Category: free trade & free markets

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free trade & free markets

Trash Heap Economics

Andy Stern, writing in the Wall Street Journal, covers familiar ground. They do things better elsewhere. Give up, America: adopt a foreign ideology. His title/subtitle combo — “China’s Superior Economic Model: The free-market fundamentalist economic model is being thrown onto the trash heap of history” — provides a grand example of passive voice construction allowing evasion of the crucial elements: Who throws what away?

First, the what: “The conservative-preferred, free-market fundamentalist, shareholder-only model” described as “so successful in the 20th century” . . . with no discussion, absolutely none, as to what extent our business life is actually run by this “model.”

“Shareholder only”? Some of the biggest businesses in the U.S. are privately held, not publicly traded. Not a few huge and influential enterprises, like the absurdly mismanaged postal service, the disruptive Fannie and Freddie, and the morally bankrupt Federal Reserve are government-created and not public in the shareholder-model sense. Add in taxes, regulation, and a perpetual deficit government budget, backed by the inflationist Fed, and the truth pops up exactly opposed to Stern’s: America’s a very mixed “mixed economy.”

In this context, who holds to “free-market fundamentalism”? A number of people, almost exclusively on the outs. The richest and most powerful insiders work against free markets, no matter what they say. Hence bailouts, subsidies, and a whole lot of “planning.”

China may be “blessed” with a huge population aiming to get ahead and with a government that runs budget surpluses, while we are cursed, primarily, with continuous deficit financing of the federal government, and everything that entails.

The solution? Reassert the model Stern wants to chuck.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets ideological culture too much government

Lies and Denials

Politics is often the art of lying about the effects of policy, and Hugo Chavez, Venezuela’s Prevaricator-in-Chief, is a master politician. As consumer-price inflation hits a 27 percent per annum rate, he blames capitalism.

One report summarizes his position: “Mr. Chavez said the market had become a perverse mechanism where the big monopolies, the big trans-nationals, and the bourgeoisie, dominate and ransack the people.”

So he’s extended price controls from staples to all sorts of goods, with some prices being immediately subjected to a rate freeze. Big firms will have to report costs to the government, so bureaucrats can determine a “fair price.”

Were it not a ratcheting up of oppression and hardship, I’d say this is all getting rather funny. Price controls notoriously fail to achieve what they aim. In the United States, Nixon-era wage and price controls set stagflation into overdrive. Long lines at the gas pumps, shortages in supermarkets, and rising prices. What a mess.

There’s good theory to explain why price floors and price ceilings cause major problems. But according to the head of the country’s price control board, “The law of supply and demand is a lie.”

Hugo and his cronies deny the relevance of the central bank’s doubling the volume of money in circulation since late 2007. Supply of money increases? No possible effect on skyrocketing prices, supply and demand being a lie, you see.

Meanwhile, people have begun to hoard products. It’s now almost impossible to even find coffee in Venezuelan stores.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets too much government

Locovore Law

America’s agricultural policies are notoriously crazy. The federal government subsidizes one crop while discouraging its use at the consumer end. The old New Deal program of paying farmers not to grow crops is still in place. The high tariff on sugar artificially increases prices far above the world price.

To compensate, the federal government helped develop a refined sugar substitute, high fructose corn syrup — an even more “sugary” sugar — and then infected nearly the whole food supply with it.

So, some sympathy for the “locavore” movement, the folks who believe we should eat foods grown in the areas we live. It seems more natural. Less goofy.

But it’s also a lot more costly, considering that buying locally tends to forsake gains from trade.

So a law to prop up locavore production and consumption, like the legislation introduced early in November by Sen. Sherrod Brown (D-OH) and Rep. Chellie Pingree (D-ME), cannot help but shuffle two steps back for every misstep forward. Basically, it’s about more subsidy, including $30 million for “Value-Added Producer Grants,” $15 million for “farmer food safety training,” $90 million for something called a “Specialty Crop Block Program.” The least obviously bad part would direct the “USDA Research, Education, and Extension Office to coordinate classical plant and animal breeding research activities,” though I don’t see why farmers can’t manage this on their own. This is the Age of the Internet, after all, of Information.

Congress: Forget it; repeal current agribusiness subsidy and protectionism, instead.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets general freedom national politics & policies too much government video

Video: Milton Friedman on Drug Legalization

Nobel Laureate economist explaining why drug prohibition makes no sense:

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free trade & free markets too much government

Keeping Parks Open

“It is not necessary for park budgets to be threatened during state fiscal crises.”

Good news. The vast majority of states now endure tightened budgets and panicked scurrying to rescue their finances from frighteningly bloody conditions of red.

In this financial environment, cutting non-essential services sometimes seems like a no-brainer. Park funding tends to get hit hard.

A PERC Case Study by Holly L. Fretwell, Funding Parks: Political versus Private Choice — quoted above — looks into a solution that most politicians rarely consider: private management.

Not full privatization, mind you. That’s too tough for most people to take.

Private management of publicly owned parks, on the other hand, makes a kind of obvious sense.

Fretwell looks at Recreation Resource Management, the largest park management operation in the country. The company leases rights to run state and federal recreation sites, managing more than 175 such units in twelve states. In arrangements such as RRM’s, lessees pay “an annual lease, or rental fee, in addition to a percentage of the total fees earned.”

When run by businesses, parks “are not subject to the same political appropriations process” as government-run parks. By leveraging the profit motive — and its associated economies — parks can serve the public without over-taxing us at a time when we are sorely pressed for money. Contracts with private firms can avoid at least some of the problems of bureaucratic incentives.

The bottom line advantage, she insists, is “consistent, quality stewardship.”

Which is surely what we all want.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies too much government U.S. Constitution

The Post Office’s Future?

At some point approaching catastrophe, one has to stop offering googly sounds of uplift and hope, and just speak the truth.

Postmaster General Patrick Donahoe may understand that. The U.S. Post Office, he recently told the National Press Club, is “in a deep financial crisis because we have a business model that is tied to the past.” Deep ties to the past, indeed. Setting up a postal system was written into the Constitution.

Early in the system’s history, postal positions served as rewards to friends of successful politicians. This put a lot of bad apples into the cider; the business soured. Postage skyrocketed.

This sorry situation brought entrepreneurs into the market, delivering letters at a fraction of the government system’s prices. The politicians fought back, took the competitors to court, and won — on dubious Constitutional grounds.

But they did overhaul the system, reducing prices.

That was a long time ago. Today’s situation may be worse. As Donahoe put it, “We are expected to operate like a business but we do not have the flexibility to do so. Our business model is fundamentally inflexible.”

No surprise, Congress is inflexible. But there are competing bills rumbling around to allegedly fix the financial woes of the institution Donahoe calls “a national treasure.”

Well, if it’s a treasure, sell it off: The federal government could use the money. (Though likely not well.)

And the people could use a good privatized mail service. Or two. Or more.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets insider corruption national politics & policies too much government

Self-Interest Wins Every Time

Incentives work. Because people are self-interested.

Even the seemingly altruistic protagonist played by Kevin Costner in the movie Field of Dreams exclaims, “I haven’t once asked what’s in it for me,” only to then ask, “What’s in it for me?”

That line comes to mind when I hear politicians and business folks talk about private-public partnerships, from subsidies for ethanol to billions in government loans to supposedly spur “green” technology.

The bankruptcy of the solar panel maker Solyndra cost taxpayers more than half a billion dollars. But it’s not merely that government is less than stellar at picking investment winners; it’s that the interests of politicians and businesspeople aren’t “the public interest.”

Never will be.

Sure, Energy Secretary Steven Chu told Congress yesterday, “I did not make any decision based on political considerations.” But internal company emails feature complaints about pressure from the Obama Administration to delay announcing layoffs until after the 2010 elections.

Whose interest did that serve?

Documents also uncover Solyndra executives hiding bad news the better to win additional federal funds and, alternatively, threatening that the company was about to go under hoping the potential bad press for Obama might shake down additional bucks.

Companies have an interest in the big money the federal government dangles before them. Politicians have an interest in appearing to be economic wizards creating jobs and spurring a new world with bright green hues.

Neither incentive promotes sound business behavior nor equates with the public interest.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets too much government

CreepOut-o-Meter Hits Red

If you are like me, you are not a monetary economist. I’m familiar with the main positions, I guess, and — if I dug information buried deep in memory — might be able to sound coherent on monetary policy when asked. And if given enough time to collect my thoughts. But you wouldn’t come to me to gain specific advice on specific issues relating to the Federal Reserve and money management at the rarefied level of the central bank.

Perhaps, like me, you’ve accepted or rejected positions based on analogous realms where you know much more.

And sometimes it all depends on The CreepOut-o-Meter.

My CreepOut-o-Meter just hit red.

Britain’s Business Secretary Vince Cable was recently quoted as saying, “If a monetary deal’s going to work, the central bank has to have unlimited powers to intervene to support economies, and indeed banks, to prevent collapse.”

Did he really say, “unlimited powers”?

That’s a long way from Milton Friedman’s reserved talk about a “monetary rule.” One of the biggest of Britain’s bigwigs isn’t talking about tinkering or refining. He’s pushing for an unlimited bailiwick to bail out Europe’s banks, credit, and the euro itself.

So you can see why I tend to promote old-fashioned money, money that wasn’t intimately controlled and bolstered-by-bailouts. Money like gold. Or silver. Or a set of commodities.

With that kind of money, it’s governments that are bound, limited.

It fits better with my idea of a free society.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies too much government

Clunker Flunked

When the Obama Administration hit the ground running in 2009, one of its first “hopeful” and “audacious” programs was “Cash for Clunkers,” a sort of triple-action economic stimulus, carbon-emission reduction, and automaker bailout bill. Congress got on board, a lot of trades were made, billions spent. There was much brouhaha.

Skepticism should have been the order of the day, of course. So many things could have gone wrong.

And did.

Now, with the clarity of 20-20 hindsight, a consensus emerges: Cash for Clunkers was a clunker itself. An economic analysis from Resources for the Future is just the latest (mostly negative) judgment: “[T]he program increased new vehicle sales by about 0.36 million during July and August of 2009, implying that approximately 45 percent of the spending went to consumers who would have purchased a new vehicle anyway. Our results suggest no gain in sales beyond 2009 and hence no meaningful stimulus to the economy.”

Further, fuel economy gains and pollution reductions were minuscule.

The study is far from exhaustive. A lot of old cars were scrapped, recycled. Guess what this does to the used car and parts market? It’s been devastating.

Who’s hurt by supply reductions and consequent price rises? Cash-strapped folks, the kind of people who usually buy used cars, or keep old cars running — which is a lot of people during a depression.

I bet that Cash for Clunkers served, on net, to transfer wealth from the working poor to far wealthier individuals.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets video

Video: My Friend Sarah

The world’s a complex place, and it takes some thought to make sense of it. One of the more useful tools for understanding the social world is economics. And, once you begin thinking in economic terms, there are consequences, as this delightful video from a few years ago neatly shows:

I’m impressed how a simple story line and touch of whimsy helps get the ideas across.