Economics & Finance

I still remember when I got my first adult library card, & could take out books from upstairs without my mom signing. It was an oaktag card with a little sheet metal plate bent around two slots in the card. The metal plate had my number on it. The ka-CHUNK as the machine stamped the card was musical to me. My greatest disappointment was that I could not sign out the Encyclopaedia Britannica & instead had to sit and read it in the library.

The library is much bigger now. Google, the Gutenberg Project, Wikipedia, Blogger, … Even better, if I had wanted to read a foreign newspaper, or even one from out of town, I would have had to go into the nearest big city (Hartford at the time) and use their library. Of course, I would never have known if there was something I wanted to read until I got there. When Apollo 11 landed on the moon, the New York Times retracted an editorial from 1920 that had said that Dr. Robert Goddard’s invention would never work in space because “there was nothng to push against.” I was such a fan of space exploration that I took a bus into Hartford just to read it myself. Now, except for the squishy brown rotten parts of the New York Times, I can read the whole thing online for free. The cost of information has plummeted.

Why do you care?

You care about this because it is going to make your life better. You will have more money. Your children will have a library card that is close to the one the angels have in their wallets.

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In this post I discussed how Canadian border guards are unarmed and pretty much useless because they don’t have the means to impose a monopoly of force. For decades the SOP was to let dangerous and potentially violent people in to the country, and then to call the nearest police station and let them handle it. The primary function of a border guard, essentially to guard the border, was passed off to other law enforcement agencies within the interior.

The incoming Conservative government has vowed to arm the custom agents. How many are to be armed, and what they are going to have so far as firepower is concerned, are issues that haven’t been resolved as of yet. But the one thing we can be sure of is that it’s going to cost money.

Don’t just mean the cost of a few thousand handguns. Training costs money and the people who go through it have to take refresher courses every so often. Realistic training is tough on equipment, so guns will have to be replaced and ammunition purchased in large quantities. And, of course, there will be unanticipated legal costs just as soon as a suspect sues the government because a law enforcement officer points a gun at them.

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Good article:

The French have effectively banned McJobs by requiring employers to be more generous. The unfortunate result is not middle class comfort for all. Often, it’s no jobs.

Companies That Can’t Fire Don’t Hire

The reason has to do with an economic concept called “marginal product of labor”, which is a fancy way of saying that firms will not voluntarily pay you more than you’re worth. If Wal-Mart believes that you add $5.15 an hour to the bottom line by stocking shelves, and you demand $8, the manager will politely point to the exit. If you don’t have any skills that are worth more than $5.15 an hour to some other employer, you won’t use that exit. You’ll take what Wal-Mart is offering. McJobs tend to pay workers what they’re worth, which, sad though it may be, is not always a living wage.

The French alternative — admittedly oversimplified — is to require that firms pay low-skilled workers more, whether their productivity justifies it or not. If an employee adds $5.15 an hour worth of value to a firm, the government might require the firm to pay him $10. As you can imagine, firms are not keen on paying someone $10 an hour for $5.15 worth of work, not even in France. The best business decision in that case is to hire no one at all.

One of the most fascinating studies I have read was conducted by a group of biologists who compared the randon mutations of rat mitochondria (the little fuel processing organelles in each of our cells that have their own, much simpler DNA) during episodes of widespread plague and during normal periods. They found that mitochondrial DNA mutations occurred 3 times faster in the presence of virulent pathogens (during plagues) that during normal times.

I think this is precisely the system property that makes the US economy more robust and adaptable than most other major economies. As American business owners and managers can tell you, in the US competitors try to kill your business every day, forcing adaptation, cost cutting, rationalizing, restructuring, soul-searching and, ultimately, growth. Without the relentless attacks of pathogens (your competitors) none of this would happen.

–John Rutledge

UPDATE: Commander Cornflake provides helpful perspective in the comments.

A little less than a week ago, the Boston Globe featured a rather naive article entitled In Praise of High Gas Prices. The author argued that ultimately higher energy costs were a good thing, since they would drive consumers to more frugal habits (a Prius rather than an Escalade, for example) and spur investment in “alternative” sources of energy. He is conflating several issues. First, there is a straightforward assertion of the law of substitute goods, which states, in effect, that an increase in the price of Coca Cola will lead to an increase in demand for Pepsi. That’s fine, as far as it goes, but he also assumes that an increase in the price of the cost of production is a good and beneficial thing, if it in fact causes the subsitution. This is a political value judgment having nothing to do with economics. He makes this assumption because the alternatives are thought to be more desirable than the original. Wind power and shale oil are mentioned (more on these later).

Today, without reference to the earlier article, the Globe notices that at least one of the substitutes is maybe not such a good thing. In the San Joaquin Valley of California, it looks like the substitution of firewood for heating oil and natural gas will cause the region to fail its air pollution remediation plan. While unintended, this outcome is by no means unexpected. The same thing happened during the Carter administration, when parts of the Northeast were enveloped by a thick haze of smog from wood-burning stoves. The article doesn’t even touch on the worst aspect of the substitution, which is the loss of life from fires.

On the other hand, higher fuel prices seem to have led to innovation, in some cases representing a definite improvement over some of the previous technology.