Category Archives: markets

To Drill or not to Drill: That is the Question

So I was reading a couple of articles on the legislation in the United States that was stopped before it began on the possible drilling of off-shore locations for an increase in the domestic oil production of the US.  The bill was designed to allow lands, that were previously off limits, to be accessed for use in drilling to increase the domestic supply of oil in the US and help brunt some of the increase in costs on the amount per barrel.  Many politicians saw this as a way to help the consumer absorb some of the cost that they were paying at the pump, while others saw this as a “big oil” or  “anti-environmental” movement aimed at furthering the destruction of the planet.  Continue reading

Trade Subsidies: The Good, the Bad, and the Ugly

In the market oriented world, trade subsidies are supposed to be an advantageous means to protect a country’s ability to produce a good and have a chance to be marketable on the global market.  Thus when one country produces a product at a lower cost and begins exporting it globally, another country has the ability to place an export duty or a trade subsidy on it so that their product meets the price of the same or similar product in that nations market.  Thus, if an African country can produce, say wheat, at a lower cost and ship it worldwide, then Europe would subsidize their farmers and pay them the difference in the market value so that the European farmers could sell their wheat at the same price as the African country.  Thus, the African country loses the battle because their product is no longer as competitive as it was when it was shipped from their ports.  Continue reading

The New Deal: Savior from the Great Depression or Creator of the Welfare State?

Looking back over the history of not only the United States, but the history of most of the now modern world, the Great Depression was a defining moment in many people’s lives.  This was a time when the world economy came to a grinding halt for some, or slowed down so significantly that the people were desperate for any means possible to get out of their economic depression.  The evils of capitalism would not and could not allow for the economies of the world to rebound as fast as the people wanted or needed and thus drastic measures were required.  At least that is how the political figures in-charge defined their arguments for such “New Deal” policy and legislation.  Continue reading

$2 a share

Regarding JP Morgan Chase’s weekend purchase, Pearce of Samizdata says,

One of the more thoughtful, if sobering, analyses comes from The Times (of London) columnist William Rees-Mogg. He points out that once again, the late Milton Friedman has been proven correct: we have been through a period, since the 1990s, of rapid monetary growth. The inflationary impact of that growth had been temporarily masked in the High Street and the labour market by the deflationary effect of cheap goods from China and elsewhere. But for those who wanted to look hard enough, the warning signals were plenty: asset price bubbles in property, gold, antiques, fine wine, equities, as well as the frenzy of mergers and takeovers, much of which was funded by cheap debt, as well of course as the heavy lending to sub-prime borrowers in the US, Britain and elsewhere.

read the William Reese-Mogg article here.

Ideas 2008, according to Time

Time Magazine features 10 ideas that they claim are changing the way we live.  You can see the complete series here, the list is as follows:

ideas time

#10 Re-Judaizing Jesus
#9 Mandatory Health
#8 The New Austerity
#7 Synthetic Authenticity
#6 Geoengineering
#5 Kitchen Chemistry
#4 Reverse Radicalism
#3 The Post-Movie-Star Era
#2 The End of Customer Service
#1 Common Wealth

The articles are worth a read, I find the first interesting since it calls for solutions “beyond the market”.  Jeffrey Sachs from Columbia University’s “Earth Institute” says that “the key (is to) make the right choices in our public investments and to find ways to harness, and channel, market forces”.  Sachs claims that “the challenges of sustainable development–protecting the environment, stabilizing the world’s population, narrowing the gaps of rich and poor and ending extreme poverty — will render passé the very idea of competing nation-states that scramble for markets, power and resources”.

While it may be true that the realist view of the world will be shortly obsolete, markets are certainly not passé, and the ideas defining the future should address this distinction.

minimum wage in Germany

Adam Loos

“History, in brief, is an analysis of the past in order that we may understand the present and guide our conduct into the future,” stated former University of Chicago professor Sidney E. Mead. To understand and guide our conduct for the twenty-first century, one must examine the past. The German Union leaders and other prominent German politicians are calling for a minimum wage to be enacted. One labor leader is calling for a price floor of 7.50 euros an hour. Is this policy effective in establishing equality and limiting unemployment? If one wants to understand the future of the German nation, one must look at the history regarding minimum wage.

Australia introduced wage floors in the 19th century to create social equality. Historically, minimum wage is a detriment to the economic and social equality and stability of many countries. As lawmakers seem to fail to understand wealth creation, poor economic conditions result. Minimum wage laws reduce the quantity of hours or workers, increases unemployment and price levels, harm small businesses, constrain freedom, create social unrest, limit the least employable and ineffectively introduces welfare into the private sector.Minimum wage reduces the quantity of hours employed to minimize costs. This produces rising unemployment, due to a pricing out effect on the lowest qualified out of the work-force. General economics suggests this to be so, but when 308 members of American Economics Association were asked to respond to how they viewed “minimum wage increases unemployment among young and unskilled workers”, 73.5% agreed or partially agreed with the statement.

By excluding the lowest economic classes, it manifests itself in institutional racial prejudices in South Africa and the United States. Milton Friedman dubbed the minimum wage law as the “the most anti-Negro law on our statute book.” It is deemed as such because it sets a price floor on how cheap labor can be. It forced the African-American to compete on other levels besides cheap wages, where they were unable to compete (i.e. race, skill level, etc) This finding is supported by National Center for Policy Analysis study stating that “beginning in 1956, when the minimum wage was raised from 75 cents to $1, unemployment rates for the two groups began to diverge. Soon, unemployment rates were significantly higher for both black and white teenage males, but moreso for blacks. By 1960, the unemployment rate for black teen-age males was up to 22.7 percent, while the white rate stood at 14.6 percent.” The study maintains that “the minimum wage was further increased in 1967, 1968, 1974, 1975, 1976 and annually from 1978 through 1981. At each point, the unemployment rate for black teen-agers tended to ratchet higher. By 1981, the unemployment rate for black teen-age males averaged 40.7 percent four times its early 1950s level, when the minimum wage was much lower and its coverage less extensive.”

In 1988, upon hearing about the impending minimum wage laws, the Cato Institute wrote a piece stating that “Contrary to the claims of many members of Congress, government cannot create wealth by simply passing new laws. Otherwise, Congress would long ago have passed laws prohibiting poverty and establishing a minimum wage of $100, or even $1,000, an hour. In such a world, everyone could be a millionaire. But ours is a world of scarcity, and wealth is a product of the market process, not of legislative fiat.” When legislators give raises, who must pay for them? The employed will be paid in three different ways. As aforementioned, employed hours can be cut by minimizing the work force. The employer may take a profit cut, at the expense of research and development, paying off loans or expansion. Lastly, the cost may be passed onto the consumers with price increases.

Many businesses that employ minimum wage workers are restaurants, super-markets and clothing stores. These businesses raise prices quickly in order to restore profit margins. Unfortunately, the government responds far slower in order to meet the inflation created by the minimum wage, leaving the poor with same amount they started with. In a competitive market where prices can’t be raised or businesses is lost, the business will simply cut jobs instead of absorbing the economic loss. Lawmakers often believe that the “wealthiest of the wealthy” will soak the losses minimum wage exerted on large corporations. The problem comes regarding small businesses in highly competitive markets which do not have the profit margins to cover great losses and are not able to raise prices for fear of losing businesses.

Marred by a history of creating inequality, racial prejudice, misplaced welfare, and lack of results, and increasing unemployment; it is difficult to understand Germany’s call to minimum wage. One should hope that the German voters persuade the politicians to vote against a wage floor.

the missing middle

The New York Times Magazine featured an article on microfinance and celebrity contributions this past Sunday. Natale Portman, advocate for microfinance and poster child for FINCA told the NY Times, “It’s the way it works, I guess. I’m not particularly proud that in our country I can get a meeting with a representative more easily than the head of a nonprofit can.”

Well, who is? But it is the way it works. Stars — movie stars, rock stars, sports stars — exercise a ludicrous influence over the public consciousness. Many are happy to exploit that power; others are wrecked by it. In recent years, stars have learned that their intense presentness in people’s daily lives and their access to the uppermost realms of politics, business and the media offer them

a peculiar kind of moral position, should they care to use it. And many of those with the most leverage — Bono and Angelina Jolie and Brad Pitt and George Clooney and, yes, Natalie Portman — have increasingly chosen to mount that pedestal. Hollywood celebrities have become central players on deeply political issues like development aid, refugees and government-sponsored violence in Darfur (NYTimes).

However, while celebrities are able to broadcast a particular message to the masses, the issues are, not surprisingly, more complex than they seem. The New Yorker points out that while microfinance has won Muhammad Yunus a Nobel Peace Prize and remains to this day a chic economic innovation made popular by Hollywood, it is not the magical solution it is purported to be.

This vogue has translated into a flood of real dollars: institutional and individual investments in microfinance more than doubled between 2004 and 2006, to $4.4 billion, and the total volume of loans made has risen to $25 billion, according to Deutsche Bank. Unfortunately, it has also translated into a flood of hype. There’s no doubt that microfinance does a tremendous amount of good, yet there are also real limits to what it can accomplish. Microloans make poor borrowers better off. But, on their own, they often don’t do much to make poor countries richer.

This isn’t because microloans don’t work; it’s because of how they work. The idealized view of microfinance is that budding entrepreneurs use the loans to start and grow businesses—expanding operations, boosting inventory, and so on. The reality is more complicated. Microloans are often used to “smooth consumption”—tiding a borrower over in times of crisis. They’re also, as Karol Boudreaux and Tyler Cowen point out in a recent paper, often used for non-business expenses, such as a child’s education. It’s less common to find them used to fund major business expansions or to hire new employees.

Not everyone can be, nor should everyone be an entrepreneur. Microfinance is promising for some, but the “micromagic” dream shouldn’t be oversold. To read the rest of the New Yorker article on microfinance, click here.

visible and invisible hands

Douglas Den Uyl of Liberty Fund Inc. and Douglas Rasmussen, Professor at St. John’s University in New York ask the question:

what exactly is the connection between the visible hand of ethics and the invisible hand of the market?

If we assume, as most people do, that markets coordinate people based simply on mutual interest and consent, then the visible hand of ethics does not seem to have a place. They continue:

we know that in any social order we cannot allow people to do whatever may interest them. We shouldn’t be allowed to set up Murder Inc. So it seems we need some kind of rules even within a market system. This suggests right off the bat that ethics has a role to play in setting those rules. But then, why not let ethics set up everything?

This question concerning “where to draw the line” in relation to ethics, delineates libertarians from Liberals, conservatives, etc. While it is an important question, few people, even the most politically convicted, cannot answer it. They continue:

We could say that we stop doing ethics when the market approach of using interests rather than commands starts to work better than the visible hand of ethics. This response, unfortunately, brings us pretty much to a standstill in terms of how to proceed. On the one hand … there could be those who are less interested in what works and more interested in being sure that people do the right thing. On the other hand, there are those interested in what works, but who might have different opinions about what works better than what. Finally, besides those few who don’t think markets really work at all, there are those who might say that markets are okay in very limited spheres, but that ethics should really be the dominant way in which to organize people. All these qualifications seem to stand in the way of a robust defense of the liberty offered by the market. And if we went the other way and gave in to a largely market system, we would seem to be encouraging a culture of interest rather than one of ethical responsibility …

Their solution:

We, however, believe that this apparent “ignoring” of ethical concerns is not only justified but is actually a kind of celebration of ethics. In a certain sort of way, less is more. A lot less concern about adherence to commands and directives at the public level may mean a good deal more respect for ethics generally. We’re not saying that the liberty of the market will make people more ethical … we’re saying that this way of organizing society — giving people some simple rules and allowing them to interact with each other based on their mutual interests, agreements, plans, or projects — is an approach that gives ethics utmost importance in society.

How does this work?

Either society is structured around some ethical principle or set of principles such that the purpose of the society is to live according to them, or society takes some ethical principles to be central to it while leaving others for people to follow their own … we’ve got to be both general and specific at the same time with whatever basic governing principles of society we adopt. It still seems like we’re at an impasse. What kind of rule or principles could possibly both speak to everyone at the same time, allow for plural forms of living well, and not at the same time bias things in favor of one form of living well over others?

Their answer is the principle of self-direction. This means that within a social order, the first principle must be the protecion of the possibility of self-direction. The definition of self-direction is simple: the ability to make and exercise choices as an acting agent.

In protecting the possibility of self-directedness, it should be clear that we’re not trying to make people good or even increase their effectiveness in being self-directed. What we’re really trying to do by protecting the possibility of self-directed behavior is to give eithcs a chance.

While many people claim that markets are amoral, even immoral, Rasmussen and Den Uyl refute this:

It may seem that market societies are indifferent or ambivalent about ethics, but if so it is because they and only they recognized that there’s a difference between ethical principles that make ethical actions possible in society and ethical principles that guide us in what we need to do to live well or fulfill our obligations to ourselves and others.

Finally,

While there is solid evidence to support the contention that liberal orders make people generally better off, what is perhaps less well noticed is that liberal orders allow something deeper and more profound. They allow people to be human– that is, they allow people to employ their peculariarly human capacities of reason, judgment, and social sympathy towards ends and purposes they themselves have chosen. The market order is not, then, a dehumanizing institution, but the most human, and ethical, of them all.

(all quotations from “Visible and Invisible Hands”, see link in first sentence to read the entire article)

unregulated play.

Adam Loos

When one is stricken with poverty in the European Union, the afflicted receive government funded housing, government funded health-care, and government funded food provisions. However, when a team in the German football Bundesliga becomes poverty stricken, it does not receive government aid, it sinks to lower levels. From within a heavily regulated economic system and society, one may expect every aspect of the society to be controlled in some way, in order to ”ensure equality”. While heavy regulation is present in most sectors within the European Union, the football clubs and their corresponding leagues are surprisingly exempt.

A football club sells one main product; players. This transaction affects their other main product: play on the field. In the end, good play on the field fills seats. Naturally, in order to get the best results, the clubs must be innovative. They create special academies to attract the best players, they scout new talent aggressively, and they provide intensive training and coaching in an effort to develop players that present attractive play on the pitch. Clubs must efficiently employ earned money from successful play to create better teams and thus better play. The clubs which utilize their money ineffectively generally sink to lower levels. When the London team, Chelsea, bought Shevchenko for the astronomical price of 30 million pounds sterling with limited results, Chelsea was not awarded compensation!

This competition for money and fans that relies on successful play on the field, results in high quality players, matches, and teams. Europe’s soccer leagues play at the highest level due to this healthy competition between teams. Furthermore, the football associations and clubs do not press for profit sharing, such a principle, based on some concept of “equality” is unthinkable. Imagine the Spanish bottom dweller team, Levante requesting a portion of the transfer fee of Luis Figo from Barcelon to Real Madrid, rumoured to be around thiry-eight million pounds! Nou Camp and the Catalans would be appalled and would never consider it. In comparison, even a non-sports fan can understand their disgust when they are asked to hand over nearly half of their hard-earned money in taxes.

The success of the European football associations is a compelling example of a working free-market transfer system, and an argument for the liberalization of trade between corporations. The increased competition between not only players and teams on the field, but also between the front offices of these clubs, dramatically proves this point. Increased competition creates innovation, in turn creating better football. When you watch your top-flight football team this weekend, thank the free-market.

nyc produce carts and the public health argument

a view from new york city. a look at municipal politics shedding light on the more general “macro” issues

Kevin Medina

New York City Council Speaker Christine Quinn recently began pushing a new bill that would create 1,500 new permits for fresh fruit and produce carts in impoverished neighborhoods, in order to battle the correlated obesity epidemic. “Impoverished” as such may be too harsh a word to describe these neighborhoods, considering the creep known as gentrification that has been changing said neighborhoods (please, detach yourself from its purported “negative” connotation), but they continue to be home to the lowest income earners in the city (Harlem, parts of Brookyln and the Bronx, and Southeast Queens).

At first, you may deem this scheme a classic instance of the government overstepping its bounds by artificially creating a supply absent of a clear demand, and “Let the markets decide!” may seem like a logical counter. I’ve read and heard this argument a number of times from New York Libertarians or small “c” conservatives (and you’ve only heard it if you’re wonkish enough to follow such mundane topics as permit awards!) and agreed at first. However, I have stepped back from my initial assumption and have taken a position in favor of Speaker Quinn’s bill.

The libertarian and “c”onservatives argue that by pushing for fresh fruit and produce stands in lower-class neighborhoods, the government facilitates an unfair competition between them and already established grocery stores. Others argue that areas in these neighborhoods with a demand for fresh fruit and produce are meet with a proper supply by virtue of market forces, thereby negating any need for the government to intervene and try to fill a void they argue is non-existent. The final and more general counter is that, perhaps the government shouldn’t be worrying so much about food carts and more about other “consequential” topics, whatever they may be.

There are probably a variety of other arguments that can be made here, but I think the general principle is simply: providing fruit stand permits to poor neighborhoods is not a role of government.

But, however black and white this issue may seem theoretically, I agree with speaker Quinn’s initiative on different grounds. In arguing for the creation and selling of permits that are specifically destined for an impoverished community, a new market that would not have existed is being created. Since most permits issued by New York City allow the holder to freely choose their location, most fruit and produce vendors migrate to wealthier areas of town where demand is the greatest. This natural gravitation by merchants is an outcrop of a hard reality: healthy food isn’t on the mind of the poor – and for good reason! Health food, organic food, specialty food, et cetera, is more costly, perishes faster, and is raw – thereby requiring more processing. Most poor people don’t have the luxury of considering these things, and are rather concerned with filling their own bellies and their children’s. Merchants of course, recognize this.

Since these permits are limited to impoverished neighborhoods, Speaker Quinn is attempting to artificially create a new market where one would probably (or at least for the near future) never come to be. The government isn’t forcing merchants to set up shop in impoverished neighborhoods, instead the government is encouraging it. If no opportunity exists, then the permits will just languish, and eventually the idea would be dropped all together. I think the forces of competition and creativity need a little push at times.

to the contrary, there is no guarantee that a few new fruit stands would be enough to change the eating habits and consequently, the health of the people in these neighborhoods. while the issue of languishing communities is itself much deeper (including the reason they’re perpetuated in the first place, the affects of welfare, etc…) than a bill allowing for fresh fruit stands addresses, i think Quinn’s bill is worth a try.