Category Archives: Free markets

Ridley’s Case For Free Market Capitalism

05 Saturday Aug 2017

Posted by in Free markets

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Matt Ridley delivered an excellent lecture in July addressing a generally unappreciated distinction: markets and free enterprise vs. corporatism. Many don’t seem to know the difference. Ridley offers an insightful discussion of the very radical and liberating nature of free markets. The success of the free market system in alleviating poverty and increasing human well-being is glaringly obvious in historical perspective, but it’s become too easy for people to take market processes for granted. It’s also too easy to misinterpret outcomes in a complex society in which producers must navigate markets as well as a plethora of regulatory obstacles and incentives distorted by government.

I agree with almost everything Ridley has to say in this speech, but I think he does the language of economics no favors. I do not like his title: “The Case For Free Market Anti-Capitalism”. Free Markets are great, of course, and they are fundamental to the successful workings of a capitalistic system. Not a corporatist system, but capitalism! Ridley seems to think the latter is a dirty word. As if to anticipate objections like mine, Ridley says:

“‘Capitalism’ and ‘markets’ mean the same thing to most people. And that is very misleading. Commerce, enterprise and markets are – to me – the very opposite of corporatism and even of ‘capitalism’, if by that word you mean capital-intensive organisations with monopolistic ambitions.“

No, that is not what I mean by capitalism. Commerce, free enterprise, markets, capitalism and true liberalism all imply that you are free to make your own production and consumption decisions without interference by the state. Karl Marx coined the word “capitalism” as a derogation, but the word was co-opted long ago to describe a legitimate and highly successful form of social organization. I prefer to go on using “capitalism” as synonymous with free markets and liberalism, though the left is unlikely to abandon the oafish habit of equating liberalism with state domination.

Capital is man-made wealth, like machines and buildings. It can be used more intensively or less in production and commerce. But capitalism is underpinned by the concept of private property. You might own capital as a means of production, or you might operate an enterprise with very little capital, but the rewards of doing so belong to you. Saving those rewards by reinvesting in your business or investing in other assets allows you to accumulate capital. That’s a good way to build or expand a business that is successful in meeting the needs of its customers, and it’s a good way to provide for oneself later in life.

Capitalism does not imply monopolistic ambitions unless you incorrectly equate market success with monopoly power. Market success might mean that you are an innovator or just better at what you do than many of your competitors. It usually means that your customers are pleased. The effort to innovate or do your job well speaks to an ambition rooted in discovery, service and pride. In contrast, the businessperson with monopolistic ambitions is willing to achieve those ends by subverting normal market forces, including attempts to enlist the government in protecting their position. That’s known as corporatism, rent-seeking, and crony capitalism. It is not real capitalism, and Ridley should not confuse these terms. But he also says this:

“Free-market ideas are often the very opposite of business and corporate interests. “

Most fundamental to business interests is to earn a profit, and the profit motive is an essential feature of markets and the operation of the invisible hand that is so beneficial to society. Why Ridley would claim that business interests are inimical to free market ideals is baffling.

I hope and believe that Ridley is merely guilty of imprecision, and that he intended to convey that certain paths to profit are inconsistent with free market ideals. And in fact, he follows that last sentence with the following, which is quite right: capitalism is subverted by corporatism:

“We need to call out not just the worst examples of crony capitalism, but an awful lot of what passes for capitalism today — a creature of subsidy that lobbies governments for regulatory barriers to entry.“

And, of course, crony capitalism is not capitalism!

Now I’ll get off my soapbox and briefly return to the topic of an otherwise beautiful lecture by Ridley. He makes a number of fascinating points, including the following, which is one of the most unfortunate and paradoxical results in the history of economic and social thought:

“Somewhere along the line, we have let the market, that most egalitarian, liberal, disruptive, distributed and co-operative of phenomena, become known as a reactionary thing. It’s not. It is the most radical and liberating idea ever conceived: that people should be free to exchange goods and services with each other as they please, and thereby work for each other to improve each other’s lives.

In the first half of the 19th century this was well understood. To be a follower of Adam Smith was to be radical left-winger, against imperialism, militarism, slavery, autocracy, the established church, corruption and the patriarchy.

Political liberation and economic liberation went hand in hand. Small government was a progressive proposition. Insofar as there was a revolution during the Industrial Revolution, it was the weakening of the power of the aristocracy and the landed interests, and the liberation of the bulk of the people.“

Do read the whole thing!

The Tyranny of the Job Saviors

17 Monday Jul 2017

Posted by in Automation, Free markets, Technology

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Many jobs have been lost to technology over the last few centuries, yet more people are employed today than ever before. Despite this favorable experience, politicians can’t help the temptation to cast aspersions at certain production technologies, constantly advocating intervention in markets to “save jobs”. Today, some serious anti-tech policy proposals and legislative efforts are underway: regional bans on autonomous vehicles, “robot taxes” (advocated by Bill Gates!!), and even continuing legal resistance to technology-enabled services such as ride sharing and home sharing. At the link above, James Pethokoukas expresses trepidation about one legislative proposal taking shape, sponsored by Senator Maria Cantwell (D-WA), to create a federal review board with the potential to throttle innovation and the deployment of technology, particularly artificial intelligence.

Last week I mentioned the popular anxiety regarding automation and artificial intelligence in my post on the Universal Basic Income. This anxiety is based on an incomplete accounting of the “seen” and “unseen” effects of technological advance, to borrow the words of Frederic Bastiat, and of course it is unsupported by historical precedent. Dierdre McCloskey reviews the history of technological innovations and its positive impact on dynamic labor markets:

“In 1910, one out of 20 of the American workforce was on the railways. In the late 1940s, 350,000 manual telephone operators worked for AT&T alone. In the 1950s, elevator operators by the hundreds of thousands lost their jobs to passengers pushing buttons. Typists have vanished from offices. But if blacksmiths unemployed by cars or TV repairmen unemployed by printed circuits never got another job, unemployment would not be 5 percent, or 10 percent in a bad year. It would be 50 percent and climbing.

Each month in the United States—a place with about 160 million civilian jobs—1.7 million of them vanish. Every 30 days, in a perfectly normal manifestation of creative destruction, over 1 percent of the jobs go the way of the parlor maids of 1910. Not because people quit. The positions are no longer available. The companies go out of business, or get merged or downsized, or just decide the extra salesperson on the floor of the big-box store isn’t worth the costs of employment.“

Robert Samuelson discusses a recent study that found that technological advance consistently improves opportunities for labor income. This is caused by cost reductions in the innovating industries, which are subsequently passed through to consumers, business profits, and higher pay to retained workers whose productivity is enhanced by the improved technology inputs. These gains consistently outweigh losses to those who are displaced by the new capital. Ultimately, the gains diffuse throughout society, manifesting in an improved standard of living.

In a brief, favorable review of Samuelson’s piece, Don Boudreaux adds some interesting thoughts on the dynamics of technological advance and capital-labor substitution:

“… innovations release real resources, including labor, to be used in other productive activities – activities that become profitable only because of this increased availability of resources.  Entrepreneurs, ever intent on seizing profitable opportunities, hire and buy these newly available resources to expand existing businesses and to create new ones.  Think of all the new industries made possible when motorized tractors, chemical fertilizers and insecticides, improved food-packaging, and other labor-saving innovations released all but a tiny fraction of the workforce from agriculture.

Labor-saving techniques promote economic growth not so much because they increase monetary profits that are then spent but, instead, because they release real resources that are then used to create and expand productive activities that would otherwise be too costly.”

Those released resources, having lower opportunity costs than in their former, now obsolete uses, can find new and profitable uses provided they are priced competitively. Some displaced resources might only justify use after undergoing dramatic transformations, such as recycling of raw components or, for workers, education in new fields or vocations. Indeed, some of  those transformations are unforeeeable prior to the innovations, and might well add more value than was lost via displacement. But that is how the process of creative destruction often unfolds.

A government that seeks to intervene in this process can do only harm to the long-run interests of its citizens. “Saving a job” from technological displacement surely appeals to the mental and emotive mindset of the populist, and it has obvious value as a progressive virtue-signalling tool. These reactions, however, demonstrate a perspective limited to first-order, “seen” changes. What is less obvious to these observers is the impact of politically-induced tech inertia on consumers’ standard of living. This is accompanied by a stultifying impact on market competition, long-run penalization of the most productive workers, and a degradation of freedom from restraints on private decision-makers. As each “visible” advance is impeded, the negative impact compounds with the loss of future, unseen, but path-dependent advances that cannot ever occur.

Lighten Up For Human Achievement Hour!

25 Saturday Mar 2017

Posted by in Free markets, Human Welfare

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Tonight, Saturday March 25th from 8:30 to 9:30, I’ll be doing my part to celebrate humankind’s ascendence over the bare subsistence and misery that was ubiquitous until just the last few centuries. Human Achievement Hour is sponsored by the Competitive Enterprise Institute (CEI) to celebrate the incredible technological miracles  brought forth by human ingenuity and free markets:

“Originally launched as the counter argument to the World Wide Fund for Nature’s Earth Hour, where participants renounce the environmental impacts of modern technology by turning off their lights for an hour, Human Achievement Hour challenges people to look forward rather than back to the dark ages.

Symbolically or not, Earth Hour is a misguided effort that completely ignores how modern technology allows societies to develop new and more sustainable practices, like helping people around the world be more eco-friendly and better conserve our natural resources.

While Earth Hour supporters may suggest rolling brown-outs in India are desirable, we respectfully disagree. Instead of sitting in the dark, Human Achievement Hour promotes new ideas and celebrates the technology and innovation that will help solve the world’s environmental challenges.”

The following are suggestions from CEI as to how you can participate in the celebration. I’ll take them up on the third and sixth items on this list, just as I have for the past several years.

  • Use your phone or computer to connect with friends and family
  • Watch a movie or your favorite television show
  • Drink a beer or cocktail
  • Drive a car or take a ride-sharing service
  • Take a hot shower
  • Or, in true CEI fashion, celebrate reliable electricity that has saved lives, by bringing heat and air conditioning to people around the world, and keep your lights on for an hour

Light up the night! Here are a couple of links with information on the worldwide progress in improving human living conditions:

The Human Progress Blog

Thank Fracking For Reduced Emissions

We are winning the war against starvation, disease and poverty around the globe, though progress can seem frustratingly gradual in real time. Nevertheless, over the sweep of history, we are winning the battle in a dramatic way.

Minority Politics and The Redistributionist Honey Trap

22 Friday Jan 2016

Posted by in Big Government, Free markets

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Minorities are not well-served by political, big-government solutions to social and economic advancement. Joel Kotkin weighs in on this point in “What’s the Best Way Up For Minorities?” He discusses the experiences of African Americans and Hispanics with two starkly different approaches to moving up:

“Throughout American history, immigrants and minorities have had two primary pathways to success. One, by using the political system, seeks to redirect resources to a particular group and also to protect it from majoritarian discrimination, something particularly necessary in the case of the formerly enslaved African Americans.

The other approach, generally less well-covered, has defined social uplift through such things as education, hard work and familial values. This path was embraced by early African American leaders such as Booker T. Washington and Marcus Garvey. Today, the most successful ethnic groups – Koreans, Middle Easterners, Jews, Greeks and Russians – demonstrate the validity of this method through high levels of both entrepreneurial and educational achievement.“

Minorities have largely succeeded in achieving political stature, and minority politicians garnering the most support from minority constituencies have advocated statist solutions, as opposed to emphasizing individual initiative. A leader advocating for public provision of transfers or any form of “economic justice” is undoubtedly attractive to many disadvantaged voters. Unfortunately, those policies offer little more than support. They are incapable of lifting the disadvantaged out of poverty.

“From 2007-13, African Americans have experienced a 9 percent drop in incomes, far worse than the 6 percent decline for the rest of the population. In 2013, African American unemployment remained twice that of whites, and, according to the Urban League, the black middle class has conceded many of the gains made over the past 30 years. Concentrated urban poverty – on the decline in the booming 1990s – now appears to be growing.“

Kotkin notes that blacks are in worsening economic straits in cities that are considered “exemplars of black political power and redistributionist politics”, and even in more affluent but “progressive” coastal cities. And paradoxically, according to Kotkin, African Americans have achieved greater economic gains in the “old Confederacy”, and that is where they are moving. The same is true of Hispanics, though most of their population growth in the south is from immigration. African Americans are reversing an older pattern of migration to the north.

Kotkin cites statistics on minority homeownership and educational performance in the south relative to northern cities, and he compares results for Texas and California. The south wins convincingly. He emphasizes the role of education and housing policies in helping minorities overcome disadvantages, but he is rightly critical of housing subsidies and affirmative action. Bad housing policies, such as rent control and zoning ordinances, hurt minorities by limiting the stock of good housing, ultimately raising its cost. The public education system, usually shielded from competitive pressures in urban areas, has often failed minorities and the urban poor.

Unfortunately, calls to expand government support extend well beyond the optimal size and scope of the social safety net: free college education, subsidized home ownership, proportional representation in virtually any occupation, and “living wage” demands are very much a part of the economic justice narrative. Supporters of these policies among the poor, convinced that they are deserving, cannot be expected to understand the implications of Reynolds’ Law, named by The View From Alexandria blog after Instapundit‘s Glenn Reynolds:

“Subsidizing the markers of status doesn’t produce the character traits that result in that status; it undermines them.“

Higher education is not a birthright. It is for those who demonstrate sufficient learning skills, and it is often free to the most promising students. The value of education provides a powerful incentive to those possessing the “trait” of prescience. Homeownership is a choice that should follow from resources earned by hard work or from one’s long-term prospects. Representation in certain occupational categories, and higher pay, reflect “traits” (skills, effort and reliability) that must be developed or demonstrated. As Reynolds says, subsidies destroy incentives by creating the illusion of  success, a thin simulacrum revealed by long-term dependency. Subsidies do not create self-sustaining success. They do not create the real thing. And the resources confiscated to pay for subsidies punish those those bearing the most positive traits.

Minority voters, especially African Americans, placed great hope in the Obama Administration to improve their economic success. Unfortunately, Obama favors the political route to minority material gains, not the economic route. The results have been dismal (and see this) in terms of poverty, dependency, labor force participation, wages, income, and wealth:

“On every leading economic issue, in the leading economic issues Black Americans have lost ground in every one of those leading categories. So in the last ten years it hasn’t been good for black folk. This is the president’s most loyal constituency that didn’t gain any ground in that period.“

The answer to promoting economic gains for minorities lies in encouraging market opportunities, freedom and the rule of law. This includes wage and price flexibility, labor rights, choice in schools, even-handed law enforcement and criminal justice, secure property rights, low taxes, and ending prohibitions that promote black markets and crime. The political route to success undermines the vibrancy of the economy, opportunities faced by minorities, and their ability to capitalize on them.

Bernie Sanders: Just a Regular Looter

17 Thursday Sep 2015

Posted by in Free markets, Poverty, Socialism

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Economic illiteracy is getting to be a central theme in the early stages of the 2016 presidential race. The two candidates with whom the public and media are most fascinated at the moment are Bernie Sanders and Donald Trump. Both are veritable case studies in delusional economic reasoning. I have already devoted two posts to Trump, the current frontrunner for the Republican nomination (both posts appear at the link in reverse order). At the time of the second of those posts, I recall hoping desperately that someone or something would rescue my blog from him. I have managed, since then, to resist devoting more attention to his campaign. In this post, I’ll focus on Senator Bernie Sanders of Vermont, currently the top rival to Hillary Clinton for the Democrat nomination.

It’s ironic that Sanders, a self-proclaimed socialist, shares several areas of acute economic illiteracy with Donald Trump. There is a strong similarity between Sanders and Trump on foreign trade (and both candidates are pro-Second Amendment). Like Trump, Sanders demonstrates no understanding of the reasons for trade, as Kevin Williamson notes:

“The incessant reliance on xenophobic (and largely untrue) tropes holding that the current economic woes of the United States are the result of scheming foreigners, especially the wicked Chinese, “stealing our jobs” and victimizing his class allies…. He describes the normalization of trade relations with China as “catastrophic” — Sanders and Jesse Helms both voted against the Clinton-backed China-trade legislation — and heaps scorn on every other trade-liberalization pact. That economic interactions with foreigners are inherently hurtful and exploitative is central to his view of how the world works.“

Sanders lacks an understanding of trade’s real function: allowing consumers and businesses to freely engage in mutually beneficial exchanges with partners abroad, and vice versa. Trade thereby allows our total consumption and standard of living to expand. It is not based on “beating” your partners, as Sanders imagines. It is cooperative behavior.

Opposition to free trade nearly always boils down to one thing: avoiding competition. That goes for businesses seeking to protect or gain some degree of monopoly power and for unions wishing to keep wages, benefits and work rules elevated above levels that can otherwise be justified by productivity. The result is that consumers pay higher prices, have access to fewer goods and less variety, and have a lower standard of living. It is no accident that trade wars deepened the severity of the Great Depression domestically and globally. But Sanders, like Trump, has failed to learn from the historical record.

Another area of Sanders’ deep economic ignorance is his position on wage controls. He advocates a mandatory $15 federal minimum wage with no recognition of the potential damage of such a change. Kevin Williamson has this to say:

“Prices [and wages] in markets are not arbitrary — they are reflections of how real people actually value certain goods and services in the real world. Arbitrarily changing the dollar numbers attached to those preferences does not change the underlying reality any more than trimming Cleveland off a map of the United States actually makes Cleveland disappear.“

The minimum wage was the subject of a recent post on Sacred Cow Chips. A higher minimum is a favorite policy of well-meaning leftists and social justice warriors, but they fail to address the realities that the least-skilled suffer adverse employment effects, that a higher minimum wage hastens the substitution of capital for unskilled labor, and that the policy often benefits non-primary workers from middle and upper-income households. It’s a lousy way to help the impoverished. Moreover, minimum wages were originally conceived as a tool of racial exclusion and in all likelihood still act that way. Most of the research supporting minimum wage increases focuses on short-run effects or on sectors that are less capital-intensive. Findings about long-run effects are much more negative (see here, too). It’s a given that Sanders understands none of this.

Other elements of Sanders’ platform are essentially freebies for all: universal health care (see the first link from this Bing search), free college tuition for all, and expanded social security benefits. And of course there is a promise to rebuild our crumbling infrastructure, taking full advantage of the myth that our infrastructure is so decrepit that it must be replaced now. All of these ideas are costly, to say the least, and there is nothing adequate in Sanders’ platform to pay for them. He’ll raise taxes on the 1%, he says. Just watch the capital fly away. Ed Krayewski of Reason discusses Sander’s rich promises and the lack of resources to pay for them in “Bernie Sanders, the 18 Trillion Dollar Man“:

“The Wall Street Journal spoke with an economist at the liberal Center on Budget and Policy Priorities, who acknowledged taxes would have to go up for the middle class too to pay for Sanders programs.“

Middle class tax hikes would undoubtedly be accompanied by a lot more public debt, and ultimately inflation. Freebies for whom? As Krayewski says, Sanders “wants taxpayers to ‘feel the Bern’“.

In fairness, Sanders suggests that some of the needed revenue can be diverted from military spending. Possibly, but the military budget has already been reduced significantly, and it is not clear that much fat remains for Sanders to cut. There will certainly be demands for greater military spending given the significant threats we are likely to face from rogue states.

Sanders’ promise to transform our energy system is another one that will come with high costs. What Sanders imagines is a widespread fallacy that green energy can be produced at little cost. However, we know that renewables carry relatively high distributed costs and their contributions to load are intermittent, requiring base load backup from more traditional sources like fossil fuels or nuclear energy. Like President Obama, Sanders would impose new costs on fossil fuels, but the poor will suffer the most without offsetting assistance. And subsidies are also required to incent greater adoption of expensive alternatives like home solar and electric vehicles. Sanders would authorize this massive diversion of resources for the purpose of mitigating a risk based on carbon-forcing climate models with consistent track records of poor accuracy.

If free speech is your hot button, then Sanders’ promise to “overturn” Citizen’s United won’t make you happy. Why should an association of individuals, like a union or a corporation, be denied the right to use pooled resources for the purpose of expressing views that are important to their mission? Sanders is proposing an outright abridgment of liberty. From the first Kevin Williamson link above:

“… criminalizing things is very much on Bernie’s agenda, beginning with the criminalization of political dissent. At every event he swears to introduce a constitutional amendment reversing Supreme Court decisions that affirmed the free-speech protections of people and organizations filming documentaries, organizing Web campaigns, and airing television commercials in the hopes of influencing elections or public attitudes toward public issues.“

It is hard to take issue with Sanders’ call for an end to police brutality without a clear sense of his attitude toward law enforcement. I believe all fair-minded people wish for zero police brutality, but critics often minimize the difficulty of police work. No doubt there are gray areas in the practice of law enforcement; some police officers take their powers too far, which cannot be condoned. If institutional reforms can help, so much the better. But the police must be given the latitude to do a difficult job without fear of unreasonable legal reprisal.

On a related note, Sanders advocates an end to the war on drugs, a reform that I wholeheartedly support. Go you Bernie!

Finally, here is a more general illustration of Bernie Sanders’ backward views on economics. It is a Sanders quote I repeat from the second Kevin Willamson link above:

“You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on.“

Sanders’ complaint about the plethora of choices in consumer goods fails to recognize that they reflect real differences in consumer preferences, as well as an economy dynamic enough to provide for those preferences. Far from causing hunger and poverty, that dynamism has lifted standards of living over the years across the entire income distribution, even among the lowest income groups, to levels that would astonish our forebears. And it created the wealth that enables our society to make substantial transfers of resources to low income groups. Unfortunately, those very transfer programs are rife with incentives that encourage continued dependency. Other government interventions such as the minimum wage have diminished opportunities for work for individuals with little experience and skills. Meanwhile, regulation and high business and personal taxes undermine the continued growth and dynamism of the economy that could otherwise lift more families out of dependency. Sanders would do better to study the history of socialism in practice, and to look in his own socialist mirror to identify the reasons for persistently high levels of poverty.

Capitalism Is The Bounce In Nature’s Rebound

04 Friday Sep 2015

Posted by in Free markets, Human Welfare, Technology

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What forces account for the great shift toward “rewilding” now taking place in our world? Is it green activism and government action? Not from the looks of the photo above, which shows a giant field of solar panels powering an airport in India. Hailed as a great accomplishment by greens, the view from above provides a clue to the absurdity of absorbing vast resources to replace cheap, traditional power sources with politically-favored solar for just a few buildings. Fry the birds, burn the taxpayers! That’s certainly not rewilding, nor will it get us there. Neither will a cluttered landscape of giant, noisy windmills that slice up avian life, provide only intermittent power, and are left to decay once taxpayer subsidies go away.

Rather, the world is returning to nature via many forms of technology, resource productivity and capitalism. How is that possible? Here is a monograph by Jesse H. Ausubel on “rewilding”, the rebound of nature taking place around the globe. It might make you feel more optimistic about prospects for human prosperity and the joint survival of mankind and planet Earth. There is no question that the changes he describes are primarily driven by powerful private incentives. However, Ausubel’s positions are largely technical, not oriented toward a particular social or economic philosophy. He presents compelling graphical evidence and references to support his technical claims. In what follows, I’ll try to summarize some of the most salient points he makes in the report. Some [bracketed comments] in the bullet points are my own thoughts:

  • Land once used in agriculture is being returned to nature as “acreage and yield [have] decoupled. Since about 1940 American farmers have quintupled corn while using the same or even less land.” The same is true in other parts of the world. “The great reversal of land use that I am describing is not only a forecast, it is a present reality in Russia and Poland as well as Pennsylvania and Michigan.” Moreover, there is no cap in sight for farm yields. He credits “precision agriculture, in which we use more bits, not more kilowatts or gallons.“
  • Even more impressive is the fact that “rising yields have not required more tons of fertilizer or other inputs. The inputs to agriculture have plateaued and then fallen, not just cropland but nitrogen, phosphates, potash, and even water.“
  • A tremendous quantity of food is wasted, but Ausubel cites new web-enabled initiatives such as Food Cowboy and CropMobster that hold great promise in rerouting wasted surplus to areas of need. “The 800 million or so hungry humans worldwide are not hungry because of inadequate production.” [Well, production might be inadequate in their vicinity. And “waste” is relative, so to speak. It is typically uneconomic to avoid all wastage, and social pockets of hunger exist for many reasons unrelated to the operation of markets in food. But improvements in technology can make it feasible to reduce wastage at little cost.]
  • “If we keep lifting average yields toward the demonstrated levels …, stop feeding corn to cars [corn ethanol – another activity subsidized by government], restrain our diets lightly, and reduce waste, then an area the size of India or the USA east of the Mississippi could be released globally from agriculture over the next 50 years or so.“
  • Land released from agriculture contributes to reforestation, a process that is underway in a number of countries. “In the USA, the forest transition began around 1900, when states such as Connecticut had almost no forest, and now encompasses dozens of states. The thick green cover of New England, Pennsylvania, and New York today would be unrecognizable to Teddy Roosevelt, who knew them as wheat fields, pastures mown by sheep, and hillsides denuded by logging.“
  • Our demand for forest products is in decline, which also contributes to reforestation. Forest plantations (accounting for about 1/3 of wood production) are much more productive than harvesting wood from natural forests. Land devoted to wood plantations can displace the harvesting of a much larger area of natural forest. 
  • Carbon dioxide (as well as nitrogen) is adding to “global greening“, which according to Ausubel is “the most important ecological trend on Earth today. The biosphere on land is getting bigger, year by year, by 2 billion tons or even more.” [Importantly, this greening provides an important offset to any tendency for human greenhouse gas emissions to warm the environment.]
  • “Dematerialization”: After the 1970s “…a surprising thing happened, even as our population kept growing. The intensity of use of the resources began to fall. For each new dollar in the economy, we used less copper and steel than we had used before.” Ausubel and some colleagues studied the use of 100 commodities in the U.S. over time. “… we found that 36 have peaked in absolute use; … Good riddance to asbestos and cadmium. … 53 commodities we consider poised to fall. These include not only cropland and nitrogen, … but even electricity and water…. Only 11 of the 100 commodities are still growing in both relative and absolute use in America.“
  • Ausubel shows that certain emissions in the U.S. have decreased in relative terms, and sometimes in absolute terms. [The latter were mostly induced by public demands for pollution control regulation, but relative declines also reflect the ability of the private economy to generate growth. However, the value of certain regulations is questionable from both a public finance and a public health perspective.]
  • He is very high on maglev technology and especially the “hyperloop”, Elon Musk’s proposed tube for high-speed maglev travel between LA and San Francisco. [I do not share his enthusiasm for some of the reasons discussed in “High-Speed Third Rail For Taxpayers“. Large-scale, publicly-subsidized infrastructure projects often fail in terms of costs vs. benefits. However, the economics of the hyperloop might prove more compelling.]
  • Fertility has been in decline throughout the world for decades. Slower population growth obviously complements technological advance in providing for material human welfare.
  • Oceans and aquatic life are an area of real concern, in Ausubel’s view. “Fish biomass in intensively exploited fisheries appears to be about one-tenth the level of the fish in those seas a few decades or hundred [of] years ago.” [This is a classic tragedy of the commons in which no property rights are defined until the catch is in.] Fish farming is a promising alternative that can reduce the strain on wild fish populations. 
  • A final section on potential changes in the human diet is provocative. Ausubel discusses the promise of hydrogen supplies in creating proteins for our diet. “A single spherical fermenter of 100 yards diameter could produce the primary food for the 30 million inhabitants of Mexico City. The foods would, of course, be formatted before arriving at the consumer. Grimacing gourmets should observe that our most sophisticated foods, such as cheese and wine, are the product of sophisticated elaboration by microorganisms of simple feedstocks such as milk and grape juice. … Globally, such a food system would allow humanity to release 90 percent of the land and sea now exploited for food.“

In concluding his monograph, Ausubel addresses whether his optimism is misplaced, having focused so much on positive trends in the developed world and relatively little on less developed countries. Here is his response:

“My view is that the patterns described are not exceptional to the US and that within a few decades, the same patterns, already evident in Europe and Japan, will be evident in many more places.“

None of this is to deny the existence of external costs and benefits to the natural environment, which private parties might ignore in cases of ill-defined property rights or difficulties in litigating damages. Regulation may be a reasonable alternative for internalizing obvious external costs and benefits, but even then, markets can play a valuable role in fashioning the most efficient regulatory approach. In fact, with advances in environmental consciousness, private parties often find it in their best interest to internalize obvious external costs.

Having achieved a sufficient level of prosperity, a society may decide to convert some of the gains into public benefits through various forms of regulation or other public initiatives. In essence, these may be characterized as “luxury public goods”. The danger lies in the mistakes government often makes in the imposition of costly measures, and in allowing excessive taxes and regulation to subvert the very market processes giving rise to prosperity. This is particularly dangerous to welfare and growth in the underdeveloped world, as illustrated by opposition from environmentalists to efficient fossil fuels. That leaves the poor no alternative but to continue to burn wood indoors for heating and cooking.

It’s worth emphasizing that the nature rebound already taking place in the developed world is largely a product of free market capitalism and the growth in wealth and technology they have made possible. A great benefit of secure property rights for society, and for the environment, is that owners have powerful incentives to husband their resources. Likewise, the profit motive gives producers strong incentives to reduce waste and improve productivity. As economic development becomes more widespread, these incentives are promoting a healthier balance between man and nature. Greenies: capitalism can be your friend!

Prospective Professionals Don’t Snub Minimum Wage Waivers

01 Tuesday Sep 2015

Posted by in Free markets

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Are unpaid internships of any benefit to the student/intern? If not, then why do you suppose several hundred thousand smart students accept them each year? And there are many more internships for which the pay is nominal. Clearly these students have something to gain, though some would still argue that interns are exploited. They would like to be paid, of course, but they are sufficiently forward-thinking to recognize opportunities, even if they are unpaid gigs.

What’s really silly is the Department of Labor’s “tests” for whether an unpaid internship can be offered. In truth, it would be impossible to meet the DOL’s requirements, but that doesn’t seem to matter. Bryan Caplan is on very safe ground in arguing that “Every Unpaid Internship Is Illegal“. Apparently the rules are just for show, though again, some would like to see the practice ended. But here is the truth from Caplan:

“Internships are vocational education. If schools can educate students in exchange for their tuition, why can’t businesses educate students in exchange for their labor? No reason, just anti-market bigotry.“

Caplan’s description of the transaction is apt. From the firm’s point of view, bringing an intern into the office has disadvantages. With some introduction, the intern can perform various low-level tasks, but they absorb the time of paid staff because some degree of oversight is required. And there is some risk: an intern might prove capable of performing fairly complex tasks, but some don’t work out at all. The hope is that they can make a minor contribution to the work effort, add to the firm’s recruiting pipeline, and perhaps strengthen the firm’s ties to the student’s learning institution. In exchange, the intern gains valuable experience in an actual business environment and walks away with a stronger resume and some contacts. A mutually beneficial trade.

For the sake of intellectual consistency, proponents of the minimum wage should oppose unpaid or low-paying internships. The situations differ only in terms of the typical job description and its educational requirements. In both instances, opposition to the voluntary exchange of labor for training and experience would foreclose opportunities of which many are happy to avail themselves. The worst of it is that the minimum wage itself inflicts its damage on the least skilled, who need opportunities the most. This is harmful and foolish intervention, however well-intentioned.

The harm is vividly illustrated by responses to President Obama’s proposal to raise the minimum wage to $10.10 an hour from $7.25, and to various moves on the part of state and local governments to raise the minimum wage within their jurisdictions. The end-game will be higher prices, more automation, lower employment and reduced hours among low-skilled workers (and those with less work experience). This article about Wendy’s is pertinent. It also notes that McDonald’s is planning to automate. Apparently Walmart is cutting hours after responding to pressure to increase wages.

The jury is out on the damage from changes in the minimum wage in cities like Seattle, San Francisco and Los Angeles. Initial signs have indicated some negative employment effects, but the data is noisy and reported at a higher level of aggregation. Regardless, the least skilled will suffer negative consequences. Interestingly, unions backed the increases but have found ways to gain exemptions for their own contracts.

One of the most absurd assertions about wage floors comes from the DOL itself:

“…the DOL cites numerous studies to support its claim that higher wages are associated with higher levels of worker productivity, but the agency gets the causality reversed, among other errors of interpretation.“

The correct rationale for the DOL’s claim is with reference to the productivity of remaining workers near the margin, since less productive workers will have been canned. Too bad! The last link, from Antony Davies of the Mercatus Center, shows the positive relationship between unemployment and the minimum wage for less educated workers. Of course, this does not capture the negative effect on hours worked for those who remain employed following an increase in the wage floor.

Prohibition of unpaid internships would undoubtedly reduce the total number of internships offered to motivated students and others seeking vocational experience and training. The losers are prospective entrants to the knowledge work force who gain valuable experience and credibility as future job candidates by virtue of unpaid or low-paid gigs. But the consequences to would-be interns might not compare to the impact of lost training and experience already suffered by society’s least skilled as a consequence of the minimum wage. They are rendered unemployable by the state, and their alternatives are often limited to dependency or illegal activity.