage, sit back, and enjoy:
Human beings are not angels; on a bad day they are capable of evil deeds. But the very fact that we can designate certain acts as evil shows that we are capable of rectifying acts of injustice. And on balance we aspire to do good. Contrary to the fantasies of romantic primitivism, civilisation and development have made our species more knowledgeable and sensitive about the workings of nature. The aspiration to improve the conditions of life – the most basic motive of people throughout the ages – is one that has driven humanity from the Stone Age through to the twenty-first century.
If believing in the human potential is today labelled ‘anthropocentrism’ and ‘speciesism’, then I wholeheartedly plead guilty to subscribing to both of those views.
Hat-tip: Ronald Bailey at Reason’s blog. Bailey is also a profound techno-optimist with little time for the zero-sum economics or mentality of the latter-day Malthusians that Furedi hammers. This book is worth adding to your reading list. (As if I did not have enough, Ed).
It has been a relatively quiet year so far in Australian politics, with the main story being an investigation into a scandal involving the Australian Wheat Board, which was accused of paying huge bribes for wheat contracts to Saddam Hussain’s Iraq. The political controversy relates to what the government knew about it and what it did about it.
It seems that the government did not know very much about it, and did absolutely nothing about it. The Cole Enquiry that has been formed to investigate this matter and Prime Minister John Howard will testify tomorrow. I have generally taken the view that the enquiries have been a political circus and conducted for partisan reasons, so I’ve not followed it very closely. Other people have taken a greater interest, and have come to different conclusions. However I still feel that this matter is more a case of cock-up rather then conspiracy.
I got thinking about the case from a different angle though, about the bribes. The fact that bribes needed to be paid at all for a straightforward commercial transaction is a shocking indictment of the regulatory stranglehold Saddam Hussein and the UN had placed on Iraq. This is small beer compared to the literal stranglehold that the tyrant kept his people under. But bribery is a natural part of things in so many parts of the world, in various and many degrees. It is by no means restricted to ‘third world’ countries either. But it occurred to me that the more you need to bribe agents of the state to get anything done, the worse the control the state has over the economy, and is a passable indicator of real, as opposed to nominal, economic freedom in a society.
Australia’s flagship national broadsheet, The Australian, published an article today sporting the title Cut to the bone: working poor on the rise. To illustrate this terrible phenomenon, the Oz article provides the example of Vicki and Terry Rawiri, who
[by day] worked at the supermarket, while at night Vicki, 42, weighed carcasses and Terry, 43, classified as a labourer, worked as a slaughterman.
And even then they could barely afford the gruel, you might surmise. Well – not really. This pitiable couple
were trying to get ahead by paying off the mortgage of their $365,000 [about 150 000 GBP] home in Cowra in eight years
Your heart bleeds, no? The sacrifices abject poverty forces one to make! Leaving aside the horrors of working hard to pay off one’s mortgage quickly, the article goes on to quote a survey filled with anecdotal evidence of the plight of Australia’s poor; how they cannot afford to drive registered cars, thus risking the law’s wrath in unlicenced wrecks, how they can only find $20 to go to the movies if it comes out of the food budget. Well, here’s some anecdotal evidence that I have gathered in my travels – I once worked at a very large and very busy liquor store in an especially low socio-economic suburb in Perth. The poor may not be able to drive a registered car or spend $20 on a movie, but rest assured that a large chunk of them generally have quite a lot of money to spend on alcohol. Putting that aside, the tough luck stories of a few are not borne out by hard economic data from the Australian Bureau of Statistics pertaining to the poor in the aggregate:
over the period from 1994–95 [to 2003-2004], there was an estimated 22% increase in the real mean income of both low income people and middle income people and 19% for high income people
→ Continue reading: Australia’s working poor: a tragic case
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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