Category: Economics

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Economics

More on guns

Just to clarify what I said before on guns, the second amendment guarantees the “right to bear arms.” As long as that is in force, people should be allowed to carry guns. There have been many studies done showing the positive effect on crime rates that concealed weapons permits have had. Deterrence is a very effective weapon in crime prevention. Deterrence may have stopped the Va. Tech incident, and if someone else had a gun, I am sure not as many people would have been killed.

I do believe that there is a trade off between preventing crime and preventing irresponsible/impaired judgement/children getting a hold of guns/accidents/and situations where guns are present pose a clear risk. For example, I don’t think that anyone would claim that your second amendment rights extend to when you are visiting someone in prison. There are obvious and serious consequences if people found out that you had a gun there. Similarly, courthouses present a dangerous combination of high tensions and not always responsible people. It seems logical to limit the presence of weapons in these types of circumstances. A college campus is, IMO, a similar situation. Campuses are notorious for the amount of drinking and “partying” that goes on. I believe, and I think that most people would agree with me, that the incidence of stupid things happening with guns would most likely go up on campus. Here’s the kicker, Ex Ante that outcome is SO much more likely than a rampaging lunatic (at least in Blacksburg), the costs of many students having guns on campus would not outweigh the benefit of possibly (possibly mind you) preventing what happened at Va. Tech.
Courthouses and prisons are fairly easy to keep weapon free, campuses not so much. This means that someone could (and did) walk onto campus, guns a blazing, and no one could do anything about it. If people are really worried about a similar event occurring at Va. tech, or any other campus, make sure that there is some sort of deterrent and/or defense against it. Perhaps allow or encourage faculty and Residence directors to carry a weapon and let it be known that some of them do. There’s also the tried and true idea of hiring professional armed security people. If they have a visible presence on campus, and it is well known that they can be anywhere on campus in a matter of minutes, that would most likely be enough.
So random carrying of weapons is indeed a powerful deterrent against crime, but there are situations where widespread gun distribution will most likely lead to more problems that it solves. Obviously there is a sliding scale, and different places will have to figure out where they are on that scale. Guns can be good and bad, sometimes all at the same time.

Isaac

Categories
Economics

New essay up

I have finally finished something that I have been meaning to do for about a year. Economists talk about profit all the time but people do not understand the difference between economic profit and accounting profit. That leads to misunderstandings and accusations of exploitation, etc. I encourage you to read it and let me know what you think. I hope it’s pretty straightforward, but I want to know if I didn’t explain something well. It has the rather pedestrian title of Profit is important! It’s under my rational choice menu to the right, or you can just click
here.

While I was writing it, I had a brainstorm on why so many people cling to the idea of wealth being a zero sum game. While any given transaction is indeed zero sum (the more money I pay, the more you get and the less I have), that does not translate into how the economy generates wealth. Just like the confusion between accounting profit and economic profit, the confusion between money and wealth befuddles many people. I’ll put up another essay (I’m sure you’re all holding your breath) about that later. I better get to bed…

Isaac

Categories
Economics

Wow, talk about corporate misconduct (repost)

Check out this letter
here.

The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity’s total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years.

If this announcement related to a private company, the news would have been on the front page of major newspapers. Unfortunately, such was not the case — even though the entity is the U.S. government.

To put the figures in perspective, $50 trillion is $440,000 per American household and is more than nine times as much as the median household income.

The only way elected officials will be able to make the tough choices necessary to put our nation on a more prudent and sustainable long-term fiscal path is if opinion leaders state the facts and speak the truth to the American people.

The Government Accountability Office is working with the Concord Coalition, the Brookings Institution, the Heritage Foundation and others to help educate the public about the facts in a professional, nonpartisan way. We hope the media and other opinion leaders do their part to save the future for our children and grandchildren.

DAVID M. WALKER

Comptroller General of the United States

Government Accountability Office

Washington

This is much worse than Enron, much worse than Worldcom, but why doesn’t it get the press that those other two did?

Isaac

Categories
Economics

China and greed (repost)

On a recent post in a photo forum I haunt regularly, someone was bemoaning the fact that the Chinese government is so awful. I would have agreed with that, but he went on to say that he wished that “someone with some clout” would come and prevent companies (in this case Nikon) from doing business in China. He lamented that “greedy consumers and businesses” were making it tough on the Chinese. The sad thing is that this is a frequently used tactic to try to stop or hinder trade with China.

I asked the obvious question, would you rather live in China now or 20 years ago before those greedy corporations came in. There is no doubt when you would want to live there (if you had to), it would be now. Things were much much worse back then, even if there was less “greed”. People get very hung up on intentions and not enough on results. For the moment, I will assume that consumers really are greedy and that businesses are also at least as greedy and full of avarice. Would the Chinese have it any other way? Is there another system that would bring so many jobs to so many people year after year? China has made undeniable progress over the past 20 years, dramatically so over the last 10.

I see wanting the lowest price possible for a good as morally neutral. Instead of seeing the pursuit of profit as being greedy like so many others, I see it as a genuine positive activity. Here’s the thing, someone could be the biggest greedy bastard in the world, but the greedier they got, the more people they would be *forced* to support.

Unless they put the money under a mattress (which they wouldn’t since they have a voracious appetite for money) they would either have to spend the money or invest it. Spending has an obvious link with jobs created. If he wants his land landscaped, hair cut, pool cleaned, house built, or a new TV, someone has to be paid to do that.

Investment slips most people’s minds, but it is where most of the big money goes. Direct investment is the most direct way of creating jobs. If they see a business opportunity, either starting a new one or expanding an existing one, investment leads to new jobs. If they instead invest in financial assets, it is a little more vague, but just as effective. All interest earned is a fraction of the return on whatever that money was invested in (with the exception of government debt). Money into hedge funds, stocks, commodities, mortgages, etc. filters back to either individuals (who then face the same decisions about what to do with their money) or to direct investment into companies, which creates more jobs…

China (and India) shows what can be done if you simply allow people to pursue profits. Millions of people are lifted out of poverty while providing goods and services that people want. The jobs created by direct investment lead to other jobs. The Nikon factory worker needs to eat, get their hair cut, get to work, and have a place to live. In addition, they buy other products that employ the people that make those. Money begets more money and more wealth.

China’s government surely needs to change. They have an awful track record of civil rights abuses among other things. But at least the government is allowing its people to escape the grind of poverty. Compare China with Cuba, or any of a host of African nations. China’s people are on the upswing while other countries are falling or have already bottomed out (Zimbabwe, Cuba). Give credit where credit is due, it may not be a great government, but it is doing the right thing in one very important way.

Isaac

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Categories
Economics

Being controlled by corporations (repost)

I posted this almost a year ago on my old blog, but recent conversations have made think it is relevent again. Plus, with the new blog, every post is searchable by Google and the other search engines, so here it is again…

This idea of being controlled by corporations has come up several times in recent online conversations. It’s usually in the context of the government regulating something to protect us from the evil corporations. This puzzles and worries me on several different levels. What strikes me the most is this idea that we are slaves to various companies, that we have no choice in certain things and we are therefore controlled by these companies. Following that line of logic, we are in need of a protector, and most people want the government to play that role. With just a little thought you can see how backwards this really is.

Companies depend on us buying their products and services to survive. It is in their best interest to provide us with what we want. We are the ones that control of the corporations! This is easily shown by the fact that companies regularly go out of business. As long as there is competition between companies for our dollars, we are the ones in control. We always have options, we can buy from a company, not buy from them, buy from their competition, etc. If we do not like their price, their business practices, owners, or whatever, we can choose to do something else.

When we involve the government, our range of choices always decreases. Government ownership being the worst case scenario. Lets use a ridiculous example to make a point. Let’s say that the local power plant decides to start burning babies to provide power. There are people that applaud this decision since babies are messy and loud. Plus, they burn much cleaner than the traditional fossil fuels. You are outraged of course, but what to do, you need power! Well, you have options. You can use some sort of alternative energy source, maybe buy your own generator or install solar panels. In the worst case scenario, you could move somewhere else and use some other power source. The key is that you do not have to use their power and you no longer support what you don’t like. Now imagine that the government owns the power plant or at least subsidizes it as an alternative energy source. You could choose not to use the power, but you’d still be paying for it. If you decided to make a stand and not pay for it (as you should), you would be thrown in jail, or at least fined. Sounds silly, right? Well, just substitute your least favorite war, educational policy, political junket, or least favorite bit of bureaucratic red tape to see how relevant it really is. When the government is involved, you have to pay no matter what you think of the policies. That’s quite a bit more control than any business could ever have over you.


OK sure, but the government doesn’t own most things, and besides the poor need some sort of protection. They don’t have the same kind of options that you and I have. It’s true that the US government doesn’t own most things (thank God!) but that’s not the case in many countries. The government here may not own as much, but they certainly regulate quite a bit. Regulations have a similar consequence, they cause us to have fewer options. How? By forcing expenses on companies, it raises the cost of entry and operation. This prevents some companies from starting and can cause others to close. By stifling competition, we have fewer choices and pay higher prices. This gets us back to the protection of the poor. The poor wouldn’t need protection if they had adequate choices. In fact, they may choose an option that you wouldn’t because it would save them some money. I’d like to think that everyone, regardless of income bracket, would choose the nuclear power plant over the baby burning one. But not everyone would choose the nuclear plant over a coal burning one. Some would prefer the lower operating expenses of coal, some people just don’t trust nuclear power. Some people wouldn’t choose either, they’d rather pay the extra money and use wind or solar power. The key is that the more choices companies can offer us, the better off we are. They have no control over us, we control them. The government is the one you have to watch out for, it can either limit your choices or control you directly by threat of incarceration (or worse).


The same principles apply to ANY product or service that you can think of. If you let businesses pursue profits, you will have the most extensive range of options, including the lowest possible price. Regulations passed, no matter how well intentioned, will always interfere with someone’s choices. This limits them to them paying more and/or eliminating a service that they would rather have. Granted, environmental, educational, and national defense issues are complicated, but the fact remains that the government is the only one that can “control” us, the corporations of the world can only ask us for our money.

Isaac

Categories
Economics

Maybe I was too hasty

i just listened to a podcast of the Egyptian finance minister and I am very surprised. Egypt has initiated some sweeping economic reforms and they are having an effect. They are on track for a 7% increase in GDP this year and they expect that to continue now that certain things have been put into place. What reforms? They streamlined their infamous customs regulations, completely redid their tax system by slashing tax rates across the board and greatly simplifying the process, and perhaps the most important thing, they are in the process of cutting through the enormous bureaucracy and shrinking the size of their government. Foreign capital investment has gone through the roof and consumption is way up.

He said a couple of things that really struck me as being amazingly astute. First, he noted that Egypt now has a current account surplus, he wants a deficit. You may be more familiar with the hot phrase in the media here, a trade deficit. It’s the same thing.” Wait a minute, isn’t that what everyone here is getting all upset about? isn’t everyone worried that we’re “losing” to the Chinese? Egypt’s finance minister is correct when he says that a positive (exporting more than importing) current account balance means that they are lending money to other countries. What you want to to be borrowing in order to finance capital improvement. Or as he says, “We’re not rich enough to be lending out money.” The other thing he said was in response to a question about the permanency of the reforms he has overseen. Very often, good economic policy is implemented only to have the political winds shift before the effects can be felt. As a (former) prime minister of Belgium said, “We know what to do (economically), the trouble is that we don’t know how to be re elected once we do it.” The finance minister pointed out that what many people want is predictability and stability. He has had people tell him that they wish that the Soviet style government would come back even when it is pointed out to them how much better things are without it. Many people fear change and it holds back real economic improvements. His rather amazing method to try to guard against this is to make sure that the underlaying bureaucracy and control is destroyed. It is easier to reverse course when a small number of people control something, it is far more difficult when that power is spread across millions of people like it is in a market economy.

He went on to make many great points about government power, economic progress, and how people’s lives improve through market processes. It’ s an amazing talk and he was amazingly eloquent considering that English is not his first language. Although he did graduate with a doctorate from MIT, so maybe that’s not all that surprising. I highly recommend anyone interested in developing countries, easing poverty, and economic progress to check it out, it can be found here.

But but but… there’s an elephant in the room and his name is Mubarak. When it comes to freedoms like free press, speech, assembly, etc. he is a typical autocrat. He has a slew of people rotting in jail for disagreeing with him. God only knows how many people have disappeared under his watch. He does not allow any real political dissent and his he is trying to set up his son as his successor to the throne, er, I mean the presidency. I do think that the Muslim Brotherhood will be allowed on the ballot. They are the main opposition party, it’s sad to think that the best chance a country has of getting rid of a terrible leader like Mubarak is by adopting an economic plan that has mired the entire middle east in poverty and corruptiuon. SIGH. Well, maybe Mubarak is fitting my description of the economically savvy SOB that an Arab state needs to get out of it’s hole. I’m probably giving Mubarak too much credit, his only real accomplishment is probably just not getting in the way. Still, it gives me hope.

Isaac

Categories
Economics

More about Va. Tech and guns

A commentator (mom, is that you?) on my last post about this said that it’s hard to believe that I think it would be better with more guns. Well, I don’t think as many people would have died if one or two of the professors or students involved had a gun on them. Hell, that SOB may not have even tried anything if he knew that someone out there had a gun. Don’t underestimate the deterrent factor on pussies like that guy, he was never able to stand up to anyone that he thought could make fun of him, what do you think he would do if he thought they had a gun?

On the other hand, the prospect of college kids having ready access to guns is really frightening. There’s enough stupid stuff going on on campus. I guess the gun thing could work better if they banned alcohol… I don’t see that working. There’s an obvious trade off between protecting against a rampage where 30 people die and protecting against the typical armed robbery, mugging, or hot headed homicide. In the first, shooting back, or even the threat of shooting back may be enough to limit the body count. The last three are much more problematic as far as “protection” goes. Maybe I’m a pollyanna, but I have always thought that you would be in much more danger of being shot if you engage in a shootout rather than just give the guy your money. Simplistic I know, but I think accurate. There are a number of studies that show that the incidence of those three typical uses of guns goes down in places with easily gotten concealed weapons permits. Deterrence is a big deal.

The bottom line is how afraid are you of another rampage in a school or other place that does not “allow” guns? If you are really afraid of it, there really isn’t any option other than arming some people. Whether that’s students (maybe undercover marshal types), professors, or just an increased police presence probably wouldn’t matter much, the deterrence and defense would be there. I’m not sure that it pays to do that though, how often do these things occur? The best thing would probably be taking people with problems seriously and trying to help them. I think that’s where the real failing was in the Va. Tech incident, not in the security.

Isaac

Categories
Economics

Got an email today…

…thanking me for saying something about Milton Freidman when he died. Honestly, I don’t remember what I wrote, but I’m sure it was in a positive vein. I’m impressed that Rick (from frretochoose.org) tracked me down at the new address to thank me. His organization is the producer of “Free to Choose,” a landmark documentary on freedom and democracy featuring Milton. They’ve got something new in the works, I’ll let him announce it…

“On behalf of Free to Choose Media, I wanted to send a belated thank you for your online comments this past January regarding Milton Friedman. We are the producers of the Free to Choose series and The Power of Choice biography.

I\’d also like to alert you to our newest documentary titled \”The Ultimate Resource,\” which will premiere on HDNet next Tuesday, April 24 at 10PM EST. I apologize for the short notice, but I was hoping you might share this with your readers. In short, we travel to China, Bangladesh, Estonia, Ghana, and Peru and show examples of how people (thank you Julian Simon) – when given the incentives and the tools – are proving they can apply their free choice, intelligence, imagination and spirit to dramatically advance their well-being and that of their families and communities. The program features 2006 Nobel Peace Prize winner Muhammad Yunus, Hernando de Soto, James Tooley and Johan Norberg.

For more information including pics and video previews, visit us at http://www.freetochoosemedia.org

Also FYI: the Muhammad Yunus segment is available for teachers at no charge from http://www.izzit.org”

The thanks to Julian Simon is a reference to his most famous insight, that people are the ultimate, and perhaps only real resource. he made the point that none of our so-called natural resources are of any use at all until human ingenuity is applied to them. To use some of Don Beaudreaux’s examples, magnesium was in the ground for millennia, but it wasn’t until recently that people figured out how to use it. Native Americans no doubt cursed that awful black fluid that polluted streams in Pennsylvania, it took some ingenuity to figure out how to use it. According to Julian Simon, if people are allowed to tackle problems without interference, solutions to all problems can be overcome. Anyway, I expect this doc. to be all about human ingenuity in trying circumstances. Check it out if you can!

Isaac

Categories
Economics

A great quote

It’s from Paul Samulson, an economist I don’t really like. He wrote many things during the cold war that explained how the Soviet Union was more efficient than the US. All of his stuff was proven to be wrong when the USSR collapsed. His and Hayek’s works were diametrically opposed to one another. Samualson championed central planning and a command economy whereas Hayek spoke at great length about the strength of emergent orders and unplanned economies (guess which one I like:-) One had to be wrong, turns out it was Samualson… Anyway, his great quote was

“The problem with free competition and capitalism, like the problem with Christianity, is that it has never been tried.”

Isaac

Categories
Economics

Hmmmm

Just finished listening to the latest podcast called econtalk. They interviewed Richard Bogel, the man that created the first indexed mutual fund. It was eye opening and I think that I’ll switch to an indexed fund soon. My returns have been pretty gaudy the last couple of years (16%-19%), but they can’t last. Time for a little diversification….

Isaac