Friends in high places

A number of experts on technology have expressed concern about the national security implications of allowing Chinese companies/products like Huawei, TikTok and WeChat to have access to the US market. I’ve been skeptical of their arguments, although I concede that I am not well informed on technology issues. On the other hand, I wonder if tech experts have sufficient awareness of the “public choice” aspects of giving the government the power to run an industrial policy.

Previously I noted that the US government’s original intention to protect US consumers from possible spying by Huawei has morphed into a crusade to destroy the Chinese company. Political considerations also seem to be showing up in the TikTok case. Oracle has offered to purchase a portion of TikTok and insure that user data is safe, but some Trump administration officials remain unconvinced:

Several people said such a plan could satisfy career officials at Cfius. But some cautioned that the situation was not analogous to any previous case.

“We have a president who is running a campaign against China and any indication of giving in to Beijing over TikTok will be seen as weakness,” said a person involved in the negotiations, who was concerned about the deal receiving approval from the Trump administration. . . .

A veteran Cfius lawyer said any deal with ByteDance that let the Chinese company retain a majority ownership of the app in the US would be hard for the Trump administration to swallow.

I get worried whenever I see news reports of economic policymakers wanting to avoid perceptions of “weakness”, or outcomes being “hard to swallow”.  Does this address national security issues, or doesn’t it?

In the end, I expect the deal will likely go through, but I am not entirely reassured by the reasons why:

Oracle was originally brought into the negotiations to provide an alternative to Microsoft Corp., MSFT +1.69% a rival bidder with Walmart as a partner, said one person familiar with the talks. The U.S. investment firms Sequoia Capital and General Atlantic, which are existing investors in ByteDance, went in search of a tech company with close ties to the administration and settled on Oracle, the person said.

Oracle co-founder Larry Ellison hosted a fundraiser for Mr. Trump this year at his house, and Chief Executive Safra Catz also worked on the executive committee for the Trump transition team in 2016.

It seems that the Chinese believe that US economic policy decisions are made based on personal connections with the administration.  I’m not sure if that’s true, but the perception is enough to distort the market.  Would a takeover attempt led by a Trump critic have had an equal chance of success?  I have my doubts.

However you feel about this specific issue, it’s important to recognize that we are a long way from national security decisions being made by philosopher kings.  Once you grant the government the power to enact an industrial policy, don’t expect the decisions to be free of political/personal considerations.  On balance, I trust the market more than I trust any government.

PS.  My wife traveled to China last week and I’ve started using WeChat.  I’m willing to accept the risk that the Chinese government is spying on my calls.  For years I’ve assumed that the NSA knows whatever they want to know about my digital communications.

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Intro to My September 12, 2011 Speech at Western Kentucky University

On the (almost) 10-year anniversary of 9/11, I gave a speech at Western Kentucky University. The speech was titled “Lessons Not Learned from 9/11: An Economic, Numerate, and Constitutional Perspective.”

Here are the opening lines:

It’s altogether fitting and proper that we should take time to remember the innocent people whose lives were lost on September 11. Fortunately, I didn’t lose anyone on that horrible day. But some friends of mine did lose people they knew and cared for; one friend lost two of his friends: one in the airplane that flew into the Pentagon and one in the World Trade Center in New York. And anyone in this audience who has ever watched a rerun of Cheers or Frasier has some connection to someone murdered on 9/11: TV producer David Angell, who, with his wife, Lynn, was on American Airlines #11, the first plane to hit the World Trade Center.

Before I go on, let me ask: is there anyone here who lost any of the 2,977 victims of 9/11?

PAUSE

But if all we do is remember and mourn the dead, we will lose an important opportunity to learn from what happened on 9/11. That’s why I’m here: to tell you what we can learn.

 

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Ivor Cummins on the Coronavirus

 

I found this video by Ivor Cummins quite informative. Of course, I’m open to being told why he might be, or even is, wrong.

The data on Sweden and “dry tinder” are particularly interesting. Economist Dan Klein, Joakim Book, and Christian Bjornskov have written about this and he quotes it.

One thing I think Cummins brushed by unconvincingly is the difference between the USA Midwest and the USA Northeast, at about the 23:40 point. He says the shape is similar. He and I have a different view of the word “similar.”

One of the most upsetting parts is about how the lockdowns during the summer lengthened the time to herd immunity and therefore might themselves create an increase in the deaths in the fall and winter.

 

 

 

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Two Cheers for Small Business

We live in societies where we see a “near-universal appreciation for the aesthetic benefits of a thriving small business community,” but almost no empathy for small business owners. This is an interesting point made by Will Collins in an article published by The American Conservative and that makes use of James C. Scott’s work.

Collins is thinking of the recent riots in the US which, as you would expect from riots, resulted in physical damages and looting at the expense of restaurants and shops. If many left-leaning commentators typically express enthusiasm for “neighborhood restaurants, locally-sourced produce, and independent bookstores”, “in the wake of the riots, however, condemnations of looting and arson have been strangely muted”.

Though you may detect in the article a hint of nostalgia for a world of smaller shops and a certain antipathy towards big retailers, I think Collins has a point in highlighting that our societies tend to foster “a culture inimical to the character of the independent business owner.” The US is, or at least used to be, different the most European states in that regard, but certainly on my side of the pond there was a good deal of antipathy for shopkeepers. I was always struck by how it was common to refer to Margaret Thatcher with a certain disdain as “the daughter of a grocer”. You would expect that even people who deeply disagree with her would celebrate the upward social mobility and the achievement of somebody who comes out of a “petty bourgeois” environment. Not quite. The petty bourgeoisie is considered rather crass and vulgar, petty, a collection of prudes. The pursuit of money, an utter necessity for somebody who lives out of the oranges or the shirts she manages to sell, is seen as incompatible with higher pursuits.

The great enemy of small business is red tape. It seems to me that those having a strong “appreciation for the aesthetic benefits of a thriving small business community” tend to think of it as a fish tank , which shall be preserved as it is, with exactly those fishes it came with. They take a static view of their community and care about it not changing. They are not sympathetic, instead, with people who are trying to set up a small firm or shop, that is: with more people trying to find meaning in the “zone of personal autonomy” that their shop comes to represent.

Collins also makes a point many are making about the future of cities should Internet commerce take over the world. Will neighbourhoods simply be empty? As “small businesses help keep neighborhoods safe by attracting foot traffic and providing “eyes on the street” to informally monitor public spaces”, are we going to see crime spiking, as shops close? I tend to believe shops will be more resilient than people think. For one thing, somebody may be willing to buy an iPod online, but not necessarily her apparel or her medicines. Niche and highly specialised activities can benefit from personal contacts and handshakes (whenever we’ll go back to shaking hands). But also, for example, immigrants may prefer to go to small groceries run by people in their own community. Foodshops and small restaurants and takeaways can take over from shops that cannot compete with online retail. We will see. Cities are so central in our civilisation because, clearly, they are good at adapting to changing human needs. Still, the pandemic drove many to predict the end of the office as we know it, and thus to people preferring to live in suburban areas, fearing new pandemics and the consequent lockdowns, instead of in city centres. We will see. One interesting feature of crises like Covid19 is that they leave our imagination unbridled, but also, in the midst of an emergency, my impression is that we tend to overestimate changes that will be permanent and underestimate changes that will be transient.

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The Failure of Government Command-and-Control

If another example was necessary to confirm that government command-and-control allocation of resources is far inferior to market allocation by prices, the continuing shortage of Covid-19 tests could be one. Yesterday’s Wall Street Journal (Scott Patterson and John Simons, “Labs Struggled With Surge in Covid-Testing Demand; How One Made it Through,” September 6) reports:

Labs have competed for limited supplies of plastics and chemicals used to run tests, struggled to understand how federal supplies were allocated, and scrambled to come up with workarounds.

“Scrambled to come up with workarounds” instead of just paying the market price as free enterprises do on a free market.

Not only are private companies dependent on approvals from the FDA or the CDC, but their supplies are, since March, subject to price control and allocation, or threat thereof, both under presidential orders and under the states’ “price gouging” laws. (I had a number of Econlog posts on that—for example, “When Free-Market Prices Are Banned,” April 1, 2020.)

The government-as-it-is always shows this disorder. Only the government-as-it-should-be is rational and orderly, until it becomes the new government. The lesson to draw from this repeated experience has to do with poor incentives to satisfy consumer demand compared with strong incentives to cajole special political clientèles.

One objection to these conclusions is that, during the current crisis, at least as far as the availability of Covid-19 testing is concerned, other national states have done better than the US state despite a similar sort of mixed (capitalist-socialist) economy. More reflection on this objection is warranted but the explanation may simply lie in different mixes of ingredients in the interventionism. For example, Americans have very powerful and often arbitrary central agencies but an otherwise decentralized political structure, and the benefits of the latter don’t always compensate for the costs of the former; emergency price controls and allocation rules are especially vague and confusing in America; and Americans live under a particularly ignorant and naïve political establishment, which (if this mention is necessary) has not improved during the past four years. A simpler hypothesis: if the lider maximo believes in both A and non-A (in the sense that something can be true or false if he says so), pretty much anything can happen.

The Wall Street Journal article also includes an illustration of increasing short-run marginal cost (which explains why increasing quantity supplied requires higher prices) if only because coordination costs increase and running the equipment over usual capacity costs more. On the last point:

The machines’ efficiency requires close examination, said Geoff Monk, the company’s president and head of operations, mainly because “they were never meant to run 24-7.” Sometimes they break down, he said. Occasionally, they get clogged with mucus and need to be taken offline.

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Japan’s new leader

I’ve long held the view that pundits pay far too much attention to American elections and not enough attention to elections in foreign countries. It’s not that US elections are unimportant—we are the world’s dominant power—rather the relative importance of the US is generally exaggerated. The US is more important than the world’s 3rd largest economy, but surely it’s not 100 times more important.

How many people know that Japan just picked Yoshihide Suga as its new leader?  How many know that his policy preferences differ somewhat from those of Prime Minister Abe?

After graduating, he became secretary to a Yokohama politician, where his real education began. His boss was minister of transport in the early 1980s, heavily involved in the privatisation of Japan Railways. “I think that’s the basis for Mr Suga’s politics,” said Isao Mori, his biographer. “It’s something like Thatcherism or Reaganism.” Whereas Mr Abe is a conservative, Mr Suga belongs more to the free market wing of the LDP, aiming to shake off the shackles of Japan’s regulatory state.

One thing I’ve noticed is that the view of the media on issues such as deregulation are very much dependent on context. When discussing deregulation in the US, there’s often a high degree of skepticism. In contrast, there’s generally a tacit assumption that deregulation is a positive development when discussed on other countries—something that would boost efficiency. I’d be interested in knowing if other people have noticed the same pattern.

PS.  Of course most media outlets do not even discuss deregulation in foreign countries.  Here I’m focusing on outlets such as the Financial Times, the New York Times, The Economist, the Wall Street Journal, the Washington Post, the South China Morning Post, etc.

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Could the CDC’s order harm renters, too?

The Center for Disease Control issued an order on September 1 that tenants earning less than $99,000 a year who fail to pay their rent due to COVID-19-related financial hardships cannot be evicted for non-payment of rent until at least January 1. This raises a number of legal, ethical, and logistical questions, not least of which is whether a public health agency staffed by non-elected officials even has the authority to effectively command specific people to provide free housing for other specific people for any amount of time. Further, if enforceable, such an edict has the potential to cause some serious long term damage that could wind up hurting renters.

There’s a long history of antagonism towards landlords in the popular imagination. Like owners of other resources, landlords are sometimes considered to have not really earned their money. To be social parasites who don’t even deserve rights. Even Adam Smith seemed to express distaste for the occupation, writing that “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed.” (Of course, I think the clause “like all other men” is important here as well—wanting to put your situation to its best advantage is hardly unique to owners of rental property.) And I’m not deaf to the sentiment myself, having met a number of wonderful landlords but also a couple real stinkers who wouldn’t give back a deposit if you spit shined the place.

However, love ‘em or hate ‘em, Smith also recognizes that landlords and other resource owners play an important part in the process of bringing much-needed resources to the market:

“If, on the contrary, the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate. If it is rent, the interest of all other landlords will naturally prompt them to prepare more land for the raising of this commodity; if it is wages or profit, the interest of all other labourers and dealers will soon prompt them to employ more labour and stock in preparing and bringing it to market.”

In other words, if for any reason there is a temporary shortfall of a product—whether because of increased demand or some kind of shock to the existing stock or productive capacity—the price is going to go up. This will in turn drive up the price of at least some of the inputs to production, including possibly the rental price of the land production takes place on. (Smith was focused here on commodity production, but the same principle applies in a modern housing rental market.)

When prices go up is when the landlord will tend to be most hated. But it’s also their time to shine. The increase in rental prices makes it worthwhile for financially capable individuals to seek out additional land that could be rentable, or to rent land that was previously held idle because the going rate couldn’t cover the bother of renting it out.

Having people in the economy with a strong incentive to provide additional housing is a very good thing. There is already a serious problem with the exorbitant price of housing in urban markets, and I can’t imagine that this action by the CDC is going to encourage anybody who is on the fence to start renting out additional property. Landlords are, after all, not really lords, but mere humans who have their own children to feed and bills to pay. What happens if non-payment of rent is going to prevent them from paying their own mortgage? Will rent default insurance become prohibitively expensive, forcing some who offer rental properties to pull out of the market? Such effects are particularly likely to impact the kind of landlords who rent out small numbers of properties, which could concentrate the market even further around less flexible corporate entities. The potential for long chains of unintended consequences abounds.

Hopefully the fact that housing prices are currently down in some of the country’s most expensive markets will help prevent this order from being too painfully binding. But at the end of the day, any political action that makes offering rentals more difficult could wind up creating a lot more harm than good for renters. I’m reminded of my colleague Chris Coyne’s argument for adopting a constrained vision when trying to help others, taking seriously the limits of what can be achieved given the inevitability of scarce resources and imperfect people:

“Adopting a constrained vision is not to accept the status quo regarding human suffering but rather is the recognition that an array of constraints limit what is possible and that any proposed or actual change in the status quo must be achieved relative to those constraints… while the claims stemming from this vision are not as extravagant as those coming from the man of the humanitarian system, they are more realistic and go further towards achieving our shared goal of relieving human suffering and improving the human condition” (Doing Bad by Doing Good, p. 27.)

 

 

Jayme Lemke is a Senior Research Fellow and Associate Director of Academic and Student Programs at the Mercatus Center at George Mason University and a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.

 


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Will Property Rights be Permanently Diminished?

On Saturday, the federal government’s Center for Disease Control will issue a new regulation barring eviction of millions of residential tenants around the country. If it survives likely legal challenges, the new policy would set a dangerous precedent undermining federalism, the separation of powers, and property rights. Conservatives, in particular, will have reason to regret it when a Democratic president inherits the same sweeping powers.

The CDC policy bars eviction, until the end of the year, of any residential tenant who makes a sworn declaration to the effect that they 1) have “used best efforts to obtain all available government assistance for rent or housing,” 2) they expect to earn less than $99,000 ($198,000 for joint tax filers) in 2020 or did not have to report any income to the IRS in 2019, or received a stimulus check under  CARES Act, 3)  “the individual is unable to pay the full rent… due to substantial loss of household income… , a lay-off, or extraordinary out-of-pocket medical expenses” 4) “the individual is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit” and 5) “eviction would likely render the individual homeless—or force the individual to move into and live in close quarters in a new congregate or shared living setting.”

So writes Ilya Somin at The Volokh Conspiracy.

This is an amazing power grab by the Trump administration. It violates property rights and federalism. And its based on what looks like a narrow regulatory power that was not intended for its current use.

Somin goes on to point out the legal basis for the measure:

Such sweeping action by the executive normally at least requires authorization by Congress. As co-blogger Josh Blackman explains, the claimed authorization here is 42 CFR Section 70.2 a regulation that gives the Director of the CDC the power to “take such measures to prevent such spread of the [communicable] diseases as he/she deems reasonably necessary, including inspection, fumigation, disinfection, sanitation, pest extermination, and destruction of animals or articles believed to be sources of infection.” The CDC can take such measures anywhere it deems local and state regulations to be “insufficient” to limit the spread of disease across state borders.

The measure in itself is scary. The precedent is even scarier. Somin writes:

This broad interpretation of the regulation would give the executive the power to restrict almost any type of activity. Pretty much any economic transaction or movement of people and  goods could potentially spread disease in some way. Nor is that authority limited to particularly deadly diseases such as Covid-19. It could just as readily apply to virtually any other communicable disease, such as the flu or even the common cold.

Moreover, governors in most states have taken a meat ax to property rights of business owners in the last few months. So the answer to my question “Will property rights be permanently diminished?” is, I think, yes.

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The Decriminalization of Polygamy

Utah’s anti-polygamy laws came under fire on December 2013, by US Federal Judge Clark Waddoups. He ruled in Brown v. Buhman that this state’s ban on polygamy was unconstitutional.

This year, Utah state Senator Deirdre Henderson sponsored a measure that would decriminalize this practice but not legalize it. The Utah state Senate approved this bill unanimously. If signed into law, plural marriage would be punished with fines of up to $750 and community service, but would no longer warrant a jail sentence of up to five years as a third degree felony.

Let us react to this initiative under six headings: 1. religion, 2. sociology, 3. libertarianism, 4. aesthetics, 5.feminism and 6. practicality.

 

1- Religion. From a religious point of view, this new policy, if signed into law is to be welcomed. The Church of Latter Day Saints has traditionally favored this marital practice. According to some Mormon interpretations, polygamists will enjoy glorification in heaven. The Utah territory was settled in 1847 and this practice was then common. It was only ended in 1890 as a precondition for statehood, which would quell continued persecution. Still today numerous followers of the Fundamentalist Church of Jesus Christ of Latter-day Saints engage in this relationship. If we take freedom of religion seriously, we must support this bill becoming law. No one under it is forced to engage in polygamy. It would only provide that those who do so will not be imprisoned; they should not be fined either, but that is a fight for another day. If polygamy between consenting adults is not a victimless crime, then what is? Critics charge it will harm the children resulting from such unions, but they offer no evidence for this contention.

 

2- Sociology. What will be its social effects if this bill becomes law? Boys and girls are born in roughly equal numbers, but do not survive to adulthood in like manner. Males succumb more heavily to suicide, imprisonment, murder, occupational and other accidents, military deaths, etc. Thus, there are more women than men of marriageable age. (In China matters are reversed, with their one child policy, but Utah is not located in that country). Polygamy could even up these odds. No longer would there be numerous women unsuccessfully seeking a marriage partner. But would this not be unfair to males? Not really, given the greater statistical precariousness of male lives.

 

3- Libertarianism. From a libertarian point of view, the basic principle is to legalize anything between consenting adults. There is perhaps no more important arena of life in which this applies. Polygamy is a paradigm case. We already have serial plural marriage. There are those who have had many more than a single spouse over the years. But cross-sectional marriage, as well as time series, are equally voluntary.

 

4- Aesthetics. But is not this practice unseemly, disgusting, perverse, from an aesthetic point of view? De gustibus non disputandum. In tastes there is no disputing. One man’s meat is another man’s poison. Yes, for most people, polygamy does not pass the “smell” test. But most people do not have to participate in this type of arrangement. No one does. The proposed law only legalizes this type of marriage. No one is compelled to embrace it.

5- Feminism. How can we look at this institution from a feminist perspective? Polygamy is all well and good, but we want equality. Polyandry (one wife, several husbands) should be treated in exactly the same manner. What is good for the goose should be good for the gander, too. The “libertarian” does not agree with the “feminist” on many issues, but on this one, an exception, we can all agree. Yes, polygamy should be legalized, and polyandry too. Polyandry, moreover, might make sense in a nation such as China, where the eligible men outnumber their female counterparts.

 

6- Practicality. Under legalization, polygamists can more easily avail themselves of services that are available to all others. For example, if they are abused, they can access the police. Yes, of course, some young girls have in the past been forced to take older men as husbands, and this is a clear and present rights violation, but monogamous marriages are not perfect either. Such rights violations should be attended in either case.

 


Walter E. Block is the Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans.

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Is China an Economic Threat?

It seems that more and more Americans, pro-Trump or not, are concluding that trade with China is a threat to the United States. The objections are typically one of three: (1) freer trade with China after it was admitted to the World Trade Organization (WTO) in 2001 has cost U.S. manufacturing jobs; (2) the Chinese have thrived by stealing our intellectual property (IP) and that has made Americans worse off; and (3) the Chinese will use some of their progress in cybertechnology to engage in surveillance of Americans.

Each of these objections contains a kernel of truth. But the objections together are not nearly enough to offset the huge gains that Americans reap from freer trade with China.

These are the opening two paragraphs of my latest Hoover article, “Is China an Economic Threat?Defining Ideas,  August 27, 2020.

Another excerpt:

Interestingly, in a 2019 article in Foreign Policy, deputy news editor Michael Hirsh quoted Autor: “One could say that there was something of a guild orthodoxy [among economists]: The key dictum was that policymakers should be told that trade was good for everyone in all places and times.”

Since 1976, when I earned my Ph.D., I’ve thought of myself as a member of the “guild,” that is, the economics profession. But somehow I missed that memo. More important, every other economist I know or read who talks about trade missed that message also. Indeed, I have yet to meet the economist who denies that trade is bad, especially in the short run, for those who must compete with cheaper imports. But, as noted above, the benefits of trade with China greatly outweigh the costs and go disproportionately to lower-income households.

I owe that one to Donald Boudreaux, who first made me aware of MIT economist David Autor’s statement. It’s possible, of course, that Hirsh misquoted him.

On TikTok, I also take my Hoover colleague John Cochrane’s side against our Hoover colleagues Niall Ferguson and H.R. McMaster, and I point out a serious breach by the Chinese of my privacy that our federal government, with its apparently low-quality security, helped create:

I clearly recall that the hacked form I filled out the year before asked me if I had engaged in adultery in the last seven years. That was important, you see, because the U.S. government needed to know if I could be blackmailed. Fortunately, my answer was no, but notice that the U.S. government  had made it easier for the Chinese government to blackmail federal employees who answered yes.

And on draining the swamp:

President Trump, who came to power with the goal of “draining the swamp” is, with his order that TikTok be sold to an American company, reducing economic freedom and deepening the swamp. In this way, the TikTok controversy highlights, in plain sight, a real threat to our freedom: the threat from our own government.

 

 

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