Category Archives: Economics

  • Home   /  
  • Archive by category "Economics"
22
Jun, 2017

How Statism Keeps Poor Countries Poor

 

Acton University Talk by Stephen L.S. Smith of Hope College.

STATISM is an economic system (also called State Capitalism) which allows a private sector but in which many key industries are owned/controlled by the government.

It lies somewhere between communism and European-style social democracy on the economic spectrum.

Smith says we need a “field guide” since most statism is invisible to the casual observer.
So he took us to THAILAND via a slide show.
  • Banks: Easy to use, modern banking all over the place.
  • You need to buy a SIM card for your phone from “AIS.”
  • Transportation (air and rail) is top notch.
  • You have to leave Thailand (flying to the US) at 4am (because of the time change/dateline), and you stay in a Novotel by the airport for a few hours of sleep first.
But in fact….
  • The bank I used (TMB), upon some research is the Thai Military Bank. The army runs it. At a loss. The Siam Commercial bank is owned by the ministry of finance.
  • AIS (SIM card) is subcontracted from the Thai government to the Singapore (!) government, which sells the chip to you.
  • Both the state owned railways and airlines (each) lose over $1 million a day. Many new airliners are mothballed (over capacity). Unused capital (see the new ghost cities of China) is typical in a statist system.
  • The Novotel is owned by the government and just operated by Novotel.
So what?
  • Statism is the default system in the Global South. There are exceptions, but this seems to be the rule.
  • It is almost invisible at the street level, but has major consequences.
  • The government not only issues currency, but controls the flow of it–limiting investment which would compete with state businesses.
  • Very little revenue is left over (because government firms lose so much money) to lend to medium and small businesses. This leads to a growing black market with lots of informal street vendors. They don’t pay taxes which compounds the cycle; with a downward drag on the society.
  • Common in statist societies is weak rule of law and questionable property rights.
  • Insiders and elites benefit, which opens up patronage politics.
  • The highly educated urbanites benefit from statism because of the need for them running these bureaucratic businesses, which put a premium on education and connections.
  • Neglect of core state functions (governments are limited in capacity and spend their time running industries) such as rule of law, civil justice, non-corrupt police, property rights, basic education, and rural infrastructure.
  • State banking skews prices and and natural interest levels. Interest rates are set at a below-market level, discouraging saving. Most people want to save short term and pay off loans long term (People want fast access to their savings). Setting interest rates at an artificially low level creates tension in this natural supply/demand situation.
  • Lending is directed to favored insiders with big projects.
  • Capital is wasted (ghost cities of China where no one lives) because natural market forces are not the primary driving force of construction. State-owned firms serve political ends first.

  • Developing countries have more frequent bank failures, even with the “security” of state ownership.
  • Some countries have it way worse than Thailand. Pakistan and Egypt may be the worst. The Petrobas scandal in Brazil brought down the government.

 

21
Jun, 2017

Hamilton and Jefferson–Beyond the Musical

 

No one can get tickets to the Hamilton musical, but we can get the book and learn how their relationship affects us…

Each was a colossus whose footsteps color our daily lives…

Lecture by John Pinheiro from Aquinas College given at #Acton2017.

 

We can look at Alexander Hamilton and Thomas Jefferson through two lenses:
  • Lived Experience. How their lives and upbringing affected their philosophy.
  • Philosophy and Principle. Whom they were reading and by whom they were influenced.
LIVED EXPERIENCE

JEFFERSON: Born into a planter aristocracy. Mother’s family (the Randolphs) were stratospherically rich and remained his main patrons throughout his career. Father was an educated aristocrat.

Jefferson had a solid classical education and even spoke 8 or 9 Native American languages. In 1775 he was one of the wealthiest men in America and had 200 slaves.

HAMILTON: Very broken home in the Caribbean. Worked hard as a clerk and got a scholarship to King’s (Columbia) in NYC. John Adams called him the “bastard brat.” Saw the bad side of people and slavery. Felt that we needed order and control to curb this.

PHILOSOPHY and INFLUENCERS

JEFFERSON: The French Enlightenment. People naturally good unless corrupted by commerce. Yeoman farmers are the key to freedom because they don’t have employers. Thus, have a small and weak central government and an agrarian paradise. Disperse the population westward. Emmerich de Vattel’s The Law of Nations influenced Jefferson–how sovereign states can participate in a union. Jefferson always used plural verbs and pronouns with “United States.” The Physiocrats (France) also influenced Jefferson. They stressed agriculture and coined the term “laissez-faire.” Land is the source of all wealth.

HAMILTON: The Scots Enlightenment. Especially Adam Smith. Looked not to France, but rather the British Empire. Always accused of being a royalist. Capital and division of labor, not land, are the source of wealth. Bernard Mandeville wrote the Fable of the Bees, which influenced Hamilton. Where do you look for a financial model? London! Protective tariffs. Centralized bank. Financed national debt a good thing. Hard work and ambition, not inheritance, is the path to power and wealth.

Conclusion

Jefferson and Hamilton continue to be the twin pillars of American social, political and economic thought. Jefferson’s party won most of the elections for the next couple of generations. His expansionist/agrarian vision led to the purchase of Louisiana. Enhanced by Jackson and Polk who steamrolled the country to the Pacific with “Manifest Destiny.” Homesteading and the checker boarding the Midwest USA are monuments to this thinking.

Hamilton won the economic battle however, with New York being a second London in terms of global finance, and the industrial north beat the agrarian south in the Civil War. Lincoln was a Hamiltonian and used his principles to further unite and solidify central authority.

Both believed that a virtuous society is necessary to maintain a republic.

 

6
Jun, 2017

Easy Fix for the Salton Sea

The Salton Sea is dying.

The result of an irrigation accident over 100 years ago, the Salton Sink (below sea level) started filling with water, and having no natural outlet, the water’s getting pretty stagnant, toxic, and just plain yucky.

But the fix is easy.
  1. Run a high-capacity aqueduct inbound from the Gulf of California which lies to the south. Control the flow level from a valve at the seashore. No need to pump–water runs downhill.
  2. Choose a water level for the Salton Sea and keep it there by varying the flow of the inbound water.
  3. Build a parallel siphon water pipeline going uphill to the Gulf of California. Thus, creating an outlet for the Salton Sea. Continuously pump water out into the world’s oceans.
  4. Over time, the salinity will match that of the Pacific Ocean. Over time, the outlet will dilute toxins and return the region to ecological health. If necessary, water leaving the Salton Sea for the Gulf of California could be treated at the Ocean shore before flowing out.
  5. Seafront property will be created, ready for development and recreation. Fish and birds will thrive once again.
13
Jul, 2016

Copyright Law is Censorship

Someone tells you a joke.

You think it’s funny.

You repeat it to some people a week later?

Is this theft?

No.

Why not? Because spoken words are plentiful and abundant. There is no shortage of them.

Any shortage makes something valuable; and worth money. It’s all about the market.

All about supply and demand.

Pictures used to be valuable. Typed out words used to be valuable. Recorded music used to be valuable.

Why? They were difficult (and expensive) to reproduce. This made them scarce. Thus valuable. Supply and demand.

You wanted that new Pink Floyd LP in 1975 because there was no way to hear the music without buying the album. You did not have the means to stamp out “copy records” in your basement. And recording it to a reel-to-reel tape did not give you something that was handy to sell or give to others.

The market determines the value of things. Things that are plentiful (verbal jokes) are free. As is the air you breathe. Water is almost free.

Gold is scarce. Impossible to reproduce. Thus immensely valuable.

The internet is a gigantic copy machine. With mass use of social media, WordPress, and blogging, you can copy a song, a picture, or an essay with the click (or maybe two clicks) of a button.

Thus these things are no longer, by the laws of economics, valuable or expensive.

But wait! Artists want to maintain what they had before the internet; total control of the means of production. Their business partners owned the printing presses, the record stamping machines, and the ability to copy photos. The supply was naturally limited and the price was slightly steep–accordingly.

Within a few years, you will be able to print solid objects at home, and print a high quality book for less than a dollar’s cost in materials. This is good news, not bad news. If we could do the same for food and clothing, poverty would disappear.

Artists and writers got used to this. And feel entitled to be able to make a living from their creativity just as they used to. Even if their goods are no longer structurally scarce (they can only be made scarce by coercion and control).

Sorry.

The economics of creativity have changed. Structurally speaking, creative goods are rarely valuable anymore–most of them are approaching zero economic market price.

The only way to preserve the old way of making a living is to impose antiquated copyright mentality (based on a time when content reproduction was expensive and the prices of such goods was naturally high) with the government as a partner. The government, of course, has the monopoly authority to lock people up in iron cages and/or confiscate their wealth. Coercion.

Thus copyright law is outdated and, since the coercive monopoly (government) can enforce at will, can be used as a club to censor and to silence free speech. Why? Technically, you are at risk of a $150,000 government fine if you repeat something in writing or other media that someone has shared on the internet. And how many of any of our ideas are not just really “passed-along” or “borrowed/upgraded” ideas from someone else?

Censorship. If the government doesn’t like what you are saying about them, they can (with today’s technology) find the “ancestry” of your idea and then ruin your finances and/or lock you up for copyright infringement.

But isn’t owning your “intellectual property” just like owning a car or a ranch–if someone uses it without paying you, isn’t that stealing? Of course not. It was only intellectual property in the past because it was valuable. Now the value is approaching (if not already at) zero. Simply a matter of supply and demand. If you owned a Ferrari and someone could, with a click of a button, point a smart phone at it and create one just like it without taking away your “copy”….. Well, then, it would be his or hers, not yours.

In fact, in “influence” terms, you ideas are more (intellectually, not economically) valuable the MORE they get copied for free. It’s even been turned into a measurement called “Klout.” If you’re smart, you WANT people to copy your stuff and pass it on!

The maintenance of an old model by coercion (fines and jail), when it is clearly outdated, is like subsidizing blacksmiths in every town. Or insisting that everyone gets a copy of Britannica rather than using Wikipedia (Or else you put them in prison).

But won’t aggragate creativity be hurt if people don’t get paid for producing art? Quite the contrary; there is a global explosion of creativity in writing, photography (see Instagram) and music. And the quality is going up; not down.

There is also an explosion of political/social expression and free speech. No longer do three TV networks control what we see and think.

It’s a great time to be alive. The world is rapidly unfolding and opening up with information available to everyone, and there is no evidence that the removal of all copyrights would slow it down in the least. All evidence points to the opposite.

Technology and the free market have brought us to the point where you don’t own your published creativity any more than you own that joke you passed on last month…

Copyright Censorship

PS: Everything on Life & Liberty is open source. Take it. Run with it. Improve it. Whatever. We are here to contribute to the “ideas culture” of the world….

Featured image by George Hodan. Public Domain.

15
Jun, 2016

Poverty, Inc. Michael Matheson Miller. #0970 #ActonU Session 4

These are my notes from a screening of Poverty, Inc.

Available for you to watch on many platforms.

Screen Shot 2016-06-15 at 4.26.21 PM

Development (Global). Who has all the power? And who should have it?

Wanting to help the poor comes from a good heart. The problem is, paternalism doesn’t work. Every ten or twenty years we try something new. And we have the same broken system.

Africans are portrayed as helpless. “Do they know it’s Christmas.” Of course they know when Christmas is….

Africa has always been a reservoir of riches for the whole world.

Feeding the world: good for farmers in Arkansas, not so much for farmers in Haiti. Our rice charity ruined much of Haiti’s industry.

First we block out foreign farms from our markets thru tariffs and protectionism, and then we produce a surplus and dump it on the foreign market….

“The Republic of NGO’s” 

(Non-Government-Organizations)

It makes us feel good to help. But then we don’t let go. More NGO’s per capita than anywhere else in the world. They keep looking for ways to give away free stuff–as if they didn’t want the Haitians to be self-supporting.

The NGO’s show pictures of squalor. But Haiti is not all like that. Also a global leader in solar powered street lights which they produce themselves.

Screen Shot 2016-06-15 at 4.11.11 PM

People assumed that Haiti did not produce these–so they sent FREE solar panels after the earthquake and almost put Enersa (the Haitian company) out of business.

Those who were raised in the aftermath of the earthquake have cultivated a dependency mentality.

The Big Picture

Bretton Woods, New Hampshire. GATT, which became the IMF, World Bank, etc. The purpose was to rebuild Europe after World War II. A parallel was the Marshall Plan.

Crisis aid followed by infrastructure development. Rebuilt Europe. It was a success.

These became the model for foreign aid for generations to come.

bretton-woods

This is a HUGE global system which benefits the donors. A form of neocolonialism. The heads of aid agencies have become like colonial governors who often have connections to authoritarian, corrupt leaders.

We give them loans and make them economic slaves.

Cheetahs vs. Hippos. Iconic TED Talk:

Screen Shot 2016-06-15 at 4.24.12 PM

There is a ladder to prosperity in rich countries.

But there are incentives for the local governments in the global south to sever this ladder. They benefit from the favor of the NGO’s.

Who benefits the most?

The influx of tons of second hand clothing has crippled the clothing industry in the global south.

Tom’s shoes. Blake Mycoskie. “One for One.” Has put countless local cobblers out of business. And then the truck doesn’t show up all the time. But there’s no one making local shoes anymore.

Giving people shoes “for the rest of their lives” (Mycoskie) implies that people will need shoes for the rest of their lives. No one wants to be a beggar for life.

No doubt he is compassionate. But we must consider the long term unintended consequences of our actions.

Orphanages

When we build orphanages in the global south, we can unravel families. Over 80% who live in orphanages have parents who visit them on a regular basis.

When orphanages open up, it’s an opportunity to relieve parents of the responsibility to feed and educate their children. It’s an institutional solution to a family problem and deprives children of the warmth of family life.

orphanage

Excluded

Poverty is not “making 1 or 2 dollars a day,” it is being excluded from the market where money is made.

The process for getting a SME (Small Medium Enterprise) loan takes forever. In rich countries, SME’s drive the economy.

Rule of Law (justice in the courts) is missing where SME’s are missing.

In 2/3 of the world there is not yet the Rule of Law. Property rights are essential. In many countries, you can’t really own land–you use it at the whim of a local official. So you can’t use it as collateral. There are 4-5 claims on many pieces of land in the global south.

Not that there aren’t enough laws. There are a lot of corrupt laws. Without corruption and bribes, it is hard to start a business. In Lima, Peru, the producers of the movie tried to start a small business with two sewing machines. It took 289 (!) days, full time, for the locals to get all the permits they needed. If you can’t afford bribes, it will take you forever to get something going.

The people are not stupid. They are just disconnected from the Global market on purpose.

Celebrity Culture.

Celebrities learn the old framework and sell it to the next generation. Caring is not enough. All the visuals they use create the impression that the Africans are helpless.

But there is good news, Bono has been involved for a long time. Coming around intellectually. He is now saying that entrepreneurial capitalism brings more people out of poverty than aid.

Only Africans can develop Africa.

We don’t need one more celebrity doing one more pop song to help poverty.

The poverty industry as we know it has to go.

It’s time to re-think poverty.

The full version of Poverty, Inc. is available to everyone with a Netflix subscription.

24
Aug, 2015

The 2015 Human Freedom Index #0865

Guess where the United States of America ended up on the list…

Three of the most prominent global watchdogs on human freedom put this together, carefully balancing over 70 indexes of economic and personal freedom:

  1. The Cato Institute (USA)
  2. The Fraser Institute (Canada)
  3. Friedrich Naumann Stiftung für die Freiheit (Germany)

For the full report, please click on here.

We think of the USA as the “Land of the Free,” but is that true any longer?

An optimists would answer “yes.”

A pessimist would answer “not anymore!”

People sing the Lee Greenwood song with tears in their eyes, but is it still true? Are our soldiers dying, not to give us freedom, but to prop up an increasingly coercive central government?

So…. what are the statistical facts? 

First of all, there is a total correlation between freedom from government coercion and prosperity:

Screen Shot 2015-08-24 at 3.40.11 PM

And here is the top ten,

or, the most free nations on earth:

 

Screen Shot 2015-08-24 at 3.30.07 PM

 Where is the USA?

 We’ve slipped to number 20, in a batch of formerly authoritarian (some former communist) nations that are on their way UP.

Read the entire report. Pass this on.

And next time you vote for another program which gives government even more control over your life, think twice.

Your Copyright Text