November 20, 2007
Flores on Freedom
Here is a great speech by Francisco Flores, the former President of El Salvador, presented by the Atlas Economic Research Foundation:
Posted by Peter Mork at 12:49 PM | Comments | TrackBack
March 24, 2005
Competition Within Europe
The formation of the European Union allowed citizens of the member countries to legally live and work in any country within the EU. This policy of open immigration has had far reaching implication. Governments, in a sense, must now compete to keep citizens and businesses within their borders.
For example, in 2001, after Denmark's Brian Nielsen fought Mike Tyson, he promptly moved to Spain to collect his big payday. Why? It wasn't only to enjoy the Mediterranean lifestyle with his newfound wealth, but because taxes were lower in the Iberian Peninsula than in his native country. It follows that countries have quickly realized that a larger percent of nothing is much less than a smaller percent of something. Tax competition has ensued.
This table from a recent Wall Street Journal editorial speaks for itself with regards to the above. It should come as no surprise Ireland's economy is booming with an unemployment rate below 5%.
But the casualties of a mobile labor force have not been limited to high tax rates. Earlier this week France abandon their compulsory 35-hour work week. Originally, this policy was implemented with the flawed logic that shortening the work week for those already employed, would create jobs for the more than 13% of the population that found itself without work. The actually results were to make an already unfriendly business environment worse, and a system where government officials would routinely search the briefcases of businessmen/women as they left their places of employment to make sure they were not illegally bringing work to their homes to complete.
One question that remains is if Europe continues to move in this direction, how long will it be before the United States itself starts feeling the heat of economic competition from across the Atlantic?
Hat Tip: Hispanic Pundit
Posted by Peter Mork at 10:53 AM | Comments | TrackBack
March 23, 2005
Interest Rates and Economic Growth
There is an interesting op-ed by Jeremy Siegel in today's Wall Street Journal. Entitled "The Next Great Wave of Growth," I specifically enjoyed his closing paragraphs:
Today the developing countries, despite comprising 87% of the world's population, produce less than one-quarter of the world's output measured in dollars. It is likely that by the middle of this century, they will produce over half the world's GDP. Indeed, the growth of these economies will become the dominating factor in the world's capital markets.
Investors should not succumb to the pessimistic forecasts of government agencies and others who bemoan the aging of the U.S. population. Chairman Greenspan is finally showing the markets that our historically low interest rates are unjustified. Those pessimists currently buying bonds to protect themselves against the widely predicted economic downturn will soon be sorry that they bet against growth.
My only comments would be that Greenspan does not control the long-end of the yield curve. Witness that since the Fed started targeting a higher Fed Funds rate in mid-2004, the yield on the 10-Year Treasury Note has not moved up:
In a similar vein, are these interest rates "historically low" and "unjustified"? If inflation remains low (unlike the 70's), then who is to say that interest rates are not just getting back to where they should be? This graph of the yields on Moody's Aaa bonds since 1919 makes a case for that argument:
Posted by Peter Mork at 9:05 AM | Comments | TrackBack
March 4, 2005
Help the Poor... Become a Target of Terrorists
A World Connected has an interesting piece up on Peruvian economist Hernando De Soto. De Soto is famous for his books The Other Path and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, which brought his economic research on property rights in third world countries to the public. The article summarizes this point well, explaining that the reason the underground Peruvian economy was so large was that the government had made it nearly impossible for most people to register their property and businesses legally:
In the early 1980s, De Soto discovered that 90 percent of all small industrial enterprises, 85 percent of urban transport, 60 percent of Peru's fishing fleet (one of the largest in the world), and 60 percent of its food stores operated outside of the law.
Contrary to the views of the government and Peruvian elites who thought of the poor as lazy, many of Lima's poor were in fact carrying the economy on their backs.
The more people the ILD researchers talked to in the shantytowns and rural byways of Peru, the more they realized that it was not so much that the poor were breaking the law as that the law was breaking them.
Even those who had tried to get into the system by applying for titles to their houses and other real estate or licenses to legalize their businesses complained that it was impossible to succeed; wending their way through the bureaucratic obstacles simply took too much time and cost too much money.
De Soto went public with his findings in 1984, attracting attention from Peruvians of all political viewpoints.
Unfortunately, the idea of defining property rights was not a compatible solution with the ideology of radical socialists. The Maoist "Shining Path" declared that the De Soto's ideas were vicious. The group's leader, Abimael Guzman, stated: "It is clear that the objective of The Other Path is to deceive and mislead the masses… It directly targets young people, who are the driving force of society… It leads the young away from the popular war."
De Soto and those at his group Instituto Libertad y Democracia were then declared targets for assassination.
Recognizing that the ILD was the primary intellectual influence behind the restructuring and modernization of the Peruvian economy, Guzman called for an all-out offensive to destroy it.
De Soto and the ILD became the prime target not only of The Shining Path's underground press but also its assassination squads. Terrorists bombed the ILD headquarters in Lima and strafed Institute vehicles.
Guzman was captured in September, 1992, and the following year the 17 terrorists who had bombed the ILD's headquarters were also apprehended.
Today, the ILD staff is able to travel throughout all of Peru without danger and is one of the premier policy organizations dedicated to helping the developing world's poor enter the global economy.
Goes to show, it's a bizarre world we live in.
Posted by Peter Mork at 9:36 AM | Comments | TrackBack
January 6, 2005
Tragedy in Southeast Asia
A reader asks:
I was wondering whether economicswithaface would review the recent devastation in SE Asia in terms of economic development (or lack thereof). I know that Malaysia will probably get build really quickly, simply because they have tons of money. However, places like Sri Lanka, Indonesia (racked with civil war), and Thailand will not get rebuilt simply because they are not as wealthy.
One of the saddest aspects of this tragedy is that those countries who already had the least, were not only hit the hardest by the tsunami, but also were in many cases the least equipped to deal with such a crisis. Lack of insurance markets, infrastructure, and effective government and private networks to come to the aid of their citizens have made an already horrible situation even worse.
As mentioned above, a wealthier country like Malaysia (who was also the least affected by the tsunami) will have an advantage over it's poor counterparts. To put this in perspective Malaysia has an average annual income of $4,806 per person. This is compared with $3,000 in Thailand, $1,059 in Indonesia, and $899 in Sri Lanka.[1] The aforementioned are also dealing with a host of other problems such as higher degrees of corruption, civil wars and weak judiciaries.
Still, I am optimistic that even these poorer countries will get back on their feet faster than expected. Huge amounts of aid coming from both private and government sources will provide an immediate source of relief, while, as The Economist pointed out in its last issue, the disaster has the potential to smooth internal relations among hostile communities. This alone will help to move these countries forward.
More than anything though my optimism stems for the fact that human being are resilient. This thought was conveyed by Nobel laureate in economics Gary Becker in a recent article on the disaster:
John Stuart Mill, the great 19TH century English economist and philosopher, optimistically, but I believe accurately, remarked on “…the great rapidity with which countries recover from a state of devastation, the disappearance in a short time, of all traces of mischief done by earthquakes, floods, hurricanes, and the ravages of war”. The history of both natural and man-made disasters during the subsequent century and a half generally supports Mill.
So in terms of rebuilding houses, businesses and infrastructure I'm optimistic. But what won't be easy to recover from is the sheer loss of life on a personal level. Parents losing their children and children losing their parents in these numbers is something that is so depressing it's hard to even comprehend.
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[1] It should be noted that per capita income is not the only way to measure a county's wealth. India, which has refused outside aid as it feels it has the resources to deal with the crisis itself, has a per capita income of $493. But it also has a total economy (GDP of $517 billion) that is more than double any of the previously mentioned nations. While the wealth is concentrated, the government has the ability to tap this money for the relief effort. I'd be interested in any feedback others might have on this point.
Update: A friend points out another reason India refused aid: pride. This article in the WSJ, "Proud India Gets Mixed Reviews For Refusing Aid," has the details.
Update 2: KipEsquire writes to remind me about Burma, the second least-free nation on earth. Head over to his site to learn how bad it might be in this military dictatorship.
Posted by Peter Mork at 9:58 AM | Comments | TrackBack
November 25, 2004
Be Thankful For Private Property
Happy Thanksgiving to everyone. Today I thought I would link to another Caroline Baum article. As she does every Thanksgiving, Baum published her piece showing how incentives had much to do with creating the holiday that is being celebrated across the nation today.
Relying on the log of William Bradford, the second governor of the Plymouth Bay Colony, Baum shows how the transition from harsh winters accompanied by starvation on to bountiful harvests was not a matter of luck. A change from communal farming to a system of private property played vital role.
The land of the colony was at first communally farmed, a common tradition that the Pilgrims had brought with them from England. Bradford writes that such a system:
“was found to breed much confusion and discontent, and retard much imployment that would have been to [the Pilgrims'] benefite and comforte”
Knowing that something had to be done, it was decided that the land would be divided up, giving each family their own plot. This system, which allowed each individual to grow food for themselves and sell any excess for a personal profit, had an amazing effect. Again Bradford notes:
``This had very good success; for it made all hands very industrious, so as much more corne was planted than other ways would have been by any means the Govr or any other could use, and saved him a great deall of trouble, and gave far better content.''
After three horrifying winters, things had permanently changed. As Baum concludes:
Given appropriate incentives, the Pilgrims produced and enjoyed a bountiful harvest in the fall of 1623 and set aside ``a day of thanksgiving'' to thank God for their good fortune.
``Any generall wante or famine hath not been amongst them since to this day,'' Bradford writes in an entry from 1647, the last year covered by his History.
With the benefit of hindsight, we know that the Pilgrims' good fortune was not a matter of luck. In 1623, they were responding to the same incentives that men and women still respond to almost four centuries later.
This is a lesson that, at least I for one, had never learned about Thanksgiving until I read this piece a few years ago.
Posted by Peter Mork at 10:33 AM | Comments | TrackBack
October 28, 2004
Economics and Morality
I read Steve Landsburg's reasons for voting for Bush a few nights ago. He is one of only five Slate staff members surveyed that is casting his ballot for the incumbent this coming Tuesday. In his statement he certainly didn't mince his words:
If George Bush had chosen the racist David Duke as a running mate, I'd have voted against him, almost without regard to any other issue. Instead, John Kerry chose the xenophobe John Edwards as a running mate. I will therefore vote against John Kerry.
Duke thinks it's imperative to protect white jobs from black competition. Edwards thinks it's imperative to protect American jobs from foreign competition. There's not a dime's worth of moral difference there. While Duke would discriminate on the arbitrary basis of skin color, Edwards would discriminate on the arbitrary basis of birthplace. Either way, bigotry is bigotry, and appeals to base instincts should always be repudiated.
Bush's reckless spending and disregard for the truth had me almost ready to vote for Kerry-until Kerry picked his running mate. When the real David Duke ran against a corrupt felon for governor of Lousiana, the bumper stickers read, "Vote for the crook. It's important." Well, I'm voting for the reckless spendthrift. It's important again.
The Agitator picked it up the following day and Landsburg himself posted on the subject at Marginal Revolution. As I'm coming in late on this one I thought I would just point out the similarities to my thought process on trade, which helped spur the idea for my book. As I recount in the "About" section of this webpage, an article in The Wall Street Journal started me along the same train of thought:
An article entitled "Bitter Fruit: Spat Persist Despite Nafta" discussed how in San Diego avocados cost about $4.00 a pound, while in Tijuana, just miles away, the price was less than 30 cents a pound. This despite the free trade agreement Nafta. This quote specifically stuck out:
" 'The California growers want to control all of the supply -- that way they get the best prices,' complains Ricardo Salgado, who raises avocados on 25 acres outside Uruapan, Michoacan, which has some of the world's lushest groves. 'We'd love to have a bigger selling season, but right now we have to wait for the U.S. Congress to give us permission.' "
Any Ph.D. Economist could draw out supply and demand charts, explaining step by step the benefits of free trade and the theory of competitive advantage in relation to the world avocado market. The only problem is that two minutes into the conversation it is quite possible you would be bored to tears. Even if you made it through the entire dialogue, it's unlikely you would be able to explain the idea yourself, let alone replicate the graphs the economist had produced.
But then here is Ricardo Salgado, and without any graphs or definitions it's possible for anyone to ask: "Why am I allowed to buy avocados from an American whose orchard is in Fallbrook, California but it's illegal for me to buy from Ricardo whose orchard is in Uruapan?" Moreover, while surely American avocado growers would face hardships if Ricardo were allowed to sell his avocados in the U.S., are they born with some rights that Ricardo is not?
On a closing point a lot of debate seems to have been generated over what defines right and wrong when it comes to discrimination. As Vice Squad puts it:
Would one be a bigot to discriminate in favor of one's own children versus strangers? One's neighbors? When is discrimination arbitrary, and when is it not arbitrary?
Let's say a mother decides to hire her child instead of a more qualified applicant who is of no relation to her. Is this wrong? Well the mother has a personal relationship with her son or daughter which she presumably values and gains from... so it's not strictly a business decision.
But this is taking the subject out of the context in which it was originally discussed. Let's say this same mother decides to hire the more qualified applicant instead her child. What if a politician came along and said, by law, she has no choice in the matter. She must hire her child to help strengthen the family unit. In addition, she would be threatened by fines and eventual imprisonment if she failed to comply. This is clearly wrong by my standard of values, but whoever's elected as the next President and Vice-President, to a degree, they will have this power.
To be clear, Bush has been far from perfect in this area as he imposed steel tariffs that President Clinton twice refused to put in place. Unfortunately the Kerry/Edwards ticket has ignored this flaw in the President's record, instead taking an even more protectionist stance during the campaign. It was a lost opportunity in my book, especially with Kerry's strong free-trade record.
Posted by Peter Mork at 5:37 PM | Comments | TrackBack
October 18, 2004
Cheap Drugs from Canada Don't Grow on Trees
The Financial Times has an article regarding drug re-importation from Canada. The article points out that several Canadian online pharmacies will not be accepting bulk orders from U.S. states and municipalities. The reason? They don't have enough medicine to go around:
But growing concern in Canada that growing exports to the US could lead to rising prices and shortages north of the border has prompted the Canadian International Pharmacy Association (Cipa), whose members include several of the biggest internet and mail-order drugstores, to act. “We don't want to give Americans the impression that we have unlimited supply for them to tap into on a commercial basis,” said David Mackay, the association's executive director. Americans, he added, “can't get everything from Canada. We can't be your complete drugstore”.
This point was predicted months ago by Sally Pipes at the Pacific Research Institute. At a debate that featured Dr. Milton Friedman, Congressman Gil Gutknecht, Don McCanne, and James Glassman, Pipes made this exact point:
They have 31 million people in Canada, and here in the US we have almost 300 million people. When Governor Blegoyavitch in Illinois is talking about importing all of the drugs for his state employees and his Medicaid recipients, he's talking about $2 billion worth of imported drugs. Now, as I mentioned, the Canadian industry is $8 billion. So a quarter of the Canadian drugs would be being re-exported to the United States, which I think just is not feasible.
Read the whole debate if you have a chance. It raise a host of other issues with respect to drug re-importation from both sides of the matter.
Posted by Peter Mork at 9:34 AM | Comments | TrackBack
October 12, 2004
The Nobel Prize and Politics
According to Nobelpreisborse, New York Times columnist Paul Krugman had a decent shot at winning the Nobel Prize this year in economics. This obviously would have been ammunition for the Kerry/Edwards ticket as he has been a harsh critic of Bush's fiscal policies, especially his tax cuts. As it turns out, it looks like the shoe might be on the other foot. Edward Prescott, along with Finn Kydland, was awarded the Nobel Prize yesterday and he had this to say about the Bush tax cuts:
What Bush has done has been not very big, it's pretty small," Prescott told CNBC financial news television.
"Tax rates were not cut enough," he said.
Lower tax rates provided an incentive to work, Prescott said.
The American analyst, who is a professor at Arizona State University and a researcher at the Federal Reserve Bank of Minneapolis, said a large tax cut in 1986 had lowered rates while collecting the same revenue.
But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.
Posted by Peter Mork at 8:07 AM | Comments | TrackBack
October 10, 2004
Adam Smith and Self-Interest
Reader Mike Harvey forwarded me a recent article by Sam Fleischaker called "Economics and the Ordinary Person: Re-reading Adam Smith".
Contemporarily, Smith is best known for his description of "the invisible hand" which he used to describe how people acting on behalf of their own self-interests promote the public good, although this is not their original intention. Many assume then that Smith's major contribution to the science of economics was describing the idea that people inevitably act on behalf of their self interest. Yet, Fleischacker challenges this notion:
Far more important to Smith's work is the belief that ordinary people normally understand their own interests without help from politicians or professional philosophers. The distinctive mark of Smith's thought is his view of human cognition, not of human motivation: he is far more willing than practically any of his contemporaries to endorse the ability of ordinary people to know what they need to know in life.
The idea that "ordinary people needed guidance from their 'betters' " was prevalent during his time. As such, where Smith left his true mark is the recognition that it is the individual (whether poor, rich, cultured or uneducated) who is most qualified to make the decisions that affect his or her life.
Smith's rejection of the idea that politicians should control the choices of the common man is directly reflected in his view of politicians themselves:
Smith has a much darker view of politics. If I participate in the political arena, I am likely to be constantly under the pressure of professing a greater concern for "the public good" than I really feel: constantly under pressure, therefore, to be a hypocrite. I will also, more generally, be far too concerned with what people think of me rather than what I am really like. For reasons like these, Smith was far less convinced of the value of politics to morality than were either his ancient predecessors -- Plato, Aristotle -- or his contemporaries Hutcheson and Rousseau. He was indeed quite cynical about the likelihood that politicians would normally be particularly good people, or that good people would be attracted by the political life.
It always amazes me how the writings of centuries past are still so relevant today. The entire article is well worth the read it you have the time.
Posted by Peter Mork at 3:12 PM | Comments | TrackBack
September 9, 2004
I, Pencil
Here is the link to Leonard Read's "I, Pencil: My Family Tree as told to Leonard E. Read" from 1958.
The first entry on my "Quotes" page is Milton Friedman recounting Read's essay. In the original essay the 'pencil' states:
I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.
Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.
Pick me up and look me over. What do you see? Not much meets the eye—there's some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.
The essay goes on to describe the great degree of coordination, from individuals around the globe, that goes into making a pencil. Amazingly though, pencils can be bought for a mere 10 cents.
Even more amazing is that people of different religions, races, and nationalities cooperate in the process, and do so voluntarily. To me, this is the essence and beauty of economics.