Citizen Economists » productivity

Greed

Simon Grey — Thu, 08 Dec 2011 20:10:38 +0000

It’s the reason this happened:

Authorities say a teenage girl was trampled at a western Michigan Walmart store and suffered minor injuries after getting caught in a rush to a sale in the electronics department.

The Muskegon Chronicle reports the girl was taken to a local hospital Friday morning. Fruitport Township Supervisor Brian Werschem says the girl was knocked down and stepped on several times in the store near Muskegon.

The difference between prole shoppers on black Friday and the banksters is that one group is significantly better than the other at being greedy.

Simply put, most, if not all humans are motivated by greed. Some may be motivated by the self-indulgent pursuit of vice, others may be motivated by enlightened self-interest, and some may be straightforwardly interested in certain things. Whatever the case may be, all humans are greedy. All humans want things for themselves. There are, of course, varying levels of self-restraint attached to the pursuit of those things one desires, but fundamentally all people act in pursuit of those things they desire.

As such, it is ludicrous to simply blame greed as the root of all of society’s ills. Humans have always been greedy, but not all societies have been unceasingly dysfunctional. Why? Because there have been occasions when social rulers have found a way to mitigate the negative effects of greed. This usually comes by fostering a system of voluntary cooperation, generally exemplified in the free market.

Therefore, social ills—such as people being trampled at a shopping center, or market collapses—should not be blamed on simple greed. Greed can be, and has been effectively channeled into productivity. If, therefore, that productivity lapses into destruction, the blame should be placed not on those who are greedy, but on those who make the incentives.

Inflation: Just Another Form of Government Theft

Simon Grey — Fri, 02 Dec 2011 20:10:08 +0000

Karl Denninger explains inflation in rather graphic terms:

Let’s assume a 2% productivity increase per year over 30 years. Let’s also assume a 2% inflation rate over 30 years. This is what it looks like, starting with a baseline of “10,000.”

Your cost of living has gone up by 78% in notional dollar terms but it should have gone down by 44%!

The spread between those two lines was literally stolen by the banks and government acting intentionally as a group. They defrauded you, stealing your economic output and improvement in productivity, using it to hide the impossibility of continual deficit spending. Summed, the line is flat—but it should not be; that improvement in standard of living belongs to you, not them.

Basically, as production becomes more efficient the cost of products should decline. For example, computers that once cost millions of dollars in 1970 should cost roughly $50 today.* Instead, it costs six times that. What’s amazing is that efficiency of production has increased so dramatically for computers that the nominal price has decreased in spite of the dollar’s purchase power declining by roughly 83%.

At any rate, inflation works as a form of theft because it robs people of the benefits of their increased productivity in the form of higher prices. This happens because of the very simple rules of supply and demand.

Nominal price is determined by demand of a product relative to supply of a product relative to the money supply. Products with high demand low supply will generally have high prices; those with low demand and high supply will have high prices. As long as the money supply remains stable, nominal prices will be mostly contingent on the supply and demand of the product in question.

If, however, the supply of money fluctuates, nominal prices will fluctuate accordingly. Decreases in the money supply will lead to decreases in the nominal price, assuming that supply and demand remain unchanged. Conversely, increases in the monetary supply will lead to nominal price increases, again assuming that supply and demand remain unchanged. The reason for this is simple: the monetary base does not, in and of itself, make more things available for purchase. If you have ten cars, it does not matter if the monetary base is ten units or ten thousand units; fluctuations in the monetary base don’t change the underlying reality that there are a finite number of goods available for purchase.

Now, what makes inflation so pernicious as a form of theft is that it requires that the increased money supply make its way into the economy. This is not accomplished smoothly or evenly (i.e. the government doesn’t dump in all the money at once, and doesn’t distribute the extra money to everyone in the economy). As such, the government must give the money to someone.

In recent cases, the recipients of inflation have been major banks. Because they get the extra money first, they benefit from the effects of the increased money. While markets are efficient, they do not act instantaneously to new information, which is a fancy way of saying that it takes some time for the new money to make its way into the economy. The early recipients take advantage of the lower prices by buying more, which drives up the price of goods. The later recipients of the money see the prices rise before they get the extra money. Basically, then, inflation works as a tax on the politically disconnected (usually the poor and middle class) since the rich tend to get the money first and buy at low prices which drives up the prices for everyone else. Thus, inflation is basically a form of income redistribution.

Since the government has control of the money supply and gets to pick the initial recipients of inflation, it is therefore fair to say that the government is stealing from the poor and middle class and giving to the rich because it is basically robbing the poor and middle class of their increased productivity (which should be seen in the form of lower prices) and giving to the rich (who get to purchase at lower prices before driving them up). Thus, it should be clear that inflation is nothing more than outright theft, and should be viewed as such. The government, then, deserves the outrage of all of its productive citizens.

*It’s impossible to match machine specs across eras, so I simply took the cheapest computer available today, which is this HP desktop and adjusted the price for inflation using Tom’s inflation calculator. The dollar amount was 300, the starting year was 2010, and target year was 1970. Data for the cost of the best computer of 1970 was found here. Note that that Wal-Mart’s crap computer is still superior to the best the 1970 had to offer.

The Blame Game: Braddock

Christopher Briem — Fri, 25 Nov 2011 17:05:32 +0000

National Journal online has a focus on the failure that is Braddock. See: The Left-Behinds, subtitled: How three decades of flawed economic thinking have helped to create record numbers of long-term unemployed and undermine America’s middle class.

The whole meme of the piece comes down to this quote:

Braddock’s plight came from the structural decline of a major manufacturing industry

.
So again, this rosy vision that all was working in Braddock before steel decided to pick up and move away or shut down.

NOOOOOOOOOOOOOOOO. It just isn’t true. We’ve been through this before. The demographic and economic declines in Braddock, as with those in neighboring Duquesne, or Rankin, or Homestead all started long before the decline in local manufacturing employment or wages, nor did that decline accelerate in the last 3 decades that the National Journal article focuses on. Can’t even say it is a confusion of causation vs. causality; look at most any time series on economic conditions in Braddock and there isn’t even any spurious decline that started in the early 1980’s. It’s all weird revisionism. Paleo beer goggles of a happier past that really existed long long before anyone really remembers.

I wonder how many current residents of Braddock today are the “long term unemployed” that are vestiges of an industrial past? Those workers left Braddock long ago, and took with them their families most all before the bulk of the jobs went away. The article says Braddock is filled with “their children and grandchildren. These are the second and third generations of a lost tribe.”. Really? Even the mayor is not the 2nd or 3rd generation of a local steelworker; few of the very few remaining working age residents are either.

Then there is this quote:

U.S. Steel’s Edgar Thomson Steel Works chugs on, as it has since 1875, but it’s a sprawling corrugated-metal relic of its former self. Its parking lot is almost empty at midday, and it employs several hundred workers rather than the more than 10,000 who labored here at its peak.

You know.. Edgar Thompson has been pretty busy even during the depth of the recession. In fact US Steel brought work to Edgar Thompson from other plants because I have to believe it was the best business choice for them to do that. They even got in trouble with the Canadian government for first choosing to shut down it’s Hamilton, Ontario plant and not take work away from E.T.. Here is the big point though.. those several hundred workers at Edgar Thompson probably make as much steel as did thousands of their predecessors. That is called the increasing productivity which is pretty much a necessary condition for manufacturing competitiveness in the world. Yet, somehow that is bad? It has nothing to do with the current conditions of the residents of Braddock mind you, but still.

Now of course maybe I am being harsh and the story isn’t really about Braddock more than the metaphor it shows for the apocryphal Rust Belt or maybe the Pittsburgh region collectively. Of course there is the post earlier today where I pointed out that employment in the Pittsburgh region is pretty much at an all time high as of last month. All time. Not mentioned anywhere.

All that being said. Make no mistake we have failed Braddock. We failed it decades ago. Continue to fail it, and there really seems to be no reason to think we will not continue to fail it for a long time to come. But as long as we believe the mythos of what went wrong, it is pretty much impossible to ever hope anything will ever get any better.

The Cost and Benefits of Tax Complexity

Simon Grey — Fri, 25 Nov 2011 15:00:52 +0000

I wrote a while ago about how GE had managed to avoid paying corporate taxes, and now there’s a story relating the complexity of GE’s corporate tax return:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked. [Recall that GE claimed a tax benefit of $3.2 billion for this effort. -Ed.]

57,000 pages is a lot of ink and effort to turn taxes from a cost to a benefit. But it should now be easy to see who could profit from a complex tax code.

Large corporations should generally support a complex tax code because their taxes are prepared on a large enough scale to make it profitable to filling out complex returns. The same is not generally true of smaller businesses, so tax code complexity actually serves as a competitive advantage for larger firms because they will generally find it cost-effective to shell out millions of dollars to have their tax returns prepared.

Tax lawyers should also support tax code complexity because it means job security. Forcing businesses to wade through page after page of highly complex and remarkably boring legalese should convince them they want to hire a lawyer to handle this for them. Also, factor in the additional time compliance costs, and the case for hiring tax lawyers makes sense.

The most impressive part of this story is how much GE paid to avoid paying taxes. Hiring tax firms is never free, so GE shelled out a pretty penny to change their status from paying a check to receiving it. It was undoubtedly worth it to do so, but this imposes significant costs on society and the economy.

In the first place, society suffers because it ends up paying GE. Instead of GE paying for its government benefits, it simply robs taxpayers and keeps their money for itself.In the second place, GE’s compliance with tax law imposes economic costs, primarily in the form of opportunity costs. Instead of hiring people to actually produce something, GE has instead employed tax lawyers whose only job is to avoid paying taxes. The tax compliance costs have made the economy poorer because there are now fewer people being productive since it is now more profitable to outwit government statutes instead of making things people find useful.

In fact, tax compliance is a major drain on the economy, and is one of the oft-overlooked costs of taxes. People often get caught up on tax rates, but tax complexity imposes its own costs as well, and should be part of the tax debate. Thus, the fact that GE not only had a corporate tax benefit of over $3 billion but did so with a 57,000 page return should suggest that something is terribly wrong with the current tax system.

Maybe It’s Time to Give Up on Africa

Simon Grey — Wed, 31 Aug 2011 19:15:55 +0000

ASI:

Britain’s international aid budget costs the equivalent of 22 days of national borrowing from international markets. By 2015, British Aid will have increased by 34.2% to £11.5 billion per annum. Including personal donations and state spending, Britain gives 0.8% of GDP in international aid. With state aid increasing, more people should ask: Why are average per capita incomes in Africa lower than 40 years ago after $1 trillion of aid being given over that period?

If there is one thing I simply do not understand in this scenario, it would have to be why Britain feels compelled to help Africa at all. The British government’s only concern should be with taking care of its citizens and acting directly in their best interest. (Of course, as a libertarian, I’m inclined to argue that this can be accomplished simply by ensuring that property rights are observed, and that the taxation necessary to ensure this result is as small and painless as possible.)

I simply do not see how giving aid to Africa is in the best interest of British citizens. Need cheap labor? Asia is a good place for that, and doesn’t generally require near the amount of aid that Africa does. Besides which, Asian labor is more reliable in terms of quality, and many Asian governments have made a point of developing their infrastructure. So why care about Africa?

This question becomes extremely poignant once on also considers that African countries have not simply stagnated in spite of aid, but have actually regressed. This being the case, it seems obvious that aid, if not hurtful, is at least irrelevant to African countries. And if they can’t manage the money transferred to them from the pockets of productive first-world citizens, then how and why would anyone think that they are worth investing in?

Quite simply, it is time to cut the purse-strings to Africa. They squander the generous gifts given to them time and again, and it appears that this trend isn’t going to change anytime soon. If insanity is doing the same thing over and over again while expecting different results, then the sane thing to do at this point might be to cut the aid and force Africa to stand on its own feet. And who knows? It just might be crazy enough to work.

Pop Quiz

Simon Grey — Thu, 25 Aug 2011 16:10:03 +0000

Q: Who said this:

Second, the idea that U.S. economic difficulties hinge crucially on our failures in international economic competition somewhat paradoxically makes those difficulties seem easier to solve. The productivity of the average American worker is determined by a complex array of factors, most of them unreachable by any likely government policy. So if you accept the reality that our “competitive” problem is really a domestic productivity problem pure and simple, you are unlikely to be optimistic about any dramatic turnaround. But if you can convince yourself that the problem is really one of failures in international competition—that imports are pushing workers out of high-wage jobs, or subsidized foreign competition is driving the United States out of the high value-added sectors—then the answers to economic malaise may seem to you to involve simple things like subsidizing high technology and being tough on Japan. [Emphasis added.]

A: Paul Krugman (Pop Internationalism p. 16 [1996], The MIT Press, Cambridge).

In spite of his remarkable daily stupidity, Krugman actually correctly recognizes the problem of American competitiveness in international trade. What hampers America is not foreign trade, but domestic productivity. And one of the biggest hindrances to domestic productivity is government, both at the state and municipal level, and particularly at the federal level. Thus, if one wants to know why Americans are losing manufacturing jobs, one need only look at domestic policy. The federal government has increasingly hamstrung manufacturing jobs over the past several decades.

Furthermore, instead of allowing consumers to feel the pain that domestic production policy would naturally incur, the federal government instead decided to promote increased foreign trade (under, it should be noted, the auspices of so-called “free” trade). This policy has then had the effect of subsidizing foreign production at the expense of domestic production because foreign manufacturers do not have to face the massive regulatory costs that domestic manufacturers face, giving foreign manufacturers a leg up on their competition.

As I have undoubtedly noted before, there are only two correct positions for a domestic government that presumably claims to represent the people over which it governs. Either the government can highly regulate domestic business and place tariffs on imports that approximate the costs faced by domestic producers or the government can reduce the burden of regulation on domestic business in conjunction with the decreased cost of importing. It is, however, quite foolish to do what the U.S. government is doing now: highly regulate domestic business while decreasing the cost of importing. Either a high degree of regulation is desirable or it is not. If it is, whatever regulations that exist should be applied to every person and corporation that wishes to do business in America. If it is not, the domestic market should be deregulated posthaste. There is no excuse for the current state of affairs.

Government vs. Industry

Bron Suchecki — Fri, 01 Jul 2011 16:45:56 +0000

The two charts below from Andy Smith’s (Bache Commodities) latest piece are a humorous use of US house prices to illustrate the problem of Big Government. The first shows the real boom is in Government jobs and lobbying. The second how gold buyers aren’t fooled by America’s shift from productive to unproductive jobs.

Was the Industrial Revolution Mainly About the Growth of Manufacturing Industry?

Winton Bates — Tue, 04 Jan 2011 20:24:37 +0000

Some readers may think this question is like asking whether the Pope is a Catholic. The question is worth considering, however, because it raises some fairly common misconceptions about the industrial revolution (some of which I held until recently).

My main reason for reading about the industrial revolution has to do with my interest in human flourishing. The industrial revolution led to a massive, unprecedented and ongoing improvement in living standards, beginning in Britain and then spreading to other parts of the world. From that perspective, the industrial revolution tends to be associated with the advent of sustained economic growth.

However, Joel Mokyr suggests that the best available estimates indicate that growth in per capita income in Britain did not accelerate until the decades after 1830 – well after the beginning of the industrial revolution (‘The Enlightened Economy’, p 256). That makes sense if we define the industrial revolution in terms of the technological innovations which brought about a transformation in the way goods and services were produced in the British economy between 1760 and 1830. One reason why these innovations were not immediately reflected in higher per capita income growth was the rapid growth of population – the English population increased from 6.1 million to 13.1 million between 1760 and 1830 (p.257). Another reason was the initial concentration of major innovations in a relatively small, though rapidly growing, part of the British economy (p. 82).

Information from a table presented by Deirdre McCloskey is graphed below in order to provide some perspective on the contribution of different industries to productivity growth in Britain over the period from 1780 to 1860 (‘Bourgeois Dignity’, p.219).

Figure 1 shows the relatively rapid growth of productivity in some manufacturing industries as well as canals and railways.

Figure 2 shows that despite the more modest productivity growth rate in agriculture, the relatively large size of this sector means that over the period considered its contribution to overall productivity growth was comparable to that of the manufacturing industries with more rapid productivity growth.

So, was the industrial revolution mainly about the growth of manufacturing industry? Perhaps, if we define the industrial revolution so narrowly that it has to refer to the growth of manufacturing industry. If we do that, however, we need another term to describe the processes leading to the advent of economic growth in Britain. Joel Mokyr’s term, the industrial enlightenment, aptly describes the broader processes through which a social climate favourable to innovation was made possible by growing recognition that material progress could be achieved through advances in science and technology.

Mokyr puts the various phases of the industrial revolution in context as follows:

‘The Industrial Revolution was above all a beginning. It cannot be judged on its own grounds without considering what it led to. What is truly significant is not the wave of great inventions made in the years between 1765 and 1800, but the fact that this process did not subsequently fizzle out. Some societies, in Europe and Asia, had witnessed previous clusters of macroinventions, leading to substantial economic changes. … The “classical” Industrial Revolution in the eighteenth was not an altogether novel phenomenon. In contrast, the second and third waves in the nineteenth century, which made continuous technological progress the centrepiece of sustainable economic growth, were something never before witnessed and that constituted a sea change in economic history like few other phenomena ever had’ (p. 83-4).

Productivity Growth in Brazil

Rok Spruk — Wed, 08 Sep 2010 19:00:27 +0000

Carlos Pereira of the Brookings Institution (link) has reviewed the dismal productivity growth and the consequent macroeconomic indicators in Brazil in the last decade.

“Although there are several expenditures in this category, the one that stands out high above all others is outlays for social security and pensions. Practically one-third of the federal budget is devoted to these expenditures, whereas expenditures in investments were less than 6 percent in 2003. Pensions in Brazil since the 1988 constitution have been notably generous, especially in the civil service. A new group of non-contributing rural pensions was added, contributing to systematic deficits. With about 11.7 percent of GDP, Brazil has one of the highest social security expenditures in the world, especially considering that the Brazilian population is much younger than that of most countries with similar levels of expenditure.“

Know-Nothing Labor Myths

Thomas Knapp — Thu, 26 Aug 2010 18:45:04 +0000

Jacob Lyles at The Distributed Republic:

Open border libertarians like to pretend that the supply of immigrant laborers has no effect on the welfare of existing United States workers. But this is not the case.

Broadly speaking, the welfare of an average Joe who trades his labor for a living depends on two factors. The first is labor productivity which determines how much employers are willing to bid for workers. The second is the supply of labor of similar quality. Increasing the supply of labor with a particular skill set will bid down the wages of workers with substitutable skills. …

There is no a priori reason to think that labor markets are immune to economic incentives.

I’ve never, ever, ever heard a libertarian claim that “the supply of immigrant laborers has no effect on the welfare of existing United States workers.”

On the contrary, an unconstrained ability of workers to move back and forth across imaginary lines drawn on the ground by politicians (”borders”) almost certainly has a great many effects — some of them putatively negative (increased local labor supplies where labor is needed, driving down wages), some of them putatively positive (decreased labor costs driving down prices for everyone), many of them unnoticed, all of them certainly subject to what Mises referred to as the “calculation problem” when it comes to regulation.

The real question is not whether or not Worker A will have less leverage in seeking higher wages if Workers B and C are “allowed” to cross one of those imaginary lines.

The real question is whether or not the state has a legitimate power to distort the market for the alleged benefit of Worker A at the expense of Workers B and C who are forbidden to rent their labor, at the expense of the employer seeking to rent labor, at the expense of those called upon to involuntarily “undo” the distortions with still further distortions, and at the expense of the customer who has to pay more for the product or service because Worker A got the monopoly he wanted.

The libertarian answer to that question, in case you were wondering, is “no.”