Putting The Neo Into Neo-Mercantilist

There is an enormous difference between

(a) the US should spend billions (as it has) to achieve energy independence as an end in itself, and
(b) the US should develop resources, if they are cheap and don't produce too many externalities, and have energy independence be a (mildly happy) consequence.

  This author doesn't really see that distinction, it appears. 

There is just no reason why anyone should strive for independence, if that requires this kind of neo-mercantilist nonsense.

Don't get me wrong:  it would be great to have a significant new industry in the U.S., and a decline in the price of energy.  All good for growth.  But not because having a trade deficit has been "sucking the blood out" of our economy.

Department of Shaky Logic

Prof. Iglesias concludes that free trade makes workers better off.  Because the SHARE of total income going to labor is falling.  Here is his "logic."

Presumably, having labor have a bigger share of income makes workers better off, right?  The simple solution would be to destroy all capital.  Just blow it up, burn it, return to the stone age.  Then labor would have 100% of national income, because land would be basically worthless, also.

Of course, this is a problem.  Because (1) capital is a good thing, and raises the marginal product, and therefore the wages of labor, while at the same time (it's just accounting) reducing the TOTAL share of income labor receives, and (2) lower prices from higher productivity more than make up for the "decline" in labor's share of income.  The REAL wage skyrockets, and workers are clearly better off.

on the price dynamics of boiled sand

Wow. Tim Worstall drops some serious knowledge on us this morning about the dynamics of market pricing for silicon chips and the reasons why Solyndra and many Chinese solar firms failed or are failing.

Not sure that I agree with his overall point that we don't care about producers when evaluating the effects of trade, but I learned a lot about boiled sand and the production of solar panels.

Here's an excerpt (but do read the whole thing):

At which point I should make the metal’s industry critique of the Solyndra business plan. They assumed a continuing high price for silicon and thus their technology concentrated on making that expensive material more productive. If silicon had remained high priced it might even have worked: but as they were ramping up production into a world where the raw silicon ingot had just fallen to 10% of its previous price they were doomed.

le deluge

Wow.  This totally sucks.  Really, really sucks.

Three sigmas.  We don't like three sigmas.

The Cotton Club

India, the second largest cotton producer in the world has banned all exports of cotton "until further notice".

Why?

Because China, the largest cotton producer in the world is importing and hoarding a lot of cotton, and because Indian cotton exports had already "exceeded government targets".

I am not making any of this up.


These are two huge countries that just seem to have no clue when it comes to trade. Casual arrogant protectionism and the enshrinement of inefficiency seem to be policy goals.

Some partial year end good news!

People, it looks like both the 45 cents / gallon subsidy for domestic ethanol AND the 54 cents / gallon tariff on imported ethanol are both dead as of January 1!

Amazing. I guess when the economics actually lines up with the political correctness, good things can actually happen.

Sadly though, the ethanol mandate (how many gallons of ethanol must be blended into gasoline each year) is still alive and well. At least it can be filled by cheaper and less environmentally wasteful Brazilian sugar-cane ethanol.

Maybe someday, we can just have a Pigouvian tax on carbon and drop the command and control BS. Not holding my breath though.

Portugal Fires Back!

Portuguese are outraged at Tommy the Norwegian Butter Waif! They respond in kind, pointing out the REAL crisis: no money.



Perhaps a drag race could settle this.

Butter Crisis Prompts Desperate Video

"What if it was YOU who didn't have any butter? What if I took your butter away from you?"

TOMMY! Listen. YOUR. GOVERNMENT. is doing this to you, sweetie. There is no butter shortage. It is the state who is f***ing you. You are hilarious because the shortage is entirely a product of your protectionist trade policies. If you needed actual help, we'd be there for you. But if we tried to ship in emergency supplies of butter, we would be ARRESTED. Just like those Swedish butter thugs...

(If you have missed the story, check out our man Angus, with his finger on the private parts of Norway and the butter crisis.)

Scandinavian follies

KPC recently broke the story of Norway's tragic, self-inflicted butter shortage (or as Matt Yglesias would have it, Norway's heroic defense of a diversified economy).

Now let me ask you a question? What do you call buying butter at $35 a pound?

Well in Norway apparently it's a bargain and in Sweden it's a profit opportunity.

Yes people, the marauding Swedes are trying to bring down brave little Norway by smuggling in butter!

Two guys "sneaking" across the border with 550 pounds of butter. In 18 oz. packages. Tragically the article is silent on how exactly these packages were concealed.

The article treats the shortage as somehow exogenous and talks about how it has led to "blackmarket trafficking", like butter was heroin. As we noted before, idiotic trade barriers have produced this bogus "shortage".

Norway: We're not just oil, we're oil and butter! (except when we run out of butter).

Norway: No Dutch disease here, just take a peek at our dairy industry!

Mars needs women!

ooops, make that "Norway needs butter"!!

Yes, one of the richest countries in the world has "run out of" butter! Just before the holidays!

Oh, the humanity!

The soaring popularity of a fat-rich fad diet has depleted stocks of butter in Norway creating a looming Christmas culinary crisis.

Norwegians have eaten up the country’s entire stockpile of butter, partly as the result of a “low-carb” diet sweeping the Nordic nation which emphasizes a higher intake of fats.

“Sales all of a sudden just soared, 20 per cent in October then 30 per cent in November,” said Lars Galtung, the head of communications at TINE, the country’s biggest farmer-owned cooperative.

A wet summer which reduced the quality of animal feed and cut milk output by 25 million litres had already limited supplies and the shortage has led some pundits to suggest the world’s eighth-largest oil exporter offer some of its plentiful fuel supply in exchange for butter.

Butter is now selling on Norway’s top auction website, with a 250-gram piece starting at around $13, roughly four times its normal price.

Top dairy producer Denmark lies just across a narrow sea channel, but its stores of creamy butter will be kept out of the country by the high import duties of Norway, the only Nordic nation that does not belong to the European Union.

.....and there we have it. Domestic demand surged, domestic supply faltered and IMPORTS ARE FORBIDDEN!

Norway doesn't need butter, they need FREE TRADE!

We often see stories about localized shortages of global commodities and they invariably have bizarre trade restrictions behind them.

Perhaps the poor Norwegian, tragically now unable to eat a stick of butter for Christmas brunch can console themselves by knowing that their domestic butter industry is very profitable.

If these be sweatshops, give me MORE of them!

Just after midnight in Munich. Tremendous doner durum for dinner, then a variety of locally brewed malt beverages. Nonetheless, I am over here watching my boy Ben Powell. And you should watch, too.



Still, here at KPC we strive for fairness. Since Ben Powell is a smart guy, and he's right, the opposing view should be a nonsensical article written by an idiot. Here you go; enjoy!

Not the Onion

This is one of the stupidest things I've ever seen.

But they are apparently not kidding.

The whole world is "losing" jobs to productivity. And that's a good thing, Jack Davis.

Your Job Counts on Account of the Way It Is Counted

Interesting. Our boy LeBron points out that the way we count matters, and that "offshoring" may overcount the portion of value created in the U.S. (And this in reference to an article he cites. Nice.)

I have taken the other side, claiming that the way we count dramatically UNDERCOUNTS how much value is created in the U.S. Sure, the "jobs" may be offshored, but they are a tiny part of the value of the product, and what is being done overseas is easy, repetitive, and cheap, not something U.S. workers need to do. Our other boy, Mark Perry, writes it up for the iPhone. Here's the value pie chart:

Who is right? I find the Houseman, et al., article pretty persuasive. So, I am, as usual, confused. It can't be that we BOTH overcount and undercount, can it?

(UPDATE: Meant to say that the title is stolen from the evil "May the Schwartz Be With You!")

(UPDATE II: LG and JN had an interesting exchange. Here is my own view: we might well want to soften the blow. Globalization helps all of us a little, but hurts a few of us a lot. Why not smooth out a little?)

Made in the World

Made in the World, brought to you by the WTO.

Watch the video. Yoda incarnate, with lots of odd lip smacking.

Thunder muscle up

Nenad and Jeff Green to the Celtics for Kendrick Perkins and Nate Robinson along with Mo Peet and DJ White to Charlotte for Nazr Mohammed.

Story is here.

I think I'm thrilled.

Jeff Green just was not a realistic power forward; he's much better suited for small forward but Kevin Durant is doing ok at that spot.

Now the Thunder have a defensive minded center and a back up center. I guess Ibaka and Collison will play the 4.

It's a little bit weird to get two centers an no power forward, but this is a great move I think. I'd like to know a bit more about Kendrick's contract situation and where the Thunder are going to move Nate Robinson, but I am happy given what we know as of now.

*******UPDATE***** Kendrick's contract expires this summer and apparently he's still not ready to play. So Nazr will be starting at center then? Green had to go, and I guess he didn't have too much value. I am still good with the deal. Thunder haven't committed money long term to any of these new guys.

Angus Is Right, As Usual!

Holy cow, why so much hatin' on Angus?

Look, the welfare economics case for free trade could be built on (a) the Pareto criterion, or (b) the Kaldor-Hicks Compensation Principle.

As Angus notes, no way you can say moving from protection to free trade is a Pareto improvement. There are winners and losers.

And no Libertarian can invoke the KHCP, because it's collectivist and utilitarian. KHCP does not require compensation be made, and doesn't even require individual consent, and so it is inherently coercive. A majority decides on a policy, and the minority is harmed without its consent. Yes, perhaps the harm was caused by eliminating a policy (protection) that was itself coercive (consumers were harmed without THEIR consent), but you can't get to free trade unless you go the collective-coercion route. Angus is obviously right about that.

Two points: First, less of a problem if compensation is actually made, as I suggested last summer at the Takeaway.

Second, I have a paper coming out in an edited volume that points out the equivalence of KHCP and Coase, in terms of costs (in both cases, you are adding up costs and benefits). Differences are (a) KHCP doesn't require consent or compensation, while Coase requires both, and (b) KHCP faces the Hayek problem, because there are no prices to measure welfare costs. Coase forces bargaining and honest preference revelation, EXCEPT when transactions costs of collective action and preference revelation are too high.

Mankiw's leap

In last Sunday's NY Times economics column, NGM quite reasonably points out that voluntary exchanges benefit both parties in the exchange.

However, he then makes an unsupportable leap to the following:

Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense.

I do agree that China is not one biggest problems the US is facing, but not for the reasoning that NGM uses which is that all voluntary exchanges are mutually profitable (read the article, it's the only principle he speaks of before giving the quote i reproduce above).

People, the United States is not a person! Only in DSGE models do we assume that all individuals are identical! There is no "our" to which general statements can be attached.

Yes, going from autarky to free trade will raise the GDPs of both nations, but that is a very far cry from saying that a large number of individuals will not be made worse off in the process. I figure that NGM is familiar with the Stolper-Samuelson theorem, so I guess he is assuming the political process always provides adequate compensation for the losers??

ROFLMAO, anyone?

Here's a case for free trade:

Individuals should be allowed to contract with whoever they wish, without government interference based solely on geography.

Now, that is not much of an economic argument, but, to tell the ugly truth, THERE ISN'T MUCH OF AN ECONOMIC ARGUMENT.

Once you factor in agent heterogeneity, imperfect competition, increasing returns, and an arbitrarily large number of traded goods, the welfare economics of free trade is murky at best.

Here's a political economy case for free trade:

Yes free trade has its losers and drawbacks, but the losses and distortions from free trade are far less than the losses and distortions from politicized, "managed", trade so free trade is therefore preferable.

Is there a bumper sticker big enough to hold that?

Is this anyway to WTF?

It depends. If WTF means "win the future", then no. But if it has its more traditional meaning, then yes!

People, after all the speechifying, name calling, accusations, and general boo-sheet, the Obama administration has again declined to name China a currency manipulator!

Now personally, I don't think having a fixed exchange rate is currency manipulation, nor do I understand what makes us judge and jury on these issues, but my God, these guys really really really give new meaning to the phrase "cheap talk".

Dear Feds: if you are not going to do anything about it, then please just STFU!

and I say it's alright

People, this is so freakin' bad, even for the low standards of economic analysis of the NY Times.

In a recent article bemoaning the move of a solar panel plant from Massachusetts to China resides the following paragraph:

"Beyond the issues of trade and jobs, solar power experts see broader implications. They say that after many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun."

Alex has already mocked this brilliantly ("China monopolizes the sun!!"), but I gotta say a bit more.

First, the analogy is whack. The sun is (at least not yet) in Chinese possession. The analogy would work if we'd been buying oil rigs from the middle east and are replacing that now with buying solar panels from China.

Second, autarky is BAD, people, not good. A world where we are self sufficient for everything is a world quite a bit worse than the one we currently inhabit. There is nothing inherently "wrong" with importing oil; the problem is the effect using oil has on the environment, which is unchanged by where the oil comes from.

Third, China obviously has a comparative advantage on the US in low level manufacturing. Assembling solar panels is not a natural fit for the US in the global economy.

As Mungowitz has been saying, there isn't going to be a "green jobs machine" in the US, unless we are going to *massively* subsidize each job.

Rising Real Wages and the Spread of Opulence

Prof. G. Kennedy gives, as always, a learned and nuanced description of the problem.

I always come back to these two pictures shown in this post. Which one has higher wages, do you expect? And which one produces cheaper products? Since opulence, by definition, is higher wages and cheaper products, we're done here.