Economics & Finance

Niall Ferguson at the Chicago Council on Global Affairs

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Wednesday night I attended a lecture by Niall Ferguson for the Chicago Council on Global Affairs at the Fairmont Hotel. The name of his presentation was “America: An Empire on the Cusp of Collapse.”

I was a fan of Niall based on his book “The Pity of War” about World War One, which I thought was an interesting approach to the topic, although I did not share all of his conclusions.

Mr. Ferguson’s presentation was not as depressing as the title sounds. In his articles he is prodding governments for better policies to tackle debt and working with lawmakers in the US and overseas that want to consider solutions. In a recent visit to Washington DC, however, Mr. Ferguson said that only three leaders wanted to meet with him.

His largest point was that the US and Western Europe had a giant advantage in economic power vs. their population when compared with Asia and the rest of the world in the period from the 1800’s through the middle of the twentieth century. It appears that this advantage is eroding and the Asian economies (predominantly China) are closing that gap.

He stated that we needed to consider why Western Europe was able to take such as commanding lead in the first place, and by understanding this we would be able to think about how we might be able to “reboot” our economies to compete more effectively. Here are the six “killer applications” (and a link to an FT article by Niall) that Niall Ferguson said enabled Europe to lead Asia for so long:

1) Modern medicine
2) A science-based culture
3) A representative political system
4) Consumer society
5) Market capitalism
6) Work ethic

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Truck Drivers and Capacity Estimates

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This article suggests that the trucking industry may soon face a serious driver shortage…that although capacity to handle increased freight may appear to be there based on the number of trucks available, it isn’t really, because there is no one to drive them. Some laid-off drivers have certainly gone on to doing other things, and federal regulations for the qualifications of commercial drivers have become more stringent.

This is interesting to me as a railroad investor since it suggests an additional factor helping to move long-haul freight from road to rail. More generally, though, it points to limitations in the accuracy of capacity estimates for the overall economy. When economists look at the available capacity of the trucking industry, as part of their capacity estimates for the overall economy, I doubt that they are looking at the impact of prospective driver shortages. This kind of thing matters, because these capacity estimates are used to project the potential for future economy-wide price increases.

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The Myth of “Natural” Resources

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Okay, I know what they are trying to say but this Popular Mechanics headline [h/t Instapundit] made me laugh:

Bioengineers Turn Trees into Tires
Billions of gallons of oil are used worldwide every year to manufacture tires. Bioengineers are developing a plant-based substitute that could replace some of that oil within five years.

Hmmm, aren’t rubber trees, well, trees? I think it humorous that we started out making tires from trees but then so successfully and overwhelmingly switched to synthetic rubber that we now find the idea of making rubber from plant materials exciting and revolutionary.

This article demonstrates several different important facets of the policy debates about the environment and natural resources. For one thing, it reminds us that Reagan was right and the leftists wrong when he said that pollution comes mainly from trees. (Back in the ’80s, the EPA passed sweeping restrictions on isoprene and other compounds because of their role in generating smog. Reagan pointed out the inconvenient truth that 80% of the isoprene in the air over cities came from emissions from trees.)

The major thing it reminds us of, however, is that a major flaw exists in our debates over how we obtain and use natural resources.

The major flaw? It’s simple. There is no such thing as “natural” resources. When we debate over how to manage our “natural” resources, we’re engaging in a debate as delusional as heated arguments over the management of our unicorn ranches.

Even worse, its like using our delusion about unicorns as a pretext to kill people.

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The Politics of Economic Destruction

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About 3 weeks ago, I wrote about Senator Christopher Dodd’s proposals for increased regulation of venture capital and angel investing and why these are very bad and damaging ideas. WSJ (4/22) makes several points about this proposed legislation:

Amazon, Yahoo, Google and Facebook all benefited from angel investors, who typically target companies under five years old…such firms are less than 1% of all companies yet generate about 10% of new jobs. Between 1980 and 2005, companies less than five years old accounted for all net job growth in the U.S. In 2008, angels invested some $19 billion in more than 55,000 companies.

Mr. Dodd’s bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn’t need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.

There’s a lot wrong with Dodd’s ideas on VC and angel investing; see my earlier post and the WSJ article for more details. There’s plenty more to be concerned about in the current approaches to financial regulation being devised on Capitol Hill.

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Random Thoughts on the Latest Government/Media Charade

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The clueless Bloomberg reporterette interviewing Goldman Sachs chairman Lloyd Blankfein was like one of those MSM reporters who do man-on-the-street interviews in totalitarian countries: “So, Mr. Garcia, what do you think of President Castro’s new program?” Of course Blankfein gave vague answers and was careful to cite approvingly the great knowledge and wisdom of his Congressional masters. What did anyone expect him to say?

Meanwhile, Senator Levin thinks that a firm such as Goldman that is engaged in the business of making markets is doing something immoral because it is “betting against its customers”. This makes Senator Levin a fool or a demagogue or both. Maybe he will now try to ban all trade, since the fact that each party to a voluntary transaction thinks it is getting the better part of the deal must mean someone is getting ripped off.

As someone else said around here, the country is in the very best of hands.