Profits Are Bad?

This is socialist indoctrination. Glorifying a man for his charity, yet implicitly criticizing all those that profit from their work. Perhaps if the people charged with the responsibility of educating the world's youth were better equipped with some sound economic understanding they would recognize that profits, or losses, are morally neutral. Profit is neither good nor bad. In fact, a world without capitalism and the market economy would still feature profit and loss. Every person engages in actions that strive to establish a superior state of affairs to whatever exists presently. Whether or not the chosen action achieves the desired result determines if there is a "profit" or a "loss". Profits and losses are psychic qualities that exist wherever human beings employ reason and will in determining particular modes of action. But only in the market economy--in capitalism--can people attribute specific values to the results of their actions and recognize which are more or less profitable. As Mises explained, profits and losses are ubiquitous.

HT: Captain Capitalism

Taxes: McCain vs Obama

Now, I wish I could state that I am completely unbiased and impartial when it comes to politics, but I just can't. Although I do think that both candidates, and more genereally all politicians, will implement poor policies that will undoubtedly have a negative impact on our economy and its prospects for growth, if someone were to point a gun to my head and say "CHOOSE!", I would vote for McCain. (Full disclosure: I have never voted before, nor am I likely to vote this coming November.)

That said, any prospective voter would be doing theirself an extreme disservice if they did not diligently investigate the specifics of each candidates policy proposals. Luckily, the folks at The Tax Foundation have already done much of the work pertaining to taxes for you! They have even produced it in nifty chart form. Ask yourself, which one will make the US a more attractive place to live and do business?

HT: CarpeDiem

Current Economics: Harvard's Larry Summers Perspective

Here's Larry Summers in the Financial Times.

Summers explains the current economic situation and provides context as to how it came about.

I really enjoy reading Summers as he tries to remain unbiased in the more government-less government debate. He simply addresses the problem and then attempts to provide an immensely pragmatic solution using his deep understanding of the effects of certain incentives. Few others who weigh in on these issues can remain as unbiased as Summers. Whether one wishes to admit it or not, our current economic situation is the product of years of complex intertwining of the public and private sectors, and any call for more or less laissez-faire must be conditioned on the potential consequences. Not many other experts--if any--understand that fact as well as Larry Summers.

Ethanol: It's Bad

This short Reason.tv video explains why.

Ethanol advocates claim that the biofuel is a cheap, renewable energy source that reduces pollution and our dependence on foreign oil. It sounds too good to be true—and it is.

Ethanol, especially the corn-based variety, is bad for taxpayers, bad for consumers, bad for the environment, and horrible for the world's poor. In fact, even environmentalists are critical of ethanol subsidies these days. The ethanol craze has distorted markets and increased the price of food worldwide. The only people who still support ethanol subsidies are the ethanol producers—and politicians from both sides of the aisle. Together, they make sure the subsidies keep coming.

In a recent interview about the current food crisis, Sen. Charles Grassley (R-Iowa) said, "If part of our problem is that the Chinese are going to eat meat and you've got to have corn and soybeans to feed the Chinese their meat, then why isn't it just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?"

Let them eat rice? So that American taxpayers can continue to pay people to turn corn into fuel?

Silly senator, corn is for food.

The Definitive Case Against "Energy Independence"

It will make us poorer.

Robert Higgs satirizes the popular idea that we must achieve "energy independence" by comparing it to a need to attain "banana independence". Nobody is naive enough to suggest we must grow our own bananas, rather than ship our money to tropical plantations. It's accepted that our climate is not conducive to banana farming and that any attempt to grow bananas in the US would be a waste of resources. The same holds for energy independence. By substituting our importing of energy from elsewhere, we would have to apply more of our scarce resources in the production of energy instead of in some other form of production.

Resources are finite. Wealth is created and spread throughout the population by using our scare, finite resources in the most effective and efficient manner. Right now oil remains cheaper than most any other energy resource. Some may say this is due to the full costs of its utilization are not being captured by the market price. But any argument that argues we would be wealthier producing our own energy should be viewed with extreme skepticism. As Prof. Higgs stresses in his concluding paragraph: this is a fact that was clearly explained by David Ricardo nearly 200 years ago! Why so many people have yet to recognize it I cannot understand.

A Confession

I have a confession to make. I have developed an unhealthy hatred for all things Barack Obama. Living in Ohio, I've been bombarded with campaign commercials. McCain on how wimpy and inexperienced Obama is, Obama on the need to develop alternative energy and reform healthcare, you the get the drift, standard campaign stuff. But the most recent commercial had to be designed to give me a brain hemorrhage. Though I tried to find a link to the video (and failed), the commercial is roughly a 30 sec clip featuring Obama telling us all how "Speculators are bad, evil people" and that as a solution to the energy crisis he plans to give everyone a $1000 check to cope with the high prices, and to pay for all this he will introduce a "windfall profits tax" as retribution against those greedy oil gougers. Big Oil? Come on!

Now, I want to ignore the headspinning lack of coherent logic employed by the Obama campaign economically. (If you need a few reasons why those policies can be described as moronic at best, follow the links: On Speculation Here, Here, and Here; on "windfall profits" here.) What I want to focus on is my reaction to these commercials. I think it's obvious that Obama is a savvy guy. The man was a law professor at the University of Chicago. He is not stupid! Obama, and the folks running his campaign, make these commercials because it is what they believe the public wishes to hear from their president. The name of the game is to get elected, and rarely is it that a candidate comes onto the scene as a true reformer and driver of an entirely new political paradigm. (Reagan is a glaring example of this.) This is how democracy functions, for better or worse.

I guess what I find most unfortunate and distressing about these commercials is that there is an actual electorate that is eating this up. Barack Obama is the current favorite to be our next president! So these are not marginal ideas but, arguably, mainstream. I remain optimistic for the future, though this optimism is being challenged with each passing day knowing so many of my peers are susceptible to being duped by such contradictory and harmful ideas.

Orwell as Blogger

The people who manage George Orwell's trust had the brilliant idea to start posting Orwell's personal diaries online at their blogsite. The entries begin on Aug 9th, 1939 and each new post will be added on the same day, just nearly 70 years later. It should be interesting to learn more about someone who remains relavant nearly 60 years after his death.

Creative Capitalism

A few months ago Bill Gates made a speech at Davos imploring the world's corporations and civic leaders to help harness the powers of capitalism and use it to reduce inequity and poverty around the globe. This speech ignited a debate amongst many economists and other generally very smart people at the blogsite Creative Capitalism. There are many interesting perspectives on the issue, which makes the site worth sorting through, and I do think the overall goal of the project was to produce a book, but a few highlights can be found here, here, here, and here. There are many other good posts that I've failed to highlight (Nobel Laureattes too!).

Overall, I think the debate was informative, but it was obvious that many of the writers were arguing past one another. The variety of backgrounds that the writers were drawing from made it where many arrived with their own preconcieved--though very detailed and well supported--notions about what institutional structures and economic theories identify the best method for producing a well-functioning wealth generating society. Some of the posters merely provide nice sounding platitudes and high-minded ideas about reforming the system. Others slog through the gritty circumstances that exist where much of the world's poor live. I doubt anyone changed positions in the entire debate.

My view is this:

1) It was capitalism--only capitalism--that produced the awe-inspiring wealth found in most of the western world. Much of the world remains poor because they have yet to embrace this socio-economic system.

2) The extent of inequity and poverty throughout much of the rest of the world remains not due to any inherent defect found in the capitalistic economic system, but is instead the product of poorly structured institutions designed to maintain order and stability. In much of the world, governments frustrate the efforts of private individuals trying to increase and build wealth through forced expropriation of personal property, or other policies that erode the ability to calculate the relative values of things in the economy (Zimbabwe serves as a striking example). Much of the problems are created by and due to poor government.

3) Some cultures maintain beliefs that stigmatize wealth creation and hard work. This places a check on productive activity.

4) The first goal should be to seize at the low hanging fruit. Almost immediate improvements in the lives of the world's poor can emerge from the elimination of our agricultural subsidies and trade restrictions. By eliminating subsidies and embracing free-trade, we will provide to the world's poor access to the largest market in the world, as well as allow them to increase production in the areas where they already have an existing comparative advantage. Though this seems unlikely with the interest groups vying for control an influence in the US Government. Virtually everyone is aware of the ethanol debacle, yet we still have the ethanol subsidies after all.

Freedom, Inequality, Primitivism, and the Division of Labor

Everyone should take the time to read this essay by Murray Rothbard. Though fairly long, no other article makes the case for freedom and the inherently unequal nature of each person's physical and mental endowments as concisely and poignantly, as well as serving to recognize the impact of both on the division of labor. Our current civilization is the product of individuals, using their unique skills and talents, to create new and better things, and any attempt to aggravate the ability of individuals to take advantage of their unique endowments can only serve to frustrate the further extension of the division of labor, while potentially causing an overall reduction in the standard of living for all. And, if the restrictions are especially grievous, a significant portion of the current population could perish. Also, here is Rothbard's brief introduction to the essay.

The Subprime Solution

Robert Shiller--of Case-Shiller index fame--is coming out with a new book soon in which he discusses the causes of the recent subprime mortgage market, along with some suggested solutions. The book can be ordered HERE. Go HERE for a brief (20 min) interview where Dr. Shiller touches on some of the things to be found in the book.

My take on Shiller's view after watching the video (though without reading the book, which I most certainly will) is that he proposes an immensely practical solution. Shiller is a thoroughgoing Keynesian economist. But he makes a very strong case for government intervention in the housing market in order to help stem the tide of foreclosures that many families continue to face and will face in the future.

Unlike many of the ardent free-market economists, Shiller sympathizes with families who were caught up in the frenzy of the housing market and took out exotic mortgages, many of which they did not fully understand (or in some cases couldn't ever understand). Since many of the mortgages originated by independent brokers were later repackaged into complex financial securities, there became a misalignment of the incentives facing the originators. The circumstances became that it was in the interests of mortgage brokers to close and package as many mortgages as possible, to the detriment of developing a specific mortgage designed to fit the individual needs of each customer. Although it would be nice to say that those buying the products they could not understand should have done their own due diligence and be made to suffer the consequences of this mistake (and that any bailout should not be forthcoming as the funds which would finance such a bailout will inevitably come from people that had the foresight or presence of mind not to sign on to something they could not understand), Shiller dismisses this saying that this kind of punishment would be similar to the punishing of an average german after WWI for the transgressions of the Kaiser. In short, punishing people for the problems that developed from areas in which they had no control or influence would be incredibly unfair. But Shiller's most insightful reason not to allow such a large amount of people to be thrown out of their homes is that this will invigorate an unwarranted hostility toward capitalism, and this would be a much more unfortunate outcome than any potential bailout. Shiller believes that the common person who is not familiar with the Federal Reserve's bubble creation, or how such a thing could ever develop and effect something like the price of a house should not be made to pay for the mistakes of the so-called experts in charge of the organizations that attempt to steer the macro-economy.

I look forward to Shiller's book, and will further contemplate his argument. I had not yet considered the potential impact of a mass foreclosure on the overall public opinion toward our market economy, and, I must admit, this seems to be as good as any justification for the bailout as any I've yet come across.

Moral Philosophy

One of my newly favorite bloggers, Will Wilkinson, has a recent Bloggingheads podcast out where he discusses the relativity of our moral systems with author Jesse Prinz. Prinz is a professor of philosophy at UNC Chapel Hill and in his recent book, The Emotional Construction of Morals, he argues that what we consider moral and immoral are essentially reflections of our emotional attitudes towards those things or actions. This discussion is fascinating and I doubt I can convey how much so by attempting to reduce Prinz's conclusions into a few short paragraphs. Arnold Kling at EconLog says that "You could easily spend four years at an Ivy League college and not have a class as interesting as this one."

Check it out HERE.

Globalization and France

French wine makers and grape growers are facing increased competition from foreign producers as the wine market becomes more globalized. What do you think is their response to the increasing amounts of foreign imports?

Cut costs? Rationalize production? Innovate? Wrong.

TERRORISM!!!!!

A few excerpts:

"Too much wine, it is known, can cause violent behavior. But few have gone as far as the grape growers of France's Languedoc-Rousillon region, the world's biggest wine growing area by volume. Hurting from over-production and cheap imports, and punished lately by the rising cost of gas, a small group of local wine growers has resorted to "wine terrorism" in a violent attempt to shock the French government into helping them."

"Those incidents are just two of many in a series of violent and destructive acts by local grape growers over the past three years that has targeted public and private buildings, supermarkets, tanker trucks hauling cheap imported wine, and businesses accused of gouging growers with ever-shrinking prices. Claiming responsibility: a clandestine group known as the "CRAV", or 'Regional Committe of Viticulture Action'."

Quixotic as it may seem to outsiders, the group — and many Langeudoc-Rousillon growers who support its aims while condemning the violence used to achieve them — want the French government to protect them from a rapidly globalizing market. Foreign wine from cheaper producers such as Italy, Spain, Australia, the US, and South America — where costs can be one-fifth of those in France — has saturated the market, and driven down demand for locally-grown grapes. That has depressed the price Langeudoc-Rousillon growers get for their crops by up to 50% in recent years.

That doesn't impress locals. "Many of these vineyard owners are committed to production and investment plans spanning 20 or 30 years," says one member of the regional wine sector who asks not to be named due to "the vivid tension" the situation has created. "These aren't operations that can change strategy or cut production overnight."

So, in the face of competitive pressure from foreign producers--producers that can make a bottle of wine 5 times cheaper (!) in some cases--the French wine growers turn to terrorism in order to protect their abnormal profits. I wonder how the non-wine growing Frenchman feel about this. Maybe they enjoy paying more for their wine? It really wouldn't surprise me considering the overall French attitude toward competition and the market economy (they famously reprimanded Amazon.com for shipping books for free. FOR FREE! Because it undercut domestic booksellers.) I just love the last guy basically saying that the wine makers overestimated in their long-run investments and that should serve to help their case for protection.

I really wish the article would have closed by explaining that trade facilitates a more efficient and effective utilization of all available resources. Without any protective barriers, some French wine growers will go out of business while others may have to make undesirable adjustments. Such is life in any environment where the future is not completely knowable or predictable. But the by-product of cheaper foreign imports are lower prices and higher quality products for consumers, as well as the capability to produce other stuff with the newly freed up resources that come from the inefficient and now defunct producers.

With attitudes like this, it is not surprising that France continues to have limited economic growth.