By The Gold Report, on March 19th, 2012
 Amid the bustle of the 80th Prospectors and Developers Association of Canada (PDAC) convention in Toronto, The Gold Report sat down with PDAC President Scott Jobin-Bevans for his take on the challenges the mining industry faces. In this exclusive interview, he covers a wide range of topics, from skilled labor shortages to the trials of mining in remote northern Canada.
The Gold Report: What are the key challenges the mining industry faces in 2012–2013?
Scott Jobin-Bevans: PDAC, under the leadership of newly appointed Executive Director Ross Gallinger, will be conducting a strategic review involving the board of directors, staff and gathering membership input. There are a number of issues facing the association and the industry, and I am sure that human resources challenges will surface as a key issue.
TGR: When you say human resources, what are you talking about specifically?
SJ-B: It’s the skilled workforce: geologists, geophysicists, process engineers, mining engineers, miners and skilled labor. There’s a huge gap between the young people who are out there now and the older ones who know those skill sets from years ago. For instance, we’re nearly missing the 35-to-45 age bracket.
There is a tremendous opportunity for industry associations such as ours, the government, private sector and educators to work together. This is a hugely important sector that represents nearly 3.5% of our national GDP and pays billions of dollars in tax revenue and royalties to the various levels of government.
It presents an opportunity to university students, but it also presents a challenge to the industry. The Mining Industry Training and Adjustment Council led an industry-sponsored study released in 2005 that found that the Canadian mining and mineral industry would need at least 80,000 people in the next 10 years just to replace current jobs. The industry has grown quite a bit since 2005. So, the estimates in Canada are now something like 100,000 jobs will need to be filled in the next 10 years.
TGR: Where are those numbers coming from?
SJ-B: You can find them on the Mining Industry Human Resources Council of Canada’s (MiHR’s) website. The PDAC supported a more recent sector study by MiHR, “Unearthing Possibilities,” which looks specifically at the exploration sector; it’s important to understand that mineral exploration is different than the mining sector. In this study, we were able to show how many women are in mineral exploration, how many people are employed overall and the demographics on the age distribution.
You can see the late ’80s downturn in the 35-to-44 age group when the industry and the economy tanked. People left the industry and never came back. You can also see the effect of the Bre-X scandal and market decline in 1997, which saw the departure of record numbers of professionals from the industry. The report does show an increase in the 25-to-34 age group coming into the industry, which is really encouraging.
The connection between human resources and supplying the metals of tomorrow is that we can still find the mines but we can’t put them in production because we simply don’t have the people. The only way we survive now is by poaching from other projects, so it’s not a healthy environment for industry success.
PDAC has been making efforts in terms of our support for educating the work force of tomorrow. We have a strong program that we support through PDAC Mining Matters that has helped educate nearly 500,000 school-age children about the sector. We’ve got a number of university programs and scholarships but the industry needs to do more.
TGR: What are some of the other challenges facing the industry?
SJ-B: I’m not sure it’s a challenge so much as a new opportunity in Canada in terms of working with First Nations and aboriginal communities, which ties into land access. Canadians are leaders in developing strong dialogues with our aboriginal partners and PDAC is very committed to ensuring our members are equipped and prepared to have those conversations, whether in Canada or abroad.
TGR: Is this a global issue?
SJ-B: I think we need to understand this in a different context. This isn’t a problem as much as it is a reality that companies need to adjust to. The issue of aboriginal and indigenous people’s rights is extremely complex and extends into places like Chile, for example, which is not dealing with the issue to the same degree as Australia or Canada; but it recognizes that it must be dealt with soon. The major mining companies and Codelco, the state-owned enterprise in Chile, haven’t had to deal with it because most of their mines are in remote areas where there are very small villages; companies tend to be good corporate citizens by making donations and providing infrastructure and job training to the local villages. But, as the industry expands in Chile, I believe there will be more focused attention on indigenous peoples.
Another issue is profit sharing and the desire for local communities to want a piece of the pie, a portion of the production royalty. We also see this happening in India, Peru and many other countries, as well as in Canada. India has proposed that iron ore and copper miners set aside 26% of the royalty they pay to states to share with locals affected by mining. The PDAC is in favor of resource revenue sharing as long as it is introduced in a fair and sustainable manner.
TGR: On another subject, Canadian Natural Resources Minister Joe Oliver spoke at PDAC. Do you think we’ll ever see a national securities regulator, like the SEC in the U.S.?
SJ-B: PDAC supports having a single regulatory system administered by one regulator, applying one set of rules in a consistent manner across Canada. We would welcome a one-window central process. But it isn’t easy because each province has the right to control the regulatory process and collect fees in its own jurisdiction. This results in duplication and higher cost for financings and ongoing compliance. We need to have a system that allows all potential Canadian investors the equal opportunity to participate.
TGR: What is another industry challenge?
SJ-B: Mine permitting and the related regulatory process. This is a global issue. Governments often don’t have the capacity to administer their own acts and legislation. I believe we are going to see this capacity issue in Ontario with the current revision of its Mining Act. We see capacity issues in British Columbia and the Yukon Territory, largely brought on by increased industry activity and record mineral claim staking. We also see a lack of capacity within the provincial governments and within First Nation governments to deal with the required paperwork, which is becoming more and more onerous. Minister Oliver spoke at length about this at the Association for Mineral Exploration British Columbia Roundup in January and again at the PDAC Convention. He believes that regulation should be practical, useful and not overly bureaucratic, and I, for one, support that.
Another example is Finland. Finland is a great jurisdiction for mining. It embraces and promotes it. The GTK or Geological Survey of Finland actively maps, explores and even drills holes to build up resources, which it then puts out to auction. It recently introduced a new mining act and at the same time made changes to staff size and location, which almost overnight resulted in license granting going from a 6–12 month window to a 3–5 year time frame to establish land tenure. This is very discouraging to mineral exploration companies thinking about investing exploration dollars in Finland. My recent discussions during the PDAC convention with the Federal government does suggest that they are committed to improving the system in the very near future.
TGR: I guess this makes Ontario and Nevada look better all the time.
SJ-B: Finland still beat Ontario in the Fraser Institute’s annual survey of the best jurisdictions for mining in the world. We also saw New Brunswick being ranked as number one and for the first time ever we saw Ireland in the top 10 along with the Yukon Territory.
The survey ranks jurisdictions on things like administration, corruption, environmental regulation, duplication, fair trade, transparency, taxation etc. The most recent survey came out in the last few weeks.
TGR: Northern Ontario’s Ring of Fire region includes chromite, base metals and gold deposits. There are billions of dollars of potential revenue there, but there is zero infrastructure. You have to have rail to get the minerals out of there. All these different deposits have been found and they have NI 43-101 resources on them, but they’re not going anywhere.
SJ-B: I think we have to see the various levels of government as partners in the extraction of our mineral wealth and my view is that there really is an opportunity for the government to partner with industry and help build infrastructure in the north. There is a huge discovery that could be world-class size. The potential for northern development—for wealth generation in the province—is very real. I think both federal and provincial governments are still recovering from the financial crisis and at this point are not able to invest the dollars today for the long term in spite of the economic development opportunities that exist. Economic development is all based on favorable returns and future earnings through increased taxation and other revenue, and right now governments have a tremendous opportunity to show that measure of foresight for this industry.
We think that we finally got the Feds to understand the importance of mining to this country. We have had Minister Oliver at the conference, a record number of members of Parliament, members of Provincial Parliaments, senators and we were really pleased to see Jean Charest, the Premier of Québec, join us at the conference.
TGR: Most of the readers of The Gold Report are precious metals investors. Can we talk about your personal view as to what you see as opportunities for North American investors right now who like resource stocks? What are some of the commodities that you see really gaining traction in 2012? Do you see particular interest in micro caps, in the near-term producing stories?
SJ-B: Certainly, I’m in agreement with gold and silver being the mainstay of the industry and, of course, copper. There’s a big push with anything having to do with country- or economy-building commodities, iron ore, for instance. Rare earth minerals are a complicated commodity, but I think a lot is going to happen in that space.
For example, Germany canceled its nuclear power program and is now having to look for alternative green energy. It recently created an alliance for securing critical raw materials after it essentially closed down the mining and metals industry 20 years ago, thinking that mining was a sunset industry.
TGR: Well, it’s pretty clear that Europe is waking up to the idea that these critical metals are very important for growing clean energy.
SJ-B: For sure. Germany is a good case in point because the German market is really hunting for those metals, not only for internal consumption but also for building the technologies that it exports. To produce a windmill for instance, you need neodymium for the magnets and so a source for this rare metal needs to be secured to be a successful producer. The Germans asked Canada what we have. Well, the short answer is nothing because we basically shut down all of those operations years ago. To bring any production on-line in the near term is going to be very costly.
Look at Thor Lake’s Avalon Rare Metals Inc. (AVL:TSX; AVL:NYSE; AVARF:OTCQX). PDAC Director Don Bubar is heading up the company and PDAC Past President Bill Mercer is also involved. Avalon has a great story, a great deposit in Thor Lake. Infrastructure-wise it is fairly remote. In the global size of rare earth deposits, it’s small and has a very specialized suite of minerals that are desirable, but it will take very high production costs to extract and build a plant. Doing that in Canada is challenging. I don’t believe that there is enough critical mass in Canada to justify such a high capital expenditure. I am, of course, always hopeful that it will work, but it’s not like a copper or nickel discovery or a base-metal discovery where you have five or six deposits in one general area that you can then aggregate to feed a smelter or a processing facility. In the case of most rare earths in Canada you have a relatively small deposit with complex metallurgical challenges that would be feeding a $1 billion production facility.
TGR: How do you feel about copper, silver and gold?
SJ-B: Canada is a fantastic jurisdiction in which to explore and I think people are realizing that we still have the opportunity to make discoveries in commodities like copper. We’re seeing the copper porphyry business come back to British Columbia (B.C.) with interest from Newmont Mining Corp. (NEM:NYSE). We’ve also got interest in the region from Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE) and even BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) is known to be watching the area. The majors are taking note of projects that until recently have been considered too small a target for copper-gold or copper-moly porphyries. I’m involved with junior explorer Tiex Inc. (TIX:TSX.V) working in B.C. in the Quesnel Trough. We believe we are sitting on a brand new Cu-Au porphyry discovery that is off-trend from the traditional Quesnel Trough past producers. We have another project that is right next to Spanish Mountain Gold Ltd. (SPA:TSX.V), so there is great gold in sediment opportunities.
Overall, I would say that we are seeing a resurgence in Canada. Most people I speak to are saying it’s a great opportunity for copper-gold in B.C. and gold in the Yukon, and strong interest continues in Quebec and Nunavut. I find B.C. is particularly interesting because it has a recent track record of actually permitting mines. With almost half of Canada’s proposed mining projects located in B.C., it has shown the industry that exploration and development projects can be moved into mine permitting–a step that many other jurisdictions in Canada are failing to make. Plus, in Canada you’ve got diamonds, and we are well positioned to become the third-largest diamond producer in the world.
TGR: Do you mean the third-largest producer by value?
SJ-B: Yes, we do produce some of the highest quality diamonds in the world, but we are also gaining on total production with additional projects turning into mines. In terms of gold, we still have the prolific Abitibi gold camps in Ontario and Quebec. I think around half of the Abitibi Greenstone Belt is covered by clays and impermeable surface material that you can’t see through with traditional exploration techniques such as geophysics and geochemistry. So you have to drill it. This is the world’s largest continuous greenstone belt with some 160 million ounces of production with about 50% of it covered. So the opportunities for gold and base metals in that region alone in Canada are huge.
TGR: You are saying that investors looking for opportunities in the junior mining space have plenty of opportunities in their own backyard?
SJ-B: Absolutely. Canada is politically stable, reasonably well regulated and has a fairly streamlined process to put the mines into production. Minister Oliver said he is committed to making the process even tighter. So, it will become a less-than-two-year process.
Also on the list of metals to watch, I would add platinum group metals (PGM).
TGR: In Canada or elsewhere?
SJ-B: In Canada. I think that although we have a high palladium-to-platinum ratio in our deposits, it’s usually 2:1 or 3:1. The sustained price in platinum, and now palladium, is great for the industry.
TGR: What are the names in that space?
SJ-B: There are Magma Metals Ltd. (MMW:TSX; MMW:ASX) and North American Palladium Ltd. (PDL:TSX; PAL:NYSE) near Thunder Bay. North American Palladium is our only producer. Also there is Prophecy Platinum Corp. (NKL:TSX.V; PNIKD:OTCPK; P94P:FSE), which is working on a project in the Yukon and on projects in northern Manitoba.
TGR: There are definite supply and demand issues with PGM because of conflict in South Africa.
SJ-B: South Africa controls 80% to 90% of the world’s platinum. And Russia still has a significant portion of the world’s palladium. But, my consulting group does not have clients in South Africa because there are issues in working in that jurisdiction that most junior exploration companies are not comfortable with. Most of our work in Africa is elsewhere such as Tanzania, Zambia, the Democratic Republic of the Congo, Ghana and Mali. There has been a big rise in interest from Canadian companies in Western Africa. I also predict that we can see a significant increase in interest from Canadian explorers and investors in the Dominican Republic.
TGR: Well, that’s another whole topic.
SJ-B: It is. For example, we are seeing Sierra Leone coming back on the map in a big way.
TGR: I think that is a perfect ending to today’s conversation. Thank you so much, Scott.
Scott Jobin-Bevans is the president and a director of the Prospectors and Developers Association of Canada (PDAC) and an exploration geologist with more than 20 years of mineral exploration industry experience. He is a director and founding partner of Caracle Creek International Consulting Inc. (CCIC) where from 2001–2008 he served as managing director. Since May 2011 he has been at Caracle Creek as a director and vice president of corporate development, Latin America. He is also a director of numerous companies including Maudore Minerals Ltd., Tiex Inc., Strike Minerals Inc., Jiminex Inc., Lakeside Minerals, Mukuba Resources Ltd., Ateba Resources Inc. and Northern Skye Resources Ltd. Jobin-Bevans has also served as president, CEO and a director of Treasury Metals Inc., vice president of exploration of Takara Resources Inc., a director of Absolut Resources Corp. and vice president of exploration of Pacific North West Capital Corp.
By Simon Grey, on March 16th, 2012
So why was the Nepalese government opposed to the mill? The answer is that the monarchy and the elite surrounding it, who controlled the government, were afraid of becoming political losers. Economic progress brings social and political change, eroding the political power of elites and rulers, who in response often prefer to sacrifice economic development for political stability.
Ultimately, any time you see any proposal that will obviously pose significant costs on the economy, you can be sure that it’s the result of some government official somewhere being scared that ordinary citizens might be getting too powerful. And we can’t have that because citizens aren’t smart enough to handle power.
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By Simon Grey, on March 13th, 2012
LAST week, Attorney General Eric H. Holder Jr. proclaimed in a speech that when it comes to fighting financial fraud, the Obama administration’s “record of success has been nothing less than historic.” Such self-congratulation is not only premature, but it also reveals a troubling lack of understanding about what is required to win the war against financial wrongdoing.
Four years after the disintegration of the financial system, Americans have, rightfully, a gnawing feeling that justice has not been served. Claims of financial fraud against companies like Citigroup and Bank of America have been settled for pennies on the dollar, with no admission of wrongdoing. Executives who ran companies that made, packaged and sold trillions of dollars in toxic mortgages and mortgage-backed securities remain largely unscathed.
As I’ve observed numerous times before on this blog, I am not at all a fan of regulation. I don’t like how the government imposes limits on inter-account transfers, nor am I fond of anti-trust regulation that makes buyouts more difficult. However, I am very much opposed to people being able to get away with taking someone else’s property under false pretenses, otherwise known as fraud. Quite simply, these thieves need to go to jail as punishment for their crime. There is no excuse for their behavior, and the American people should demand that those who committed fraud, in whatever way, be put on trial for their crimes. That there are some in the MSM calling for this very thing suggests that there may be hope yet.
By Ajay Shah, on March 12th, 2012
A milestone for SEBI in its rule-making function
SEBI is a modern financial regulator in that it issues `subordinate legislation’ (i.e. regulations) which constitute law. These laws embed intricate domain knowledge where Parliament does not have the capacity for detail. This separation — where Parliament sets up SEBI and gives it the power to write subordinate legislation — is the hallmark of modern regulatory arrangements. This needs to be accompanied by sophisticated arrangements through which such regulatory agencies are independent, accountable and free of conflicts of interest. While SEBI has many problems, it is the most sophisticated arrangement of this nature found in India today.
From 1996 onwards, SEBI has issued regulations for mutual funds. On 21 February, they published regulations (”SEBI (Mutual Funds) (Amendment) Regulations, 2012″) that govern advertisements of mutual funds, and the methods by which the mutual funds value their assets and consequently the units that they issue.
These regulations are a major milestone in the evolution of Indian financial regulation, in the shift away from rules to principles.
Rules versus principles
The two major approaches to regulation are ‘rules based’ and ‘principles based or outcome based regulations’. Rules based regulation set out the processes by which a regulated entity is supposed to comply with, and is not directly concerned with the outcome. Rules based system of a major shortcoming: Firms will then try to find clever ways to comply with the letter of the law, but defeat the purpose of the rules.
As an example, consider the statutory warnings for cigarettes. The rules required that the font in which the statutory warning was
printed should be of a minimum ‘height’. Firms got around this by printing them in the required height but reducing the width of the
characters to a ridiculously low size, so that it was very difficult for readers to decipher. Thereby, they were able to comply with the
directive for statutory warnings, yet defeat the purpose of warning buyers.
The rule was recently modified to require cigarette packets contain a picture of a pair of lungs with cancerous growth. The companies
again complied with the requirement. However, the resolution of the pictures is so low that they look like two blotches of ink to a
normal viewer. These blurry pictures cannot be interpreted by anyone lacking in good knowledge about human anatomy. The person must not only know what a pair of lungs looks like but also must know that the light blotch in the dark blotch represents cancerous growth which may kill him.
Rules based regulation draws regulators into an endless arms race, where the industry will always tend to invent ways to circumvent the rules. It creates an unhealthy tension in the relationship between regulators and the industry. In addition, rules tend to rapidly become obsolete with the constant evolution of technology and processes. Government has to keep modifying the rules, catching up
with new thinking in the industry. If this is not done, Government holds back progress by preventing such evolution.
Law based on principles is not new. A large number of our older laws have been based on principles. These laws do not specify a
method or process that an entity must approach but lay down the guiding principle that it must follow. A beautiful example of this
is the Indian Contract Act, which was written in the late 19th century. It is principles-based law that has stood the test of time.
As an example, the Contract Act defines acceptance of a contract to be complete when information of acceptance reaches the person who offered the contract. This definition in no way requires a specific formact for sending the information of acceptance. Whether it is oral or through a letter, it is valid. When the Contract Act was written, telephones or email had not been imagined. However, the
principles-based text of the Contract Act has withstood 150 years of technological change.
An expert body, like SEBI, which studies the market and issues subordinate legislation, yields greater malleability. Rules-based regulation can be repeatedly changed. However, the full benefits in terms of heightened malleability are obtained when the very subordinate legislation is principles-based.
Principles-based law is integral to common law and is part of our legal heritage. In recent decades, when India became socialist and when staff quality in government agencies declined, there was an insiduous shift to detailed, prescriptive, micro-management. Principles-based regulation and laws was put back on the financial policy agenda by the Percy Mistry report in 2007.
The new principles-based SEBI regulations
The new SEBI regulations on advertisement show the shift towards principles-based regulation. For example a regulation reads:
In audio-visual media based advertisements, the standard warning in visual and accompanying voice over reiteration shall be audible in a clear and understandable manner. For example, in standard warning both the
visual and the voice over reiteration containing 14 words running for at least 5 seconds may be considered as clear and understandable.
Instead of mandating that the warning should be at least 5 seconds long, it has stated that that it must be clear and audible. The 14
words in 5 seconds is now not a legal requirement: it is only an illustration of how the principle can be satisfied.
On valuation, the new regulations say:
The valuation of investments shall be based on the principles of fair valuation i.e. valuation shall be reflective of the
realizable value of the securities/assets. The valuation shall be done in good faith and in true and fair manner through appropriate valuation policies and procedures.
This regulation recognises that there are many different types of assets a mutual fund may acquire, stocks, securitisation papers, derivatives, bonds, etc. Each of them may have different forms of valuation. More importantly the list of assets mutual funds may buy is not exhaustive: as the Indian financial markets develop there may be other instruments that mutual funds may purchase. The principle however, will hold true for different assets and valuation
methods. The objective of the regulation is to ensure that the investors get a fair picture of the assets their fund holds.
Assessment
We do not know what forms of media the mutual funds will use in the future: billboards will go 3D, holograms will be used, mobile
phones will explode with targeted advertising. Mutual funds will also invest in new financial instruments in global markets. As
long as the provide warnings in a clear and understandable manner and value their assets in a fair and truthful system, the will be
compliant with SEBI regulations and can innovate freely.
Principles based regulations have two major advantages over rules based system:
- The regulations require the regulated to strive towards an outcome and not mechanistic compliance.
- The regulations allow for innovation to be absorbed quickly by the industry as long as they meet the objective of the
regulation. Imagine if the Contract Act had specified that all acceptance of contracts should be done by letters. All the
innovation of e-commerce, mobile telephony based commerce, telephonic negotiation and trading would have been illegal till the statute was amended. This would have required Indian law-makers to constantly update the Contract Act.
Moving to a principles based system is a crucial step forward, away from the command and control mindset that many regulators
suffer from. Instead of prohibiting malpractices, all too often, laws in India micro-manage the regulated business. This is a recipe
for stagnation.
However, principles based financial regulation also has costs. Rules are black and white – there is legal certainty. With principles based regulation, the precise nature of a government response to a new idea by the private sector is less predictable.
More complex behaviours are, then, required of the regulator. More litigation will arise. This will impose a greater burden on staff in regulators, courts and law firms. They will need to understand principles (and their underlying drafting intent), alongside practical knowledge about how the real world works, so as to be able to intelligently apply the principles. This requires a great deal of understanding of technology, business and regulatory objectives. Moving towards a principles based system requires commensurate strengthening of staff capabilities at SEBI, the Securities Appellate Tribunal (SAT), and the Supreme Court.
By Simon Grey, on March 9th, 2012
Hasbrook, who turned 17 in January according to her Tumblr, is a high school junior from Oregon. During this NYFW, she walked for Marc Jacobs, Proenza Schouler, Theyskens’ Theory, Marc by Marc Jacobs, Lacoste, Victoria by Victoria Beckham, and Houghton. That’s a big debut for a model. On her blog, she also describes doing looks for Reem Acra, shooting a video for Lacoste, and working various photo shoots; again, typical for a successful new face during fashion week. These long hours are just one reason why the CFDA recommends that girls under 16 not work fashion week: the shows last a month, which often has the effect of forcing these girls to make an uncomfortable choice between staying in school and pursuing their careers, and while some underaged models are chaperoned (Hasbrook says her mother traveled with her to New York), many girls — especially the majority of models who come from poorer countries — are not so lucky, and work unsupervised. No organization currently conducts background checks on the adults who work with minors in the fashion industry.
Before discussing this in depth, there are a couple of things that must first be clarified. First, the primary purpose of education is to increase a child’s intellectual capital, and so prepare him or her for work later on. Second, teenagers are perfectly capable of work (just ask this guy). Third, my personal bias is toward child labor, primarily as way to train children to become productive adults. For what it’s worth, I had a paper route at age eight, started mowing lawns for money when I was twelve, started painting when I was fourteen, and had my first “official” job when I was sixteen. I’m very used to working, and I don’t think it all that demanding for children, and more especially teenagers to have jobs that fall within the range of their abilities.
Now, in the first place, it seems obvious that having a job and, more broadly, work experience of some sort is a good thing. This is true even if you’re a young lady working as a fashion model. Remember, the whole point of an education is to prepare you for work. Now, if you’re already working, there isn’t actually that much of a point in going to school, since you already have the benefits of school (i.e. a job). Thus, the tradeoff between work and school is in many ways a false dichotomy because school does not have that much more to offer you if you’re already working as a supermodel.
In the second place, the career trajectory of female models differs quite a bit from their looks-challenged counterparts. As Vox pointed out, there are a decent number of hot young models that have married young and started families, usually at the expense of their career. There does not appear to be any extensive data on whether this is a trend, but the anecdotal evidence seems to bear it out. As such, it is somewhat ludicrous to even suggest that education in general is all that important to girls who go into modeling because it is highly likely that a significant number of them will leverage their looks into marrying a high-status (read: usually wealthy) man. For those who were educated in public school, this means that looks, not education, are the relevant factor for a model’s long-term plans, and so it would be far more beneficial for models to skip school in favor of their careers, as it will help them to widen the pool of potential mates.
Therefore, we can conclude that child labor laws suck, because their general application is actually counterproductive in some cases.* As is seen in this case, the proposed labor regulations would actually be harmful to under-aged models, as it would prevent them from achieving their general goals. Since it is feminists that are proposing these laws (and ugly ones at that), it seems reasonable that this proposed legislation is motivate more by jealousy than actual concern. Of course, once the old hamster starts spinning, it becomes increasingly more difficult to tell the difference between the two.
* Yes, I know that labor don’t apply in this case. However, it is an article calling for legislation/regulation of some sort, and is thus relevant to my broader point regarding labor laws.
By Simon Grey, on March 6th, 2012
The trends in offshoring and international trade that we have described are likely to accelerate. China currently employs around 120 million people in the manufacturing sector and, although some reports indicate that wages are rising in China, those wages are still only a tiny fraction of wages in the United States. Moreover, China is expanding its manufacturing base to low-wage countries across the globe through a series of overseas economic zones. The implication for American workers is that in order to regain ground, they will need to find jobs outside of manufacturing where wages are comparable to those in manufacturing.
I know I’ve harped on this plenty of times before, so I’ll be brief: Given the current regulatory regime in place at the federal and state level in the United States, it makes absolutely no sense to have free trade with China. Given that citizens of the United States are legally prohibited from competing for jobs on price, ad given that employers in the United States are expected to comply with onerous regulations, it is safe to say that there is no free market in the United States. As such, it is equally ludicrous to say that it is possible to mimic the outcomes of the free market by partially freeing up foreign import restrictions, and it is politically foolish (not to mention heartless and unpatriotic) to enact an economic policy that has had a measurable effect on closing part of the labor market to Americans.
By Simon Grey, on March 2nd, 2012
And so began the downward trend in America’s free market in medicine. With fewer medical schools — and thus fewer doctors — wages can be kept higher than would exist in a market dominated by free enterprise and the unobstructed entry into practice. Consumers, who ordinarily determine the success of producers, have lost out as they face higher costs on top of being deemed too ignorant to choose an adequate doctor without the aid of the state. Rent seeking becomes ingrained in an industry that must devote increasing amounts of financial resources to appease public officials.
At first, the problem was presumably that doctors weren’t getting paid as much as they truly deserved because they had to compete with hacks. Therefore, the government had to step in to ensure that doctors got paid the proper amount of money. This led, unsurprisingly, to increasing health care costs, and so the government was asked to step in again to reduce the costs of medical care, this time in the form of subsidy. And so the government obliged.
The lesson to be learned from this is that once the government interferes in the market, it must continue and increase its interference in the market so as to preserve equity. What’s interesting, though, is that governmental interference, when all is said and done, is only intended to produce a minor tweak. That is, the result of governmental interference is only supposed to lead to a result that is only slightly different from the market result. What actually happens is that the government’s result is different by an order of magnitude, which leads to more and increasing “corrections.”
At some point, though, it has to be asked of whether the slight market modification is worth the massive cost, for government interference has a tendency to spiral out of control and become very costly. As the costs of modifying the market increase while the benefits for doing so remain small, it becomes increasingly reasonable to ask whether it is better to accept the market’s perceived imperfections so as to save money and scarce resources, especially since the market is self-adjusting and will likely solve the problem more equitably anyway.
By Simon Grey, on March 1st, 2012
But there’s more to this than meets the eye. What we don’t see are the hidden costs of protectionism. The first is the waste from using costly production methods. Protectionism changes manufacturers’ incentives, and they use capital and labor that could have been better-used elsewhere to produce (say) cars. The economic imagination is useful here. If people weren’t making cars, they could be making medical devices. Or tacos. Or automotive repair services (it stands to reason that if you can build cars, you can probably also fix them). Or any of a number of other things. As Russell Roberts points out in The Choice, there might be some short-run costs for workers who have trouble retooling; however, free trade leads to new opportunities for the next generation.
Replace the word “protectionism” with the word “regulation,” and note that the resulting paragraph makes a compelling case against government regulation. The altered paragraph also explains why free trade is terrible idea at this point in time: there are a massive number of regulations imposed on businesses by the federal government. Allowing for free trade, then, will not make the country wealthier. Rather, all it will do is decrease the cost of consumable goods while simultaneously transferring wealth to foreign businesses. As such, supporting free trade during a time of high domestic economic regulation is akin to supporting government-based foreign aid.
The second cost comes from the fact that tariffs increase the price of cars. When prices rise, people demand less of something. Consumers are worse off because they have fewer cars, and the cars they are no longer buying are cars that would cost less than consumers are willing to pay in the absence of tariffs. Interventions like tariffs raise the incomes of some workers by impoverishing others.
As mentioned before, there are a large number of governmental regulations that hinder the domestic economy. If tariffs were enacted to enforce regulatory parity, prices would naturally go up (or the quality of products would go down) as a response because consumers would have to bear the costs of their government’s regulatory interference. In a democratic country like the US, citizens would have to live with the consequences of the choices their elected representatives make. Thus, by simultaneously desiring free trade and a high degree of regulatory “protection,” Americans are essentially saying that they want societal luxury goods (like minimum wage, reduced pollution, worker safety, etc.) without having to actually pay for them. Unfortunately, nothing is free in this world, and the cost of regulation will be paid for, either in the form of higher prices, in the form of diminished capital, or in the form of increased debt.
The third cost comes from the change in incentives when it is discovered that people can raise their incomes by getting favors from the government. At best, favors from the government are a zero-sum transfer from one group of people to another. In reality, however, people use scarce resources to effect these transfers. Consider just one cost: the cost of flying to and from Washington, DC. The plane that is flying auto executives and union representatives from Detroit to DC could be used for something else, like flying people from Detroit to New York for business or from Detroit to Los Angeles for a vacation. The prospect of subsidies, tariffs, and other benefits from the government means that people will take valuable resources that could have been used to create wealth (planes, the time and energy of flight attendants and pilots, bags of roasted peanuts) and instead use them to transfer wealth. On net, we’re all worse off.
It is true that one government intervention usually begets another. What’s ignored is that not all second-order governmental interventions are irrational or illogical. While the initial tinkering in the economy usually leads to unintended and undesirable consequences, it does not follow that further interventions will do the same. And thus, while it is better for the government to not tinker in the first place, it is ludicrous to suggest that further tinkering will always be a net negative. Furthermore, if we take Carden’s argument at face value, the most appropriate response would be to focus our energy on deregulating the domestic economy instead pursuing free trade, since the domestic economy plays a much larger role in consumers’ lives than foreign trade.
Incidentally, coupling a highly-regulated domestic economy with free foreign trade is economic suicide in the long run because the domestic producers will their ability to innovate to be quite stifled (what with regulation and all), and so they will outsource their innovation to freer countries that offer comparable labor markets. And since production usually initially occurs at the same place as the innovation that leads to said production, it stands to reason that the innovative industries of the future will begin outside of the highly regulated economy that has encouraged outsourcing via free trade.
As should be clear, Art Carden’s argument suffers from the same flaws as all the others made by free traders: it’s shallow, ignores economic complexity, and is based on highly idealistic economic theories instead of actual reality. As such, his policy prescriptions should be ignored.
By Thomas Knapp, on February 15th, 2012
What’s got Charles Johnson (the wrong-headed Charles Johnson of Little Green Footballs, not the right-headed anarchist Rad Geek) so worked up?
Now the GOP Wants to Permit Any Employer to Deny Contraception Coverage
What’s all this “permit” and “deny” stuff?
An employer doesn’t (or at least shouldn’t) have to offer health insurance as a job benefit at all (he or she may choose to do so, including as part of some contract negotiation or whatever, of course).
And if an employer does offer health insurance as a job benefit, excluding this or that item from said offering isn’t “denying” anyone anything, nor should any “permission” to exclude anything, nor any excuse for excluding anything, be required. As long as he’s not lying about what it is he’s offering, I’m free to take it, leave it, or try to negotiate something different.
There’s no “right” to force someone else pay for or deliver whatever health care you might happen to want, and there never will be, no matter how many times Johnson clicks his heels and shouts “war on women’s rights! … [W]ar on contraception!”
The whole “religious exemption” thing is just a distraction. I suspect that’s where you’ll find most objections to covering contraception in particular, for the simple reason that most employers and insurers would rather pay for contraception, vasectomies, tubal ligations, etc. than pay for pre-natal care and delivery of a baby, then cover that baby’s health care expenses as well. But the general principle extends far beyond religious objections.
Maybe my employer finds out that he or she can save $10 per employee per month by offering us policies that exclude sports injuries. Unless we have a contract specifying otherwise, why should he be mandatorily out $10 extra a month so that I can play rugby or ride bulls on the weekend?
Or maybe I’ve had myself snipped and my significant other has had her tubes tied. Why should we not be able to buy a policy that doesn’t cover (at an extra premium cost) a bunch of services we’re never going to need?
Hey, maybe … no, not just maybe … the details of what health insurance we buy (or don’t buy), or negotiate (or not) with our employers, are none of Barack Obama’s and Kathleen Sebelius’s business.
By Simon Grey, on February 13th, 2012
Capitalism is currently undergoing its most serious crisis since the Great Depression. The solutions offered by the Right are the same as they were then: Do nothing and let the natural cycle of business (the invisible hand of the free market) straighten itself out. Well, that’s not going to work. Hoover did that for three years and had nothing to show for it. Rooseveldt’s [sic] approach of course made sense. Recessions and depressions mandate an activist state and its massive intervention, otherwise, you’re in Hell forever. But then, I’m a Keynesian, eh?
First, we have a little bit of term conflation to start things off. If capitalism is defined as anything approaching the free market, then what’s happening right now in America is not a crisis of capitalism. Corporatism, maybe.
Or the-electorate-wants-all-the-benefits-of-socialism-without-actually-paying-for-it-or-allowing-the-government-to-regulate-them-ism (aka magical-rainbow-unicorn-ism). At any rate, the current crisis is not one of capitalism, the free market, or laissez-faire, because none of those actually exist outside of theory in America these days.
Second, Hoover was not laissez-faire by any stretch of the imagination. Unless laissez-faire now means interventionist statism. The difference between Hoover and Roosevelt is like the difference between Bushitler and Obamao: it’s of degree, not kind.
Third, the solutions offered by the right are not, so far as I know, “do-nothing.” They might be non-interventionist, but that now requires removing market impediments (which, it should be noted, is the very definition of doing something). At any rate, most of the right’s proposals ten to be along the lines of reducing* taxes, deregulating* businesses, and reducing* spending.
There are probably other fallacies I’ve overlooked. If so, point them out in the comments.
*Note that all of these words are verbs, which are action words. In essence, each of these words means doing something.
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