Saturday, May 29, 2004

Eight Great Myths of Recycling

Eight Great Myths of Recycling.

I found this nice piece on recycling, and I'm glad that there are more people than Penn and Teller that have any slightest tint of common sence.


Friday, May 28, 2004

Fidel Castro rules for 40 more years?

It is not only the good health of the Cuban nation that is wildly exaggerated, the leader has to have his share as well:

Date: May 19 2004

Fidel Castro's doctor denied rumours that the president's health was ailing, saying today the 77-year-old leader is in excellent health and claiming he can live at least 140 years.

Dr Eugenio Selman Housein said Mr Castro continues to run and swim and pointed to the president's participation in a massive protest march on Friday.

Castro led the march past the US diplomatic mission in Havana to protest US policy against the island's communist government for about 800 metres, walking slowly and with some difficulty.

"He is formidably well," Mr Housein told reporters at a conference on "satisfactory longevity" in the capital city. The press "is always speculating about something, that he had a heart attack once, that he had cancer, some neurological problem."

But Mr Castro is healthy enough to live at least 140 years, said Mr Selman, who heads a "120-years Club" that promotes wholesome habits for the elderly.

"I am not exaggerating," said Mr Selman, who believes people are capable of living five times the number of years it takes for the human body to fully grow - which he said is around 25 years.

Cuba's life expectancy, which is 76.6 years, is one of Latin America's highest, and just below that of the United States, which is 77.4 years, according to the CIA World Factbook.

Mr Selman is never far from Mr Castro and marched near the leader on Friday. He is one of 250 medical experts from Latin American and the United States participating in the longevity conference, which runs to Friday.

AP

This story is just magnificent. Remember the story of the longevity of the healthy people of the Caucasus mountains, that were rumored to live way past the age of 100. That fabrication was the result of Stalins facination (and probably wish of) with longlivety. And the healthy Chairman Mao, who was so fit that he swam across a river, much to the delight of his western followers.


Thursday, May 27, 2004

Lazy town, the new-new economy

Recently Iceland got an new Institution, Lýðheilsustofnun, but it could be called the Public Health Institution or something like that in English. I would like to post a link to their website, but I can´t. There is none. Almost a year after they started operation for the institution that is intended to publish health informationion (among other important things), there is no website.

However, what they have managed to do is push their way into the media to agitate for special taxes for unhealthy foodexactlycactly this should be done is not well planned, and neither is how to deal with the substituted farm products, but most of those are far from healthy.

These muddled ideas are nothing compared to the private initiative taken by a local health-fittness guru. He started immensly popular concept of a town full of lazy and fat people, that a super-fittness hero helps bring to fitness. The children love it and now we have a tv version on the way. The picture above shows how the lazy-town economy works, but children get health coupons if they do a good job in staying fit and eating healthy, and and they can use the coupons for savings in the banking system. This economic system, strangely, works.


Saturday, May 22, 2004

Henry Hazlitt

For those that have not figured it out, there are four free online books by Henry Hazlitt on the net: Foundations of Morality, Conquest of Poverty, Time Will Run Back and The Wisdom of Henry Hazlitt. The books can be found here.

NAFN Á MYNDOne of the beutiful promises that sound so fine just before election time is a shorter working week. Who does not want that, why work for 40 hour when one can work less. The 'short working week' has not gained too much popularity in the US or Iceland but here the working week is 40 hours and if anyone works past 8 hours a day, the employer has to pay extra wages for those hours. This has not noticably hampered productivity since most people work more than 40 hours a week (many pundits actually complain about that), probably because most other countries have similar or more severe restrictions. In France the working week has been getting shorter and shorter for the last decades, and a few years ago the week was reduced to 35 hours.

These regulations do interfere with the natural right of employees and employers to make whatever contracts they choose, thus restricting economic development. It is quite sad to see that happen since most people actually do not want these restrictions, even in France.

The ideology behind the the short working week is based on the notion (fallacy) that this 'creates more jobs'. Henry Hazlitt did show this in his book THE Economics in one lesson. Alhtough more people might be employed in some sectors, at least initially, the productivity does not increase.

Hazlitt does attack the fallacy of overtime wages in , The Wisdom of Henry Hazlitt (free online text):

A similar judgment must be passed on all "spread-the-work" schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50 percent penalty overtime rate for all hours that an employee works in excess of 40 a week, no matter how high the employee's regular hourly rate of pay.

This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers.

Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week. In the ten year period, 1960 to 1969 inclusive, the average annual work week in manufacturing varied only between a low of 39.7 hours in 1960 and a high of 41.3 hours in 1966. Even monthly changes do not show much variation. The lowest average working week in manufacturing in the fourteen months from June, 1969 to July, 1970 was 39.7 hours and the highest was 41 hours.

But it does not follow that the hour-restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50 percent overtime rate. No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the over time law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.

Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run the interests of the whole body of workers must be adversely affected by compulsory overtime penalties.

All this is not to argue that there ought to be a longer work week, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers. The Wisdom of Henry Hazlitt: Chapter 23: False Remedies for Poverty


Friday, May 21, 2004

Oil prices

For the last days the oil prices have been rising. Are we to worry?


Tuesday, May 18, 2004

Chaos Complexity and Hayek

   
Fractal Fiðrildi
Chaotic systems can form structural and functional systems, without a central direction.
As Caldwell notes, Hayek initially thought the dividing line between possible and impossible positivism lay in the distinction between natural sciences and social sciences, but by the 1950s he had come to understand that the issue was really one of complexity. A positivist, predictive science is possible only for phenomena, whether human or natural, that are relatively simple—particle physics, for example. One can never fully model and predict complex phenomena such as the spontaneous orders produced by the interactions of simpler agents. These orders include the human brain, whose higher functions cannot possibly be inferred from its physical substratum, as well as ecosystems and, of course, markets, cultures, and other human institutions.

Hayek, in other words, fully anticipated the rise of what we now know as the study of complex adaptive systems, or complexity science. Drawing much of its inspiration from evolutionary biology, this approach is today practiced in such places as the Santa Fe Institute, a multidisciplinary think tank that uses agent-based simulations to model the emergence of complex behaviors on the part of larger collectivities. But Hayek would doubtless disapprove of the research agenda in much of the complexity field, which seeks to use these models to produce deterministic, predictive outcomes. HAYEK’S CHALLENGE: An Intellectual Biography of F. A. Hayek.


Tuesday, May 11, 2004

There goes the dirty Maximum

But in the French Revolution maximum prices were not enforced by the same method of capital punishment which the Emperor Diocletian had used. There had also been an improvement in the technique of killing citizens. You all remember the famous Doctor J. I. Guillotin (1738-1814), who advocated the use of the guillotine. Despite the guillotine the French also failed with their laws of maximum prices. When Robespierre himself was carted off to the guillotine the people shouted, "There goes the dirty Maximum." von Mises


The state of Sweden

There something rotten in the state of Sweden.


Monday, May 10, 2004

Rent controls

This is the supermodel Kim Alexis. She lives in an cheap apartment in New York. The apartment is not cheap because it's in a poor state or in a bad neigbourhood. The reason why her big down town apartmet is cheap is due to rent control.

We have seen one presentation of price controls. This is another unfortunate result of rent controls. It is not possible to rent the apartment at market levels, so rich people often end up renting dirt cheap apartments.


Saturday, May 08, 2004

Asymmetric Infromation: The story of the Dead Tulips

dead tulips

The trem asymmetric information has been much talked about lateley, especially after George Akerlof, Michael Spence and Joseph E. Stiglitz were awarded the Nobel price in Economics in 2001. The Economist defines it in this way:

When somebody knows more than somebody else. Such asymmetric information can make it difficult for the two people to do business together, which is why economists, especially those practising GAME THEORY, are interested in it. Transactions involving asymmetric (or private) information are everywhere. A government selling broadcasting licences does not know what buyers are prepared to pay for them; a lender does not know how likely a borrower is to repay; a used-car seller knows more about the quality of the car being sold than do potential buyers. This kind of asymmetry can distort people's incentives and result in significant inefficiencies.

It is true that we would probably be better off without asymmetric information. People could buy more over the internet for example and therefore save considerable amounts, only if they would trust the other party. The same goes for used cars and many other things. We have all passed by good buys due to lack of trust, as well as buying lemons. Of course the world will never be without asymmetric information. God almighty would not only have to remove all dishonesty from the human race, but he would also have to remove all the information and knowledge as well.

The story below is how I first learned about asymmetric information:

Giorgio Inzerilli went to the flower market on his first day in Netherlands. There he saw the most beautiful set of tulips he had ever seen. Nothing close to that he had ever seen in his native Torino. And the price. Simply ridiculously low. He bought the tulips and placed them in the window of his apartment. The next day, much to his surprise, all of the flowers had died.

This little story shows us few things about asymmetric information. Not only does it show (and everyone can probably remember many similar events in his own life) that it is part of everyday life and we are either the ones that have more or less information than the other party.

We also see that the price of the flowers reflects the asymmetric information in that particular situation. The lady with the flowers knows that people don't trust her as much as a respected flower retailer. And what happens to the price, it goes down of course. The next day she might have new batch of flowers that would last the week, but the price would not go up. No one would trust her any more the next day; the market attempts to solve this problem by lowering the price the price of goods due to the uncertainity in the situation.

In most instances the market (society if you will) has attempted to solve these problems, often with quite good results . For example when I was buying a car last fall I could take the car to a repair shop for a detailed check before the purchase (very cheap actually). I could also get a good feel for the market by browsing the market on the net. Some entrepreneurs managed to sign up all of the car dealers in the region. This is a pure market driven solution that gives the buyer a valuable tool to explore the market and therefore reduce the 'information gap'. This is just a everyday example how the market solves the problem and there is no need for institutions to "to counteract the effects of quality uncertainty" as George A. Akerlof would have liked us to believe.


Thursday, May 06, 2004

The Liver Palms of Kim Jong Il

"In the past, I used to smoke and drink a lot. Now I've quit smoking and I only drink a little wine" - Kim Jong Il

The dear leader of North Korea shows us his liver palms. Those are the red spots on his palms.

Liver palms
Palmar erythema is a reddening of the palms of the hands affecting the thenar and hypothenar eminences. The soles of the feet are often also affected.

Palmar erythema can be a feature of chronic liver disease, pregnancy, thyrotoxicosis, rheumatoid arthritis, polycythaemia and rarely chronic febrile diseases, chronic leukaemia, or shoulder-hand syndrome.

Palmar erythema may also be the result of dermatoses such as eczema or psoriasis. It may also be a normal finding.

It has been attributed to high oestrogen levels. GP Notebook


Who is this young man

No cheatingHe had been something of a bohemian in his youth, and always regarded young people and their idealism as the key to progress and the overcoming of outmoded prejudices. And he was widely admired by the young people of his country, many of whom belonged to organizations devoted to practicing and propagating his teachings. He had a lifelong passion for music, art, and architecture, and was even something of a painter. He rejected what he regarded as petty bourgeois moral hang-ups, and he and his girlfriend "lived together" for years. He counted a number of homosexuals as friends and collaborators, and took the view that a man's personal morals were none of his business; some scholars of his life believe that he himself may have been homosexual or bisexual. He was ahead of his time where a number of contemporary progressive causes are concerned: he disliked smoking, regarding it as a serious danger to public health, and took steps to combat it; he was a vegetarian and animal lover; he enacted tough gun control laws; and he advocated euthanasia for the incurably ill.

He championed the rights of workers, regarded capitalist society as brutal and unjust, and sought a third way between communism and the free market. In this regard, he and his associates greatly admired the strong steps taken by President Franklin Roosevelt's New Deal to take large-scale economic decision-making out of private hands and put it into those of government planning agencies. His aim was to institute a brand of socialism that avoided the inefficiencies that plagued the Soviet variety, and many former communists found his program highly congenial. He deplored the selfish individualism he took to be endemic to modern Western society, and wanted to replace it with an ethic of self-sacrifice: "As Christ proclaimed 'love one another'," he said, "so our call -- 'people's community,' 'public need before private greed,' 'communally-minded social consciousness' -- rings out…! This call will echo throughout the world!"

The reference to Christ notwithstanding, he was not personally a Christian, regarding the Catholicism he was baptized into as an irrational superstition. In fact he admired Islam more than Christianity, and he and his policies were highly respected by many of the Muslims of his day. He and his associates had a special distaste for the Catholic Church and, given a choice, preferred modern liberalized Protestantism, taking the view that the best form of Christianity would be one that forsook the traditional other-worldly focus on personal salvation and accommodated itself to the requirements of a program for social justice to be implemented by the state. They also considered the possibility that Christianity might eventually have to be abandoned altogether in favor of a return to paganism, a worldview many of them saw as more humane and truer to the heritage of their people. For he and his associates believed strongly that a people's ethnic and racial heritage was what mattered most. Some endorsed a kind of cultural relativism according to which what is true or false and right or wrong in some sense depends on one's ethnic worldview, and especially on what best promotes the well-being of one's ethnic group.

Answer


Wednesday, May 05, 2004

The pot at the end of the garbage rainbow: Trash-sorting

NAFN Á MYNDLast night I was watching the highly politically incorrect 'Penn and Teller Bullshit'. This program was about recycling. I'm not going to cover what was said in the program; recycling does not make any economical sense and we are not drowning in garbage etc. There is this one quote that I want to focus on. This is very interesting and quite telling in how absurd arguments can get, when someone tries to defend one economic fallacy or another. This is what Neil Seldman said, but he is the President of something called the Institute for Local Self-Reliance:

"That's what we call the pot at the end of the garbage rainbow, that's where the fifteen to twenty dollar an hour jobs, with health insurance etcetera, makes people able to make a decent living through recycling".

This is amazing, he is telling us that if the government takes away our money (I say our, since recycling is subsidised in every country with active recycling programs) only to create shitty jobs. The government destroys many jobs due to high taxes and inches many people closer to poverty, and then creates lousy jobs instead.

The argument that this Neil makes is not something new. Once more I quote Frédéric Bastiat, this time from one of his best work, What Is Seen and What Is Not Seen, where he responds to a similar argument as above:

Now, if I am not mistaken, no sooner will the author of the proposal have descended from the platform, than an orator will rush up and say:

"Discharge a hundred thousand men! What are you thinking of? What will become of them? What will they live on? On their earnings? But do you not know that there is unemployment everywhere? That all occupations are oversupplied? Do you wish to throw them on the market to increase the competition and to depress wage rates? Just at the moment when it is difficult to earn a meagre living, is it not fortunate that the state is giving bread to a hundred thousand individuals? Consider further that the army consumes wine, clothes, and weapons, that it thus spreads business to the factories and the garrison towns, and that it is nothing less than a godsend to its innumerable suppliers. Do you not tremble at the idea of bringing this immense industrial activity to an end?"

This speech, we see, concludes in favour of maintaining a hundred thousand soldiers, not because of the nation's need for the services rendered by the army, but for economic reasons. It is these considerations alone that I propose to refute.

A hundred thousand men, costing the taxpayers a hundred million francs, live as well and provide as good a living for their suppliers as a hundred million francs will allow: that is what is seen.

But a hundred million francs, coming from the pockets of the taxpayers, ceases to provide a living for these taxpayers and their suppliers, to the extent of a hundred million francs: that is what is not seen. Calculate, figure, and tell me where there is any profit for the mass of the people. Frédéric Bastiat, Selected Essays on Political Economy: What Is Seen and What Is Not Seen

The French in the 18th century where a lot more civilized than people today. Now we reduce the employment of thousands of people to sorting through garbage, an activity that is only reserved for the most poor in the third world.


How to reduce the trade deficit

How to get rid of the trade deficit that most nations suffer so dearly from? It is very simple indeed as the picture above shows. Everyone sees only the negative aspects of this event, but there is indeed a positive side to it: it reduces the trade deficit. The French genius Frédéric Bastiat first came to this realization more than 150 years ago. The argument is as follows:

A French business man bought $1000 worth of goods in France and shipped them to the United States and sold the goods for $1200, thus a $200 profit. He bought cotton for the $1200 and shipped the goods from the United States back to France.

This little endeavour did hurt the interest of France in the most serious way, it created unfavourable balance of trade. If the ship had sunk midway in the first voyage, the customs officials would have accounted only for the $1000 worth of goods (in Franks of course) but not the $1200 worth of goods that came from across the ocean, thus, if that would have happened, the trade deficit of France would have been $1000 more favourable.

The problem was, that although highly beneficial for the trade balance, ships do not sink in a regular and predictable way, so Bastiat came up with a better solution:

There is still a further conclusion to be drawn from all this, namely, that, according to the theory of the balance of trade, France has a quite simple means of doubling her capital at any moment. It suffices merely to pass its products through the customhouse, and then throw them into the sea. In that case the exports will equal the amount of her capital; imports will be nonexistent and even impossible, and we shall gain all that the ocean has swallowed up. Bastiat, Frédéric, Economic Sophisms

Postscript: Is this what the Boston Tea Party was all about?


The Newcastle golf course in Seattle

This place used to be a landfill.


Tuesday, May 04, 2004

Balance of trade

This graph does show the US trade balance from 1970 to 2000. What is striking is that the graph is almost all of the years in the negative. How can that be, everyone know that a negative trade balance is bad, there is obviously something wrong with this picture. What is wrong is the understanding of what balance of trade is. It is deceptive to think that negative trade balance is something negative. This is only natural, since most often a word has only one particular meaning.

International trade balance is a national accounting phenomenon, and as such can be quite deceptive. Most importantly it only accounts for physical goods and does not include services. Also it counts foreign investment as dept. This means that software and other non-physical goods are not in the equation.

The trade balance is a number that is based on innumerable number of trades. For example if someone buys a new car from abroad, the balance 'worsens' but of course the trade is beneficial for both parties. The seller gains, say, $20.000 and the buyer gains a new car. Most often deals like this go as planned and both parties are happy.

Of course the buyer of the car has not done any damage to his country, although he has armed a politician with a lethal weapon, namely the 'trade balance has increased' exclamation that the opposition uses a lot in the times of plenty.

Think things.

The only bad trade deficit is the part that is created by deals that do not make sense from economical standpoint, such as many government projects.


Megalomania II

mao poster hitler poster stalin poster

Personality cult is the direct result of the megalomania that all these dictators suffer from. The same megalomania also dictates their adoption of political doctrine and the method of governance, all of them embrace some social variant as their political system and run the country in a top-down fashion.

'Laissez faire' does not exist in their lexicon.


Cuban Buildings

Cuban building

Crumbling building in Cuba. Who takes responsibility of this building. The official response I just heard on the TV is something like this, "people don't take care of the buildings they live in. They live just wait for the government to do something." Of course no one repairs a building that he does not own, especially when everything that is needed for maintaining the building is rationed. Throw in some permissions that have to be obtained in order to do anything, the results are predictable.

Crumbling building un Havana

This one needs more than paint. The Cuban government not only strangles all private effort but it is also totally negligent in maintaining the buildings in Havana. Economics is the study of the use of scarce resources, which have alternative uses. The government of Fidel Castro does make the resources extremely scarce and what is left is evidently not allocated by the central government to the people.


North Korea

kim il sung

Personality cult. The distinction between socialistic (quack) economic ideas, autocratic rule and the megalomania of the leader can be hard to distinguish. The result of this toxic mix is sometimes maddening.

corealights

Scarcity This is a night-satellite photograph of a part of Asia. Notice the absence of lights in the happy-happy land of Kim Jong-Il. Everyone is "extremely happy in the prosperous North Korea" according to a governmental spokesperson.

corealights

Famine.


Sidney Opera House

This is the Opera House in Sidney. A very pretty building indeed and if you ask any Australian, probably few have any regrets over it's construction.

However, the story of the Sidney Opera House is a typical for Formula for any grand government spending: Underestimate the cost and risk involving the project and overestimate the benefits. Then hire an army of consultants and agitators that use these questionable statistics to get the project underway.

Now, everyone says, look at this magnificent building, how can you say that this was an bad idea. The acoustics are magnificent to the delight of opera fans, and also think of the jobs that are created in the tourist industry due to this magnificent landmark. Sure, the project took 15 years, the cost was about $100 million and the operation still needs government funding, but surely the benefits outweigh the cost.

This is true. A grand house indeed and a true landmark that draws people from around the globe to Sidney. No one disputes that. What is missing from the equation is what is not so easily visible. Everyone can see the big building, but can you see the faces of frustrated Australian taxpayers decades ago or do you see the important road or bridge that was not built, due to financial constraints created by the Opera project. Of course not.


Megalomania

megalomania \meg-uh-lo-MAY-nee-ah; -nyuh\, noun:
1. A mania for grandiose or extravagant things or actions.
2. A mental disorder characterized by delusions of grandeur.

And this is just mind-boggling: The Official Home Page of North-Korea*

* This is a not really the official site, but, as my friend said on occasions, it could be true and therefore it does not mater.


Monday, May 03, 2004

Magnitogorsk experience

"Consumption is the sole end and purpose of all production." - Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. Anno 1776. . People should know this and never forget. To produce something when no one is asking is a recipe for disaster as History shows us. If someone decides to invest a great part of his or his nations wealth in a single project, then there is no room for failure.

Magnitogorsk plant. This is the result of Stalins first 5 year plan. The original 5 year plan. The mother of all the other year plans, Hitlers 4 year plan, Icelandic 3 year plans and all the others.

Among the projects covered were ones such as Magnitogorsk, which was intended to be manned only partly by forced labor and was originally publicized as the greatest of steel works and a model city for prosperous proletarians. The steel works emerged, but the model city failed to follow. Economists pointed out that this “Largest Steel Mill in the World” would be located where fuel had to be delivered from afar, that the deposits might give out (as they did eventually), and so on. This ill-considered crash planning became a feature of the Gulag. Robert Conquest, The Economics of Forced Labor: The Soviet Gulag

The Soviet emphasis on steel is not surprising, given the governments agenda.


The wisdom of Che


"To build communism, a new man must be created simultaneously with the material base." - Ernesto Che Guevara, Man and Socialism in Cuba


Sunday, May 02, 2004

The great

Normandie was one of the great ocean liner of last century. It had its maiden voyage in 1935 and captured the Blue Riband from Queen Mary. The motive for the construction of this grand and beautiful ship was not for pure economic reasons, but it was seen as a token of French industrial strength. It was never profitable.

In the seventies every superpower just had to have one. The US, British, French and even the Soviet started to build supersonic airliners. Above are the Soveit TU-144 and the Concorde. National pride but not economic reasons was the motivation for these flying financial disasters.


The progress of Fidel Castro

castrotractor "The setting up of a social system which eliminates selfish exploitation of the means of production, of a social system which converts the means of production into the people's property, something to be developed for the benefit of the whole people, finds its complement in the introduction of technology and machinery. As a result, not only can man work for society as a whole, but his work will also have a far higher productivity and he is freed from the kinds of work that are really hard.

You will understand perfectly well the effort required by 40 men working 8 hours in a climate such as ours, digging furrows; you will understand how much human energy, how much effort and how much sacrifice these machines eliminate.

Through such methods, as the result of its tremendous rate of progress thanks to the use of technology, a modern and just society can achieve successes which will permit even animals -- those animals we still look upon with sorrow from time to time, because we also see them working in the fields -- will be set free by these machines. - Fidel Castro (1968)


Visual Economics - Seeing The Unseen

Often the results of economic fallacies are not so obvious except in the wallet of the individual. For example in Iceland the price of Milk is price controlled and this is something that one knows and is not obvious when one goes to an Icelandic supermarket. As times goes by the rules and regulations are that usually start as a beautiful promise by politicians will reveal themselves and we can watch the results.

Frédéric Bastiat wrote the essayWhat Is Seen and What Is Not Seen. There he writes about the bad ideas that are put into action because their long term effects are not easily visible. Everyone can see a beautiful bridge or a symphonic orchestra but who can see the more economical bridge that was not built or the shrinking wallet of taxpayers.

However, the disastrous effects of bad policy, human stupidity and ideological madness are often visible in a most dramatic way in the long run:

Justified state project This monster of a house was built for a radio station in Iceland. A radio station, someone might as. Are you crazy, nobody needs a palace for one silly radio station...this is by no means a economically viable endeavour. The catch is that the question if this was a smart idea from an economical standpoint was not raised and was indeed an non-issue. The house was was built by the state for a state owned radio station.

kursk

Lebensraum The battle of Kursk. In 1943 the greatest tank battle ever took place on the vast plains of Russia. In the battle that lasted 5 days 435,000 German soldiers and 2,700 tanks fought against 1,550,000 Russians with 4,800 armoured vehicles.

Adolf Hitler was a sucker for silly ideologies and quack economic fallacies. He decided not to believe that trade and economic freedom was the best way to bread feed the people although the evidence was all around him. His adopted ideas of lebensraum was one of the chief motivators of the war and the invasion in the Soviet was to ensure enough food (note, not prosperity) for the Volk.

Freedom in trade and economics is a peaceful way of ensuring not only the modest goals of merely feeding the people but it is a source of immense wealth for those nations who decide to go that route. Frederic Bastiat said in Economic Harmonies: "By virtue of exchange, one man's prosperity is beneficial to all others." Megalomaniacs simply do not comprehend this.

It is certainly true that the productivity of the soil can be increased within certain limits; but only within defined limits and not indefinitely. By increasing the productive powers of the soil it will be possible to balance the effect of a surplus birth-rate in Germany for a certain period of time, without running any danger of hunger. But we have to face the fact that the general standard of living is rising more quickly than even the birth rate. The requirements of food and clothing are becoming greater from year to year and are out of proportion to those of our ancestors of, let us say, a hundred years ago. It would, therefore, be a mistaken view that every increase in the productive powers of the soil will supply the requisite conditions for an increase in the population. No. That is true up to a certain point only, for at least a portion of the increased produce of the soil will be consumed by the margin of increased demands caused by the steady rise in the standard of living.Adolf Hitler, Mein Kamf

slk

trabant

kdf wagen

A tale of three German cars. Mercedes Benz SKL and Trabant and the WW Beatle. Three cars produced by the same people. What is the difference?

People could actually buy the Mercedes cars in W-Germany and it was so common that it was hardly a status symbol to drive one. For the Trabant people would wait for years or decades to get their car from the state. Not only was the car inferior to what the same people could do 50 years earlier but was rationed as well. The third car was supposed to be produced for das Volk by the Nazi state but although many people did pay for it in advance, no Volkswagen was actually produced for the people in Hitler’s Germany.

hyper inflation

hyper inflation

Inflation. How did the German government respond to rising prices in the early twenties? They made printing money a large industry. Each new batch of money did only increase the prices further and this did in turn lead to more money to be printed. In less than two years the average prices rose by a factor of 20 billion. Don't believe me. What about the one mark note from 1920 and the 20 billion note from 1923. There is also a 200 billion note but unfortunately some politicians do realize the root of the problem even though they see such a note.

This mad printing spree did of course destroy the German economy where no one really knew the real value of things and an people did spend most of their valuable time chasing goods before the next price hike.

threegorges

Centralised government. In 2009 the Stone Treasure Village will be below the surface of the Yangtse River when the Three Gorges dam will be finished. A monumental collective effort that was decided on by a selected few.

kara hnjukar

Centralised government. This gorge will go under as well. The collective that justifies it's existence because the market does not take "externalities" into account decided to build a dam here. The location was not decided due to a fancy NPV calculation or well balanced decision that takes economic and environmental factors into account. Bad economics, but some politicians can make a living in the Icelandic parliament for four more years.

food rationing

State control of scarce resources. People waiting in queue in post-war Britain in order to get some food. Ques are a sure sign of food rationing but rationing is the the next stage after price controls in the road to serfdom.

amsterdam

Rules and regulations. Why are the old buildings in Amsterdam so narrow? According to Giorgio Inzerilli, the property tax was determined by the with of the facade and of course people responded by building these absurdly narrow houses in order to reduce their tax payments.

aralsea

Centralised government. In the times of Soviet someone had the brilliant idea to reverse the flow of a river or two in order to produce more cotton. Obviously someone thought this was a good idea at the time.

aralsea

Prosperity. Seattle protestors. If you see something like this then you know that you are in a prosperous country where people have the right to protest and obviously a lot of free time on their hands.


Visual Economics

reykjavik airport

Government mismanagement. This a picture of Reykjavík Airport. It is situated very close to the town center and supports national flights for the region. The airport is situated only half an hour drife away from an international airport that could easily support all of those flights. The only apparent reason that the airport stays, and therefore locking in the most valuable building sites in the region, is because of the majority of Icelandic parlamentarians are from remote regions and enjoy the comfort of the airport close to the town center and the parliment.

rent sucks joe pesci rental building

Rent control from cradle to grave. Above is an interest group (angry man) as well as a intermediate product (Joe Pesci) and a final product (abandoned building) of rent control.

It might be strange that in Iceland there is no governmental rent control and people can make rental deals without too much influence from the government. The cause probably is that there is a tradition for people in Iceland to own their houses and to rent an apartment is usually a temporary arrangement. Therefore there is no large infuence group that begs politicians for rent control and politicians therefore pay attention to other groups that need special attention in order to win their vote.

Ok, one less evil for Iceland, but the results can be quite dramatic when the rent control has been in place for several years. One of those evils that no one sees in the beginning. Thomas Sowell has a good passage on this in his book Basic Economics:

Under rent control, for example, property rights can be reduced to worthlessness or even become negative. That is why owners of many apartment buildings in NYC have simply abandoned their buildings and fled the scene, when the costs of the legally mandated services they are required to provide exceed the rents that they are allowed to collect. Since abandonment of the buildings is illegal, these owners go underground when the value of their property right becomes negative. Under these conditions, selling the building is out of the question, since it has become an economic liability, rather than an asset, and finding a buyer may be impossible.

Property rights matter economically because of the incentives they create and the consequences of those incentives for people’s behavior.

In the Soviet Union, a country without property rights, or with the food being owned “by the people”, there was no given individual with sufficient incentives to ensure that this food did not spoil needlessly before it reached the consumer.

Widespread corruption and inefficiency found even under Stalinist totalitarianism suggests the limitations of official monitoring, as compared to automatic self-monitoring by property owners.

Property rights create self-monitoring, which tends to be both more effective and less costly than third party monitoring. (It also points out why employee ownership can truly make a difference.)

The only animals threatened with extinction are animals not owned by anybody. Colonel Sanders is not about to let chickens become extinct. Nor will McDonald’s stand idly by and let cows become extinct. It is things not owned by anybody (air and water, for example), which are polluted. In centuries past, sheep were allowed to graze on unowned land – “the commons” as it was called - with the net result that land on the commons was so heavily grazed that it had little left but patchy ground and the shepherds had hungry and scrawny sheep. But privately owned land adjacent to the common was usually in far better condition.

The empirical question of how the existence or non-existence of property rights affects the economic well being of society as a whole which provides the strongest evidence for the social benefits of property rights.

While strict adherence to property rights would allow landlords to evict tenants at will, the economic incentives are for them to do just the opposite – to try to keep their apartments as fully rented and as continuously occupied as possible, so long as the tenants pay their rent and behave themselves.

Under rent control and tenants rights laws, landlords have been known to try to harass tenants into leaving, whether in New York or in Hong Kong.

Under stringent rent control and tenants rights laws in Hong Kong, landlords were known to sneak into their own buildings late at night and vandalize the premises, in order to make them less attractive or even unlivable, so that tenants would move out and the empty building could then be torn down legally, to be replaced by something more lucrative as commercial or industrial property.

Henry Hazlitt also has a good passage in his modest free online book The Wisdom of Henry Hazlitt:

Still another example of our shortsighted legislation is rent control. This is usually imposed in the early stages of an inflation. As the inflation goes on, the discrepancy between the rent the landlord is allowed to charge, and the rent necessary to yield him a return comparable with that in other investments, becomes greater and greater. The landlord soon has neither the incentive to make repairs and improvements, nor the funds to make them.

When the rent control is first imposed, the government promises that new buildings will be exempt from it; but this assurance is soon repudiated by a new law. It becomes unprofitable to build new rental housing. New mortgage money for it becomes increasingly difficult to obtain. Landlords of old housing often can no longer supply even heat and other essential services. Some cannot even pay their taxes; their property has in effect been expropriated; they abandon it and disappear. Old rental housing is destroyed quicker than new housing is built

Some favored tenants, already in possession, are momentary beneficiaries, but tenants or would-be tenants as a whole, in whose interest the legislation has been professedly passed, become the final victims. The irony is that the longer rent control is continued, and the more unrealistic the fixed rents become as compared with those that would yield an adequate return, the more certain the politicians are that any attempt to repeal the rent control would be "politically suicidal."

More articles on price controls. A very good collection of articles in Capmag. I recommend the article on the book Forty Centuries of Wage and Price Controls. On my to-buy-list.


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