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]
|
You may not have noticed, but in the UK this week is Fairtrade Fortnight – that time of the year when we are encouraged to buy ‘fair trade’ coffee and other ‘fairly priced’ products. I spent Monday going on TV and radio shows explaining why the scheme is counter-productive, much to the fury of its supporters.
For a start, we should be realistic about the scheme’s potential. In Britain, despite ten years of advertising, 97% of coffee sold is not on the scheme. Most consumers are likely to continue buying coffee according to cost and quality. Its potential for increasing wealth among coffee producers is thus extremely limited. Some argue that the scheme is taking us away from thinking about more radical solutions to poverty.
Secondly, the real problem with ‘fair trade’ is that it is based on economic illiteracy. The low price of coffee is caused by production increasing by 15% since 1990, and supply is bigger than demand. This cannot be blamed on multinational buyers of coffee. There are simply too many people employed in coffee production. With new technology, the price may well decline further. In Brazil, five people and a machine can do the work of 500 people in Guatemala. The low coffee prices are a signal to exit the market, or switch up to higher value coffee.
‘Fair trade’ – though it helps some farmers – encourages people to stay in the coffee market and gives them confidence to increase production. That is all very well, but this has a downside. More supply means a lower price on the world markets. Perversely, ‘fair trade’ makes matters worse for the vast majority coffee producers.
Criticism of the multinational buyers of coffee abounds, but these people have probably done more to help the lives of coffee producers than ‘fair trade’ has – by promoting coffee drinking to members of the public, and putting trendy coffee shops everywhere.
Instead of ‘fair trade’, we should concentrate on real solutions. Like getting rid of the Common Agricultural Policy and EU tariffs, which limit the goods overseas producers can diversify into. And coffee producing countries need to make the economic reforms that enable enterprise to flourish. ‘Fair’ pricing schemes may sound like a good idea, but they fail the market test.
Alex Singleton can be contacted via his personal website.
Equitable Life is a mess, that is for sure. The responsibility of making sure the people who look after your money can be trusted ultimately lies with the owner of the money… the pensioners, the beneficiaries of what Equitable Life actually does. However if fraud or other gross misrepresentation is involved, and not just incompetence, ineptitude or misfortune, then things do change somewhat as it becomes a criminal matter.
However Equitable Life is massively regulated, so many of its weird business decisions must be seen within the context of the weird distorted environment within which it operates…
So yes, there is an argument that as the state should therefore also be liable for the mess. But then if you accept that, given that the British economy grows more regulated by the day, that would suggest investors should be lining up to claim tax money from the state every time anything goes bust. After all, what makes Equitable Life’s casualties any different from the casualties of any other business cock up?
Occasional Samizdatista Malcolm Hutty recently emailed me thus:
Re your post on Samizdata a little while back about the fixed quantity of programming fallacy: if you’re interested in an intelligent discussion amongst programmers about whether outsourcing programming to India is actually a successful commercial strategy (and under what conditions it might work or not work) look here.
Sample quote:
In my opinion you rarely can separate design and implementation, especially if it’s not a totally standard system that you are going to implement, e.g. when your customers don’t know exactly what they want. You have to have a very clear and quality design in order to be able to send the specs overseas for implementation. Most of the time you have a half-baked design when you start coding. You make a prototype, you try out this and you try out that, and you correct your design in the process. After a while you get confident in your design, and then you start coding full-speed. At this point you have stable specs, and you can outsourse things but it’s too much of a hassle and overhead at this point, and maybe not worth the trouble at all. Most of the software projects have this kind of loosely structured overlapping design and implementation processes. It’s not automated yet, we are still too chaotic.
As someone unburdened by much detailed knowledge of these matters, I say that a reduction in price will always have consequences. Pile it high and sell it cheap, and you will be amazed by the number of new purchasers who come forward, seemingly out of nowhere. Remember the days when there would only be demand for six mainframe computers. As cheaper computers materialised, people thought of steadily more things to do with them. And it will be the same with outsourcing. My guess is that outsourcing will not so much make certain already familiar types of software cheaper, but will make new kinds of software possible. The big impact will come not from the people asking: how can we do our stuff more cheaply? It will come from those asking: what software can we now do that will make use of outsourcing, which we could not do before?
But what do I know? Meanwhile, I am quite prepared to believe that making profitable use of outsourcing is a skill that has to be learned, and that outsourcing definitely has its pitfalls.
Scott Wickstein takes a look at how farmers in so many parts of the First World get away with distorting trade at other people’s expense, both via pocketing taxes and inflating prices in the supermarkets of Australia, Britain, Europe and North America
To the list of certainties in life, such as death and taxes, we can add the fact that farmers will clamour for protection and subsidies. That is not surprising, but what is surprising is that around the globe, governments of all persuasions, whatever their nature, are willing to obey the demands of their farm lobbies.
A typical example of this is the recently concluded free trade agreement between Australia and the United States. Much of the agreement is actually devoted to excluding certain products from free trade. One such product is sugar, which was excluded at the behest of the US sugar producers lobby. That exclusion, in turn, provoked such an outcry by Australian sugar producers that the Australian government felt obliged to provide subsidies for the Australian sugar farmers.
From these actions, one can conclude that the political clout of the US sugar producers is much greater then that of sugar consumers, such as confectionery manufacturers. And yet, this is but a manifestation of a trend which is global. All over the world, governments are all too willing to knuckle down and obey the demands of their farm lobbies. That politicians do this, and run the risk of enraging urban electorates, speaks volumes about the organization of farm lobbies, and, indeed, it also shows how disorganised free trade proponents are. → Continue reading: First blast of the trumpet against the Monstrous Regiments of Farmers1
The Office of Fair Trading (the name being a splendid example of British irony in action) has ordered 60 private schools in the UK to hand over documents for an inquiry into alleged fee-fixing in violation of the 1998 Competition Act.
The OFT’s move provoked protests from the Independent Schools Council, which said it had “serious concerns about the protracted nature of this investigation and the effect it may have on schools”.
However, the ISC appeared to acknowledge that some schools may have fallen foul of a change in the law, but blamed the Government for failing to keep them informed.
Yet again we see that the scope and burden of state regulation is such that it is almost impossible for businesses to avoid breaking some laws unless they employ a ruinously huge staff of lawyers and ‘compliance officers’. Of course the very notion that the state, which imposes vast distorting pressures throughout the economy, can be an arbiter of ‘Fair Trading’ is almost beyond parody. As the Angry Economist said the other day:
Now, I would be the last person to claim that markets always produce good results. Some problems are hard for markets to solve simply because they are hard problems. Pointing to a problem which is hard for markets to solve doesn’t automatically mean that solution-by-government will be better. It may turn out to be that government interference will produce a better result (pareto optimal) than peaceful cooperation. I allow that as a possibility at the same time that I doubt it will ever happen, once all costs are accounted for.
The trouble is, as economies are complex networked systems, that it is not always obvious how this law over here buggers up that market over there. The distortions are often not a single causal step away and thus might as well be completely unrelated unless you are willing to take the time to really look at why things happen the way they do… and in most political systems, it is usually easier to just pass another law.
It is a well-worn aphorism that you should avoid meeting your heroes, because up close and personal they will often disappoint you with their inevitable human foibles, as compared to their superhuman attributes as witnessed from a worshipful distance, often spilling tomato juice down the tie of your admiration. But although I have personally found this to be true, with an old Sheffield Wednesday sporting hero of mine who I once discovered sneakily chatting up a girl I was after, the cad, I still feel one must gather one’s rosebuds from life. So despite the aphorism above I always take the risk of meeting heroes, however briefly, on the rare occasions when I get the opportunity to do so.
And last night, when I met one of them, alas very briefly, it proved no risk at all. For not only was my hero just as good in the flesh as he is as a picture on the Internet, he was even better. Far better, a true heroic star, a man of penetrating intelligence with a hint of self-deprecatory humour, a man of sparkling West Coast eloquence with an ability to make uninteresting questions put to him seem vital and imaginative, and a man of such devastating rhetorical ability that in just half an hour he managed to destroy a New Left edifice, constructed out of glue and matchsticks over three decades, to leave it as a dusty pile of splinters on the floor.
He was outstanding. He was inspirational. He was magnificent.
And no, I’m not talking about David Carr. Because I met him last year. I am, of course, talking about Bjørn Lomborg, author of The Skeptical Environmentalist. Michael Jennings, below, details Mr Lomborg’s short talk for the Adam Smith Institute, last night, so I’ll break my usual habit and keep this short. First, you must buy the book, if you haven’t done so already you naughty person. Second, we’re not going to run out of Shale Oil until about the year 5000. Third, that won’t matter, because we’ll be off fossil fuels by the end of the 21st century. Fourth, I was the first one to get my book signed last night because I’m one of those sorts of people. Fifth, if you ever get the chance to hear Bjørn Lomborg speak, yourself, just stop everything. Take that opportunity!
My greatest hero of all, Ludwig von Mises, once stood alone to take on the entire world before he then beat it. Bjørn Lomborg is a man in that vein. Almost alone, and despite copious icebergs of abuse, he has dragged the gun down from our heads that Greenpeace eco-warriors were gleefully pointing at us and wiped the imminent smile of success from their faces. Think Agent Smith. Think Mr Anderson. He is the one.
The book is available on all good websites everywhere. It’s a no-brainer. Just buy it.
[BTW, for all Lomborg groupies, such as myself, there is another great review of the event here, by Andrew Medworth of the ASI]
The week’s edition of the Economist is a rather good one. It is a publication which although generally on the side of the angels, often infuriates me with its statist meta-contextual inconsistencies. Likewise they are at their worst when describing broader civil liberties issues, particularly self-defence. That said it is a magazine which is often a bloody good read.
The leader article is called The new jobs migration and discusses a subject dear to my heart: free trade and outsourcing.
The fact that foreign competition now impinges on services as well as manufacturing raises no new issues of principle whatever. If a car can be made more cheaply in Mexico, it should be. If a telephone enquiry can be processed more cheaply in India, it should be. All such transactions raise real incomes on both sides, as resources are advantageously redeployed, with added investment and growth in the exporting country, and lower prices in the importing country. Yes, trade is a positive-sum game. (Adam Smith did think of that.)
Great stuff. When people argue that they just want to ‘protect American (or British/French/Japanese) jobs’, what they are really demanding is that force be used to ensure that other people’s purchasing power within their own nation not be allowed to grow because of their own sectional interests.
When people look at cases of folks loosing their jobs in the USA or UK because an Indian or Philippine call centre can do it cheaper, and then call for this to stop, they are not looking beyond the first causal link of costs and benefits. Moreover, they are ignoring that we live in an extended and (largely) capitalist society which is extraordinarily good at dealing with such problems when the ‘invisible hand’ is free to work its ‘magic’. Some people are losing their jobs, ergo, this is bad and must be stopped… this rather like concluding as the world seems intuitively to be flat, therefore it must be flat. By this logic all labour saving devices should have been declared ’employment destroying devices’ and banned long ago.
There is also another splendid article in the United States section called The Great Hollowing-out Myth which roundly rubbishes the notion that outsourcing damages the US (or other) economy and overall employment prospects (alas that article is available only via on-line subscription or in the print version):
Contrary to what John Edwards, John Kerry and George Bush seem to think, outsourcing actually sustains American jobs
[…]
Yes, individuals will be hurt in the process, and the focus on public policy should be directed towards providing a safety net for them, as well as ensuring that Americans have education to match jobs being created. By contrast, regarding globalisation as the enemy, as Mr Edwards does often and Messrs Kerry and Bush both do by default, is a much greater threat to America’s economic health that any Indian software programmer.
Run, do not walk, to your nearest newsstand.
Arnold Kling makes an excellent point about Doc Searl’s ‘statement of geekonomics’ dating back to 2000.
There is a classic line attributed to John Gilmore that “The Internet interprets censorship as damage and routes around it.” Economists might say that markets try to route around the damage caused by monopolists or government regulators. I view Searls as saying that with the Internet and markets, consumers do not need their paternalistic advocate so much.
To me, Searlsian Geekonomics sounds more like Hayekian libertarianism than Deanian re-regulationism. I don’t think that the Dean campaign deserved such a strong Geekbone. To me, the logic of Geekonomics is to lead one to be skeptical of the Democratic Wing of the Democratic Party.
I find Doc Searls very sound on almost all issues other than his support for Dean’s campaign. I am glad that someone pointed out the contradiction in his position.
The daft furor over the outsourcing of job to India (and other places) is just another example of how amazingly primitive the understanding of economics is which prevails amongst the media and political elites in the USA (though no worse than elsewhere I might add).
The same troglodyte notions that lead people to think that cheaper foreign steel being imported into the USA is a bad thing (which is just another way of saying that manufacturing cheaper cars, homes and ships in the USA are a bad thing), lead the same people to in effect say that allowing Americans to purchase cheaper computer programs and requiring them to pay more for call center services is also a bad thing.
President Bush went on the defensive Thursday on the issue of outsourcing after a firestorm erupted over an aide’s contention that free flow of jobs, including the migration of services to India, benefited the US economy in the long run.
Although the aide, White House economic adviser Greg Mankiw, was merely echoing what was stated in Bush’s economic report to Congress, Washington’s political class came down on him like a ton of bricks.
Lawmakers from both parties, including Republican House Speaker Dennis Hastert, demanded he be fired. The criticism forced Mankiw, a Harvard economist, to clarify that he did not mean to support or praise loss shifting of US jobs overseas.
Sure, if your IT or helpdesk job as just been outsourced to Bombay, it might seem like A Bad Thing for you personally… but then that is just as true if your job in New Jersey has just been taken by someone in Biloxi, Mississippi because your company has just relocated to where costs (and taxes) are cheaper… the overall effect is that companies, and outsourcable functions of companies, will go wherever it makes sense for them to go… and so they should!
However notion that India has such a comparative advantage just because they have produced a reasonable pool of IT and call centre people who will work for far less than their counterparts in California does rather miss the obvious fact that India is far from suitable for all or even most IT or call centre jobs. Troubleshooting a network in Texas is rather hard to do from New Delhi and to think people in Asia will have such a deep understanding of American (or British or European) cultural mores that all help desks and call centres will end up there is rather bizarre. Companies who out-source unsuitable jobs will end up being punished by the market if their quality falls below the point which lower costs can offset such a fall, and some jobs are very quality sensitive indeed.
It should be screamingly obvious that stopping people in India (and elsewhere) from exploiting their competitive advantages does not only hurt them, it hurts everyone who is a customer for those products. Rather than engaging in unbecoming grovelling, George ‘Steel & Lumber Tariff’ Bush should redeem himself by responding to the Troglodyte faction by pugnaciously asking them “So, what exactly did the American consumer do to you to make you hate them so much, guys?”
If a company is not free to run their business and the location of the people who make it work, to best suit the company’s interests, who pays in the end? The company’s customers do, of course. And that means you.
Two decades ago I used to love arguing about the rights and wrongs of capitalism, socialism, social democracy, collectivism, communism, etc. Now, I don’t have the adrenalin for it. Now I prefer to offer observations, big or small, and let others fight about them while I cook up my next observations. Thank God (by which I of course mean Perry de Havilland and his editorial confreres – thank goodness might be a better way of putting it) for Samizdata.net, because here I can do just that.
But if you want a good old libertarians-versus-collectivists row to join in on, this Chris Bertram post together with all the comments it has provoked could be just your ticket.
Chris Bertram says this about the Morecambe tragedy in which nineteen Chinese cockle pickers perished:
But one thing that needs saying is that such tragedies are a normal and predictable consequence of capitalism and not simply the result of coercion and abuse by a few criminals.
Bertram’s piece is a classic example of what one might term Implied Collectivism. Capitalism, says Bertram, regularly causes violent deaths. The clear implication is that therefore “capitalism” needs in some way to be severely hobbled, if not done away with altogether, and that if that happened, poverty would likewise be diminished or even done away with too. But he doesn’t dare come out flat with the claim that capitalism ought to be cut back, still less got rid of, on poverty relief grounds, because that would be too daft. He doesn’t even think this, because he does have more than a trace of intellectual efficacy and moral sanity in that befuddled head of his. Nevertheless he allows the implication to float in the air, because he wants it to be true, or seems to. Not admirable. He ends his piece thus:
But we mustn’t forget that the root cause of many such tragedies is that poor people need to risk themselves in order that they and those they love may live. Unless they cease to be poor, and cease to face such unpalatable choices, such events will happen again and again.
There is as much truth in that bit of writing as in any where the words “root” and “cause” are to be found next to each other and in that order, but so what? Why blame “capitalism” for that? This is like blaming oxygen for forest fires.
And if poor people are to cease to be poor, what they need is more capitalism, different bits of capitalism to choose between, not less of it. If those wretched cockle pickers had had more and consequently better choices, they might not have chosen the risk of drowning for the sake of £1 a day. And … oh, but I’ve said all this, argued all that. → Continue reading: An argument about the root cause of poverty
Ever since I struck the chords of some of my libertarian friends with my Libertarian Alliance piece entitled The Fixed Quantity of Wealth Fallacy, I and several of the friends have been on the lookout for new uses for the phrase “fixed quantity of [insert new something whose quantity is not fixed] fallacy”. Well, here is another. See title above.
The beauty of the FQ?F is that all you have to do is state it. Much of the argument is made simply with the phrase. Jobs. Happiness. Travel. Linoleum. Blogging …
The point is that simply altering the price of something massively increases the demand for it. And when economists talk about demand, they are not merely discussing potential consumers standing about with stupid plackards and stamping their feet and getting in a rage – as in political ‘demand’ – they mean actual ‘effective’ demand, demand that counts for something, demand with cash to back it up.
Just to get the linking thing out of the way, I here give thanks to two recent articles which stirred me into saying what follows, one the already much linked-to Wired piece about how Indian programmers are now turning Silicon Valley into a dust bowl, and the other being a piece in today’s New York Times in which you can see the beginnings of the dawning light in the Western Official Mind that this might not all be entirely bad news after all.
So, let us think about this Fixed Quantity of Programming Fallacy. It applies, of course, to the row now raging about the way that those sneaky Indians are stealing all our – I use the words “sneaky”, “stealing” and “our” ironically – computer programming jobs.
Now I do not doubt that there are many computer programmers in the West who will, in the short run and maybe if they can find nothing else to do in the longer run as well, suffer severely. But it is also true that the availability to the West of much cheaper Indian programming power will create massive new economic opportunities in the West, and everywhere else.
Basically, what it means is that Western computer experts will have to stop writing programmes and start, well, demanding them. In less florid language, they will have to switch from writing programmes to writing specifications for programmes, from making programmes to saying what a new programme must do.
At the moment it is simply assumed that ‘writing a computer programme’ is something that only someone very rich can afford to finance. → Continue reading: The fixed quantity of programming fallacy
Mathematician John Allen Paulos, in his most recent book (A Mathematician Plays the Stock Market, Basic Books, 2003) coined a term which I had hoped would catch on throughout the finance community. He describes under-researched puff pieces on personal finance (e.g. Five Hot Stocks to Pump Up your 401k NOW!) as “financial pornography.”
One of the biggest purveyors of financial pornography online is the MSN.com website, and this column doesn’t disappoint: Seven Signs a Stock is Ready to Soar. The author purports to explain how to locate ‘hot’ stocks, those that are about to appreciate rapidly in price, by reviewing some research on what types of conditions most often preceded (notice I did not say caused, and neither did the research) a price increase.
It should not take a Wharton MBA to figure out what is wrong with the premise of the article. The cited research identifies the seven conditions that most often preceded a big run-up in the price of a particular stock, but nowhere does it suggest that these conditions were sufficient (or even necessary) to cause a stock price to take off.
Obviously, all of the conditions that make up the ‘CANSLIM’ acronym are desirable things for a corporation — for its management and for its ownership. But that doesn’t mean that the stock in question is about to outperform the market. I’m not a hard-and-fast believer in the semi-strong efficient market hypothesis — I think a few super-stud investors can outperform the market — but for the average investor reading MSN’s Money Insight column, the CANSLIM approach is not going to turn those people into super-stud investors. EMH is still going to apply to those investors; there are just too many other investors who have the same type of information and insights at their fingertips.
In his 1974 commencement address to Cal Tech, the late Richard Feynman described what he called “cargo cult science:”
In the South Seas there is a cargo cult of people. During [World War II] they saw airplanes with lots of good materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head to headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land.
Feynman (about whom I will have much more to say in an upcoming post) was using the term to deride psychics and ‘paranormal’ advocates like Uri Geller. But the MSN piece is urging investors to do exactly what Feynman describes the naive south island natives as doing: falling hook, line and sinker for a post hoc fallacy.
|
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.
|
