“It is true that taxes and prices have risen. But this did not happen in a vacuum. For much of 2020 and a chunk of 2021, we paid people to stay home, and printed money with wild abandon. What the hell did we think would be the consequences?”
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June 24th, 2024 | 21 comments - (Comments are closed)
 “When sweeping, idealistic dreams trickle down into sales and marketing channels, AI’s potential uses become unclear. Framing AI as a general-purpose Swiss Army knife for productivity inevitably leads to paralysis for its end users: Where do you even start with a technology that can do everything?” – Parmy Olsen, Bloomberg ($) Along with others, Olsen is freaked out by the skyrocketing ascent of chip-maker Nvidia’s stock price. June 21st, 2024 | 18 comments - (Comments are closed)
Productivity isn’t flat today in the slightest. It’s just turning up in the consumer surplus, not GDP. As with my favourite example, WhatsApp. That is in the economic statistics as a decline in productivity (no, really). It’s also giving 2 billion people free telecoms. As another (non-NL so far at least) economist, Hal Varian puts it, GDP doesn’t deal well with free. June 16th, 2024 | 20 comments - (Comments are closed)
Lord (David) Frost is in suitably scornful form this morning in the Daily Telegraph (£). He takes aim at the idea, set out in yesterday’s Labour manifesto, that economic growth can be lifted from its torpor by a mass of councils, committees, agencies and the like, all directed from Whitehall but working, somehow or other, in “partnership” with private sector firms. As he notes, Starmer and the rest of them have learned all the wrong lessons from lockdowns, and in fact they liked the lockdowns precisely because of the ability to order the public around, to mark their movements and somehow command innovations (vaccines) by clapping one’s hands together. The headline of the article is excellent: Lockdown is the inspiration behind Labour’s ‘plan’ for growth. Excerpt:
I cannot resist parallels with where we were in 1964. The Conservatives, led at the time by Alec Douglas-Home (a much underestimated politician and a sharply intelligent man), appeared exhausted and “out of touch”. There was this whole thing about the “grass moors” – pictures of toffs shooting game birds on Scottish estates, and speaking in absurd public school accents. The times they were a changin’: the Beatles were exploding, George Best was transforming the world of football, Sean Connery was on the big screen doing battle against Spectre, and Peter Cook and Dudley Moore were making us laugh on TV; consumer goods were more accessible in our shops, and Labour sought to go for the “white heat of the technological revolution”. A lot of this was flim-flam, although some wasn’t. Harold Wilson, who smoked a pipe in public to appear more “sound”, apparently, did a lot of arguably good liberal things: censorship of literature more or less ended; the death penalty ended; homosexuality was decriminalised, divorce laws eased. Social conservatives may jib at this, but there was an aspect of genuine liberalism on parts of the Left that have vanished now in these “cancel culture” times. The downsides were still enormous: ugly buildings, the launch of the destruction of grammar schools and encouragement of egalitarian (and mostly bad) ideas in education. (This Dominic Sandbrook article gives a flavour.) We know how things ended. In 1967, there was a serious run on the pound in the foreign exchange markets (the UK was still part of the Bretton Woods system, which was ultimately underpinned by the dollar and the $ was still linked, however tenuously, to gold); attempts to rein in trade unions failed; spending on welfare and health rose. Horrid tower blocks were built to replace older housing, to the questionable benefit of the country. There was a “Brain Drain” – sky-high taxes on the “rich” meant that anyone of note in music, film, entertainment, commerce and industry lived abroad. By 1970 the wheels had come off. Wilson’s government appeared out of ideas, and its enthusiasm for central planning and control appeared as discredited as the Soviet Union. Throw in the turmoil abroad (Vietnam, end of Bretton Woods, the OPEC oil shock, racial and social mayhem in the US,) and things moved fast. Unfortunately, when the Tories were elected on a slim majority in 1970, a promise of radical reform under the horrible Edward Heath did not endure, and by 1974 the country was in deep trouble: strikes, power cuts, civil disorder, the nightmare of Northern Ireland. It wasn’t until 1979, with the election of Margaret Thatcher’s Conservatives, that matters improved. And for several years it was turbulent, and not a sure thing. Consider the parallels, even beyond the confines of the Labour manifesto: We have seen a relentless assault on “the rich”; and taxes are rising on them, and there is in the background the threat of a wealth tax, encouraging people who can to get out. The Labour Party wants to impose value added tax on private schools, consolidating the power of unions who hate any form of choice in education. There’s likely to be a lot of house building (something I broadly support), but one has to ask about the likely quality and appearance of it. And to go back to Lord Frost’s point, there is an inability, a sort of complete mental block, to think of bottom-up solutions by individuals doing their own thing to anything. Every problem, in the Labour mind, starts with what government can do about it. I am reminded of the theme of that excellent book, “Seeing Like A State, How Certain Schemes to Improve the Human Condition Have Failed”, by James C Scott. I doubt that Keir Starmer or his likely future Chancellor and finance minister, Rachel Reeves, have read it. The groundwork for this memory-holing of lessons from the past has been in evidence for some time. I think the 2008 financial crisis, and the way that a poisonous narrative was allowed to build around what caused it (evil bankers, deregulation, etc, when the causes were mostly about government), carries a lot of the blame for this. There’s also just a dreadful complacency among those who just assumed that arguments for free enterprise had been won and we can focus more on gender pronouns or so on. (I have seen plenty of comments like this from “social conservatives” who have even told me, at times, that public debt “does not matter” because immigration is so much more important.) What has happened is that the classical liberalism tradition has gone soft. I was struck by how, for example, you can go into a bookshop such as Waterstones in the UK and almost every tome on politics and economics will be banging on about the alleged evils of neo-liberalism and how such ideas rule the world. If only. (A book, Free Lunch Thinking, by Tom Bergin of Reuters, is one of the more intelligent ones, but it is full of questionable conclusions, such as its attacks on the idea that incentives matter, and has been nicely and politely taken apart by Kristian Niemietz of the IEA.) It is worth recounting all this to understand that while history never exactly repeats itself, it does rhyme. The 60s aren’t coming back as far as music, fashion and films are concerned (shame), but we are likely to get some of the other stuff. June 14th, 2024 | 25 comments - (Comments are closed)
The Wall Street Journal ($) has been running articles looking at the silicon chip industry, and the attempts by countries such as the US to try and protect and stimulate production of high-end chips. I can strongly recommend Chip Wars by Chris Miller for an overview of the rise of this extraordinary industry, and the web of supply chains that underpin it. Here’s the newspaper’s latest feature on the topic:
No kidding. When lots of public money is hosed around, firms will try and get some of it.
Another way of describing it is corporate welfare.
I am sure they are.
There are dangers of major misallocation of capital when politicians drive anything.
This is an expensive business.
I am sure they are. The lobbying industry gets another cause to chase. June 6th, 2024 | 10 comments - (Comments are closed)
The Observer is editorially independent from the Guardian, and sometimes it demonstrates that fact to good effect. Today’s edition included this article: “‘A catastrophe’: Greenpeace blocks planting of ‘lifesaving’ Golden Rice”.
May 25th, 2024 | 14 comments - (Comments are closed)
The only way the jobs can go is if the machines are now doing the work formerly done by humans. Which means that we gain the same output without the human labour input. That’s an increase in the productivity of human labour – the main driver of increases in human wealth. What fucking value destruction? May 18th, 2024 | 27 comments - (Comments are closed)
I was actually there when Boris (Yeltsin) freed food prices. Replacing that planned, understood, thing with the complexity – and the impossibility of understanding its complexity – of the market is exactly what filled the shops with food. Now do you see the point here? The dipshittiness of the basic demand being made about AI? The lawyer is saying that unless we already understand it all we shouldn’t be using it. But the entire point of the use of these complex not-understood things is that we don’t, in fact, know how it all works. Therefore we use this miracle thing to work it out for us. To say that we can’t use AI until we know what the result will be is the same as saying we’ve got to use economic planning because we don’t know what the market outcome will be. We’ve even that long experiment – the 20th Century – to tell us how that worked out. Those who didn’t use the not-understood complexity remained shit poor. May 16th, 2024 | 21 comments - (Comments are closed)
The recent decision by President Biden to slap tariffs on a range of Chinese imports, including electric vehicles, has gone through with relatively little political noise and pushback. There was a time a while ago when certain figures in the Republican Party and part of the mainstream media would have been alarmed by this, given how widely free trade was accepted as a default position, with caveats about protecting sectors deemed vital for security, or because of things such as blatant abuse of intellectual property. Nowadays, it appears that mercantilism, and special interest lobbying power that drives it, is as strong as ever. The Wall Street Journal writes ($):
Of course, the question is who is being “defeated”, if at all, by hammering the economy of China? Will it be the Chinese Communist Party, which in many ways is more or less a sort of Mafia, or the regular Chinese people? Let’s not forget that tens of millions of Chinese citizens have been lifted to a standard of living that would have been a shock to those familiar with the terrible Mao-induced catastophes/crimes of the Great Leap Forward in the 50s and the Cultural Revolution of the mid-60s. While I suppose that deliberately impoverishing China – which is what some people might want to see – is the goal, regardless of the human costs – I see it as right to pursue two broad courses – encourage prosperity around the world and resist the most egregious abuses. It is also a fact worth considering that it is not, in general, prosperous countries that attack other rich ones. It usually tends to be countries that are in decline for various reasons – often self-induced – that lash out against their real or presumed opponents. A China that wants to conquer Taiwan, for example, or mess with the West in various ways, is in my view motivated by a sort of nagging insecurity as much as anything else. China has done far more to harm itself by its clampdowns under Xi than anything that Biden, Trump or whoever is likely to do. And protectionism is, as I explain below, a very blunt instrument that causes widespread collateral damage and self-harm. The newspaper notes that one bad policy begets another, as politicians try to offset the bad effects of their previous policy:
It is. The long-term negative consequences of rising protectionism will be complacency, sloth, special pleading, shoddier products, and the rest. This may take years to manifest itself. It is not even as if the tariffs being imposed by the Biden administration are to be offset by large tax cuts domestically. In the late 19th Century, the various administrations after the US Civil War did impose tariffs, but domestic taxes were puny compared with what we have now. In any event, arguments that protectionism “protects” seem to be as weak as they ever have been. And there are the downstream impacts to consider: by making imports of solar panels, cars, cooking oil or whatever more expensive, it increases costs not just to consumers, but also to intermediate manufacturers who use these things. Import tariffs on steel drive up the cost of everthing made with steel, to give one simple example. There is also the corrupting effect that protectionism has, as explained by Phillip W Magness:
Magness also notes another myth about tariffs that modern-day protectionists like to lean on:
In any event, while they are different in many ways, it appears that both Mr Biden and Mr Trump are in agreement that tariffs are great. Whatever other qualities, or the lack thereof, may distinguish these men from each other and may persuade voters to jump one way or the other, or abstain, or just despair, it appears that on protectionism, we are back in an age as if Adam Smith and David Ricardo never existed. May 16th, 2024 | 12 comments - (Comments are closed)
Some good stuff in the Telegraph today. “The electric car carnage has only just begun”, writes Matthew Lynn.
May 8th, 2024 | 19 comments - (Comments are closed)
Capitalists sincerely want you to be rich. Because that means there’s more money they can bastard out of you, obviously. Which is a bit of a problem for that Marxist claim that the capitalists want others to be poor, isn’t it? April 27th, 2024 | 19 comments - (Comments are closed)
“The EU, by contrast, is in danger of becoming the left-behind continent, with its economy stuck in the mud, its corporate sector sluggish and its polity adrift. In the two decades since 2004, US productivity growth as measured by output per hour worked has been more than double that of the Eurozone. Whereas Eurozone productivity has, at best, flatlined since the outbreak of the Covid pandemic, US productivity has risen by more than 6%. The EU bureaucracy is preoccupied with being a regulatory superpower, treating access to its consumers as one of its main competitive advantages. But this obsession with regulation is killing the animal spirits that drive capitalist growth. Europe is terrified that a Trump victory in the November presidential election will produce instability. It should also worry that it will produce a mixture of deregulation and tax-cutting in the US, similar to Trump’s first two years, which will suck even more capital and talent from the EU to the US.” – Adrian Wooldridge, Bloomberg ($). Wooldridge’s book on the history of American capitalism, co-authored with Alan Greenspan (who is probably about 1,000 years’ old by now), is well worth a read. The chapters on agricultural innovation struck me as particularly good, and often neglected by journalists who find farming boring. The book generally debunks myths about Big Business and anti-trust, as well. April 24th, 2024 | 16 comments - (Comments are closed)
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