Climate Change - The confession of a Watermelon

This post should be seen as a call for reason within the Climate Activism movement. 

The other day, thousands of people around the world marched for the Climate. In UK, over the last year, what has been in focus for is the Divestment Campaign, calling for funds and Universities to divest their holding of fossil fuel stocks.

I have essentially two objections to this; minimal impact of campaign (thus the rising opportunity costs of doing it) and the lack of influence over dictatorial State-run oil companies. Note, this is not a discussion over climate change, over exact impact of fossil fuel-usage, temporal effects of damaged or the causation problem in arguing a "Stop Climate Change" reasoning. This is simply an observation to how the suggested means relate to the alleged ends.

But first, let me make a confession; I used to be a watermelon too. I see the temptation in these campaigns and I can follow the Kantian approach of "If it's wrong, don't do it". Also, the argument posed heavily by the people over at 350.org is pretty convincing:
"If it's wrong to wreck the planet, it's wrong to profit from that wreckage".

Problem here, though, is twofold. The first part involves a two-step "very-low-chance-of-success". That is, first you need to get all Universities and pension funds aboard - which has a very low chance of happening - secondly, the impact of the entire thing should you pass the first obstacle, is very limited. In order to show this, I grabbed some numbers from ShareAction, a similar organisation calling for pension funds to divest.

On its own account, the ShareAction campaign claims that the UK private pension system has more than £3 trillion worth of assets. Let's exaggerate and use £4 trillion to be on the safe side, also including some private savings and University Endowments etc. (£4trillion is about 1,5x the British Economy, by the way, so adding another trillion is not just a rounding error..).

Let's also assume ratios of fossil fuel exposure to rest of portfolio at between 2-5%, as seen below (from the Oxford Stranded Assets Report).

5% of £4 Trillion = £200 bn. 

The total Market Capitalization of the Big Five oil companies (Chevron, Exxon, BP, Shell, Total) is around £730 bn. If using this number, again, numbers will come out on the side of overestimating the effect Pension Funds have, because there are quite a few additional fossil fuel companies - but I'm using these companies as a proxy for the entire industry, thus benevolently exaggerating the effect the campaign might have: £200bn/£730bn = 27%. Interestingly, the share prices of these companies have had differences between top and bottom price over the last few years larger than 30%.

That is the entire chunk of fossil fuel investments (all British University Endowment, Pension funds etc) represent a value in these companies less than what regular share appreciation/depreciation already does in normal markets.

In other words, even if the campaign would be instantly accepted, face no objections and all funds/Universities would sell off their fossil fuel assets, the effect would be minimal. This, again, not even considering that there quite possibly would be neutral buyers for these shares, counteracting the effect aimed for by the Fossil Fuel Divestment campaign.

The Oxford report on divestment of Fossil Fuel companies concludes exactely that:

In this report we find that the direct impacts of fossil fuel divestment on equity or debt are likely to be limited. The maximum possible capital that might be divested by university endowments and public pension funds from the fossil fuel companies represents a relatively small pool of funds. .  - Stranded Assets Report Smith School of Enterprise and Environment

My Second Objection

Going after publicly-traded fossil fuel companies in the west is misdirected. Why?

This chart explains it pretty neatly; the vast majority of fossil fuel production is made by National Oil Companies, predominantly in dictatorship or questionable democracies (Russia, Venezuela etc).

That is, the argument about divesting obviously has a further aim than just to annoy oil companies. Climate Activists want to stop the production of oil, so that the impact of climate change is halted. But going after the companies in the West that represent a minor piece, some 20% of global production, is misdirected. If these countries (Saudi Arabia, Iran, Qatar) won't even accept internal criticism and protesters are violently put down, why would foreign University students protest be any of their concern?

A formula for success would look something like this:

Result = (Large IOC share of global production [x] percentage Unis/pension funds hold [x] chance they would comply with the Campaign demands)

We know roughly two of these componens, (Share of IOCs = 20%; and percentage all Funds can affect, estimated to less than 27%). We don't know how successful the campaign might be, but it is reasonable to assume that not all will divest. Still, 0,2 x 0,27 x Y = a very small amount, even if Y turn out to be close to 1.

What I am saying here is that the campaign is completely misdirected; if you care about climate change (which watermelons normally do) you'd be much better off/having a much greater impact if you went vegetarian, got a your bike instead of driving or switched your electricity provider to a non-fossil-fuel one.

[Another one] of the inherent contradiction(s) of the Left

I previously wrote a piece on how Lefties are contradictory when they simuntaneously protect women's right to their bodies in Abortion debates, while refrain from the same protection in Labour Market debates. I added the Wage Gap vs Profit-Seeking Contradiction a few weeks ago. Here's another amusing contradiction:

We Want to Help the Poor!

Yesterday, citizens all over Sweden laid their votes for what kind of socialists ought to rule their country over the next four years. The Parlamentary situation is peculiar, to say the least:

Neither proper socialists (in red) nor the conservative/liberal socialists (in blue) want to cooperate with Anti-Immigration socialists (in yellow), which means effective governing is bound to get interesting. 

Anyways, the weeks leading up to election time has obviously been chaotic, with politicians on the streets, on tv and even phone calls tried to persuade the voters where to lay their vote. I met a guy representing the Social Democrats, with whom I argued a bit. He justified his position of taxation/redistribution with the following:

We Want to Help the Poor

Now, that's an admirable trait, I suppose, Morality/Theft/State Oppression set aside. But let me have a look at that statement. 

• Almost 100% of the poor on the Planet live outside Fort Europa.
• You raise and maintain Physical as well as Trade-related barriers against all Non-EU countries 
• You prevent third-world farmers, the poorest of the poor, to sell their crops within Fort Europa.
• You tax the entire economy, using some of that proceeds to subsidise inefficient farmers within the European Union
• You destroy crops to maintain high prices for your own wealthy farmers, while effectively keeping the poor alienated
• ... and for the few lucky ones who actually make it past Frontex or Immigration Authorities, you effectively price them out of the labour market by Minimum Wage laws or Union activity.

And while all of this is happening you're campaigning for redistribution among and within the top 5% wealthiest people on the planet?

You're not helping the poor. You're HARMING the poor with your protectionist measures. You're killing the poor with your subsidies, with your Inflation. And all of this you justify by your concern for the poor. 

You're not helping the poor. You're a hypocrite. You're disgusting. Arrogant. Egotistical to the point of narcissism. Everything you accuse the Market, the Liberals and Conservatives for. Disgusting. 

Review: 'The Tyranny of Experts' by William Easterly

William Easterly, a NYU Economist, is a major player in development economics and perhaps the biggest critics to how development agencies squander aid and ignore the rights of the poor. The subheading of his newest book, The Tyranny of Experts - Economists, Dictators and the Forgotten Rights of the Poor, indicates the particular interest his book deals with; The pervasiveness of the idea that a Benevolent Dictator could put their populations' rights and freedoms on hold in order for economic growth and prosperity to arise.

He praises the Enlightenment and its protection of individual rights, a statement that initially seems unrelated to his field ("what has rights got to do with feeding my starving family?", implicitly attacking critics that play such a position: "What good is freedom of speech, if you're starving?").
He then consistantly shows how Authoritarian approaches that ignore rights are counter-productive in producing development. How the authoritarian top-down view lost in the West, but remained dominant in Development Agencies (=World Bank, USAID, DFID), effectively preventing the Rest from growing richer.

He mentions outrageous examples that superficially seem well-intended (Gates Foundation or the Tony Blair Africa Governance Initiative), but result in horrendous persecution of poor people. Human Rights Watch showed how donor-funded food relief was used to blackmail opposition. International Development Agencies supporting a regime that jailed opponents and shot demonstrators. The Ethiopian government abused any imaginable right on part of their poorest by forcingly displace them, took villagers' land and leased to foreign investors.Tony Blair praised the alleged Ethiopian Government's rapid reduction of child mortality. Bill Gates mourned the death of Ethiopia's dictator Meles Zenawi, saying it "was a great loss for Ethiopia". Right. Not very benevolent.

I want to point out three topics that particularly spawned my interest: The Blank Slate, Spontaneous Solutions and the Probability Confusion.

Blank Slate.

The Blank Slate, Easterly describes, is the

mindset [that] tends to ignore history and to see each poor society as infinately malleable for the development expert to apply his technical solutions. The alternative would be to learn from history why each poor society is poor, to learn from history why other societies became rich, and to draw lessons accordingly for how to escape poverty.

The Blank Slate is the pervasive attitude in the field of Development to see poor countries as one unit, regardless of differences between them. It fosters the potential to give "One-Size-Fits-All" solutions that disregard history and disregard whatever circumstances lead to the current situation. It's the belief that one can simply erase anything previously occured and start over, forming societies or human beings into whatever you're currently trying to achieve.

Easterly says:

Blank Slate thinking thus opened the door for development experts to reject the utility of the West's history of individual rights and development as a precedent. If the Rest had nothing to learn from its own history, it also had nothing to learn from the West's history. 

Essentially, the Blank Slate, is the excuse development "Experts" can use for disregarding History. For disregarding the reasons for this:

Honestly, it's a very useful concept, applicable to many more areas than Easterly believed, I think.

Concious Directions vs Spontaneous Solution. 

Roughly translated into "Top-Down versus Bottom-Up" approaches. Initially a Hayekian point about dispursed knowledge, Easterly adds reasoning over innovations. Since Innovation means doing things differently, in a way previously unknown or undiscovered, you can't plan innovation as you simply don't know what the results of doing things differently (innovating) will be - so you can't plan for certain results to happen. There's no top-down planning involved in discovering anti-biotics, inventing steam-engines or cellphones.

The point is the same as that made repeatedly throughout this book. The top-down leaders and experts in technology do not have enough knowledge or incentives to get it right for the reality of what is happening at the bottom. 

He goes on, describing how ideas multiply exponentially, and how technological development feeds on itself into a snowball effect consisting of a) previous innovations/non-rivalrous ideas and b) population. Also, the amount of technology had in year 1500 is found to be a pretty good determinant of how much technology that area has today:

We confirmed that technology in 1500 predicts technology (and thus per capita income) today. In fact, 78% of the income difference today between Europe and sub-Saharan Africa can be explained by technology that was already in place by 1500. [...] So we find that a very simple theory of bottom-up innovation can explain many of the big facts about tehcnology around the world today. 

Here, Easterly also draws on Joel Mokyr's work on the British Industrial Revolution: "Intellectual innovation could only occur in the kind of tolerant societies in which sometimes outrageous ideas proposed by highly eccentric men would not entail a violent response against 'heresy'".

Argument simplified:
- Innovation fuels income/wealth
- Individuals with unalianable rights make innovation happen
= Top-Down approach to innovation and lack of individual rights are bad ideas if you're looking for higher incomes.

Probability Confusion.

This area deals with the _ONE_ objection I had while reading; What about the Asian Tigers (South Korea, Taiwan, Singapore, Hong Kong) and their miraculous growth over the last few decades? They were all run by "Benevolent Autocrats". The very existence of these countries seem to throw Easterly's great contribution out the window.

No, he says. We seem to think that autocrats create growth because of a psychological mistake where we confuse two opposite probabilities.

In his outstanding Chapter Thirteen "Leaders: How We Are Seduced by Benevolent Autocrats" he deals with that question as well as with the psychological biases that give credit to leaders while underlying causes might've been more obscure. He concludes:

It is because growth miracles are rare that the true statement 'most growth miracles are autocrats' is so very different from the false statement 'most autocrats are growth miracles'. This same psychological mistake contributes to stereotyping of certain unpopular minority groups. It could be true that 'most terrorists are Muslims', but it is definately not true that 'most Muslims are terrorists'. Prison statistics could indicate that 'most violent felons are black', but it is definately not true that 'most blacks are violent felons'. Racism has many toxic causes, but one of them is just the racists' incompetence at probability. The same incompetence makes us believe autocrats produce high growth."

The above passage is surely what most affected me in his 350-page masterpiece. He also explains the "Myth of the Hot Hand", a phenomenon in basket where you'd want to pass the ball to a player who has scored a lot, believing he'll score again. Over large series of probabilities, it simple isn't true. But if you point your finger at a few selected examples, then sure you could find players scoring over and over - just like you can find autocrats being in power while a country experienced miracolous growth.

His explanation for China, South Korea or Taiwan?
- Levels produce levels, changes produce changes. It's not the level of freedom that produces a certain growth miracle. It's the change in freedom that creates growth. China had massive changes in economic freedom following the reforms in late 1970s. Economic growth is about a percentage change in development, he says. Not about the absolute level of development. This would explain the rapid success of the tigers, although I realize the debate is far from settled just from this. Nevertheless, an amazing insight.

He finishes the books as splendidly as he started it, summing up its main points. Development is a bottom-up thing. Ignore individual rights in order to plan development is a double-failure. Not to mention that freedom is a value in and of itself. Beyond that, there are more fascinating chapters: his examination of development in China, Africa and Colombia; his local history of the Greene neighbourhood in New York, accidently binding some New York history into it. He describes the value of institutions by comparing the Maghrib traders in the Mediterranean to the Genoese. He compares the debates that never happend between Nobel Laureates Gunnar Myrdal and Friedrich Hayek as well as tracing the origin of development experts.

This is simply an amazing book.

The global double standard of rights for the rich and not for the poor is very much alive in the technocratic worldview of development. But this, too, could be a casualty of the Rise of the Rest and the spread of freedom. The disrespect for poor people shown by agencies such as the World Bank and the Gates Foundation, with their stereotypes of wise technocrats from the West and helpless victims from the Rest, may become increasingly untenable. Development may have to give up its authoritarian mind-set to survive. 

The Economics of 'Under the Dome'

I have this love-hatred relationship to TV-Series. I _LOVE_ watching them, but once I do I sort of can't stop. Last, a few months ago, I experienced this with House of Cards. I got curious about it, thought I'd watch the first episode to check it out - and ended up spending the next 36hs rushing through both seasons.

So, most of the time I stay away. Freaking addiction.

But last night I got at it again. Under The Dome caught me by surprise, so I rushed through the first episodes. Woke up with one thing on my mind: Watch it. Simply Addictive.

What did strike me while watching it were the libertarian themes in it. Or rather, the economics of it. A small town is suddenly sealed off from the rest of the world. That means all production and consumption lines are disrupted, seeing as how we trade extensively with one another. Early on, a few things happen that really jumps out at me.

• One of the first anti-government quote from a main character is:
  
  • -"So you don't think the Government did this?"  
  • -"No"
  • -"Why not?"
  • -"'cause it's working"
• Scarcity becomes prevalent; things run out, such as water, insulin for diabetics, gasoline, propane etc. 
• One character, in the face of such scarcity alludes to the role Money plays in society beyond pieces of green paper, saying "I'll provide you with money. Or battery, or propane, or whatever counts as money these days". Brilliant!
• When property rights are no longer respected, things turn ugly. 

Most interesting, though, is what happens with society's wealth - and income. I realize that you could easily make different interpretations about this, seeing as how people turned violent in face of scarcity, how they started looting stores, hitting killing and even raping each other as the few Police Officers lose control ("See what happens without a law enforcement!", or "Look, stupid capitalists. We should all cooperate instead of competing!"). I see that. 

Nevertheless, the society is cut off; there's essentially no more production (apart from the weird farmer character, I suppose). Society starts consuming the resources it has, quickly running out of insulin, anti-biotics, water, propane. The value of things change dramatically. Capital-consumption is prevalent. Society at large becomes way poorer. Wealth is gradually reduced - while income essentially cease to exist. 

The most fascinating thing though, is how there's essentially no more production. Chester's Mill is no longer producing much but disagreement, violence and conflict - none of which are edible, quench your thirst or help diabetics stay alive. Loads of things have to be re-arranged, in terms of producing the most basic goods - and the palpable notion that the wealth in our current societies depend on division of labour, heavy specialization and extensive trade. But when "society" suddenly becomes a few hundred people, the wealth and income possibilities of all is dramatically reduced. 

Fascinating stuff!

Pure Capitalism would lead to Armageddon: Startups/Funding

Banks, Funds and Starting Business

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

One recent objection I had regarding AnCap societies were that banks would never lend to you, unless you have substantial amounts of capital or income already - which then would never occur, because only the rich would have access to these. That is, nobody could ever start a business, unless you were already rich or had a company.

This last part, I already showed in Pure Capitalism would lead to Armageddon: Salaries above, is false.

Neither is the conclusion ("You could never start a business") because of that, accurate:

Simple because bank lending is not the prime source of fund for start-ups or SMEs. 

The top three sources of funds for Business are given below (Martin Zwilling provides an extended list of more opportunities). Crowdfunding is an amazing tool, probably moving up the ranks of importance in the future as it becomes more viral and used. 

1. Current revenue (indeed, assuming a business or income already)
2. Equity, (either your own or acquired through venture capitals, family, investors, Business Angels, networks etc)
3. Obligation & credit (either from banks and financial institutions or straight through the financial credit markets).  

The argument is simply flawed in all of its parts. 

That's some initial responses to why an Anarcho-Capitalist society (or even a Minarchist society) would not lead to the destruction of large chunks of the population, not even the poor, as I showed in the case of Kenya some weeks back. And we havn't even gone into the exciting parts of Private Law and Private Defense. Murphy has a great piece on that, if you're interested

Pure Capitalism would lead to Armageddon: Health Care

Health Care

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Now things get tricker. I'd advise you to listen to Walter Blocks lecture on Health Economics for the full story. Free societies would probably organise health care as insurance schemes (which, technically, is what the State is doing, although mixing it up with other expenses); you pay a premium upfront, and when you're in need of certain health care measures, the insurance company will cover the costs according to the initial agreement. 

This normally unleashes a multitude of insults, mainly regarding how such systems won't work because they're not working in the U.S. 

False. The U.S health care system is not even remotely close to what a free society probably would create. It's completely jammed with government regulations, AMA (the most powerful Union in the U.S) restricting output and pushing prices up, and inflation/low-interest-environment killing the fixed-income business model of Insurance Companies. 

Another point that Walter Block addresses is what insurances cover. The comparison is Home Insurance; you only really use it for big things, such as earthquakes, heavy damages or in case your house should burn down. If a window breaks, you'd just hire someone to fix it rather than having an insurance policy covering that. But in health care, somehow the policy covers every singly visit to your physician (party, obviously, because prices are artificially jacked up) - obviously, such schemes are gonna need higher premiums. Which is why health insurance in the U.S. is so expensive. 

Rationale here being that if you would have an insurance policy that covered every tiny damage to your house, it'd be awfully expensive - just like health care is today. Thus, in a free society, probably, people would use health insurance for big things like cancer, broken limbs, having a baby etc rather then for catching the flue or regular check-ups. This would then consistute smaller premiums, being affordable to the average person (there's a great Mises Daily that deals with how people organised Welfare before the Welfare State)

Pure Capitalism would lead to Armageddon: Education

Education

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Without government providing and financing education, there would be no education. We'd all be stupid and illiterate, right? That's usually the normal claim, and it has some appeal to it - who would pay for all this expensive education? It's not like regular Joe-s on the street can pay thousands of pounds worth of education just like that. Better government do it?

Not really. Education greatly enhances ones productivity, that is what constitutes your wage rate (see post on Salaries above). People with engineering knowledge of how to build a house, would be a lot more valuable to a House Developing company than would an illiterate 25-year-old autarkic farmer - thus, his wages would be higher than said autarkic farmer (assuming such farm activities doesn't yield immense amounts of returns). 

So, if your future wages would be higher (and especially when that's a sure deal, such as the above example) there'd be people willing to supply that fund (eg: banks, financial institutions, the entire financial system..) because you'd be in a position to pay that back after completing your education. 

Essentially, the exact same reasoning that occurs in Student Loans for Higher Education today (students know that their productivity will be enhanced, thus their take-homepay compared to what McDonalds currently offers them would be substantially bigger, and they can then make simple calculations to find out that it is beneficial for them to take on these loans).

Education in a free society would simply be the same thing, even in primary and secondary schooling (even more so, because productivity increases from illiterate to literate are among the biggest increases of all).

Pure Capitalism would lead to Armageddon: Housing

Housing

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Housing is a commodity like any other. 

The reason we have messed up housing markets, and riddiculous prices are three-fold: 

1. Massive credit expansion fueled by fractional reserve banking, artificially low interest rates and money-printing by the central banks. 
2. Government restrictions on where to build, how to build, application process, regulations of size and price levels.
3. Price ceilings: Government says that for certain rentals, you cannot charge above a certain amount. Effect: fewer rentals will be a) constructed, b) put on the market. 

Essentially: we have crazy housing prices because (1) above pushes prices up, creates bubbles which we saw in the financial crisis and (2) because demand for housing outstrips supply, where potential supply has been strangled by government interventions, and (3) yet again supply being strangled by government interventions.

In a free society, none of the above would occur, housing would be constructed in accordance with consumer demand like any other product. Quality, size and prices would probably differentiate to a larger extent than today, increasing supply so that prices for housing would come down. 

Perfect example of Government Failure. Not even remotely an effect of markets or capitalism. 

Pure Capitalism would lead to Armageddon: Salaries

Salaries

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

In AnCap, business would pay employees the minimal amount possible, just to make them stay alive, say 10p/hour - so we'd all be poor. Right?

Of course not. 

In a free society, salaries would be set according to the Discounted Marginal Value Product (DMVP); that is, every input in production (land, labour, capital) recieve payment according to their discounted marginal contribution to production. If, all things equal, an additional employee contributes to production £20/h, his salary would tend to equal the discounted value of this. 

In non-econ language: Let's say an employee produces value to your firm roughly equal to £20. If you pay him £25, you're making losses and would eventually fire him/go bankrupt yourself. If you're paying him £10, your competitors could offer him the very same job for £15, still reaping the benefits that employee provides - then some other competitor would offer him the same job for £18 etc. You get the hang of it - essentially the opposite of the old Marxian claim of "Race to the Bottom" applied on salaries. The effect is that salaries tend to be bid up to their value (ignoring the temporal effect and discounting for it). 

Conclusion: Salaries in a free society would equal what the employee contributes. That is, notions of "we would all work for essentially no wages" are rubbish predictions and are not features of a free society. 

Note: Today, large chunks of what employers pay for having employees are taken away in taxes - not only the visible income taxes, but also payroll taxes the employers has to pay the government simply for hiring you. In a free society, these costs would vanish and your salary would be the full amount instead of a government-reduced amount. Why? Because that's the firms' costs of hiring you, that's what you are "charging them" for your services, although the government reaps large chunks of that. 

Pure Capitalism would lead to Armageddon

Time to address one of the critiques laid against any promoter of freedom, any defender of capitalism, any advocate of free markets. We’ve all heard it:

What about the poor? The Sick?

“In your society the poor and weak would be exploited, forced to work for essentially no wages, have no health care, die of lung diseases at 35 because of crappy non-regulated air, and never get any education.”

Obviously, if that were the case – then yes, I finally understand the “YOU’RE A HORRIBLE PERSON” reaction to any mention of Freedom or Anarcho-Capitalism. And I’d agree: anyone who profes such a society is indeed an awful person.

Luckily, this isn’t the case. Far from it.

Just to start off with a few explanations; what happens in western Welfare States today harms the poor a lot more than the rich; inflation hurts their savings, reducing purchasing power and real value of their salaries (especially in third-world countries); VAT taxes, income taxes and payroll taxes (some 75% ofall tax sources where I come from) are predominantly payed by poor people; Corporate welfare, including bailouts, subsidies, kickbacks, regulations or tax breaks moves money from poor people to wealthy corporations and their leaders.

This is what we see today. And it hurts the poor. If you associate anything above with “Capitalism” or “Free Markets” you’re dead wrong and your hostility towards Capitalism is comprehensible. Inaccurate, of course, but comprehensible.

If you do, however - THIS IS YOUR LUCKY DAY!

All of the above are effects of government. Of Politicians. Yes, sometimes business leaders and lobbyist can distort the economy by influencing politicians enough to gain personal benefits at the expense of other groups in society - something economists call "Rent Seeking"; Luigi Zingales does a great job explaining this. But this can only occur if governments have power to do such things. In a minarchist state, for instance, such actions wouldn't have much effect - simply because the state isn't allowed to have influence over subsidies or particular regulations or tax breaks. 

This leads us to the ONE pre-requisite you’ll need to follow the reasoning below: The Broken Window Fallacy. You can ignore me, hate me, detest my ideology, horror my convictions and mock me all you want but if I can ask you one thing only, it would be to learn what the Broken Window Fallacy is. 

Explained a few hundred years ago by Federic Bastiat, it has followed economics since that day. Don’t be discouraged, though, most PhDs in Economics today are probably unfamiliar with it (Art Carden, 3 minute youtube explains the key element in terms of destruction - but it is equally applicable for any action).

"That which is seen - That which is unseen":

 Roughly explained: Whenever you do something (spend money, tax people, subsidise activities etc), we can perhaps see the effects of that. Say, if we subsidise farmers to grow crops, more crops might be grown by farmers. This we see. What we don't see (=the UNSEEN) is what that money would've done in the absense of such a subsidy: build house, buy books, produce shoes. These things we don't see, because they were never created.  Essentially, Bastiat points to the Opportunity Cost of any action.

This applies to all of the topics dealt with below: If the Government taxes some people in order to provide health care for others, we can see the health care provided but we cannot see the damage from taxation as vividly. What would have been done in the absense of such interventions? Maybe the taxed money would have gone into research, finding a cure to cancer. Maybe they'd set up a charity providing free health care to anyone... or maybe they'd produce amazing tools that reduced production costs of current health care by say 50%?

The point is that we don't know what we're losing out on. Because of taxation, regulation etc these things, inventions and productions never come into being. They constitute that which is unseen, just like the non-produced tailor services in the video above, or books or shoes in Bastiat's original example, which can be found at Bastiat.org.

(To be fair, any future description of economic realities lack for knowledge, in the very same way the spectators of ‘Broken Window Fallacy’ can’t see the unsold books, unproduced shoes etc; they simply never existed, thus cannot be seen. I cannot know exactly how people would react and organize their lives if I change major variables such as the composition of the State - but we can however make educated guesses and have a hunch.)

I have organised these to form part of a series, so every topic is dealt with in its own post. All of them can be found below and they will probably be extended whenever I find entertaining objections to other topics Enjoy!

Salaries

Housing

Education

Health Care
Banks, Funds and Starting Business

Most Views - and some nice videos!

Hi, everyone!

I'm currently in Vienna, enjoying sunshine and praising the busts and names of Menger and Böhm-Bawerk at the University.

Meanwhile, here's the most popular posts since I started blogging - as well as some nice inspirational videos!:)

Have a look at the Keynes vs Hayek rap video below, for a quick 7m rap version of economic disputes since the 1930s.

Enjoy!

#1: University Unions on Strike Again
#2: Feminist Economics
#3: A Word on UK Immigration
#4: Socialists' Objections
#5: Swedish Union presents its demands: Citizens' fee + Increase all taxes


But my personal favourite is probably this one, very useful for most contemporary debaters, politicians and ideologues: You are Entitled to your own Opinion - Not your own Facts.

_____________

[Another One] of the Inherent Contradiction(s) of the Left

I previously wrote a piece on how Lefties are contradictory when they simuntaneously protect women's right to their bodies in Abortion debates, while refrain from the same protection in Labour Market debates. Here's another amusing contradiction:

A few months ago, during my heavy rampaging at those poor Lefties at People & Planet, I made a post about feminist economics. Since there's a major wave of socialist and feminist ideas tumbling across both my native country of Sweden and my current home, Scotland, I thought to re-introduce a special feature of the Feminist argument. Here's what I wrote about the Wage Gap:

"Wage gap. All kinds of numbers are generally presented to support this idea; women make 15% less than men, £5000 less in a year; higher in private sector (19%) than public (13%) etc, etc. What does this mean? How is this measured? The simplest of comparisons are made through dividing all income by women by the amount of women to the same ratio for men. Clearly inaccurate, because that would compare the pay of a female working minimum wage at tesco with a handsomely payed lawyer. Most studies then controll for other factors, most obviously what profession you're in. But even then, same questions arise; differences in productivity, experiences, in certain education etc. Some studies controll for more factors than others, but very few of them are conclusive in the sense that they add such tiny things as choices or personal adequacy.
Truth to be told, when more factors are accounted for (education, experience, career choice or even negotiation skills) the gap narrows into virtually nothing. There is no wage gap, there's only choices. More extensive reading here."

Libertarian Uni March 8, 2014.

Also, yesterday I shared the picture below on facebook, resulting in some pretty decent discussions about related issued. Now, I'm still looking for the sources to some of these claims, such as more likely do die at work or how the 14% "more time at work" is calculated. If anyone knows, please give me a shout!

Let's Get Down to Business!

Literally, actually. So, feminists claim women earn a percentage of what men earn (77%, 95%, 85%, whatever the specific number might be, but you get the idea - it's below 1). To a superficial reader that's accurate, and nobody is actually disputing that the following calculation gives us a number less than 1: 

<Total Wages Earned by Women>

<Total Wages Earned by Men>

After giving it a moments thought, though, you realize that this calculation compares people on minimum wage with Wall Street Excecutives. Or Steve Jobs, or J.K Rowling. The rest of us are not refuting this calculation - we're just laughing at its sillyness and the conclusions drawn from it ("OMG, DISCRIMINATION IN THE WORKPLACE").

There's more to the story. You have to control for things such as location, education, productivity, presentational skills, perhaps humour, fashion or whatnot a feature employers might value in any given employee. Studies that do, generally get a smaller "Gap". As Ellen Fishbein greatly points out, though, most studies never claim that this "gap" is discrimination - their authors say it is due to measures they didn't take into consideration.

Ok, so where's the contradition here?

If, as the Lefties say, women 

a) are just as good as men at a particular task in a particular field, and 

b) are payed less on average because of gender discrimination, 

another one of their favorite claims would come into question: Profit-Maximization. 

If a firm, simply by substituting women for men, could save 10%, 15%, 23% on their labour costs without loosing out on productivity or output (because of a above), AND they're constantly seeking to max out profits - Why wouldn't all firms stop hiring men and substitute women for men?

They could pocket a decent profit and still lose out on nothing. 

So, if we add Profit-Maximizing to the equation, our contradiction is complete:

A) women are just as good as men at a particular task

B) women are payed less on average because of gender discrimination

C) Firms are profit-maximizing entities

The only conclusion that follows is: Women would be prefered/have higher employment in doing such a task. 

Since that is not the case, illustrated by our friends on the left, one of these premises have to go. As I explained above: if firms could have double-digit returns on substituting women for men (without losing output), and we're not seeing that happening - one of our premises are incorrent. One has to go. 

Which one is it gonna be, Lefties?

Swedish newspaper runs Washington Monument Syndrome spinoff

"Not enough money for sick people in end-of-life care"
Sub-article reading: "Most people want to talk about life". 

One month before general elections, you're bound to face some intense marketing, from the parties themselves as well as media (as I posted on Instagram some weeks ago when my local newspaper started interviewing people about how important voting is). The entire political class and its distributers have gone into a pre-election Frenzy. Yey!

That, another fairly common newspaper (Metro) decided was the perfect moment to prop up an old classic Washington Monument Syndrome. And I get to ramble about how useless and inefficient Government is.

WM Syndrome in two sentences: whenever governments' budgets are sqeezed, they cut back whatever activity would hurt the general public the most, and ultimately upset them a lot. This, then, has the brilliant effect that citizens become more susceptible to/likely to accept tax increases. Normal examples: Police services, fire department or in the case that gave name to the Syndrome: the Washington Monument.

In the article above, Metro describes how 25% of all deceased patients in healthcare died alone, because there wasn't enough funding so that a nurse could hold them company at the end of their lives. Funny, I think, as the World Bank says we spend north of $5000/capita on health care each year. 

I wonder...

Couldn't they get rid of a few bureacrats in all political levels?
Sell of some old desks or fire some staff at one of the 468 Swedish National Agencies, governing our lives and consuming our tax money?
Or simply not wasting the money in any of the countless examples given to us by Martin Borgs?

Not to mention, obviously, the 45% of GDP the Government steals from Swedish citizens each year. Since we lost the Global Gold Medal here a few years ago, since tax rates came down from 48% when the Social Democrats were in power, most leftist have drawn the undeniable conclusion that All Misery Comes From the Recent Reduction of Taxes.

I mean, even if I disagree with them in terms of _everything_, it doesn't it make sense at face value. It is undeniable that if you consume 45% of what your economy produces in a year, you should be able to reallocate some of those resources into Healthcare, seeing how that's the primary rationale for these taxes in the first place.

I bet we'll see some more examples of Washington Monument Syndrome over the next 31 days.


_________
Funny note about this election: The opposition, blaming Government for All Misery Imaginable, essentially accepts most tax cuts made over the last eight years on the pretense that you can't keep changing everything (from 48%->45%, MY GOSH, SUCH CHANGES!). Still, in Power, they promise us that they'll change everything into Utopia. 
Funny how tiny differences we have between our political parties: arguying over 6-8% of the entire tax burden. 

Compulsory Reading for any Socialist, Statist or Leftie

After a while of silence due to exam periods, I'm back with one amazing extract for you. With my newly-aquired time, I've finally managed to start reading Deirdre McCloskey's fantastic work The Bourgeois Virtues.

Additionally, my last post had a rather firm question: And you want more spending?, perfectly adequate to this post as well.

In the last two pages of her introductory part she defends capitalism from its severest critics by listing the failures and crimes by states throughout the last couple of centuries. It's as tragical as compelling as a text could be.

In the nineteenth and twentieth centuries ordinary Europeans were hurt, not helped, by their colonial empires. Economic growth in Russia was slowed, not accelerated, by Soviet central planning. American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High Street shops and protected monopolies of professional services like medicine, not the consumers. "Protective" legislation in the United States and "family-wage" legislation in Europe subordinated women. State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats. Some of the New Deal prevented rather than aided America's recovery from the Great Depression. 

Unions raised wages for plumbers and autoworkers but reduced wages for the non-unionized. Minimum wages protected unions jobs but made the poor unemployable. Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians. Zoning and planning permission has protected rich landlords rather than helping the poor. Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive. The sane and the already-rich get the rent-controlled aparments and the fancy townhouses in once-poor neighborhoods. 

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power. The Securities Exchange Commission did not help small investors. Federal deposit insurance made banks careless with depositors' money. The conservation movement in the Western United States enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear-cutting. American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities. Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.

Germany's economic Lebemsraum was obtained in the end by the private arts of peace, not by the public arts of war. The lasting East Asian Co-Prosperity Sphere was built by Japanese men in business suits, not in dive bombers. Europe recovered after its two-twentieth-century hot wars mainly through its own efforts of labor and investment, not mainly through goverment-to-government charity such as Herbert Hoover's Commission or George Marshall's Plan. Government-to-government foreign aid to the third world has enriched tyrants, not helped the poor. 

The importation of socialism into the third world, even in the relatively nonviolent form of Congress Party Fabien-Gandhism, unintentionally stifled growth, enriched large industrialists, and kept the people poor. The capitalist-sponsored Green Revolution of dwarf hybrids was opposed by green politicians the world around, but has made places like India self-sufficient in grains. State power in many parts of sub-Saharan Africa has been used to tax the majority of farmers in aid of the president's cousins and a minorty of urban bureaucrats. State power in many parts of Latin America has prevented land reform and sponsored disappearances. State ownership of oil in Nigeria and Mexico and Iraq was used to support the party in power, benefiting the people not at all. Arab men have been kept poor, not bettered, by using state power to deny education and driver's licenses to arab women. The seisure of governments by the clergy has corrupted religions and ruined economies. The seizure of governments by the military has corrupted armies and ruined economies.   

Industrial policy, from Japan to France, has propped up failing industries such as agriculture and small-scale retailing, instead of choosing winners. Regulation of dismissal has led to high unemployment in Germany and Denmark. In the 1960s, the public-housing high-rises in the West inspired by Le Corbusier condemned the poor in Rome and Paris and Chicago to holding pens. In the 1970s, the full-scale socialism of the East ruined the environment. In the 2000s, the "millennial collectivists", red, green or communitarian, oppose a globalization that helps the poor but threatens trade union officials, crony capitalists, and the careers of people in Western non-governmental organisations. 

All of these experiments of the twentieth century were arranged by governments against bourgeois markets. All of them were disasters. In short, the neoartistocratic, cryptopeasant, proclerisy, antibourgeois theoroes of the nineteenth century, applied during the twentieth century for taxing, fixing, resisting, modifying, prohibiting, collectivizing, regulating, unionizing, ameliorating, expropriating modern capitalism, failed of their purposes, killed many millions, and nearly killed us all.  

And you want MORE spending?

This is an appropriate question for many themes in current economic life, however this sheds light on only one of them. Among the Lefties' ranks, among Keynesians and among British Public, calling for increased NHS spending, pensions and minimum wages, there's a purring claim for increased living standards and great State Involvement in essentially anything.

To all kinds of such claims I have three simple responses. 1 quote and 2 charts.

Chart #1:

This shows the labour cost of producing an average economic unit in some major OECD countries. That is, the labour cost of producing an amount of shoes in Germany in 2012 was only about 5% higher than at the start of the new millenium. Likewise, labour costs of producing the same amount of shoes in Britain had soared to around +35%. Point = reduced relative competitiveness

Chart #2:

A trade deficit means that a country is importing more stuff than it exports. Essentially, people in those countries are buying more things/services from abroad than what the rest of the world wants to buy from you. Point = productivity issue; you're running down assets to pay for your consumption, because you're not producing enough good stuff that they'd want to buy. 

Quote: 

Angela Merkel on relationships between Europe and the rest of the world

"Europe has 7% of the world's population, 25% of its GDP and 50% of its social spending."

Reasonable, ye. And you guys still want more to spend on the "poor", infrastructure or <insert whatever>?

Occupy and Tea Party - Two sides of the same coin?

This morning I watched an hour-long interview with Chicago School Economist Luigi Zingales, where he discusses 'Crony Capitalism' and makes an interesting comparison between the Tea Party-libertarians and the Occupy-Leftists.

The full interview can be found here.

The short story:

There's "Crony Capitalism" around, especially in the US. Rent-seeking that involves personal favours or relationship to the political power is too profitable, almost/often more profitable than the actual work business do.

The Leftist see this as an inherent problem and want to remake the system, overthrow the system; such an approach normally involves large chunks of regulation, nationalisation, bonus/bail-out limits etc. Essentially, "Crony Capitalism is bad - let's remake the system, turning it 'good'".

The Tea Party/Libertarians also see Crony Capitalism as a large problem. The answer: reduce public and state power, making political connections less important, reducing incentives for lobbying.

Question is. In what state would corruption, nepotism and crony capitalism be more likely to occur? In a large state with lots of power, or in a small minimum state with very little influence over business matter?

Quite obvious.

Feminist Economics - an extension

This is the 7th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses, Defending the 1%, The Austerity Myth

After a few very rewarding discussions following my post on Feminist Economics the other week, I had enough material for an extension on the subject.

Most of the critique I had regarded the idea that I, simply, missed the actual point of feminist economics. Also, when a friend of mine explained how naturally the alleged wage gap disappears when accounting for all variables (including say lifestyle choices), that moved my perception a bit further. Great discussion!

Anyways, his argument was as follows: if we assume a patriarchy within the workforce, women systematically being discriminated against, rewarded less wages for their labour regardless of experience/knowledge etc. The entire feminist story, essentially. If we assume that, we'd consequently have to assume that women value certain things (say leisure, or providing care, or rather stay home with the kids etc) more than do men. My argument is based entirely on this valuation, where I claimed it was inherently individual and thus acceptable. However, my friend pointed out, what if - given said assumptions - women are taught to value certain things more than they naturally or individually would have done absent such teachings?

Such a statement could obviously be questioned epistemologically. But, if taken at face value it does change the outcome of the argument, and I would be inclined to accept the raison d'être of feminist economics.

However, obvious criticism occurs. Questioning why an agent value a good or service in a certain way, which is at the bottom of this new foundation of feminist economics, leaves the field of economics. Economics take valuations and actions by individuals, corporations or government as given. We question what incentives govern the outcome and how these incentives and actions change; but economists regularly don't take into account why an individual prefer a certain type of goods over another. It is simply taken for granted, assumed to be beyond the field.

Also, examining why individuals value certain actions over others is the subject of other fields; psychology or sociology instantly comes to mind. Thus, the sociological/political notion of feminism, adjusted for economics with a somewhat different point of view (including differing valuations between individuals/groups of individuals) instantly sends it straight outside the field again.

In this sense, feminist ideology applied to economics might be more relevant. However, it also firmly distinguishes itself from economics as an academic field, thus making "Feminist Economics" look like an oxymoron. 

The AUSTERITY myth

This is the 6th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses, Defending the 1%

Austerity in Britain. If you open a newspaper, watch the news or talk to people you'll regularly find one statement; The UK Government is imposing austerity measures on the economy, and all kinds of notions of what effect these cuts have to the lives of regular people. Since 2010, the Government's explicit target has been to reduce Public Deficit, impose cuts to public spending and, essentially, lead an austerity-based revolution in the UK. Sure enough.

Regardless of whether you approve of austerity as a measure or not, we have to find out if that is actually the case. After all, austerity doesn't happen because the Government SAYS so, or explicitly wants it to occur. It also has to act accordingly, and the desired effect can't be offset by other factors, in order for us to actually talk about austerity. That is: if you cut £10bn from one department and increase the spending of another department by £20bn you are not imposing austerity, regardless of your rhetoric. You're simply re-arranging funds.

For instance, my constant opponent these days, Lefties and organisations such as People & Planet, makes three claims which I intend to look into:

1) The welfare State is under attack
2) Inequality is on the rise
3) Worker's rights are being eroded

As for #2, I've shown several times how the idea is misleading and that the statement in itself is incorrect. I won't deal with worker's rights just yet, but will focus on the alleged attacks on the Welfare State. Is the Welfare State under attack? Is Austerity being imposed in the UK?

Austerity, the argument goes, means the government is slashing Public Spending, removing benefits for the poor, increase taxes and reduce funds for health care. Sounds scary and quite bad. Now, let's see if that's the case.

PUBLIC SPENDING

This chart shows total Public Spending in the UK from 2001 until 2012. Beyond that (the red staples) are figures for projected spending (what they hope to achieve). Government spending has been continuously increasing.

= No sign of austerity here.

But that doesn't take Inflation into account, so let's go with real terms:

In real terms, Government Spending in the UK has virtually doubled since the late 80s. Almost regardless of government, the trend is undeniable; increased government spending. If we focus on the last few years and the accusation of austerity, there's a slight downturn in 2011, itself smaller than the increase after 2008 financial crisis. Generally, during recessions government spending hikes because of increased benefit payments/redistributions when more people are unemployed etc. That is, should the UK government have changed nothing, the curve over the last few years would look something like that above; an initial big hike in response to recession, than slowly reduced as more people get back into work and unemployment comes down. If austerity would have been imposed, the drop would have been significantly larger than what the chart tells us.

= No sign of austerity here. 

But, if we take the economy as a whole into account. What happens? How large a part of the UK economy is represented by the Government Spending?

Yet again we have a projection made by the Treasury (the last 5 staples). Let's ignore that, and have a look at actual reported numbers. Last accessible; 2011-2012, which shows a little over 45% of GDP consisted of Government Spending. As in the previous section, we see a hike during the recession (2008-2010), and a gradual reduction. Also, the current level is substantially above the levels for the last 15 years. 

(Note: a "reduction" here is not necessarily a reduction; if the economy grows and spending stays the same, the percentage would be falling and the chart would look something like above.)

All of this is consistent with the news that the UK Economy is growing again, which means Government Spending as a % of GDP is gradually decreasing. 

= No sign of austerity here

WELFARE STATE UNDER ATTACK?

Ok, so what about the Welfare State? What about the alleged cuts to the NHS?

Financing the NHS has been a great political discussion since it was created. And guess what? Throughout these 65 years (time for retirement anytime soon?) the claims have been consistently the same; NHS lacks funds; NHS needs more money!

As seen, UK has never spent as much money on the NHS as it currently does. Also, the percentage of national income that we allocate to the NHS is way above previous levels.

Here's a more detailed view for actual spending over the last decade or so:

Clearly, rapidly increasing spending for Health care or NHS. 

= No sign of Austerity here.

________________________________

Bottom Line: Austerity has not been imposed in the UK, despite the explicit target and attempts by the Government. 

That means the entire discussion about austerity occurs in a theoretical framework, that is, for economists, philosophers or historians to argue about whether it can work or whether it has worked in the past. 

What we see today is not austerity. It's a government that wants to impose austerity measures, but is unable/fails to do so.

Next time someone refers to the "Austerity in the UK", you know they have no clue. Let's stop rely entirely on what people say about something and more about what they actually do - or what's actually going on.

Austerity in the UK is a myth.