Sunday, December 23, 2007

In the Balance

A superb article in the Economist magazine, which can be found here, demolishes the argument that inequality is rising.

The article argues that although income inequality has risen, what we can buy with a dollar has increased. True, someone earning $1 million/year can afford to buy the upcoming $100,000 Mercedes S Class with a sushi bar but is the overall experience of owning an S-Class that much greater than owning a Fiat Punto? After all, driving a Fiat Punto is considerably better than walking or taking a bus.
[The point] is that, over time, the everyday experience of consumption among the less fortunate has become in many ways more similar to that of their wealthier compatriots. A widescreen plasma television is lovely, but you do not need one to laugh at “Shrek”.

The article goes on to remind us that:
today's Gilded Age income gaps do not imply Gilded Age lifestyle gaps. On the contrary, those intrepid souls who make vast fortunes turning out ever higher-quality goods at ever lower prices widen the income gap while reducing the differences that matter most.

Wise words indeed.

Friday, December 21, 2007

A Canadian's view of Ron Paul

An interesting article from the Financial Post about what a Ron Paul administration might be like can be found here. Though the chances of him getting elected are slim, he would certainly demonstrate whether or not the Austrian school was correct.

Friday, December 14, 2007

Radioactive Coal Ash

In this article from Scientific American, it appears that the ash from coal has higher radioactivity than nuclear waste - Eeek!

I've always been a fan of nuclear power. Done right and without some of the hysteria connected with it, nuclear energy can be the solution for a whole lot of problems. Best thing about it is that we don't have to depend on dodgy governments and cartels. Most of the world's uranium comes from Canada and Australia.

What can I say when even die hard former anti-nuke protesters are coming around?

Bali-hoo

Bali talks end in acrimony. What a surprise. Asking the "wealthy" countries to reduce CO2 emissions by 45% while China and India are exempt is a recipe for disaster.
If climate change is happening then the way "to do something about it" is not to impoverish ourselves to reduce it's impact. CO2 is linked to energy use, which is linked to the wealth of our countries. If we were all a whole lot poorer then our CO2 emissions would probably drop but I'm not sure I want that. A much more realistic approach is to mitigate climate change "catastrophes" when they happen. As I like to remind people - if Bangladesh were a rich country, they would be able to build dikes and levies against rising sea levels (if they are rising).

Friday, December 7, 2007

A sign of times to come

Food prices are rising as this article from the Economist describes. Two notable things can be gleaned from the article. The first is that the rising affluence of the world creates a demand for meat, which involves more grain per calorie than consuming grain alone. The second is that the production of biofuels is taking an enormous amount of maize off the world's food markets. Ethanol is a government subsidised activity and not driven by the market. Joule per joule, ethanol is uneconomical, which is why the market doesn't produce it without substantial artificial incentives.
The rising affluence of the world is a good thing and the market will adjust by producing more food - higher prices will attract more farmers, will improve agricultural technology and will encourage more "efficient" uses of food. The second factor - government subsidies to produce biofuels - is wrong-headed because those subsidies come from tax-payers who end up paying as much or even more per liter of fuel (through taxes and higher food prices).
Biofuels are being pushed because they are seen by the lesser politician and his hanger-ons as solving both the climate change issue and the high oil price issue.
Let's examine these, shall we? High oil prices are temporary. The history of economics suggests that the solution to high prices is high prices and requires no government intervention. Higher oil prices do two things - firstly they encourage efficiency and secondly they encourage alternatives (for example, how many people use whale blubber for lamps these days) - the market should be the judge and not the government.
The climate change issue is another boondoggle. We can pour trillions into preventing a catastrophe but those trillions are not worth it. Look at it this way. If we spend $6 trillion to prevent a global catastrophe and no catastrophe happens then can we really say that the $6 trillion spent prevented it (politicians will claim it did because they're the ones spending our money and will have to justify it somehow)? On the other hand if we spend $6 trillion and the catastrophe happens then we have $6 trillion less to deal with its consequences. This is not like an insurance policy where we spend a small amount of money today to hedge our bets for tomorrow - this is all or nothing. How much should we spend to avert this mythical catastrophe? $6 trillion, $10 trillion? How much is enough?
Paying for climate change is a little bit like paying penance to avoid purgatory. No clearer example can be found than the useless subsides for biofuels.

Monday, December 3, 2007

Another reason not to vote for Hillary (or why globalization must continue)

One does not need to go very far to find a reason not to vote for Hillary. The latest reason - her stand on the Doha round of trade talks. Ms. Clinton has said that she will take "a hard look" at whether or not the Doha rounds were worth it. You can read more here.
There is a mountain of literature on why free trade is good for everyone and so I won't go into a lot of detail here (I'm sorely tempted to write an entry on economics 101 and the law of comparative advantage) but I will, instead, recommend that people read a couple of books:
  1. Why Globalization Works by Martin Wolf. It is a superb overview of the economics of globalization and why it is so important that we do not go back to the protectionist past that contributed to the severity of the Great Depression.
  2. In Defense of Globalization by Jagdish Bhagwati. Bhagwati presents an impressive argument on how free trade has improved the lot of people both in the third world and in the first.

Both books serve to dismantle many of the myths of globalization such as jobs being stolen from rich countries etc. and they present a powerful argument about why without globalization we would all be poorer.

Be afraid be very afraid...

Interesting quotation from Stanford University climatologist Stephen Schneider.
We need to get some broad-based support to capture the public's imagination. That of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have.

Hmmm...scientific honesty? Makes you think.

Leaping backwards

(Original post: Sunday, December 2)
Today two countries are poised to turn back their clocks and regress to the bad old days of the 20th century. Putin and United Russia have won a landslide victory in Russia, cementing Czar Putin's hold on power. This is bad news for Russia and really bad news for the West that may, after all, be faced with totalitarian opponent again and a new cold war. We shall see.
Venezuela also stands on the edge and the outcome is still not certain. The polling stations have opened and Venezuelans are voting on whether or not to adopt a new constitution that, among other things, grants Chavez pretty much a presidency for life. So long freedom, so long prosperity, hello Comandante.
There is an excellent review of this slip back in time to be found at Reason magazine.
Another analysis to be found at American.com.

Update (Monday, December 3):
Chavez lost the referendum - unfortunately, the margin was narrow, which might mean that he will try again.

Sunday, December 2, 2007

Climate change madness

Why people take celebrities so seriously, I have no idea. Case in point is Prince Charles and the Bali Communiqué that 150 major companies have signed to limit greenhouse gases.
An interesting feature of the communiqué is the statement that emissions reduction "must be guided primarily by science" (as opposed to economics). Excuse Me? Economics is about costs and benefits. If it is more costly to prevent climate change than to mitigate it, then surely mitigating climate change is the better deal. Unfortunately, much of the economics behind the communiqué stems from the Stern Report, which has some significant flaws.
This could mean that we are using a completely wrong-headed approach to deal with a crisis that may or may not materialize. Think of all the trillions we could be wasting, trillions that could go into anti-malaria initiatives, schooling for poor children, prevention of many childhood diseases and prevention of an AIDS epidemic in many parts of the world still at risk. Sadly none of these causes have a globe trotting hypocrite or two to champion them.
There is evidence for climate change (although there are still some important voices that are skeptical) and it could turn out that the most economic solution could be to prevent it from getting worse but I would think twice and do some more analysis before forsaking or committing trillions to deal with it. And sometimes, as this article at American.com points out, the cure could be worse than the disease.

Ron Paul

I've kept quiet about Ron Paul for a long time because I was curious to see how he would develop as a candidate and I have to say that I'm not disappointed. While I do not find everything he says convincing, I find him light-years ahead of the other candidates running for either the GOP or the Democrats. He is a breath of fresh air and a return to Goldwater Republicanism from whence Ronald Reagan came.
He is a strong supporter of laissez-faire capitalism, free markets, and state rights. He is everything that I would have thought the Republican party should be instead of the bloated elephant that it has become - a party of big government, irresponsible finances, and over-intrusiveness in private lives.
Ron Paul is a follower of the Austrian school of economics that includes such luminaries as Friedrich Hayek and Ludwig von Mises. Whether he wins or not, he has demonstrated that libertarianism in the US is strong and, dare I say it, growing.