Coyote Blog

Don Boudreaux responds to UAW President Ron Gettelfinger's complaint that the US has a trade imbalance in autos with South Korea:

Well, duh - that's an
inevitable consequence of specialization...

General Motors, Ford, and Chrysler each have huge trade imbalances --
to be precise, huge and growing trade deficits -- with their workers:
these companies buy far more from their workers than their workers buy
from them.  Perhaps auto makers should hire workers only on the
condition that the trade in each case is "balanced": each and every
worker must agree to spend his or her entire salary on products made by
the auto maker.  For example, a G.M. worker whose total compensation in
2007 is $60,000 must spend $60,000 on G.M. products in 2007.  Any
worker who fails to do so will be fired because of the resulting
imbalance.

Update:  Sorry, forgot the link.  Added it.

Via the New York Times:

THE term "food miles" "” how far food has traveled before you buy it "” has entered the enlightened lexicon.

Which should tell you all you need to know about the "enlightened."

There are many good reasons for eating local "” freshness, purity,
taste, community cohesion and preserving open space "” but none of these
benefits compares to the much-touted claim that eating local reduces
fossil fuel consumption. In this respect eating local joins recycling,
biking to work and driving a hybrid as a realistic way that we can, as individuals, shrink our carbon footprint and be good stewards of the environment.

Actually, most recycling, with the exception of aluminum which takes tons of electricity to manufacture in the first place, does nothing to reduce our carbon footprint.  And I must say that I often enjoy buying from farmers markets and such.  But does "food miles" mean anything?  And should we really care?  Well, here is an early hint:  The ultimate reduction in food miles, the big winner on this enlightened metric, is subsistence farming.  Anyone ready to go there yet?  These are the economics Ghandi promoted in India, and it set that country back generations.

Well, lets go back to economics 101.  The reason we do not all grow our own food, make our own clothes, etc. is because the global division of labor allows food and clothing and everything else to be produced more efficiently by people who specialize and invest in those activities than by all of us alone in our homes.  So instead of each of us growing our own corn, in whatever quality soil we happen to have around our house, some guy in Iowa grows it for thousands of us, and because he specialized and grows a lot, he invests in equipment and knowledge to do it better every year.  The cost of fuel to move the corn or corn products to Phoenix from Iowa are trivial compared to the difference in efficiency that guy in Iowa has over me trying to grow corn in my back yard.  Back to the New York Times:

On its face, the connection between lowering food miles and decreasing greenhouse gas emissions is a no-brainer.

Sure, if you look at complex systems as single-variable linear equations.  Those of us who don't immediately treated the food mile concept as suspect.  It turns out, for good reason:

It all depends on how you wield the carbon calculator. Instead of
measuring a product's carbon footprint through food miles alone, the
Lincoln University scientists expanded their equations to include other
energy-consuming aspects of production "” what economists call "factor
inputs and externalities" "” like water use, harvesting techniques,
fertilizer outlays, renewable energy applications, means of
transportation (and the kind of fuel used), the amount of carbon
dioxide absorbed during photosynthesis, disposal of packaging, storage
procedures and dozens of other cultivation inputs.

Incorporating
these measurements into their assessments, scientists reached
surprising conclusions. Most notably, they found that lamb raised on
New Zealand's clover-choked pastures and shipped 11,000 miles by boat
to Britain produced 1,520 pounds of carbon dioxide emissions per ton
while British lamb produced 6,280 pounds of carbon dioxide per ton, in
part because poorer British pastures force farmers to use feed. In
other words, it is four times more energy-efficient for Londoners to
buy lamb imported from the other side of the world than to buy it from
a producer in their backyard. Similar figures were found for dairy
products and fruit.

All I can say is just how frightening it is that the paper of record could find this result "surprising."  The price mechanism does a pretty good job of sorting this stuff out.  If fuel prices rise a lot, then agriculture might move more local, but probably not by much.  The economies to scale and location just dwarf the price of fuel. 

By the way, one reason this food-mile thing is not going away, no matter how stupid it is, has to do with the history of the global warming movement.  Remember all those anti-globalization folks who rampaged in Seattle?  Where did they all go?  Well, they did not get sensible all of a sudden.  They joined the environmental movement.  One reason a core group of folks in the catastrophic man-made global warming camp react so poorly to any criticism of the science is that they need and want it to be true that man is causing catastrophic warming -- anti-corporate and anti-globalization activists jumped into the global warming environmental movement, seeing in it a vehicle to achieve their aims of rolling back economic growth, global trade, and capitalism in general.  Food miles appeals to their disdain for world trade, and global warming and carbon footprints are just a convenient excuse for trying to sell the concept to other people.

A little while back, I posted a similar finding in regards to packaging, that is worth repeating here for comparison.

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.

More victories for the worldwide division of labor.  So has the NY Times seen the light and accepted the benefits of capitalism?  Of course not.  With the New Zealand example in hand, the writer ... suggests we need more state action to compel similar situations.

Given these problems, wouldn't it make more sense to stop obsessing
over food miles and work to strengthen comparative geographical
advantages? And what if we did this while streamlining transportation
services according to fuel-efficient standards? Shouldn't we create
development incentives for regional nodes of food production that can
provide sustainable produce for the less sustainable parts of the
nation and the world as a whole? Might it be more logical to
conceptualize a hub-and-spoke system of food production and
distribution, with the hubs in a food system's naturally fertile hot
spots and the spokes, which travel through the arid zones, connecting
them while using hybrid engines and alternative sources of energy?

Does anyone even know what this crap means?  You gotta love technocratic statists -- they just never give up.  Every one of them thinks they are smarter than the the sum of billions of individual minds working together of their own free will to create our current world production patterns.

Postscript: There is one thing the government could do tomorrow to promote even more worldwide agricultural efficiency:  Drop subsidies and protections on agriculture.   You would immediately get more of this kind of activity, for example with Latin America and the Caribbean supplying more/all of the US's sugar and other parts of Asia providing more/all of Japan's rice.

I heard Obama get asked a question at the AFL-CIO yesterday whether he thought China was a competitor or an enemy.  I am not very good at parsing politician-speak, but he seemed to answer "both." 

How about neither?  Let's try "partner in the worldwide division of labor" or maybe "home of a billion people who would like to trade with us 300 million individuals to our mutual self interest."   Or maybe "One reason we have full employment AND low prices."

Our trade with Canada is 60% higher than with China.  Does that make them an enemy?  Yes, for some of the Democratic candidates.

It is always dangerous to argue with the insane, but I am actually willing to answer Lou Dobbs question:

And what I can't quite figure out amongst these geniuses who are
so-called free traders is, why do they think that about a 35 percent to
40 percent undervaluation of the Chinese yuan to the dollar is free
trade? Why do they think 25 percent duties in tariffs on American
products entering China is free trade?

I will leave aside the question of how he or anybody else knows the yuan is undervalued by this much.  I will accept his premise on the basis that we know the Chinese government spends money to keep the yuan lower than it might be otherwise.  Here is my answer:

Yes, it is not perfectly free trade.  But we let it continue because the freaking Chinese government, its consumers, and its taxpayers are subsidizing Americans.  The Chinese government is making all of its consumers pay higher prices and higher taxes just so American consumers can have lower prices.  Napoleon advised that one never should interrupt an enemy when he is making a mistake -- after all, this same strategy managed to earn Japan a decade and a half long recession.  Our correct response is not tariffs, it is to say, "gee, thanks."  This is for the Chinese people to stop, not our government. 

Why is China doing this?  Because it government is using monetary policy to help out a few favored exporters who have political influence at the expense of all of their consumers and exporters.  And Lou Dobbs wants the US to respond exactly the same way, to punish our consumers to favor some of our favored politically-connected exporters so the Chinese consumers can have lower prices.  Great plan.  Is Lou Dobbs an Chinese agent?

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%.

I don't think that government action on greenhouse gasses is justified.  That's not to say that man is not helping nature warm the planet some, its that the man-made warming, when you strip away the exaggerations, does not justify the cost of preventing it.  Since I wrote 80+ pages on it here, I won't delve much further into it. 

However, if we are going to take action, a carbon tax is way, way better than cap and trade.  I used to think that cap and trade made more sense, but I have changed my mind.  Cap and trade systems have a lot of potential for error and abuse, but there is one issue that is not adequately discussed:  They are also a huge subsidy and protection for current businesses, effectively penalizing new entrants.

Why?  Because most cap and trade systems begin by giving out emissions credits to current industry incumbents.  These are credits that new entrants will have to purchase, tilting the playing field in favor of current industry leaders.  This is the kind of thing Europeans love, because their largest business interests effectively control the government and keep out new competition, causing their economies to stagnate.  Steven Milloy is one of the few folks raising the red flag on this issue:

Under
the LCEA, the federal government would annually issue rights or
"allowances" to emit GHGs. In the first year of the bill, slated as
2012, allowances would be issued for approximately 6.65 billion metric
tons of GHGs. The amount of allowances slightly decreases every year "“
for example, 6.59 billion metric tons in 2013, 6.53 billion metric tons
in 2014, etc. "“ until it finally levels out at 4.82 billion metric tons
in 2030 and beyond.

These allowances have monetary value "“ a lot.

Owners
of allowances can either use them to pay for their GHG emissions or
they can sell them to other emitters who need allowances. Emitters can
also simply pay the federal government directly to emit GHGs at a cost
of $12 per metric ton of carbon dioxide starting in 2012. This price is
slated to increase annually by the inflation rate plus 5 percent. By
2030 "“ and unrealistically assuming that no inflation occurs "“ the
pay-to-emit price would be about $27.50 per metric ton of carbon
dioxide.

Using the pay-to-emit price, the GHG emissions
allowances issued by the federal government in 2012 will have a
potential market value of $80 billion. The annual market value of these
government-issued allowances will rise to over $100 billion by 2018 and
hit $130 billion in 2030. It will only take about 10 years "“ exclusive
of any inflation "“ for value of the allowances issued by the government
to exceed $1 trillion.

And incredible as it sounds, the bulk of
these allowances "“ 76 percent for the first five years, declining to 47
percent by 2030 "“ will be given away at no charge to special interests
including private industry, farmers and states. This global warming
giveaway works out to a total of $1.34 trillion of free money "“ not
adjusted for inflation "“ that would be handed out to global warming
special interests from 2012-2030. After 2030, the annual amount of free
money handed out is about $65 billion, increasing by 5 percent per
year, exclusive of inflation.

Unfortunately, politicians will always favor an indirect tax over a direct tax because they are gutless and entirely free of any nagging principles.  Cap and trade systems would raise consumer prices at least as much as a carbon tax, but the price increase would appear to be made by industry and not due to a visible government tax.  Congress can point the finger at industry and say, it's not our fault, it's those greedy guys in industry driving up prices.

Further, the carbon tax is hard to game.  Everybody pays.  But cap and trade - Oh the beautiful potential to milk various constituencies for donations!  If the government sets up a program where some groups get credits for free, and some have to pay for them, well of course every industry is going to pour millions upon millions into politician's hands trying to make sure they are in the favored group. 

What a mess.  We are already seeing the huge distortions coming from nutty ethanol subsidies, and that is due to the pressure of just one industry (farmers and ADM).  Just think of the distortions form this program.  There may be a good chance that misguided attempts to manage greenhouse gasses may well be the largest threat to the American economy and free marketplace, well, ever.  Which, by the way, is why every Marxist and socialist on the face of the earth are right at the forefront of the global warming movement.

If you suspect that the world may be warming, but not nearly enough to justify such costs in terms of both dollars and lost freedom, you might want to read this.

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.

Scott Gustafson's Arizona Economics blog points to another example of a local regulatory body, in this case the Structural Pest Commission, bravely protecting incumbent competitors from new competition.  As background, you should know that though we don't have nearly as many pests as most places, the ones we do have (e.g. scorpions) are essentially unkillable with legal chemical technologies.  The best you can hope for is to tighten up your hose to keep them out.  And we have these lovely rodents called roof rats, sort of like squirrels on steroids who are not cute, who like to come in and take up residence in attics and walls.   So a lot of pest control here is about putting up screens over vents and setting traps rather than spraying chemicals.

As retirees go, Rich Hanley seems like a decent enough guy. He's a former cop who came to town a few years ago. He obeys the law. He pays his taxes. In 2004, he started up a little business, repelling roof rats.
 

Specifically, he covers vents with steel mesh so the little fellas can't come calling. 

Once, we would have applauded such enterprise. Now, we issue cease-and-desist orders. 

Yep, it's true. My favorite state bureaucrats over at the Structural Pest Control Commission have decided that Hanley has violated the law... 

"The problem is his advertising," says Lisa Gervase, executive director of the agency... 

The pest-control cops launched a seven-week probe, concluding that Hanley can do the work. He just can't tell people why he's doing the work. Thus, his sales pitch - "Keep birds and rodents from invading your home" - has to go. 

Gervase said the state would have no problem if Hanley says he's covering vents to keep leaves out. "But if he's advertising that he can keep pests from invading your home, that's pest control, and you need a license for pest control."

Its nice, I guess, when you trade group can get the government to use its coercive power to do you work for you.  Much more on licensing as anti-competitive behavior rather than consumer protection.

Regulators can always declare a merger to be monopolistic -- they just have to define the market narrow enough.  For example, if the FCC and FTC are considering calling satellite radio a separate market from terrestrial radio as an excuse to stop the Sirius-XM merger.  The NAB, the trade group fro terrestrial radio, has been going ape trying to block the merger, knowing that the two together will cause its stations to bleed listeners to satellite even faster than in the past.  Hilariously, though, the NAB is having to twist itself into pretzels as it goes to Defcon 1 trying to stop the merger by ... arguing that satellite radio is a separate market from terrestrial radio and thus the merger is monopolistic.  Begging the question, then, why they are working so hard to block it, particularly after the FCC has allowed huge consolidation and merger activity among NAB members.

Now, history is repeating itself yet again, as the FTC threatens to block the Whole Foods - Wild Oats merger because... it claims organic food grocery stores are a separate market from other grocery stores.  Uh, right.  Extra points, as in satellite radio, for claiming consumers will be irreparably harmed by a merger in a "market" that did not even exist 2 decades ago.

Hollywood may like to criticize GWB for his over-eager and intrusive anti-terrorism precautions, but they sure seem ready to take a page out of the homeland security book when it comes to protecting their CD sales:

In Florida, the new legislation requires all stores buying second-hand
merchandise for resale to apply for a permit and file security in the
form of a $10,000 bond with the Department of Agriculture and Consumer
Services. In addition, stores would be required to thumb-print
customers selling used CDs, and acquire a copy of state-issued identity
documents such as a driver's license. Furthermore, stores could issue
only store credit -- not cash -- in exchange for traded CDs, and would
be required to hold discs for 30 days before reselling them.  (HT Overlawyered)

Requiring thumbprints from customers just to sell used CD's?  Are they nuts?  Can you imagine if they tried to apply this to anything else?  You'd have to have a retina scanner to use eBay.  Freaking totally insane.  I can buy a gun, an aircraft, and a shopping cart full of rat poison without a thumbprint but I need to go through the jailhouse booking routine to sell a CD?

By the way, note how insane the requirements on resellers are.  For example, having to hold a disc 30 days before selling.  Why?  I am sure for a lot of hot music products the value goes down about 50% a month.

Of course, we all know the reason why.  This is about politically powerful incumbents protecting their business from competition.  In this case, music companies don't want to have to compete with their own CDs showing up on the aftermarket.  Well you know what -- suck it up.  Car companies have had to deal with this problem for years.  I am sure they would love laws that make it difficult for anyone to buy a used car (or maybe they wouldn't - a healthy secondary market gives consumers the ability to trade up to new models frequently, something music sellers should consider).

Think about the recycling angle, by the way.  The best recycling plan is to reuse an item for its original use.  We all remember Hollywood giving Al Gore a big wet kiss at the Oscars, and congratulating themselves for being more green than the rest of us schmucks  Except, of course, when it hits the bottom line.  "Hey you little guys out there, don't resell those CD's, we want to make sure you throw them out and buy new.  After all, we can't keep our private jets flying without selling lots more CDs."

Don Boudreaux has a post I would call "How I stopped worrying and learned to love foreign ownership of US assets."  He's the economist, so I refer you to him for the real arguments.  I just want to offer this thought experiment.  Consider two countries.  In the first country, call it Venezuela, US individuals and companies have billions of dollars of investments in Venezuelan assets, with little Venezuelan capital invested reciprocally in the US.  In the other country, call it China, the Chinese government and other private groups hold billions, perhaps trillions of US dollar denominated securities and US domestic hard assets. 

Which country has more power over us?  Is it China, who could suddenly try to sell our assets back to us at cut rate prices, thereby, uh, taking a huge financial loss for themselves to temporarily roil our markets.  Or is it Venezuela, who can (and has) simply seized all the assets in their country owned by Americans and repudiated its debts?

Not clear enough?  OK, lets go back to the cold war.  Let's say the USSR had lent our government a trillion dollars or so, thereby holding lots of dollar denominated US government debt.  Let's say they also made massive investments in US land and buildings.  Would we have said, "boy, they have us now?"  No.  I mean, hell no!  We'd have their money, they'd just hold our paper.  If the Russki's got adventurous in Afghanistan, we could just say, sorry, we are going to stop paying on all those bonds you hold until you get out.  This situation is so clear that in fact it was the USSR's strategy to do just the opposite, ie to borrow as much as possible from the west, taking western money to fund their economy while creating a threat of loan default they could use strategically.  American hawks argued that it was insane to lend to the USSR, because this gave them leverage over us. 

The notion that China holding billions of American government and corporate paper gives them a substantial power imbalance over us is just silly.  Granted it makes conflict expensive for both us and the Chinese, just as all trade and global private interaction does.  Which is a good thing.

Almost every piece of government waste paper I have to fill out has the power to irritate me  (and doing business in 13 states, I get a lot of such garbage).  But the one thing that sets me off more than any other is when I get forms from a state government that say I owe a tax for the "privilege" of conducting commerce.  Arizona calls their sales tax a "transaction privilege tax" and Texas calls their franchise tax a "privilege" tax.  In fact, the Texas form is covered with the word "privilege" -- for example, the form I am looking at covers the "privilege period" of January-December 2007.

By calling commerce, and by extension property, a privilege that can only be exercised with a license from the government, the government is saying that the right to trade and make transactions with other people flows not from our humanity, but from the government.  These "privilege" taxes and licenses are based on the theory that man does not have any inherent right to trade freely with other men, and that ability can only be granted (or taken away) at the whim of our masters in the state government. 

The Supreme Court is acknowledged to have the power to strike down laws it deems to be in conflict with our Constitution.  But what about laws that violate something more fundamental than the Constitution?  What about laws that violate the very theory of government on which the United States was founded?    We often think about the Constitution as the top of the legal hierarchy, but I would suggest that sitting even higher than the words of the Constitution is the idea that our rights flow from God, or in a more secular interpretation, from the very fact of our humanity, and what power government has is given to it (and can be taken away) by its citizens, NOT THE OTHER WAY AROUND.

The more correct statement, then, would be that we citizens have given government officials the privilege of regulating and taxing commerce  (a privilege, I might add, that they have abused and we should take away).

Update: 

"Freedom is not a gift bestowed upon us by other men, but a right that belongs to us by the laws of God and nature."  --- Ben Franklin

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."

The best answer, of course, as to why single-payer is bad is that the single-payer will not be me, and therefore will not make trade offs about my health, money, time, etc. in the same way I would.  One of the many problems with polling on issues like this is that someone asks a question like "Are you satisfied with your health care" and when XX% of people say "no", the person using the poll goes on to postulate that the people are dissatisfied for Y reason.  But people may be dissatisfied for many reasons.  For example, I know that many people's main source of dissatisfaction is that their current insurance company was callous in rejecting them for so-and-so procedure.  But do they really think the government is going to be less callous?

Unfortunately, this best answer does not seem to be getting anywhere, so I will offer another answer.  Single payer health care will almost certainly lead over time to single provider health care.  What is my evidence?  Well, that is what happened in K-12 education.  And note the very very strong opposition to migrating education from single-provider to single-payer by the exact same people who are the intellectual driving force for some kind of massive new federal intervention in health care.  Kevin Drum and Matthew Yglesias both argue that single payer is inherently unfair.  So get ready, Walter Reed and the Post Office may soon be teaming up to provide your medical care. 

Yet another weird SF fan points out this example of dueling Luddites.  Here is a particularly nice example:

My favorite definition of local comes from Columbia's Gussow, a
reporter for Time in the 1950s who went on to become a local-eating
pioneer. For 25 years, Gussow has lectured on the environmental (and
culinary) disadvantages of relying on a global food supply. Her most
oft-quoted statistic is that shipping a strawberry from California to
New York requires 435 calories of fossil fuel but provides the eater
with only 5 calories of nutrition. In her memoir, Gussow offers this
rather poetic meaning of local: "Within a day's leisurely drive of our
homes. [This] distance is entirely arbitrary. But then, so was the
decision made by others long ago that we ought to have produce from all
around the world."

It is hard to even begin with statement.  First, I am not sure anyone since Ghandi has really challenged the notion of division of labor, which in fact is what Gussow is lamenting.  Second, it would be interesting to ask Gussow what residents of Chad should do for locally-grown food.  Third, the last sentence is great, in that it works from the Dr. Evil Cabal theory of capitalism, positing that current trade patterns are based on "decisions made by others long ago."  And all these complaints don't even tought the silliness of somehow comparing food calories with calories of work from fossil fuels (unless Gussow is drinking Sterno at night, which might explain a lot). 

A couple of years ago I made this prediction:

We will soon see calls to bring a tighter licensing or
credentialing system for journalists, similar to what we see for
lawyers, doctors, teachers, and, god help us, for beauticians.  The
proposals will be nominally justified by improving ethics or similar
laudable things, but, like most credentialing systems, will be aimed
not at those on the inside but those on the outside.  At one time or
another, teachers, massage therapists, and hairdressers have all used
licensing or credentialing as a way to fight competition from upstart
competitors, often ones with new business models who don't have the
same trade-specific educational degrees the insiders have....

Such credentialing can provide a powerful comeback for industry insiders under attack.  Teachers, for example, use it every chance they get to attack home schooling and private schools,
despite the fact that uncertified teachers in both these latter
environments do better than the average certified teacher (for example,
kids home schooled by moms who dropped out of high school performed at
the 83rd percentile).  So, next time the MSM is under attack from the blogosphere, rather than address the issues, they can say that that guy in Tennessee is just a college professor and isn't even a licensed journalist.

Well, despite all efforts by John McCain, we still have free speech on the blogosphere.  But I was almost right, because another country is considering such a proposal -- In France:

The government has also proposed a certification system for Web sites,
blog hosters, mobile-phone operators and Internet service providers,
identifying them as government-approved sources of information if they
adhere to certain rules. The journalists' organization Reporters
Without Borders, which campaigns for a free press, has warned that such
a system could lead to excessive self censorship as organizations
worried about losing their certification suppress certain stories.

Via Kevin Drum, the results from a couple of studies in California:

A study released Tuesday by the Public Policy Institute
of California found that immigrants who arrived in the state between
1990 and 2004 increased wages for native workers by an average 4%.

UC Davis economist Giovanni Peri, who conducted the study, said the
benefits were shared by all native-born workers, from high school
dropouts to college graduates....

Another study released Monday by the Washington-based Immigration
Policy Center showed that immigrant men ages 18 to 39 had an
incarceration rate five times lower than native-born citizens in every
ethnic group examined. Among men of Mexican descent, for instance, 0.7%
of those foreign-born were incarcerated compared to 5.9% of
native-born, according to the study, co-written by UC Irvine
sociologist Ruben G. Rumbaut.

This is great stuff, I hope we see more of it, because it takes on two of the more common arguments against immigration.  In particular, its good to see someone taking on the crime angle, an issue I have suspected all along of being more about racial prejudices than true statistics.  This is a particularly telling table:

I previously took on the the meme that immigration causes crime here.  My case for open immigration is here and here.  My proposed plan is here.  Note that I really try to stay away from arguing immigration within the "who is going to pick the lettuce" framework.  I think free movement across borders of people, goods, and services is a basic human right, irrespective of the effect it has on wages or lettuce.

Oddly enough, Drum didn't focus much on the positive results on wages, as he has way too much invested in the whole "erosion of the middle class" thing to acknowledge that immigration might not hurt wages (since if immigration does not hurt wages, neither does free trade or outsourcing).  Mr. Drum says he wants to think about the study.  My prediction is that he will decide the crime study is a good one but the wage study was flawed.

Regular readers will know I am skeptical that anthropomorphic global warming and its effects will be as bad as generally predicted.  However, if I can work around this bias, I would like to cast the issue as neutrally as I can:  Man-made CO2 will likely cause the world to warm some, and the negative effects of this for man are likely higher than the positive effects.  Under some assumptions, these net negative effects of man-made warming could be astronomical in cost, while under other assumptions they will be less so.  Against this variable outcome, efforts to substantially reduce CO2 production world wide and prevent further increases of atmospheric CO2 concentrations will carry a staggering cost, both in dollars and the inevitable social effects of locking developing countries into poverty they are just now escaping (not to mention loss of individual liberty from more government controls).

The political choice we therefore face is daunting:  Do we pay an incredibly high price to abate an environmental change that may or may not be more costly than the cure?  Reasonable people disagree on this, and I recognize that I may fall in the minority on which side I currently stand on (I think both warming and its abatement costs are overblown, mainly because I have a Julian-Simonesque confidence in man's adaptability and innovation).

Against this backdrop, we have Kevin Drum declaring "More good news on the global warming front:"

Seeking to shape legislation before Congress, three major energy trade
associations have shifted their stances and decided to back mandatory
federal curbs on carbon dioxide and other man-made emissions that could
accelerate climate change.

Here is my news flash:  Having some Washington lobbying organizations switch which side of this incredibly difficult trade off they support is not "good news."  Good news is finding out that this trade off may not be as stark as we think it is.  Good news is finding some new technology that reduces emissions and which private citizens are willing to adopt without government coercion (e.g. sheets of solar cells that can be run out of factories like carpet from Dalton, Georgia).  Or, good news is finding out that man's CO2 production has less of an effect on world climate than once thought.  Oddly enough, this latter category of good news, surely the best possible news we could get on the topic, is seldom treated as good news by global warming activists.  In fact, scientists with this message are called Holocaust deniers.  I wonder why?

Update: LOL

This post actually takes me back to the roots of this blog, roots that most new readers probably have not seen much of.  I originally started this blog as place to share my lessons learned in starting, running, and growing a small business.  I still do some of that, but not nearly as much as I would like.

My company has about 25 line managers who each run the operations for one recreation area (these are spread over 13 states).  I give these managers nearly complete P&L authority.  I set base labor rates and most fee levels, and we have a very clear management process everyone follows.  However, line managers have the responsibility to do all the hiring for their area, as well as most purchasing.   One issue that comes up a lot for us as we grow is how much we should centralize some of these functions for efficiency, most significantly HR and purchasing.  In general, I have resisted efforts to centralize.  Here is why.

Human Resources

Several of my competitors, even ones smaller than I am, have centralized their hiring functions.  They have one person (or more) at central HQ who does all the hiring for the company's operations.  My managers often come to me and say "wouldn't it be more efficient to do this hiring in one place?" 
I say no.  The reason is one of accountability.  I want my managers fully accountable for their operations, and poor-performance excuse #1 is always "well, we're struggling because you saddled us with some bad employees."  No one uses this excuse in my company.  If you have an employee that sucks, you hired him/her and you have to deal with it. 

What I did instead was centralize the Human Resource support for our managers, making their lives easier without relieving them of accountability.  So I invested in some new web sites that capture potential workers and drive them to an application database that collects 10 resumes a day  (I am results 1,3, 4 &8 on Google for camp host jobs and results 5, 6, & 7 for campground jobs).  Then I built a system where all my managers can access these resumes.  I also centralized the HR record keeping and payroll processing.

Purchasing

Centralized purchasing has been a harder impulse to resist, but I still do so.  We order a lot of the same supplies in our various locations, and with more and more stores, many of the same goods for resale.  But I still have my local managers buy most of that stuff for themselves.

Am I crazy?  Well, I would have thought so when I was in business school.  After all, its fairly easy to demonstrate that vendors will give better rates for larger orders, and surely it's inefficient from a labor standpoint to disperse purchasing and to duplicate efforts.

First and foremost, though, I am still a stickler for accountability.  Much of my thinking was shaped by Chuck Knight at Emerson Electric, who was nearly always willing to trade centralized cost savings for accountability.  I would much rather my managers have no excuses than save a few pennies on toilet paper purchases.

However, there are a few things we can do.  We are starting to build a shared supplier database, where managers can share particularly good supplier deals with their peers.  We also have centralized purchasing of uniforms and forms, but even here we have been burned.  In the past, we assigned this task to a central person, who eventually built up a huge warehouse of crap it has taken us years to clean out.  Though we don't get quite as good of a deal, we now have printing and uniform contracts with negotiated corporate rates based on our combined corporate usage, but where managers place their own orders and shipping is directly to the field (rather to a central location for reshipment).  Net, we saved thousands in labor, shipping, and inventory getting out of the central break-bulk business.

For our resale items, I get a lot of presure from individual store managers to let them do purchasing of so-and-so product for the whole company in order to get quantity discounts.   I have allowed this in a few cases, but it may cause more problems than it is worth.  I immediately started getting complaints from manager A that manager B was buying all the wrong stuff, or whatever.  Soon, the folks doing the central purchasing started demanding that they needed more and better information, and started asking for written inventory reports from various store managers each month.  Eek! 

I think instead that I am going to mostly stick with the approach of negotiating corporate deals, and having local managers continue to do their own ordering using these deals.  I also work hard to make sure managers understand that in most cases the corporate negotiated products are optional, and that they may buy other products if they think those are better for their locations (I can guarantee that visitors in Northern California, Nogales Arizona, and Central Florida want different things).

The Bush administration is in the unenviable but not historically unprecedented position of not really being able to accomplish much of anything over the next two years.  Bush's credibility is such that a solid majority in Congress may oppose any plan he suggests, just because he suggested it.  Also, it is unlikely that any third-rail-type reforms will be considered in a presidential election cycle.  And I am generally OK with government legislative inaction.  In fact, it would be great if the Democrats chose to pursue impeachment hearings, not because Bush is any more or less a lying sack of shit than other politicians, but because it would divert Congress onto an enforced lassaiz faire path on every other issue.

However, one thing Bush could productively accomplish is to open up relations with Cuba.  If we are ready to pull out of Iraq after five years, even at the cost of being seen as "losing," we should be ready to reconsider our cold war with Cuba after over 46 years.  After all, our cold war with Russia, if dated from the end of WWII, only lasted 44 years.  We trade freely with communist China, and even with communist Vietnam, despite the fact that we were in a shooting war with them more recently than the Castro takeover.  And what have we accomplished?  Cuba is nowhere close to an anti-communist revolution, and its people suffer.  In fact, I think the embargo on Cuba, by turning Cuba's attention away from its natural trading partner the US, causes it to look for allies in places like Venezuela.

I think history has proven time and time again the power of open commerce and interchange in bringing closed, unfree societies into the modern age.  I can't for the life of me figure out why we still pursue the proven-pointless embargoes against Cuba except:

• The sugar lobby like it that way
• The Cuban expat community, operating on wounded latin pride, have stubbornly made it clear that anyone who suggests opening up to Cuba will lose the typically tight vote for Florida's key electoral votes.

With GWB's lame-duckracy and his brother moving on from the Florida governor's mansion, no Bush has to run for election in Florida again. With Castro's death (I'm not dead yet - yes you are, you'll be stone dead in a moment) the anti-Castro movement in the expat community loses focus, and might be reshaped into what it should be, that is pro-Cuba rather than anti-Castro.  I think these two stars are lining up to provide a unique opportunity to do something about Cuba, and in fact might be a useful step in counterpoint to Hugo Chavez's recent actions. 

The EU has an odd definition of the term "free trade."  Apparently, low taxes, in the EU's world, are irreconcilable with free trade.

In a move that is both remarkable and disturbing, the European
Commission plans to file a complaint - and threaten protectionist trade
barriers - because attractive Swiss tax policies are supposedly a
violation of a free-trade accord. The bureaucrats in Brussels are not
arguing that Switzerland is imposing barriers against EU products.
Instead, the Commission actually is taking the position that low taxes
are attracting businesses that might otherwise operate in high-tax
nations. The implications of this radical assertion are
breathtaking. It certainly is true that a nation with more
laissez-faire policy will attract economic activity from neighbors with
more burdensome levels of government. But if this migration of jobs and
investment is a "distortion" or trade, then the only "solution" is
complete and total harmonization of all taxes (and regulations,
spending, etc). If the Euro-crats succeed with this argument at the
European level, it will be just a matter of time before similar cases
are filed at the World Trade Organization.

I got a prospectus recently asking for bids to operate a marina facility in Toledo, Ohio.  Typically, when privatizing a recreation facility, the government issues a contract that is essentially a lease -- they lease the facility to a private company who runs it for profit.  Companies compete for the lease by bidding the rent they will pay for the lease, the winning company being a combination of the best qualified and the one offering the highest lease payments.

This prospectus is very similar.  However, in the bid I noticed a collection of requirements called "affirmative action compliance" that were almost as thick as the description of the facility and the sample lease terms.  In the routine course of operating such a lease, from time to time a private company must do maintenance and construction work on the facility.  For example, marina docks are nearly constantly under re-construction, in a process similar to painting the Golden Gate Bridge (more rebuilding work is presumably required in Ohio when the lakes and rivers catch on fire). 

The state of Ohio seems extraordinarily concerned about the racial makeup of any workers who might do construction on the docks in the course of the marina's operation.  In fact, in this prospectus they have quotas on minority hiring -- you need to have at least 9% minorities and 6.9% female work hours in any construction project you perform.  But it is even more detailed than that.  Because these quotas apply as well to EVERY INDIVIDUAL TRADE.  They list the following trades:

Asbestos workers, boilermakers, bricklayers, carpenters, cement masons, electricians, elevator constructors, glaziers, ironworkers, lathers, operating engineers, painters, plasterers, plumbers & pipefitters, roofers, sheet metal workers, other trades

Not only does the job have to have at least 9% minority hours, but each and every category listed has to have 9% minority hours.   So, overall, you could have 50% of your work force be minorities, but if the folks who constructed your elevator were all white, you fail the test.

*CLUNK*  That is the sound of the prospectus hitting the circular file. 

Last weekend I was watching an NFL game (I forget which one) and the team, which already had a solid lead, was considering going for a TD rather than a field goal at fourth and goal.  The announcer was going "Bad idea, bad decision.  Take the field goal and the sure points.  You don't want to risk getting the other team back in the game with the emotional prop of stopping you at fourth and goal."  Well, the team went for it and made the touchdown, after which the announcer said "I guess it was a good decision after all."

But was it?  If you choose to hit a nineteen in blackjack, and pull a deuce, was it a good decision?  If you  placed a 50-50 bet that a normal die roll will come up with a "6", and it does, was that a good decision?  I would say no.  I would argue that both decisions were bad decisions, despite the fact they happened to yield positive results for the decision-maker.  The reason is that, given the information the decision-maker had at the time of the decision, both moves have an expected value less than zero.

I won't bore my audience with a digression too far into expected value and decision trees.  Suffice it to say that the standard approach for making decisions in uncertainty is to list the possible outcomes of the decision, assign values and probabilities to each outcome, and then total up the sums.  The decision that yields the highest value times probability is the is the one that you would expect, on average, to yield the highest value.   Take the example of the bet on the die roll above.  If you bet a dollar, you would win a dollar on a roll of "6", which is a 16.7% probability.  You would lose a dollar on a roll of 1-5, which is a 83.3% probability.   The value of the "don't bet" decision is zero.  The value of the "bet" decision is 16.7% x $1 plus 83.3% x -$1 equals -$0.67.  So the "no bet" decision is best, since at zero it is higher than the negative outcome of the "bet" decision.  Here is a more complete discussion of the decision tree process.

A couple of provisos:

• When the situation is more complex, the trick of course is to assign the right values and probabilities.  We can assign these exactly for cards and dice, but it's a little harder for something in the business world, like say Enron's decision to enter the broadband business.  But managers are paid the big bucks to do their best.  And managers have tools at their disposal to manage their lack of information.  For example, once you build a base-case, you can ask questions like  "OK, I am not sure about the size of the broadband market, but how large does it have to potentially be to offset the risk involved."
• Like many real-world processes as the approach the asymptotes,  things get a bit squirrelly for really small probability events, particularly when they have very large financial values (positive or negative) attached.  Small probability positive events are essentially a lottery, and many people buy lottery tickets, even though we know the expected value is less than the price.  I play blackjack too, despite a negative expected value, because I get non-monetary benefits from the play.  Small probability negative events are called disasters, and are things we insure for.  Many times the decision to buy insurance has a negative expected value, but we do it anyway because we would sleep better at night knowing that we may be throwing away a little expected value, but we have pre-empted an event that would bankrupt us.  Here we get into interesting topics of risk profiles and risk tolerance, which I will avoid.

Unfortunately, in evaluating historical decisions, we often ignore the state of facts and risks the decision-maker faced at the time of the decision.  We argue Mead should have pursued Lee harder after Gettysburg, because we know now Lee's army got trapped behind a swollen river. The Chargers shouldn't have traded half their assets** to move up one spot in the draft to get Ryan Leaf.  And Enron should not have entered the broadband business.   We treat the decision makers in each of these as boneheads today (we even threw Skilling in jail, as much for his failed business decision as for any fraud).  But all of these evaluations are based on the outcomes, not on what the decision-makers were facing at the time.  Mead had been in charge of the army for less than a week, had driven Lee from a battlefield for the first time ever, and had a primary charge of defending Washington.  It is hard to believe today, but the Peyton Manning and Ryan Leaf were considered nearly equivalent in quality in the '98 draft, and the Chargers trade might have been perfectly appropriate if they had actually gotten a Manning-quality quarterback.  Enron's vision of broadband looked like it would become an enormous business, which in fact it did, just five years too late for them.

** The Chargers traded an inventory of picks and players to the Arizona Cardinals, who, true to form, did nothing with this goldmine.  The Cowboys, by contrast, arguably built a whole dynasty in the 90's off the slew of picks they got in the Herschal Walker trade with Minnesota.

I originally got to this post at Carls Talk because of the cool map I put in this post.  However, I was really struck by his lament that foreign companies won't sell into Norway because it is too small.  Given that Norway has a trade surplus, you would think that given all the whining in the US about trade deficits that everything would be hunky-dory in Norway and that they would be thrilled that foreign companies wouldn't sell there.  But check this out:

When seeing Norway's GDP in the context of this map, one realizes
why Norway often is one of the last countries U.S. companies consider when
expanding to Europe.

Norway might be an unattractive market when considering expansion
because the market is so small and as a result there is little domestic
competition.  This  has enabled local players to
build monopolies or duopolies with substantial  entry-barriers in many
industries.  Furthermore, the government has sheltered the domestic
market against international competition by adding a hefty import tax
and inconvenient delivery methods on goods purchased outside the
country, rendering international online merchants at a disadvantage
when competing on price and convenience.

On the flip side, if you manage to establish your business here, you
can overcharge your customers and get away with horrendous customer
service.  The average Norwegian customer is not used to good service
and competitive prices.  Online merchants are slow.  Recently it took
four weeks before I received a book shipped to me from a local
merchant.  On a recent trip I recently purchased shoes for our kids in
the U.S.  The selection was superior, and the price:  1/4th of what the
local Norwegian merchant was charging. 

Gee, you mean there is a price consumers pay for protectionism that might offset a few job gains in sugar growing and textiles?