Apr 02

Gurgaon – Singapore of India?

I was intrigued by a recent Tom Woods podcast covering Gurgaon, India but I wasn’t very satisfied with the overall message I was getting about the city, so I thought I’d post my thoughts. It certainly didn’t fit very well with my free market ideals. Tom’s guest for the podcast was Alex Tabarrok, an economist at Mercatus who had written a paper discussing Gurgaon, described as a “private” city in India. The message from the podcast was that the city had experienced this growth due to a relaxation of the typical bureaucratic controls found elsewhere in India. In Alex’s words, “the city, since the 1990’s, has grown tremendously from a village of 100,000 to a city of 2,000,000 filled with skyscrapers, malls and golf courses, home to fortune 500 companies…. And it has been almost entirely privately driven.” Alex states that there’s been “no city government, almost no involvement from the state government”. But he goes on to say the problems in the city are related to services that we typically think of as being handled by government, primarily utilities like water, sewer and electric. The issue seems to be that each private entity has to handle these services individually. That is, there’s no centralization of those utilities so, according to Alex, these services are much more expensive. He goes on to say that he is surprised that these private entities have not gotten together to combine services and find economies of scale.

Alex’s story is that developers bought tracts of land and built skyscrapers, malls, golf courses, etc and they are doing great, but between the tract’s of land, it’s a disaster:

but the sewage, it doesn’t go to a central sewage treatment plant. Instead, quite often what happens is that trucks come and take it and dump it somewhere, perhaps into the river, perhaps into some unoccupied lands, some state land…

In fact, this seems to be the primary focus of Alex’s paper, which contains this statement:

We use Gurgaon, India, as a case study for the failure of the state to provide essential public goods and urban planning and the extent to which the private sector can take over such provisioning.

At this point, I can’t help but think that Alex is making the same mistake that roving Anglo-Saxens have made for centuries: that is, we tend to automatically think that “our solution” is the best solution. So if those in Gurgaon aren’t using a centralized sewer (provided by government) then they are doing it wrong. If you listen to the podcast, there’s a joking kind of tone from Alex, which seems to be saying “you dumb Gurgaonites, don’t you know how to build a sewer system?”. The puzzling question that comes to my mind is this: if there ARE NO utilities between these tracts of land, how can they be a disaster? I suspect reality is quite a bit more nuanced.

The following is just part of a comment I posted on Tom Woods’ site after listening to the podcast:

Why does Alex assume that a benevolent dictator or, it seems, ANY form of a state would have dealt with water, sewer and electric better than what they have now, but in the same breath state that Gurgaon’s situation is just as good as your average Indian city?

Alex’s statement in the podcast was something like: “while the utilities in Gurgaon aren’t great, they’re still as good as the average city in India. It’s just not as good as it would have been had Gurgaon had a benevolent dictator or an optimally planned social government”. Later on in his paper, Alex references other cities in India that have done a much better job of providing utility services. However, none of these examples was the result of either a dictator or a state.

Regarding the electric system Alex says “there are outages all the time, you can’t rely on it at all”, but yet half the worlds fortune 500 companies are set up in Gurgaon. Something about this smells fishy. In fact, he even states that the utilities built by these companies work great, so what exactly is Alex’s motivation here?

I suspect that what’s really going on here is that different individuals in Gurgaon are being allowed to place their own subjective values on resources and their use. The fall out of that is, not surprisingly, variances in type and quality of utilities. Is this really a bad thing? If we instead increase taxes and build a consistent set of common services, then by definition, we have decreased the overall utility of the population of Gurgaon since some will be paying more than they desired and some less, for these utilities. Although he doesn’t state it specifically, I also get the sense that Alex believes that some level of wealth transfer is necessary to level the playing field.

At another point in the podcast Alex talks about a business that has established adequate electric via diesel generation. Alex says:

that’s OK, but that’s inefficient compared to having a central plant.

This seems very similar to the knee-jerk position that leftists take regarding electric cars being “better” than a petroleum based cars. But of course, that isn’t necessarily the case.

Is it possible that Alex knows better than entrepreneurs in Gurgaon who hadn’t considered these factors? If it really is that much more efficient, then why hasn’t some developer built this central plant and provided this service and pocketed the cost difference? I suspect that builders in India know quite well what the cost’s are of various options and have made reasonable decisions. Either that or the issues with common services are directly related to the existing government controls.

Again later in the podcast, from Alex:

you have much higher costs because water is being trucked in instead of being serviced by a central system

Does he really know this? I suspect what he’s really thinking is “If we can build a central water system, then from that point forward the costs are much lower than trucking water in”. But that isn’t the choice that developers in Gurgaon face, which instead, is something like “We can pay a billion dollars to build a central system and then get water for 3 cents a gallon or we can pay 30 cents a gallon now”. What if the debt to service this cost would have prevented these business from reaching profitability? I can’t imagine Alex has any solution to this except to spread the costs via taxation, but is that the ideal solution? It seems ironic to me that the Mercatus center, a market oriented think tank, takes a position on this subject that is completely reliant on taxation and central planning.

Another point: if these businesses were not able to provide adequate facilities, then they would not have set up there, would not be able to attract and retain employees and would not be able to service their customers. But they have been able to do just that.

Digging into Alex’s paper, the most striking pattern I find is that every problem that he brings up is related to either government or public land.

To list just a few:

Sewage is often dumped in nearby rivers or open land.

If these rivers and land were privately owned, would this still be a problem?

Groundwater is in short supply and is being rapidly depleted.

If the water was privately owned and a market clearing price was allowed, would this be the case?

The key element in Gurgaon’s explosive growth was the state of Haryana’s lifting of restrictions on the land-acquisition process and the unusual lack of local government in Gurgaon.

it goes without saying that government restrictions on land development hinder prosperity.

Corruption in obtaining CLU (change land use) permissions is common in most cities in India, and Gurgaon is no exception. Often, middlemen associated with the Haryana administration bought land from farmers and villagers by taking large loans from private developers, acquiring the requisite CLU permission, and then transferring the land to private developers.

This problem only results in corruption because public sector bureaucrats have the power to do this. There is nothing wrong with profiting from land development, but there is something wrong if these bureaucrats don’t allow competitive bids for the initial purchase of the land.

Private security does a good job protecting the middle class, but public spaces are unprotected.

Not much more to say about that except advocate for the elimination of the public spaces.

Anyway, the treatment plant is overflowing and there is nowhere else to take the waste. There is no alternative.

Of course the treatment plant is publicly owned. This is a classic example of the tragedy of the commons.

Security is typically worse in public areas than in private ones.

Not much to say about that. Alex, in the T.W. podcast, did say that private security in Gurgaon is one of it’s successes. A similar story is told in the paper regarding fire protection services.

Poor commuters rely on auto-rickshaws, cycle rickshaws, and overflowing private buses. Congestion is an enormous problem.

Isn’t it possible that the rickshaws are a viable, cost effective solutions to the problem? Regarding congestion, how much do those roads users pay for driving on them? I suspect this is nothing a market clearing price wouldn’t fix.

From reading this paper further, it appears that Gurgaon is split into three sectors: areas privately owned where those owners have supplied their own utilities and areas controlled separately by two public entities, MCG and HUDA. Alex states that a major problem is that those entities do not coordinate. Given that, I’m not sure the best solution to these problems is to create a single public entity that controls all of this. Isn’t the failure of these two entities (along with the failure of public entities in Delhi and other cities in India) enough evidence?

You can read about the failures of the public water supply here and here. How about electric? Apparently the failures of the electric grid are caused by the government supplied system. A private firm, India Power Corp, received a contract for this service just last year.

Alex’s paper fully admits that the private sector facilities have been well done but the public sector has not. From his paper:

Gurgaon looks like Singapore in terms of private-sector develop- ment, but like other Indian cities in terms of public-sector development.

I know I’ve been very negative in this post so far, but stay with me. His paper does get better.

So what is Alex’s policy recommendation from this study? After all, its easy to see the failures in any system, but difficult to fix them. In fact, it is difficult to even determine what “fix” means, since it is individuals who make value judgements. From the paper:

markets and profit-seeking firms are challenged by externalities and public goods. Our choice of the term ‘challenge’ is deliberate. Externalities and public goods do not necessarily lead to market failure. Private firms have addressed most challenges and they have provided sewage, water, electricity, roads, transportation, security, fire prevention, and other goods. But to address is not necessarily to overcome, and some challenges have been met only at high cost.

What does the bold, italicized portion of this even mean? I can only think he sees services in Gurgaon and compares it to Fairfax, VA (location of Mercatus) and holds that up as an ideal. But how do we know whether Gurgaon can afford such luxuries? How do we know that Fairfax hasn’t gotten to where it is (at least to some extent) by a transfer of wealth via taxation and Federal Reverse money printing? And, as I think even Alex would admit, that Gurgaon’s problems aren’t almost fully the result of government intervention?

First, prices of water, electricity, sewage, and so forth are close to marginal cost but average cost is far too high because of the failure to exploit economies of scale.

But creating economies of scale is extremely expensive and likely not even feasible during the early development of a city. Has Alex actually done the complex calculations to determine this? I also find it interesting to see an economist proclaim the price of something is too high. Either prices are market clearing or they are held artificially high by government intervention.

Second, competitive suppliers have produced negative externalities such as excess pollution, sewage dumping, and groundwater dissipation.

Negative externalities are caused by the lack of private property and the protection of that property. This has been covered in libertarian writing ad-nausium.

Why hasn’t Gurgaon developed natural monopolies, at least for urban infrastructure such as water, electricity, and sewage? It is far more expensive to build urban infrastructure after development than before development.

Perhaps because there is no such thing as a natural monopoly? Why would an economist at a market oriented think tank advocate for a monopoly? The paper takes the position that a monopoly would lower costs and that economies of scale are all that matters. But this position is not necessarily without debate.

Later in the paper Alex holds up  New York City and a plan developed in the early 19th century as an ideal that could have been followed in Gurgaon. But again, this ideal is not without debate. For example, some despise the monotonous look of the result of this plan. These are value judgements and we shouldn’t be so quick to look only toward monetary considerations in these situations. But perhaps this is a relevant example for Gurgaon. The issue of course that the mixed bag of governance in Gurgaon prevented this kind of coordination, but then that is Alex’s point. The issue I have is that public, democratic governments track record is poor and so my position is that the idea should be eliminated.

Toward the end of the paper, we finally do find some free market recommendations for Gurgaon. The paper advocates for larger tracts of land to be sold so that common infrastructure could be built. Walt Disney World is held up as an example. However, this example fails as an analogy for Gurgaon because Disney is paid for by the concentrated wealth of it’s customers. It does however succeed in the sense that Disney is an example of a completely private “city” supplying it’s own utilities.

Another city in India, Jamshedpur, is then given as an ideal example. The paper states:

Jamshedpur is a private township and one of the best governed cities in India. Jamshedpur was the idea of visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, Pennsylvania, returned to India to found Tata Iron and Steel.

The paper goes on to describe the city as having some of the best utility services in India, and control of those services appears to be completely controlled by Tata Steel. I can’t argue with this position at all. Jamshedpur appears to be a legitimate, although somewhat small, example of a good private city. I would only point out that perhaps this is the result of a concentration of wealth, similar to Disney, but in this case due to the successful growth of a steel plant.

And finally, the paper makes what appears to be the main recommendation for Gurgaon:

If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.

The seems like a fairly reasonable position. I would only argue that there is no need for any public goods and services. I suspect that Alex would argue that utilities, sidewalks and perhaps roads are public goods. The devil would be in the details. Would there be elected officials who have the power to control how these public goods are provisioned? If so, I would argue that would become a problem. After they are built, do they become public? If so, who maintains them? Who has a say in who that is done and where do funds come from? How is the tragedy of the commons overcome? Later in the paper:

Competitive private governments would also generate experimentation and innovation

That’s an interesting statement, private governments. I’m not completely opposed to such a concept, but I’d rather use the term “governance”. And, the devil is, once again, in the details. If this entity is a monopoly, members are elected and services funded via taxation, nothing has changed.

In short, it appears to me the lessons to be learned here are that the solutions to these problems are best served by the simple ideals of libertarianism: that is, private property and non-aggression.

 

Jan 10

The Truth about the U.S. Postal Service

If you google the title of this post, you will find that many of the articles are from left leaning and pro-governement media sites. The reason for this is that there is a wonderful progressive message sitting on the surface of the facts. Here’s an example of the typical sound byte that Americans can easily digest. The short of the message is this: the USPS was doing just fine. In fact, they had a $623 million dollar profit in 2013. The problem was due a bill passed in 2006 that mandated pre-funding of retiree benefits. After paying that mandate, the USPS finances go red.

Now that’s really strange isn’t it? It begs the obvious question: Why did they do that? Why would congress want to hurt the finances of an entity it wants to maintain control of? The left can easily claim the republicans did it. Perhaps, since the Republicans controlled the House, Senate and White House. The bill was passed with unanimous consent, but then so are most bills. Interestingly, I found it quite difficult to determine what the actual thinking was behind the bill. For example, here is a forum thread from some concerned citizens who tried to determine just that, and didn’t get very far. In my mind, this questions the process of democracy completely. The idea that congress “represents” us is ludicrous. Normally, the truth doesn’t come out regarding the politics of legislation for decades later, if at all and I suspect that will be the case here.

By the way, the lefts take on this is really quite twisted. On the one hand, they would be the first to desire legislation that funded massive retirement benefits for the USPS. But then when they get their wish, they complain. Yes, they will complain that the funding was done too quickly, but I think there were good reasons for this. The writing was on the wall for the post office. Additionally they scream that the post office, with it’s retirement pre-funding, is being asked to do what not other private firm is asked to do. That is true: private firms do not generally provide employees with lavish retirement benefits. That is because they wouldn’t be profitable if they did. It is the very same extravagant benefits the left asks for that they are complaining the USPS is being asked to provide.

So, what are a possible reasons for the 2006 legislation? We know that both democrats and republicans supported the bill. We also know both sides are looking out of their own interests. Based on that, my own conclusion is simple: democrats wanted to fund retirement accounts for their employees. The knew the red ink would be funded by government. Yes, they also knew that there was some risk that Republicans would push for privatization, but they’d cross that bridge when they came to it. Republicans saw a chance to create a crisis, resulting in privatization. Secretly, both sides knew that manufacturing crisis allows government to stay in power.  Another point that indicates a manufactured crisis is that the legislation was introduced and finally passed at a point when USPS profit was on a severe decline:

Geddes-3.5.12-Postal-Service-Profit-and-Loss

Another interesting angle to this story are the finances. The USPS is not a private entity. However, it has some aspects that make it act somewhat like a private entity. It does calculate a profit and loss and, other than government guaranteed loans, it funds itself by selling it’s services. Also, the USPS contracts out a huge volume of it’s own business to private firms including UPS, Fedex and Pitney Bowes. If you look at the management of the USPS, it’s clear they are genuinely trying to stay profitable. The problem has always been decisions made by politicians who can’t leave well enough alone. Well, this with one caveat: USPS management can’t quite behave like a private firm because the implications of profit and loss are not the same, which I’ll address next.

So what happens to USPS profit and loss? As nearly as I can tell (and it’s not easy to find this information), profits naturally go to the federal government. Losses are funded by the government via loans that are expected to be paid back. So lets take a look at revenue over the years:

615_360_Mail_Volume

Liberals are claiming that the 1996 bill forcing retirement funding is the one thing ailing the post office, but there is more too it than that. Yes, the recession was a factor starting in 2007, but there was certainly a flattening of revenue starting in 2000. Mail volumes have continue to fail through 2014, especially in first class mail, the post offices highest profit business. You can find more details here, but the bottom line is this: business managers must project long term outlooks. But liberals who would have you focus only on the fact that there was a profit in 2013 (minus the retirement funding) are either ignorant or uninterested in that. Politicians could see the writing on the wall: with revenue falling, they would be faced with difficult decisions in the future. The recession sped things up, but it was coming. Here is a chart of profit/loss minus the retirement funding:

Screen Shot 2015-01-10 at 12.21.07 PM

Note that RHBF payments are the retirement benefit payments.

My overall take on the USPS is that it has survived over the years because it has some free market features. It is may very well be true, as liberals will tell you all day, that the post office could have provided services similar to other free market innovations, but were limited by congress. But that is exactly the point. Liberals are essentially saying “If only the USPS was allowed to act like a free market business, it would be fine”. Do you see the conundrum here?

Jan 06

Obamacare and rampant economic ignorance

It seems to me that economic ignorance permeates American society. I guess I shouldn’t be that surprised. I personally don’t remember learning much, if anything, about economics in school despite holding a bachelors degree. Everything I know I learned outside the education system.

Let’s start with some basics. How would you answer the following:

  1. Is it better to have just one supplier of a product or many?
  2. Are you likely to receive a better product if the business forces its will on you or would you rather have them entice you to purchase it’s products?
  3. Will you be better served if the supplier is held accountable for deficiencies?
  4. Is it better for consumers if decision making is left to those who would profit from the business (vs outsiders who know little about your business)?
  5. Is it better if buyers and sellers exchange goods based on prices they negotiate (vs prices being set by those who, again, know little about the needs of the two parties involved)?

I think you can see where this is going. Bureaucrats simply do not have the knowledge or the incentives to do the right thing when it comes to the exchange of goods and services. And, in the case of bureaucrats in Washington, D.C. the incentives an be quite perverse and the lack of intimate, local knowledge is very limited. Despite all of this, most Americans insist we need the Federal government to intervene in our economic affairs.

But back to the issue of ignorance, let’s take a look at some examples. Here is a N.Y. Times article that discusses price transparency. And it generally gets this idea correct: price transparency, and having the insured share in costs will bring prices down. But the author falls down in places, such as:

With premiums rising at least 5 percent per year, employers are increasingly pushing costs onto employees — the employee contribution has doubled in the last five years. Employees can’t afford more.

There is probably some truth to this, but the author fails to understand that employer expenses always affect employee compensation. This statement refers to the fact that the cost is increasingly becoming a direct, visible line item on their pay stub. The cost has always been there, if only by holding base wages down. In fact, I suspect that health care costs are one of the largest factors slowing wage growth.

Side note: do more Americans understand this cost shifting concept since Jonathan Gruber called Americans stupid for not understanding that businesses pass costs onto consumers?

But that article wasn’t bad for a N.Y. Times opinion piece. It gets worse. Here’s another N.Y. Times article discussing the fact that Harvard professors are upset that Obamacare is going to negatively affect their compensation. The twist here is that some of these Professors are responsible for parts of the legislation. But that element of the story, while it sells, is a distraction. You simply cannot centrally plan health care, or anything else for that matter. It doesn’t matter if a single, brilliant, Harvard professor is given all the power in the world. The first thing I noticed in this article is that, apparently, even the best and brightest of Harvard fail to understand basic economics:

How should the burden of health costs be shared by employers and employees? If employees have to bear more of the cost, will they skimp on medically necessary care, curtail the use of less valuable services, or both?

The employees bear ALL of the costs and always have. If you are a Harvard professor who’s health care bill increases while your pay stays stagnant, you were probably being paid too much in the first place. At least that’s the way the free market works. (I’m not sure that applies to these guys). If you didn’t catch what I’m saying, here it is again: we could eliminate employer paid health care tomorrow and the only thing that would happen is that it would give employers a chance to make wage adjustments they wanted to make anyway but couldn’t because wages tend to be sticky. Some employees would foot the bill, others would get pay raises to compensate. Employer paid health care, if it works for these folks, does so only because they apparently prefer a system where the cost is hidden. Unfortunately that has unintended consequences (price increases).

From the same article:

But Jerry R. Green, a professor of economics and a former provost who has been on the Harvard faculty for more than four decades, said the new out-of-pocket costs could lead people to defer medical care or diagnostic tests, causing more serious illnesses and costly complications in the future. “It’s equivalent to taxing the sick,” Professor Green said. “I don’t think there’s any government in the world that would tax the sick.”

You see how twisted the thinking becomes? And this coming from a Harvard economics professor of 40+ years. This guy seems to fail to understand the most basic aspect of economics: that it is the study of the management of scarcity. Without scarce resources, there is no need for economics. If an individual is sicker than usual, they desire to use more of the health care resources. The way, economically, to manage that is for that individual to pay more. The ONLY other way to deal with it is to have someone else pay for it. What part of this basic concept does this guy not understand? When you see a statement like this from an economics professor, you know you’re dealing with either an ignoramus or a socialist.

So the journalists can’t get it right, but when you meander into the thicket of internet forums and blog comments, that’s where it really gets ugly. For example, I replied to a comment on a recent Mish Shedlock  post here. This was also healthcare related and someone mentioned the Surgery Center of Oklahoma, who post their (very low) prices online. This was followed by a reply from jb.mcmunn:

Actually the Surgery Center of OK has prices running about triple medicare rates.

I happened to know a bit about this center and Medicare rates, so I knew this wasn’t possible. I did the research and replied with this:

I think you mean the average U.S. Hospital charges are three times medicare rates. I just looked up data from the 2012 CMS medicare provider review, published at www.cms.gov. Example: DRG 243, Pacemaker initial placement. Average hospital charge is $69,622 and average medicare payment is $16,975 while total payment including COB, copay and deductibles is $18,418. For the same procedure in 2014 from the Oklahoma Surgery Center: $11,400. This does not include diagnostics such as xray, MRI, but is still way less than Medicare. And, wouldn’t you know it, people voluntarily go their and pay it. The center is not subsidized by taxes gathered at the point of a gun. And doctors love to work there as opposed to doctors fleeing from Medicare.

I’m not sure how anyone could look this Surgery Centers prices and think that Medicare could do better. Medicare is a huge bureaucracy with massive fraud. It cannot compete with the free market. How an anyone with the knowledge of these numbers argue for MORE Federal intervention in health care?

 

 

 

Jan 04

Libertarian blog censorship?

I’d like to get your opinion on something. There is a certain popular libertarian leaning economic blog out there that routinely censors comments posted on that blog. The censored posts are not combative, involve no cursing, but are simply intelligently written posts that disagreed with the original author.

I’d never argue that the blog owner does not have the right to do this. But is it a good idea to do this? It seems to me there are negative consequences. The goal is obviously to build a partisan outlet, but the thing that immediately comes to mind for me are new sites like Huffington Post or Breitbart. I don’t think libertarianism can be successful with that tactic. Libertarianism holds values that overlap too much with the left and the right. We can only be successful if we are “big tent” oriented.

Additionally, the idea of censorship just seems anti-libertarian to me. Libertarians are truth-seekers. Finding the truth involves open-mindedness, contemplation which are antithetical to libertarianism.

The other problem is that this will turn off your readers. I chose not to reveal the blog author in this case, but I certainly could have. But I’m open minded and would like to hear other’s opinion on this.

What do you all think?

Jan 02

Utah showdown, federal land

The federal government currently owns more than half of the state of Utah, but Gov. Gary Herbert plans to change that. His 2012 Transfer of Public Lands Act has the state seizing this land, transferring ownership to the state. The current political and financial scenario is pretty simple: the feds maintain the land and take a big chunk of the revenue from mining. Financially, Herbert has determined the state can come out ahead if the they manage the land.

Unfortunately the Utah politicians, Utah citizens and U.S. citizens are missing out on a golden opportunity. There is another solution that would make Gary Herbert an historic figure, increase the states tax revenue, and provide an amazing opportunity for U.S. citizens. And this could all be done very quickly instead of dragging on for years. The solution is to pass legislation similar to the Homesteading Act of 1862. This would significantly increasing Utah state revenue. Instead of giving the land away like in 1862, the state may want to set a price at a fairly low level, such that the land would be sold quickly but would also bring in revenue. At 100$/acre, the state would receive over $5 billion dollars. And homesteading opportunities could be provided for 500,000 U.S. citizens, which would likely increase tax revenue by 100’s of millions of dollars a year. Personally, I’d rather they gave it away, but this would never happen without some incentive for the state bureaucrats.

These changes would also result in other positive consequences. Privately held land will be better maintained by owners, not requiring thugs in uniform normally necessary to protect public land. The land couldn’t be used for other purposes such as spying on U.S. citizens, or other federal mischief. The same goes to a lesser extent to any mischief the state of Utah would involve itself in, such as land transfers, water rights or price setting, such as that which has nearly dried up the state of Nevada.

Is this likely to happen? Nope. Because the average citizen is not only blind to the concept, but would react quite negatively to the idea. That’s right. They would react negatively to the opportunity to own 100 acres of land in Utah for $10,000 or less. And certainly the left would fly into a rage.

Dec 31

Ted Cruz, here we come

I almost laughed out loud when I received this email:

TedCruzSolicit

 

Bold? From an established Washington, D.C. bureaucrat. Surely you’re joking, Mr. Cruz.

Unsubscribe

Dec 31

Government makes us poorer

There is no possible way (except by accident) that government intervention can make us richer. It can’t happen. Instead, those who advocate for government intervention must fall into these categories:

  1. They hope to enrich themselves at the expense of others (perhaps an employee of Halliburton for example)
  2. They are blindly unaware of the truth (global warming)
  3. They would rather be poorer than to have some who are wealthier (equality)
  4. Stockholm syndrome?

To determine why this is true, you have to build this knowledge up from simple truths. First, each time two individuals trade goods or services, they become richer. We know this because each valued the item they received than the one they gave up. This actors have strong vested interests in maintaining the value in the things they own. But what is an economy by millions of actors doing this same thing? Now if anything interferes in this, it’s easy to see that we must be poorer for it. It’s really quite basic.

Given that, is it any surprise that pro-government economists de-emphasis this style of economic reasoning? Austrian economists emphasis human action and a priori reasoning to analyze an economy. They are concerned with the incentives and actions of individuals. “A priori” reasoning simply means to build knowledge for easy to understand case facts, not empirical evidence. My previous paragraph discussing value creation is an example. Most economists today however, tend to use mathematics and empirical evidence to build economic knowledge. But, there is a major flaw in this. An economy is practically infinitely complex and based on human incentives and value judgements of millions, all changing in real-time in relation to one another. In short, it is not possible for modern economists to do what they claim they are doing.

Instead, we can use simple rational thoughts to see that freedom creates wealth. The only question you need to ask yourselves is whether you can handle the freedom. Envy causes many to react emotionally to these issues, and it become easy to control others from a distance when you don’t see the direct impact of your actions. Just remember, if you have a desire to control others IN ANY WAY you give those in control the power to control others in ALL THE WAYS the populace may dream of.

Dec 27

The black-white education gap

I just came across an older, but fairly good, article from the New York Times, The Black-White Test Score Gap? The first thing I noticed about the above article is that it tends to go into a sort of “it’s not genetics!” defense mode. On some level this makes sense. It would imply that the test score differences can be eliminated. On the other hand, I also think that many people who attempt to simply point out that there are “differences between blacks and whites” immediately get vigorously scolded for it. It makes no difference whether there was any intended genetic implications.

The following statement is directly from the article:

Black-white differences in academic achievement have also narrowed throughout the twentieth century. The best trend data come from the National Assessment of Educational Progress (NAEP), which has been testing seventeen-year-olds since 1971 and has repeated many of the same items year after year. Figure 1-2 shows that the black-white reading gap narrowed from 1.25 standard deviations in 1971 to 0.69 standard deviations in 1996.

 

I looked at the NAEP study mentioned and didn’t really find any issues with it. There does seem to be a trend in the direction of narrowing the gap. However, it’s clear that the above data was cherry-picked. Also, if you look at the actual trends, they do not form a clear, steady narrowing trend. Instead the gap meanders, and so a definitive trend does not emerge. No matter. I’ll accept the premise anyway. The test score gap has narrowed. But there are begging questions here. One, why are we comparing blacks to whites? Asians test higher than whites so why not blacks to asians? Can there really be any other reason other than that the intent is to maintain a black vs whites mentality? It’s not that uncommon for progressives, who claim to want racial equality, to advocate things that stir race issues.

Later in the paper, we find:

  In a country as racially polarized as the United States, no single change taken in isolation could possibly eliminate the entire legacy of slavery and Jim Crow or usher in an era of full racial equality. But if racial equality is America’s goal, reducing the black-white test score gap would probably do more to promote this goal than any other strategy that commands broad political support.

 

What does “full racial equality” mean? I can’t tell you how many times I’ve seen this. Almost every paper I’ve ever read that desires this “equality” does not even define whether this means equality of opportunity or equality of outcome. How can they miss something so fundamental? My guess is that simply bringing it up raises too many questions and fuzzy areas. If the desire is one of opportunity, how do we know we’ve achieved it? Have we achieved it already? One could argue we’ve not only achieved it but exceeded it (due to affirmative action). Therefore these groups know that, if defined, that definition would necessarily need to be one of equality of outcome. In fact, the NAEP education gap points in this direction. That is, as long as white test scores exceed blacks, we have work to do. I wonder if there will be work to do if black scores exceed white scores?

But, once a group states that the goal is equality of outcome, the water gets very muddy. What if thirty years from now, blacks begin to show a remarkable talent for reading and writing, but continue to lack in math with the average of the two scores equals the white scores? Are we “ok” then? What if the average white and black math scores is equal nationally, but very unequal in some states? Well, that just won’t due at all. What about cities, schools, and individual classrooms? Speaking of inequality, where are the studies and policies around the black-white sports gap? Along with the studies that show it’s “not genetics”? Seriously, though, how do you measure the closing of these gaps? Why don’t the studies and policy makers EVER publish anything that would allow us to know when equality has been reached? Does it include the same number of CEO’s with the same average pay? What about managers of sea life parks?  Nuclear engineers? Comedians?

The other statement in the above quote wants us to just blindly believe that closing those test score gaps will improve blacks lives more than any other policy. Does this include closing the score any way possible, including by teachers cheating? Why doesn’t the NAEP study include any information about the possibility that policy changes have biased the testing in some way? I’m not saying that IS happening, but the fact that the “best study available” on the subject doesn’t even mention this is troubling. Besides, why am I to believe there is a direct correlation between public school test scores and success? Is that REALLY the best way to attack this? There are a couple of successful blacks in American who would challenge this theory: Thomas Sowell and Walter Williams.

More from the article:

Reducing the black-white test score gap would reduce racial disparities in educational attainment as well as in earnings.

It seems to me this article has a cause and effect issue. The issue is primarily one of overall culture, which then affects both test scores and earnings. The idea that you can simply “raise test scores” and magically, income disparities disappear is laughable.

This article goes on to review both liberal and conservative explanations for the eduction gap. This part of the article appears to be unbiased and actually quite good. It goes on to review the most current science on the matter. However, the article never lets go of the basic premise: blacks should and must have test scores equal to whites. This just doesn’t work for me at all. I do not believe you can correlate test scores to “success”. How do you even measure “success”? Instead, I would propose something much simpler and more plausible: we are measuring success of blacks by comparing to schools and success as defined by whites! We are simply trying to force blacks to be successful-as-defined-by-whites. There is no way we can predict what would have happened to blacks if slavery had not occurred or there had not been other government interference in their lives. However, could it be possible that blacks would be living happier but poorer lives in Africa right now absence these acts of violence? Look at the following statements from this article, which occur multiple times thru out:

  1.  When “black” genes are not visible to the naked eye and are not associated with membership in a black community, they do not have much effect on young children’s test scores.
  2. Growing up in an African-American rather than a European-American family substantially reduces a young child’s test performance.
  3. When black Americans raised in white families reach adolescence, their test scores fall.

In other words, when a black person grows up culturally white, he succeeds in a world where success is defined by whites! Shocking isn’t it! Often, the same progressives who advocate that we live simpler lives less defined by consumerism and money advocate that blacks should live lives defined by white income and consumerism!

So, while this article certainly means well, I personally can’t help but feel libertarians have it right once again. Leave blacks alone, protect the property of everyone regardless of race, and blacks will find happiness as defined by blacks. But then what would the do-gooders do, the writers of N.Y. Times articles, the publishers of studies and the Dept. of Education?

 

Dec 24

The evil of collectivism

One thing conservatives get right is that life is complicated and man’s decision making needs to take that into account. Humans have a tendency to over-simplify resulting in dramatically negative consequences. This is a major fault that conservatives see in liberals. I should clarify that, by conservative, I do not mean either of the George Bushes. I would call myself an anarcho-capitalist with some fondness for Russell Kirk.

Another major issue we seem to struggle with is in distinguishing between the marketing material and the reality of those who would control us. It’s amazing what you can get away with if you simply dress well, smile and pretend to know what you’re talking about. Politicians are also masters of the use of words. The word terrorism is a prime example. This is a word that, in my opinion, has no meaning because it’s so difficult to define. Another word to look at here is “extremist”. Tom Wood’s discusses this frequently, describing what thought controllers call anyone who strays from the “allowable opinions”.

So what does this have to do with the word collectivism? This is a word many libertarians know well. But what do others know about this word? My guess is not much. The average American has no idea what it means. Those on the left want nothing to do with this word. It has a negative connotation toward central planning, which is the foundation of the left. Those on the right will use the word only when it suites them. Some examples: Ann Coulter: who uses the word to battle the evil of…. soccer? Is that all Ann has to say about it? It appears so. At least Rush Limbaugh had something more significant to say about the word. The problem with both the left and right is this: central planning of anything is a form of collectivism. In fact, it can be argued that democracy is a form of collectivism. I don’t see either Ann or Rush calling for the abolition of those Washington policies they agree with. They are opportunists, posers and hypocrites.

Collectivism: the practice or principle of giving a group priority over each individual in it.

So why do I focus on this word? Simply, it is the single most important attribute in common with centrally planned political systems. It doesn’t matter whether we are talking about communism, socialism, fascism or, yes, even democracy. There is nothing that special about democracy. Americans like to think of our country as being exceptional. And there is some truth to this. But what is it that makes us special? If it is democracy, then how does that manifest itself? How is it that a political system based on voting and elections produces this special success? This would seem to imply that government itself is responsible for this success. There isn’t time or space here to unravel the truth of that. Personally, I don’t find it passes the laugh test. How much responsibility can government claim for the economic success of America in the later 19th century? What did Bush or Obama do for you? Are you happy with public education, health care, the judicial system?

Instead, I would propose that what made America somewhat exceptional was the lack of collectivism. Libertarians would call this classic liberalism. That is, Americans were free to trade goods and services as they pleased. Private property was sacred and protected. If you look at European and American history starting around the 17th century, a philosophy of individualism started to emerge. This manifested itself in the American constitution, and more specifically in the bill of rights, and even more so in the federalists papers. It was a state of mind, that, unfortunately, did not sit well with many of the thought controllers: people like Alexander Hamilton and Henry Clay, who didn’t want to let go of what King George had.

At this time, it is beginning to appear as if 18th century liberalism may have been a temporary aberration. This can be readily explained when you compare socialist, fascists, and communist political systems to our own democracy. After all, our own constitution shares many classical liberal philosophical statements with, for example, Nazi Germany. Prior to the Reichstag fire in 1933, the Weimar Constitution had protections for freedom of speech and assembly, habeas corpus, inviolability of residence, privacy, etc. Similar wording can be found in Stalin’s Russia, Mao’s China, etc.

And the reason this is happening is that the one thing that contributes to tyranny in a social/political philosophy is collectivism. If you think about this, it makes sense. Collectivism says individuals do not matter. It’s a philosophy that relies on several (impossible) things happening:

  1. Somehow finding a small group of people who will have the best interests of “the people” in mind
  2. Individuals from step 1 are given the power to decide on policies that will benefit all
  3. Who will then implement those policies
  4. If some people suffer based on these policies, oh well. Too bad.

We need to stop worrying about the rights of the individual and start worrying about what is best for society.

Hillary Clinton

But don’t think Republicans are much different. They of course know better than to make statements like this in public. But actions speak louder than words. Speaking of words:

 Either you are with us or you are with the terrorists.
George Bush

So, starting with #1 above, is it even possible to do this? It seems like humans are perpetual optimists when it comes to elections. We can never find anyone worth voting for, but we never give up. This is because, fundamentally, humans are self-interested. Bureaucrats in Washington will take care of themselves, while playing lip-service to the citizenry.

Looking at step #2, this also is simply impossible. Only millions of individuals working in concert can raise the standard of living of all of us. Step #3 becomes impossible because of the natural forces of the market working against central planning along with the difficulty in paying for it all via taxation and money printing.

The only reason America hasn’t yet fallen completely into the trap of collectivists tyranny to date is that the remnants of classic liberalism are still strong enough in America to hold it back. However, this is unlikely to last. We have already lost our right to reasonable trials, property rights and limitations on search & seizures. Other rights, such as freedom of speech, the right to bear arms, freedom of travel and association, are somewhat intact but are constantly being attacked by collectivists.

It is only a question of what will happen when the hammer drops. Our political overlords are masters of taking advantage of any crisis.

Dec 11

ITUC Global Rights Index report

I just came across a recent post on Washington’s Blog discussing an ITUC report on workers rights. The stated purpose of the ITUC report is as follows:

The ITUC Global Rights Index ranks 139 countries against 97 internationally recognised indicators to assess where workers’ rights are best protected, in law and in practice.

Hmmm, call me suspicious.

First of all, why subtitle the report “The worlds worst countries for workers“? Why not just “World rankings for workers“? Do we have an agenda, perhaps? ITUC stands for International Trade Union Confederation. Maybe by some miracle a trade union organization managed to remain unbiased in a report that affects workers rights. Sure it did.

Who runs ITUC? Well, take a look at the bio on Joao Felicio. Wow, a good old fashioned Marxist.

Well, what matters is the report! The very first line of said report has this:

The guarantee of the free exercise of workers’ rights is also a guarantee of a more equal and a more prosperous society

I think there are a few economists in the world who would question whether a more equal society is a more prosperous society. But wait. What is meant here by “equal”? I doubt we are talking about equality of opportunity. But it’s interesting that leftist papers use the word “equality” all the time without specifying the meaning. What can we do but assume that the intent is one of equality of outcome? So, how can equality of outcome be achieved in a world where incomes overall are increasing but so is the wage gap? The only way to do that is with force: to take from some, by force, and give to others.

The next sentence in the paper is this:

When workers enjoy the freedom of a collective voice, can bargain for safe workplaces and fair wages and conditions and are free from discrimination then productivity and economic growth can flourish

I guess the first obvious question here is this: what is preventing workers from doing these things? Put another way: what is it that necessitates the need for government force in enabling a worker in these activities? Well, why don’t we take a look at another ITUC article on that subject. Well, that doesn’t till us much, except to hint that ITUC is looking to the government for solutions. Let’s take a look at this Upenn article instead, whose first sentence reads:

Indian Prime Minister Narendra Modi’s success in attracting investments to the state of Gujarat, where he was chief minister, was largely due to labor law reforms.

 

Wait, what?! I thought ITUC wanted to help workers? I guess by “help” ITUC means chase business out of countries, taking jobs with them. In that article, a trade union rep states:

They will be without any protection and, given the current unemployment situation in the country, the workers will become slaves of the contractors and employers

 

Slaves you say. I don’t recall reading about how slaves voluntarily surrendered their labor in exchange for payment. Another statement from the ITUC document:

The methodology is grounded in standards of fundamental rights at work, in particular the right to freedom of association, the right to collective bargaining and the right to strike. These rights are based on international human rights law which we have spelled out in the form of 97 indicators.

Notice the wordsmithing here. ITUC states these are “fundamental human rights”. It is the “fundamental” right of one group (unions) to ask another group (government) to force at gunpoint a third group (business) to allow a fourth group (workers), to demand something that that business is unwilling to give them voluntarily. Where are the natural and fundamental rights of business here? No, we can’t have any this “voluntary negotiation” nonsense. Bring out the guns.

So let’s get to the meat of this report. Basically, the format, as near as I can tell, was this:

Input is taken from there sources:

  1. Analysis of national laws
  2. Reports from 325 union centers
  3. A survey

I assume #1 is more specifically “analysis of labor laws”. In other words, things like expecting to continue getting paid despite refusing to work, that is, until demands are met. But is this how reasonable people behave? When a person seeks employment and comes to an agreement, is this not a voluntary action? Are unhappy employees not free to leave and seek employment elsewhere?

#2 seems a bit unfair. ITUC uses input from union centers in order to determine if union action is necessary?

#3, the survey, I can’t figure out. If you follow the link, it appears to simply be a summary of complaints regarding labor law. Silly me, I thought the survey would be something targeted to workers. Instead, it appears to be more of #1 and #2. So all of this boils down to input from those who make their living as union representatives, with a focus on how much government is involved.

Next, the steps to completing the report are:

  1. Surveyed information is coded against 97 indicators
  2. Coded violations are summed up
  3. Rating from 1-5 assigned to country

So who actually fills out these surveys? If you read the survey, they sure aren’t responses from the proletariat. You can read the report yourself, but it appears to me that the entirety of this report is aggregated from information supplied by people employed in the business of unions. I really don’t see anything at all from either the perspective of workers (and certainly not non-union workers), business, economists, etc. And yet I’m supposed to believe this report represents the following: The worlds worst countries for workers.

No, instead I think the title should be “The worlds best countries for trade union representatives”. Or perhaps “What would Karl Marx do”.