Coyote Blog

Via Tyler Cowen:

The Asian
Development Bank presented official survey results indicating China's
economy is smaller and poorer than established estimates say. The
announcement cited the first authoritative measure of China's size
using purchasing power parity methods. The results tell us that when
the World Bank announces its expected PPP data revisions later this
year, China's economy will turn out to be 40 per cent smaller than
previously stated......The number of people in China living below the
World Bank's dollar-a-day poverty line is 300m - three times larger
than currently estimated.

Well, this is a bit sad, as I would hope everyone likes seeing people emerge from poverty**.  But it is really not surprising.  Strongly state-run economies are notoriously hard to measure from the outside, and westerners systematically overestimated the size of the economy of the old Soviet Union.

**  I make this statement because I am an optimistic guy full of confidence in the generally good intentions of mankind.  Because if I were not such a person, and actually judged people by their actions, I would come to the conclusion that a lot of people DO NOT want people in countries like China to emerge form poverty.  Trade protectionism, apologias for looting dictators like Castro or Chavez, anti-globalization riots, anti-growth initiatives, and calls for rollbacks in fossil fuel consumption all share in common a shocking disregard for people trying to emerge from poverty -- often from folks on the left who purport to be the great defenders of the poor.  I tried to explain the phenomenon before, at least among self-styled "progressives':

Progressives do not like American factories appearing in third world
countries, paying locals wages progressives feel are too low, and
disrupting agrarian economies with which progressives were more
comfortable.  But these changes are all the sum of actions by
individuals, so it is illustrative to think about what is going on in
these countries at the individual level. 

One morning, a rice farmer in southeast Asia might faces a choice.
He can continue a life of brutal, back-breaking labor from dawn to dusk
for what is essentially subsistence earnings.  He can continue to see a
large number of his children die young from malnutrition and disease.
He can continue a lifestyle so static, so devoid of opportunity for
advancement, that it is nearly identical to the life led by his
ancestors in the same spot a thousand years ago.

Or, he can go to the local Nike factory, work long hours (but
certainly no longer than he worked in the field) for low pay (but
certainly more than he was making subsistence farming) and take a shot
at changing his life.  And you know what, many men (and women) in his
position choose the Nike factory.  And progressives hate this.  They
distrust this choice.  They distrust the change.  And, at its heart,
that is what the opposition to globalization is all about - a deep
seated conservatism that distrusts the decision-making of individuals
and fears change, change that ironically might finally pull people out
of untold generations of utter poverty.

I missed this two-year-old post from Don Boudreax at Cafe Hayek, but it is an excellent two part look at the 1975 Sears catalog aimed at answering the question, "Are we wealthier today?"  Part 1 just browses the catalog; part 2 is really interesting in that he compares the hours of work required today vs. 1975.  One interesting conclusion is that the comparison can be difficult because even some of the best items in 1975 are not as good as the economy models today.  And he does not mention things like reliability.  How often did the TV repair guy come to your house in the early 70's, with his big box of tubes.  My Sony in my bedroom has been operating flawlessly since 1995.  For example:

Sears lowest-priced garage-door opener: 20.1 hours of work required in
1975 (to buy a ¼-horsepower opener); 8.57 hours of work required in
2006 (to buy a ½-horsepower opener; Sears no longer sells garage-door
openers with less than ½-horsepower.)

The Arizona Republic had this headline on the front of the business section this morning:

Arizona economy will get boost

Oh, is there some interesting structural change in the economy?  Did some local company get a big contract.  No, it turns out that the state government is going to reorganize some of its committees:

Gov. Janet Napolitano announced creation of a new non-profit on
Thursday aimed at improving the state's economy and reducing its
dependence on housing and construction.

The Arizona Economic Resources Organization, or AERO, will bring
together the state's "disorganized" business-recruiting efforts, she
said.

AERO's board of directors will include representatives of government
organizations such as the Commerce and Economic Development Commission,
private enterprise and the state's universities, the governor said.

Is there a single person who reads this and thinks to himself "Oh, that should help?"  Is this really what the Arizona Republic thinks boosts economies and creates value?  Some reorganization among the bureaucrats that run around doling out taxpayer money for relocations so the governor can claim to have boosted the economy, or God forbid, to have created jobs?  How about an income tax cut instead?

Just as an aside, I couldn't help but note this hilarious quote:

"The governor has taken some important and bold steps, probably steps
that we should have taken 20 if not 30 years ago," said Barry Broome,
president and chief executive of the Greater Phoenix Economic Council,
which he said has discussed representation on the AERO board with the
governor.

It's simultaneously "bold" and 30 years late.   Is that possible?

Update:  As to my last question, it probably is possible.  After all, actually limiting the Congress to the enumerated powers in the Constitution would be both bold and about a hundred years late.

From the WSJ:

By a nearly two-to-one margin, Republican voters believe free trade is
bad for the U.S. economy, a shift in opinion that mirrors Democratic
views and suggests trade deals could face high hurdles under a new
president.

Mattel screwed up the design, specification, and their quality control responsibilities which resulted in a series of toy recalls.  Eager to save face and push the blame onto others, management eagerly spun the story as a general failing of Chinese production, rather than their own personal screw-up.

I have elaborated a number of times on the parallels between the National Recovery Act and Mussolini-style fascism, as well as the frank admiration Roosevelt had for what Mussolini was doing in Italy.

David Boaz goes into much more detail

Roosevelt himself called Mussolini "admirable" and professed that he
was "deeply impressed by what he has accomplished." The admiration was
mutual. In a laudatory review of Roosevelt's 1933 book Looking Forward,
Mussolini wrote, "Reminiscent of Fascism is the principle that the
state no longer leaves the economy to its own devices."¦Without
question, the mood accompanying this sea change resembles that of
Fascism." The chief Nazi newspaper, Volkischer Beobachter,
repeatedly praised "Roosevelt's adoption of National Socialist strains
of thought in his economic and social policies" and "the development
toward an authoritarian state" based on the "demand that collective
good be put before individual self-interest."

When the left lambasts a government intervention into the economy and energy policy, you know the program has to be bad.  From Kevin Drum:

Terrific. Let's see: (a) environmentally speaking, corn ethanol is a
pretty dodgy idea, (b) we're subsidizing it anyway to the tune of $3
billion per year, (c) farmers, as you'd expect, are responding to the
subsidies by reducing the amount of farmland used for food production,
(d) this is driving up the price of staple food worldwide, and (e)
we're going to toss another $10 billion in ag welfare to already-rich
corn farmers on top of all that. Jeebus. Can anyone think of any other
single policy that has as many simultaneous baneful effects? Are we
complete morons?

The only quibble I would have with this paragraph is to change environmentally "dodgy" to "provably disastrous in study after study."  Corn ethanol subsidies and regulations raise gas prices, raise food prices,raise taxes, actually increase total energy use (since it takes more energy to make than it provides) and increases CO2 production.  A lose-lose-lose-lose-lose.

Here is an interesting question:  How much of the current government corn ethanol support and regulation would exist if Iowa has the last presidential primary, rather than the first  (yeah, I know, its a caucus, whatever).

From
Megan McArdle:

Matt may be right that I haven't harangued people about climate change
recently, so here goes: dude, if you're still a climate change skeptic, it's
time for a rethink. When the science correspondent for Reason magazine
comes over to the reality of anthropogenic global warming, it's safe to say that
the skeptics have lost the debate. Not only the vast majority of the scientific
community, but even most of the hard-core skeptics at conservative magazines,
have abandonned the hope that we are not warming up the climate.

There's still debate about the effects of the warming, and what we should do
about it. But there's not much question that it's happening.

Duh.  The vision of the skeptic community denying that the world is
warming at all is a straw man created by the climate catastrophists to avoid
arguing about the much more important point in her second paragraph.  What I
can't understand is McArdle's, and many intelligent people I meet, seeming
unintrest in the degree of man-made impact.

The chief debate really boils down to those of us who think that
climate sensitivity to CO2 is closer to 1C (ie the degrees the world will warm
with a doubling of CO2 concentrations from pre-industrial levels) and those who
think that the sensitivity is 3-5C or more.  The lower sensitivity implies a
warming over the next century of about a half degree C, or about what we saw in
the last century.  The higher numbers represesent an order of magnitude more
warming in the next century.  The lower numbers imply a sea level rise measured
in inches.  The higher numbers imply a rise of 1-2 feet  (No one really know
where Al Gore gets his 20 foot prediction in his movie).  The lower numbers we
might not even notice.  The higher numbers will certainly cause problems.

The other debate is whether the cost of CO2 abatement should even be
considered.  I have talked to many people who say the costs are irrelevant -
Gaia must come first.  But steps to make any kind of dent in CO2 production with
current technologies will have a staggering impact on the world economy.  For
example, there are a billion Asians poised to finally to enter the middle class
who we will likely consign back to poverty with an aggressive CO2 reduction
program.  With such staggering abatement costs, it matters how bad the
effects of man-made global warming will be. 

There are many reasons a 1.0 climate sensivity is far more defensible
than the higher sensitivities used by catastrophists.  My
argument a lower climate sensitivity and therefore a less aggresive posture on
CO2 is here.  Cross-posted at Climate Skeptic.

Update: Sure, we skeptics debate the degree of past warming, but it really can't be denied the earth is warmer than 100 years ago.  The problem catastrophists have with defending their higher climate sensitivities is that these sensitivities imply that we should have seen much more warming over the past 100 years, as much as 1.5C or more instead of about 0.6C.  These scientists have a tendency to try to restate historical numbers to back their future forecast accuracy.  We skeptics fight them on this, but it does not mean we are trying to deny warming at all, just make sure the science is good as to the magnitude.

One other thought - everyone should keep two words in mind vis a vis CO2 and its effect on temperature:  Diminishing Return.  Each new molecule of CO2 has less impact on temperature than the last one.  Only by positing a lot of weird, unlikely, and unstable positive feedbacks in the climate can scientists reach these higher sensitivity numbers (more here).  A good economist would laugh if they understood the assumptions that were being made in the catastrophic forecasts that are being used to influence government action.

Regulation is a frequent topic on this blog, and one of the points I try to make over and over is that most supposedly pro-consumer regulation is in fact put in place to protect incumbents from competition and new entrants.   It's worth repeating this Milton Friedman quote:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Apparently, the NY Times has discovered the phenomenon, and argues that it is accelerating under the Bush administration.  I have no evidence to refute this claim, though I note that the NY Times offers no evidence in support of it either.

Never-the-less, it certainly is a feature of most governments to try to protect politically powerful businesses against competitors, foreign and domestic.  Basically, the entire German and French economy is built on this practice, which is why the top corporations in these countries in 1960 are still the top companies today, whereas the list has completely turned over in the US.  Our economy thrives because of entrepreneurship.  New entrants replace senescent competitors, or at least keep the pressure on them so they stay sharp and focused.

This is an enormous issue in my business.  My industry is characterized by about 4-5 larger companies that operate many recreation facilities, of which we are one, and hundreds or perhaps thousands of individual operators.  Over the last five years, the US and state governments have passes a myriad of rules and regulations that are making it virtually impossible for smaller companies to compete.  I don't know if these are being suggested by any of the larger players (they certainly aren't coming from me) but these regulations are serving the purpose of strangling smaller competitors and making it nearly impossible for new entrants to compete.

After more than a decade, the US may finally allow Mexican truckers on US highways, something we actually agreed to in NAFTA:

The 9th Circuit Court of Appeals in San Francisco late on
Friday denied an emergency petition sought by the Teamsters
union, the Sierra Club and consumer group Public Citizen to
halt the start of a one-year pilot program that was approved by
Congress after years of legal and political wrangling.

I guess I can understand the Teamsters attempt to have the government shield them from competition -- that has practically become a national sport.  And I presume that the Sierra Club has some environmental concerns with Mexican trucks, though that seems flimsy given trucks must meet US environmental requirements and my guess is that Mexican trucks are at least as fuel efficient as US trucks.   But how can a nominal consumer group possibly justify this action?  Blocking competition in any part of the economy can only increase prices and reduce choices for consumers, particularly in an area like trucking that has almost no impact on the safety of the products actually being shipped.   I wish I could say this was some strange exception, but  consumer groups have for years backed protectionist efforts that do nothing but hurt consumers.

Via Cafe Hayek

Chris Horner reports that the next mass-state-AG-tort, modeled after their fairly succesful efforts against tobacco companies, will be against oil companies over global warming:

A little birdie recently chirped about some
usual-suspect state attorneys general preparing a litigation strategy
document for/with environmental pressure groups, providing a roadmap
for cooperatively replicating the tobacco litigation of a decade ago in
the "global warming" context, substituting that projected catastrophe
for cancer and "big energy" for tobacco companies.

The point of
such exercise would not be to litigate the matter to conclusion "” ever
more challenging what with forced corrections of the temperature
record, recent exposure of the woeful reliability of our own world's
most reliable surface measuring network, and of course no global
warming in a decade (or, we now know, since 1900 for that matter) "” but
to extract massive settlements from the energy industry to further fund
the trial lawyers, greens and the greens' pet projects. Just imagine
the anti-energy campaign that this model would yield! And at no cost,
really, except to anyone who uses energy and/or invests in these sleepy
"granny stocks". Oh, and the economy.

He goes on to include a copy of the memo making the rounds of the AG offices.   This will certainly be a circus, and generally an expensive time-waster that will just serve to line the pockets of tort lawyers and the politically connected.  If things turn out like the tobacco settlement, the oil companies may jump on board early, since the tobacco settlement has turned into a state-enforced oligopoly for the major tobacco companies.  On the bright side, this might be an opportunity to subpoena the details of a bunch of climate work that is currently kept secret.

Via the Washington Post:

It has become a Capitol Hill ritual: A few senators, always including the New York Democrat Charles E. Schumer, introduce a bill to punish China
if its leaders do not raise the value of the nation's currency. Photos
are taken, news releases are issued, but nothing really happens.

This
year, the atmosphere on the Hill is markedly different. Powerful
senators from both sides of the aisle, Schumer among them, are pushing
two bills that threaten retaliatory action if China does not budge. For
the first time, the idea is gaining broad support. The bills are moving
swiftly through the Senate, and many analysts expect one will pass.

If the bill's authors are successful, the effect at a minimum will be to raise consumer prices in the United States and lower them for Chinese citizens.  So we are going to "punish" China by making our own citizens pay higher prices.  How does this make any sense?  Also, in the process, let's make sure we reduce the capacity of China to buy US government debt, which to this point has been reducing the cost of the Federal budget deficit.

Tyler Cowen argues this is the best we can expect -- the worst is a substantial debalization in the Chinese economy... and ours.  I wrote much more on continuing to allow the Chinese government to subsidize American consumers here.

Over a decade ago, the German government adopted the goal of reducing the country's CO2 emissions back to 1990 levels as part of the Kyoto process.  That's why its incredible to me that after spending billions on various goofy and questionable conservation and alternative energy programs, someone has finally thought to maybe stop massively subsidizing coal production.

For decades, German lawmakers have propped up the industry,
unwilling to risk massive layoffs and reluctant to eliminate a reliable
energy source as gas and oil supplies become scarcer.

But after spending more than $200 billion in subsidies since the
1960s, the federal government this year decided that the practice had
become unaffordable. The 2018 sunset for the hard-coal industry was set.

Economists and free-market lawmakers have long decried the subsidies
as handouts to the politically influential coal industry and powerful
trade unions. This year, for instance, Deutsche Steinkohle AG, the
owner of the remaining eight mines, will receive more in government
subsidies ($3.3 billion) than it will from selling coal ($2.9 billion).

With just 32,000 miners left, that's the equivalent of more than $100,000 in annual subsidies per worker.

I don't know what is more incredible -- $100,000 per worker or the fact that subsidies actually are larger than revenue from coal sales.  In effect, the government is subsidizing more than half of coal's production costs.

Sometimes we in the US forget just how insane the economy in Europe can be.  I remember doing a consulting project for the French national railroad, the SNCF.   It turned out the SNCF, for it's 100,000 freight cars had ... 125,000 freight car maintenance workers.  The headcount number was so insane I had to check it three times to make sure it was right.  I commented at the time that they could assign one car repair worker full time to each freight car, and have him ride around with that car full time, and still cut staffing by 20%.

At the exact same time that the President and the Congress have the lowest approval ratings of all time, consumer confidence just hit a 6-year high.  While we all understand the power of the government to screw up the economy, has there ever been quite so eloquent an expression of just how irrelevant the government is to economic expansion?

Opposition to the world-wide division of labor, which creates so much wealth, is not new.  Ghandi, for example, was a strong proponent of maintaining home-based weaving and manufacturing in a wrong-headed defense of individual "self-sufficiency" against the rising tide of division of labor.  It was a philosophy that would keep Indians poor for another several generations, until they finally began entering the modern economy.  Anti-Globalization advocates, famous for trying to destroy downtown Seattle, have also tried to halt the global division of labor.

Most recently, reversing the global division of labor has become an environmental cause, with buy-local movements springing up all over.  Of course, the success of these efforts would be the express train to poverty -- there is a reason we don't manufacture clothing in every county in America, and it is demonstrated in part by this mess.

The argument these buy-local advocates use is that the global cross-transportation of goods is creating environmental problems, including more CO2.  They also argue that keeping production close to consumers would cause consumers to bear whatever environmental costs there are in manufacturing.  These arguments are absurd.  This might be true, if everything else were held constant, most particularly manufacturing efficiency (but probably not even then).  But of course these other elements would not be held constant.  The efficiency losses from loss of scale alone would dwarf savings in manufacturing costs.  And much of transportation costs are incurred moving extractive resources (eg coal, iron) and these transport costs would only go up if manufacturing destinations were more dispersed.  And all of this is without even discussing division of labor.

Today I saw a story about trash that really hammered home this point:

Contrary to current wisdom, packaging can reduce total rubbish produced. The average household in the United States generates one third
less trash each year than does the average household in Mexico,
partly because packaging reduces breakage and food waste. Turning a live chicken into a meal creates food waste. When chickens are processed commercially, the waste goes into marketable products
(such as pet food), instead of into a landfill. Commercial processing of 1,000 chickens requires about 17 pounds of packaging, but it also recycles at least 2,000 pounds of by-products.

When you push animal-slaughter down to the household level, there is a huge loss in efficiency and increase in environmental impact.  Note how industrial farming, a huge bete noir of modern environmentalists, greatly improves recycling and reduces waste.  Yes, industrial farming seems to have a large environmental impact, but that is in many cases just because it is all in one place and visible.  Blowing these operations up does not reduce the damage, it just spreads it around and makes it less visible.  This kind of narrow-focus static analysis has become fairly typical of today's environmentalists.

Opposition to the world-wide division of labor, which creates so much wealth, is not new.  Ghandi, for example, was a strong proponent of maintaining home-based weaving and manufacturing in a wrong-headed defense of individual "self-sufficiency" against the rising tide of division of labor.  It was a philosophy that would keep Indians poor for another several generations, until they finally began entering the modern economy.  Anti-Globalization advocates, famous for trying to destroy downtown Seattle, have also tried to halt the global division of labor.

Most recently, reversing the global division of labor has become an environmental cause, with buy-local movements springing up all over.  Of course, the success of these efforts would be the express train to poverty -- there is a reason we don't manufacture clothing in every county in America, and it is demonstrated in part by this mess.

The argument these buy-local advocates use is that the global cross-transportation of goods is creating environmental problems, including more CO2.  They also argue that keeping production close to consumers would cause consumers to bear whatever environmental costs there are in manufacturing.  These arguments are absurd.  This might be true, if everything else were held constant, most particularly manufacturing efficiency (but probably not even then).  But of course these other elements would not be held constant.  The efficiency losses from loss of scale alone would dwarf savings in manufacturing costs.  And much of transportation costs are incurred moving extractive resources (eg coal, iron) and these transport costs would only go up if manufacturing destinations were more dispersed.  And all of this is without even discussing division of labor.

Today I saw a story about trash that really hammered home this point:

Contrary to current wisdom, packaging can reduce total rubbish produced. The average household in the United States generates one third
less trash each year than does the average household in Mexico,
partly because packaging reduces breakage and food waste. Turning a live chicken into a meal creates food waste. When chickens are processed commercially, the waste goes into marketable products
(such as pet food), instead of into a landfill. Commercial processing of 1,000 chickens requires about 17 pounds of packaging, but it also recycles at least 2,000 pounds of by-products.

When you push animal-slaughter down to the household level, there is a huge loss in efficiency and increase in environmental impact.  Note how industrial farming, a huge bete noir of modern environmentalists, greatly improves recycling and reduces waste.  Yes, industrial farming seems to have a large environmental impact, but that is in many cases just because it is all in one place and visible.  Blowing these operations up does not reduce the damage, it just spreads it around and makes it less visible.  This kind of narrow-focus static analysis has become fairly typical of today's environmentalists.

Though it is nominally called an "energy" bill, the Senate just passed the largest farm-subsidy bill in history:

The legislation would require ethanol production for motor fuels to
grow to at least 36 billion gallons a year by 2022, a sevenfold
increase over the amount of ethanol processed last year. It also calls
for boosting auto fuel economy to a fleet average of 35 miles per
gallon by 2020, a 40 percent increase over current requirements for
cars, SUVs, vans and pickup trucks.

The evidence is absolutely unequivocal that corn-based ethanol doesn't reduce net energy use, since it takes at least as much energy to grow and produce as it provides.  It is even worse as environmental policy, since it almost certainly increases total pollution and CO2 production, particularly as ethanol is produced with Midwestern coal-powered electricity.   In addition, it is going to cause marginal lands and open space to be brought into corn production, reversing a 70-year trend in the US towards increases in wilderness and forested land.  It is going to increase fuel costs to no real purpose.  This is dumb, dumb, dumb.  So stupid that I can't even get the energy to criticize the new CAFE standards.  If they really wanted to meet their goals, a carbon tax would have been cheaper and more effective, but that would have taken political guts.

Since the mid-1970s, various people have decried the growing amount of money spent on elections.  They have tried numerous approaches to limiting campaign funding, all to no avail.  In part, their lack of success has been due to off-and-on efforts of the courts to protect political speech.  However, a large reason for their failure has been that they are addressing a symptom, rather than the cause of the problem.

The real cause is the growing regulatory state.  Without regulation, there would be only limited incentive for corporations and individuals to make large political contributions.   Regulation (combined with taxation) is the fountain from which most campaign money springs.  Threaten to regulate a sector, and you automatically put politicians in the position of creating winners and losers, both of whom will spend money to try to improve their fates.

Holman Jenkins makes this point in today's WSJ($):

Being a shrewd bunch, the private equity industry
presumably has gotten the message: When vast new fountains of wealth
open up in the economy, Congress must receive its ransom in campaign
donations. Delivering the wagged finger were none other than Max Baucus
and Charles Grassley, chairman and ranking member of the Senate Finance
Committee, who've taken to musing aloud about how the tax code's
treatment of private equity's lately fabulous profits might be revised.

The bipartisan nature of the initiative should
reassure readers that there's no philosophical issue here. It's purely
bidness. You, private equity, have been remiss in your patriotic duty.
Cough up.

Anyone who recalls the junk bond wars of the 1980s
will notice a pattern. Then too, Congress was awash in proposals for
taxing the takeover industry: by eliminating the interest deduction for
junk bond interest, by imposing an excise tax on assets acquired in a
hostile takeover, etc. These ideas came to naught, not least because of
the fright the proposals put into the stock market. But the endless
debate unlimbered a delicious flow of campaign dollars from all
concerned.

It appears that everything will turn out OK for the politicians:

But the message has been received. Private equity has now set up a
Washington trade group and has opened its pockets to politicians, with
Barack Obama being a special heartthrob. Oh, happy day for members of
the House and Senate tax committees, who lived for years off the junk
bond wars and now will live for years off the private equity plutocrats.

I remember stock brokers used to say that they had the best job in the market, because whether the market went up or down, they still got their money.  The same is true of politicians -- whether the regulations help or hurt, whether they end up benefiting the incumbents or the new entrants -- the politicians will still get their money.

From today's WSJ ($) online:

Turning aside growing congressional anger over low everyday prices, President George W. Bush's
administration today will reject demands that it formally accuse
Beijing of subsidizing lower prices for U.S. consumers.

With U.S. lawmakers gearing up to punish China for using Chinese funds to subsidize low U.S. consumer prices, Treasury
Secretary Henry Paulson is expected to use a semiannual currency
report, to be released today, to reinforce his calls for Beijing to
allow prices in the U.S. to rise faster....

OK, I confess I fibbed a bit.  The actual article reads:

Turning aside growing congressional anger over the
U.S. trade deficit with China, President George W. Bush's
administration today will reject demands that it formally accuse
Beijing of "manipulating" its currency to give Chinese companies an
edge over American businesses.

With U.S. lawmakers gearing up to punish China for
keeping the yuan artificially weak against the dollar, Treasury
Secretary Henry Paulson is expected to use a semiannual currency
report, to be released today, to reinforce his calls for Beijing to
allow the yuan to rise faster. But Mr. Paulson won't brand China a
currency manipulator despite congressional demands that he do so.

But it means the same thing as my version.  Thanks to Congress for looking after us consumers.  Our Chinese sister publication Panda Blog addressed these issues from the Chinese perspective a while back.  In short, the Chinese are wondering what we are complaining about:

Our Chinese government continues to pursue a policy
of export promotion, patting itself on the back for its trade surplus
in manufactured goods with the United States.  The Chinese government
does so through a number of avenues, including:

• Limiting yuan convertibility, and keeping the yuan's value artificially low
• Imposing strict capital controls that limit dollar reinvestment to low-yield securities like US government T-bills
• Selling exports below cost and well below domestic prices (what
  the Americans call "dumping") and subsidizing products for export

It is important to note that each and every one of these
government interventions subsidizes US citizens and consumers at the
expense of Chinese citizens and consumers.  A low yuan makes Chinese
products cheap for Americans but makes imports relatively dear for
Chinese.  So-called "dumping" represents an even clearer direct subsidy
of American consumers over their Chinese counterparts.  And limiting
foreign exchange re-investments to low-yield government bonds has acted
as a direct subsidy of American taxpayers and the American government,
saddling China with extraordinarily low yields on our nearly $1
trillion in foreign exchange.   Every single step China takes to
promote exports is in effect a subsidy of American consumers by Chinese
citizens.

This policy of raping the domestic market in pursuit of exports
and trade surpluses was one that Japan followed in the seventies and
eighties.  It sacrificed its own consumers, protecting local producers
in the domestic market while subsidizing exports.  Japanese consumers
had to live with some of the highest prices in the world, so that
Americans could get some of the lowest prices on those same goods.
Japanese customers endured limited product choices and a horrendously
outdated retail sector that were all protected by government
regulation, all in the name of creating trade surpluses.  And surpluses
they did create.  Japan achieved massive trade surpluses with the US,
and built the largest accumulation of foreign exchange (mostly dollars)
in the world.  And what did this get them?  Fifteen years of recession,
from which the country is only now emerging, while the US economy
happily continued to grow and create wealth in astonishing proportions,
seemingly unaware that is was supposed to have been "defeated" by Japan.

We at Panda Blog believe it is insane for our Chinese government
to continue to chase the chimera of ever-growing foreign exchange and
trade surpluses.  These achieved nothing lasting for Japan and they
will achieve nothing for China.  In fact, the only thing that amazes us
more than China's subsidize-Americans strategy is that the Americans
seem to complain about it so much.  They complain about their trade
deficits, which are nothing more than a reflection of their incredible
wealth.  They complain about the yuan exchange rate, which is set today
to give discounts to Americans and price premiums to Chinese.  They
complain about China buying their government bonds, which does nothing
more than reduce the costs of their Congress's insane deficit
spending.  They even complain about dumping, which is nothing more than
a direct subsidy by China of lower prices for American consumers.

And, incredibly, the Americans complain that it is they that run
a security risk with their current trade deficit with China!  This
claim is so crazy, we at Panda Blog have come to the conclusion that it
must be the result of a misdirection campaign by CIA-controlled
American media.  After all, the fact that China exports more to the US
than the US does to China means that by definition, more of China's
economic production is dependent on the well-being of the American
economy than vice-versa.  And, with nearly a trillion dollars in
foreign exchange invested heavily in US government bonds, it is China
that has the most riding on the continued stability of the American
government, rather than the reverse.  American commentators invent
scenarios where the Chinese could hurt the American economy, which we
could, but only at the cost of hurting ourselves worse.  Mutual Assured
Destruction is alive and well, but today it is not just a feature of
nuclear strategy but a fact of the global economy.

Via TJIC and Mark Perry come this excellent observation:

State unemployment rates for April were released last week by the
BLS, and there are now 18 states that have set historical record-low
jobless rates in the last year

Here are the 18 states with historical record-low jobless rates"¦

"¦California: 4.7% in November 2006
"¦Arizona: 3.9% in March 2007
"¦New Mexico: 3.5% in February 2007
"¦Texas: 4.2% in April 2007"¦

I wonder where our economy would be without those 15 million Mexican immigrants.  Negative unemployment?

Note: Lots of updates at the bottom

We have all heard that the US is backward vs. our much more enlightened bretheren in Europe on income inequality.  The general argument is that US is somehow a worse place because out income inequality is higher than in most European countries.

My reaction has always been, so what?  Why should I care about how well I am doing vs. the richest folks.  Shouldn't I care more how I am doing on an absolute scale?  And in fact, on an absolute scale, our poor are doing better than everyone else's poor, and better than many nation's middle classes.  I thought this analysis of poverty was interesting:  It is the number of people (per million) in a county living on less than $11 per day  (lower number and rank is better)

Per Capita Population Under $11 per Day

So, nations of Europe, how is that welfare state working out for you?  Socialist paradise Norway is 20 times worse!  How long will your poor be happy being told that, well, yes, the poor in the US are better off than you are, but you should feel better, because our rich in Europe are doing much worse than the rich in the US.

PS- Stats from NationMaster.com, a database of country by country statistics of all sorts.  Cool site, which also has a state by state counterpart.

Update:  Now that I have had time to poke around, I cannot find this data in the sources quoted, so it must be considered potentially suspect.  The sources quoted actually try to make the point that US lags Europe in fighting poverty, so the conclusion of the chart above is not even consistent with the sources.  (my guess is the data comes from the Luxemburg Income Study). However, it is interesting that this source material makes the same mistake I am trying to correct for here:  That is, it defines poverty as a percentage of the median income in the particular country, rather than an absolute value, such that a country can have poor who are better off but still fail on the metric.  You can see that here, where US has high poverty as on a "percent of median income" definition, but since we have the highest incomes in the world, it effectively gives the US the highest poverty bar to clear.

Here is what I am looking for:  Ideally, I would like to find a comparison of the median income say of the bottom quintile of each country, compared in absolute dollars on a PPP basis across countries.  I would like to see the number both before and after government transfer payments.  Europe, in their welfare economies, do better on poverty metrics when government transfer payments are included (and I am almost sure the chart above is before government transfer payments).  However, I would argue that for the long term health of the economy, you would like to see how the poor are doing before these payments.  Ultimately, and I will borrow a bit of environmentalist language here, this is going to be the most sustainable economy, where the poor gain wealth on their own, not from the welfare system.  In fact, the welfare state, and this was my original point, actually suppresses self-earned income of much of the poor by eliminating the incentive to work.  That is why I still think the chart at the top may be correct.

Update #2:  One other difference between the US and European nations is that we are much more open on immigration (yes, it may be illegal, but we pretty much still allow it).  These immigrants, legal or not, are counted in our economic and poverty stats.  If we assume there are about 15 million mostly poor illegal immigrants, plus millions of other quasi-legal immigrants, plus millions more who got amnesty in the 1980's, these immigrants add at least a fast five percentage points to any poverty metric the US is measured on. 

I have been surfing tonight, and it seems there are a ton of studies showing that US poverty is growing for some reason.  Duh.  Tens of millions of absolutely poor people, mainly from south of the border, have come to the US over the last several decades.  It is no secret all these immigrants are poor -- that is why they are coming here, to find something better for themselves.  Of course we have had a surge in poverty - we have been importing it like crazy!  I happen to be pro-immigration, but I am fed up with these studies that try to pin the blame on growing poverty in the US on government transfer payment policy.  It's the immigration, stupid!  Several studies particularly lament the fact that childhood poverty is rising in the US.  Can anyone think of a way this might be correlated to tens of millions of strongly Catholic Mexican immigrants, each and every one committed to large families?

Straight from the 1970's, the US's golden era of bumbling government intervention in the economy, come the same proposals that worked oh-so-well the first time around.  Democracts blame big oil for gas prices, and propose channeling solutions from Hugo Chavez:   (via Q&O)

Congressional Democrats are taking aim at big oil companies as U.S. gasoline prices near a record average $3.05 a gallon.

Although
industry experts doubt it will have any effect, half a dozen senators
gathered in front of a Washington service station to push their own
remedies to the situation, the Washington Post said.

The latest average price for a gallon of unleaded regular gas was $3.042, according to the AAA Fuel Gauge report.

Sen.
Charles Schumer, D-N.Y., called on Congress to consider breaking up the
giant companies. Sen. Bernard Sanders, I-Vt., pushed for a windfall
profits bill.

Sen. Maria Cantwell, D-Wash., promoted her
anti-price-gouging bill, which the Senate Commerce Committee adopted
earlier this week.

Gee, since every transaction in a free market requires a willing buyer and a willing seller, wouldn't it be just as correct to blame profligate consumers for the increase?  And why is it I don't remember any of these actors in Congress rushing to clamp down on greedy sellers when home resale prices skyrocketed far more than gas prices have?  Does anyone remember Maria Cantwell imposing windfall profits taxes on home-sellers?  Or, for that matter, on sellers of Internet stocks who financed their campaigns selling stock above $80 that would soon trade only in the single digits?  And by the way, how can any party who elected Maria Cantwell to the Senate seriously call members of the other party "stupid."

Let's do a thought experiment.  Let's assume that through a series of government actions, Congress is able to return oil profits "to the people."  Oil company profits are now reduced to zero.  That should make a huge difference in gas prices, right?  Well, out of a $3.00 gas price, taxes and the retailers margin are probably 75 cents or so (46 cents tax, 10% or 30 cent retail margin).  This leaves $2.25 for the greedy oil companies.  It turns out large oil companies like Exxon make about 6% of revenues in the bad times, and 10% in the good times, like now.  So, this leaves a profit of  14-22 cents per gallon.  The "people" are saved!  Gas prices can come down by a whole 15-20 cents.  Of course, in return for saving a buck or two on fill-ups, we've nuked the whole incentive system for investment and finding new oil and improving efficiency.  Gas prices over time will rise much higher than they are now, and lines will start reappearing at gas stations, but that probably won't show up until after the next election, so why should anyone in Congress care?

I have been reading and studying Karl Marx in the last week as a part of a European History course I am taking that focuses on the 19th century.  In the context of Marx, it was interesting reading the NY Times recent article on income inequality (the newspaper is not comfortable unless it has visited this topic at least once every week or so).  You might think that I would latch onto this quote from the Times (HT: TJIC)

The top 0.1 percent of earners"¦ now brings in 11 percent of the
nation's total income, triple the share that they did just a generation
ago.

And indeed, I have written on the implied zero-sum fallacy any number of times, including just yesterday.  Implied in this one sentence from the Times is what I call the "bubbling spring" theory of wealth, where wealth and income just sort of magically appear, like a spring out of the ground, and the rich are all those piggy people up front taking more than their fair share of the water.  Of course this is ludicrous, because it implies that if the wealthy made less money, then the poor would make more.  In fact, the reality is that if the wealthy made less money, then the nation's total income would be lower.

But this is not what caught my attention.  What was new to me in my recent study of Marx was his writing on the tactics of socialist revolution.  Specifically, he spent a lot of time talking about the need to "proletarianize the middle class."  He knew that to have a successful socialist revolution, the middle class had to be made to feel marginalized and put upon by the system.  If he had lived long enough, he would have said that socialist revolution failed to occur in countries like Britain because the middle class became too large and too successful.

In this context, then, I found this quote from the Times most interesting:

There is now a big push in both Washington and state capitals to come
up with policies that can alleviate middle-class anxiety.

The author himself editorializes:

There is now a big push in both Washington and state capitals to come
up with policies that can alleviate middle-class anxiety. That's all
for the good. In fact, it is overdue.

What middle class anxiety?  The middle class is doing better than ever, except that there has been a concentrated media campaign by the Times and others, abetted by various politicians on the left, to try to make the middle class feel anxious and marginalized.  To the author's credit, he observes that while "Layoffs seem to happen more frequently than they once did," the actual evidence for increased volatility is really not there:

Only later do you come to the surprising part: there is the same
amount of variability now that there was in the 1980s and 1990s. In
journalism, this is known as burying the lead.

"Intuitively, you would think volatility is increasing," said Senator Charles E. Schumer, Democrat of New York, who along with Senator Jim Webb
of Virginia requested that the study be done. "But it isn't, which I
guess shows that the American economy has always been very flexible."

What the author does not explain is, if the increase in volatility is not real, then why do so many people believe it to be true?  The answer, of course, is that his employer, among others, have been pushing a PR campaign for years to convince the middle class that their lot sucks.  Why?  Well, read your Marx.

Al Gore says that current global temperatures are the highest they have been in 1000 years.  A new study by the Institute of Astronomy in Zurich says that the "sun is more active now than it has been at anytime in the previous 1,000 years."  Related? 

Sunspots have been monitored on the Sun since 1610,
shortly after the invention of the telescope. They provide the
longest-running direct measurement of our star's activity.

The variation in sunspot numbers has revealed the Sun's 11-year cycle of activity as well as other, longer-term changes.

In particular, it has been noted that between about 1645 and 1715, few sunspots were seen on the Sun's surface.

This period is called the Maunder Minimum after the English astronomer who studied it.

It coincided with a spell of prolonged cold weather
often referred to as the "Little Ice Age". Solar scientists strongly
suspect there is a link between the two events - but the exact
mechanism remains elusive....

But the most striking feature, he says, is that
looking at the past 1,150 years the Sun has never been as active as it
has been during the past 60 years.

Over the past few hundred years, there has been a steady
increase in the numbers of sunspots, a trend that has accelerated in
the past century, just at the time when the Earth has been getting
warmer.

The data suggests that changing solar activity is influencing in some way the global climate causing the world to get warmer.

Of course, these poor scientists know that they could lose their jobs and be called Holocaust deniers if they don't acknowledge anthropomorphic global warming, so they do say:

Over the past 20 years, however, the number of
sunspots has remained roughly constant, yet the average temperature of
the Earth has continued to increase.

This is put down to a human-produced greenhouse effect caused by the combustion of fossil fuels.             (HT:  TJIC)

Which may actually be the case, but it is interesting that astronomers feel the need to say this without any evidence of such in their own study just to protect themselves from ostracism by the climate religionists.

However, even if the two are working in concert, the fact that solar activity explains some of the 20th century warming means that current climate models are WAY overestimating the impact of anthropomorphic warming. 

For example, the climate models in the current 2007 IPCC report assume that the world would have experienced no warming in the 20th century without man.  This is from Section 8, actual is the black line, the models without man are in blue, the models with man are in red:

In other words, the IPCC models completely ignore the increasing solar activity and assume 100% of 20th century warming was due to man-made effects, even the substantial warming before 1940 (and before the onset of truly heavy world-wide fossil fuel use).

Already, the models used by the IPCC tend to overestimate past warming even if all past warming is attributable to anthropomorphic causes.  If anthropomorphic effects explain only a fraction of past warming, then the current models are vastly overstated, good for stampeding the populous into otherwise unpopular political control over the economy, but of diminished scientific value.

Postscript: I cannot prove this, but I am willing to make a bet based on my long, long history of modeling (computers, not fashion).  My guess is that the blue band, representing climate without man-made effects, was not based on any real science but was instead a plug.  In other words, they took their models and actual temperatures and then said "what would the climate without man have to look like for our models to be correct."  There are at least four reasons I strongly suspect this to be true:

1. Every computer modeler in history has tried this trick to make their models of the future seem more credible.  I don't think the climate guys are immune.
2. There is no way their models, with our current state of knowledge about the climate, match reality that well. 
3. The first time they ran their models vs. history, they did not match at all.  This current close match is the result of a bunch of tweaking that has little impact on the model's predictive ability but forces it to match history better.  For example, early runs had the forecast run right up from the 1940 peak to temperatures way above what we see today.
4. The blue line totally ignores any of our other understandings about the changing climate, including the changing intensity of the sun.  It is conveniently exactly what is necessary to make the pink line match history.  In fact, against all evidence, note the blue band falls over the century.  This is because the models were pushing the temperature up faster than we have seen it rise historically, so the modelers needed a negative plug to make the numbers look nice.

Like many libertarians, I lose interest quickly in politics, watching partisans of the Coke party argue why they are so much different than the Pepsi party.  You don't have to watch the whole farce for very long as a neutral observer before you see the same people taking the opposite tack on an issue than they did a few years earlier, only because their guy is in office, so now its more OK than when the other party's guy was doing it.

But I do read a few political blogs from both sides, just to keep abreast of what is going on.  This weekend, both sides managed to irritate me over the same issue.  First, Kevin Drum, from the left, railed on what he called "the GOP economy," complaining that the economy has grown without increasing median wages (note he carefully avoids "total compensation," which has gone up.)  Then Captains Quarters wrote from the right that "The economy continues its growth under the stewardship of the Bush administration."

George Bush does not run the economy.  George Bush does not even make day-to-day decisions that affect the economy.  He has made a few major moves that have economic consequences, with the positive effects of tax cuts probably mostly offset by unrestrained deficit spending, random protectionist acts and new bloated government services.  Bill Clinton, while we have to credit him for NAFTA (see below), was not responsible for the incredible economic expansion of the 90's.  In fact, neither Bill Clinton nor his wife have ever held a job where they produced anything. 

All of which is fine - I am not accusing president's of somehow falling down on the job.  I am merely stating what I thought was obvious.  Wealth is created by the actions and the minds of hundreds of millions of people, to whom the occupant of the White House is largely irrelevant except insofar as the President  substantially increases or reduces the artificial burden of efficiency-sucking government mandates, reporting, and taxes.

I will go into more depth on this in my annual tax day post, but I am increasingly confident of my theory of wealth creation.  Wealth is increased as two things happen:

• More individuals are more free to (and more likely to) question established beliefs, either scientific (e.g. the earth-centric universe), social (e.g. racial prejudice) or business (e.g. primacy of mainframe computing).
• More Individuals are more free to act in their own self-interest to pursue the results of their insights and to keep for themselves the proceeds of their efforts.

Since the 1970's, we have seen an explosion in the global economy, which has greatly increased the number of people working on any given economic problem.  For example, instead of just people in Detroit and Germany thinking about how to design and produce cars, we have folks in Japan and South Korea and even China and Brazil questioning the established wisdom from Detroit.  This has resulted not just in better, more affordable cars, but in production and supply chain management techniques that have made nearly every industry you can name more productive. 

Whenever such a change occurs, there are conservative (lower-c) forces that try to halt them.  The Church used its power for a time to resist the heliocentric view of the solar system.  Southern states used Jim Crow laws to resist post Civil War racial and social reforms.  And any number of groups wanted (and still want) to slam the door on the global economy.  Many countries in Europe went down this path.  What has saved the US from the same low-growth fate they have in Europe (and Japan) is that the government, and Bill Clinton in particular, at a critical time resisted the technocratic urge to have the government "do something" about the economic changes flowing from globalization.  Some wanted protectionism, while some wanted a more active hand by the government in "choosing winners" in the economy, like it was perceived that Japan had.  Bill Clinton resisted resisted these voices, most of whom were powerful in his own party, and in fact doubled down on globalization by pushing NAFTA.  For this act of vision, Clinton should be credited, but I still wouldn't call it "his" economy. 

I am not sure I have ever seen a better parable about the virtues of industrialization, world trade, and the division of labor than this experiment documented in Wired Magazine (via L. Rockwell at Mises):

When educator and designer Kelly Cobb decided to make a man's suit
only from materials produced within 100 miles of her home, she knew it
would be a challenge. But Cobb's locally made suit turned into a
exhausting task. The suit took a team of 20 artisans several months to
produce -- 500 man-hours of work in total -- and the finished product
wears its rustic origins on its sleeve.

"It was a huge undertaking, assembled on half a shoestring," Cobb
said at the suit's unveiling one recent afternoon at Philadelphia's Institute of Contemporary Art.

"Every piece of the suit took three to five pairs of hands to make,"
Cobb added. "Every garment you wear took three to five pairs of hands
to make too, but you don't know whose hands or where."

Cobb's suit (see photo gallery)
is a demonstration of the massive manufacturing power of the global
economy. Industrial processes and cheap foreign labor belie the
tremendous resources that go into garments as simple as a T-shirt.

"It definitely makes you think for a minute before you buy that $10
skirt," said Jocelyn Meinhardt, a New York City playwright who sews
many of her own clothes. "It didn't just grow on the rack at Forever
21. It's too easy to forget that people made it."