Paul Krugman, fallen intellectual

I refer to myself as a Paul Krugman hipster, I like his old stuff better from before he sold out.

And Krugman did indeed sell out. He's gone from a brilliant economist with a talent for writing into a smug, partisan hack. I'm not the first to say this, but I'm happy to say the most recent Krugman critic is progressive economist Jeffrey Sachs, who recently wrote about Krugman's failure to admit his recent predictions on the economy have been wrong, such as the fall in the unemployment rate.

Not one of his New York Times commentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates. On the contrary, “the disastrous turn toward austerity has destroyed millions of jobs and ruined many lives,” he argued, with the US Congress exposing Americans to “the imminent threat of severe economic damage from short-term spending cuts.” As a result, “Full recovery still looks a very long way off,” he warned. “And I’m beginning to worry that it may never happen.”

Despite that, Sachs characterizes Krugman's year-end column as a "victory lap" about his own predictions.

Come back to us Paul; you've lost your way.
Read more...

Are left wingers prepared to choose?

I'm a supporter of an open borders immigration policy. I'd like to see anyone come to America and be able to become a citizen in short order, although I want screenings for medical conditions and criminal background checks to avoid a Scarface scenario where another nation can dump its prisoners on us.

That view is embraced by most progressives, or at least a more moderate version that wants much more immigration than we currently have. But what's contradictory is that those some people also want a generous welfare state.

Here's Paul Krugman on that very issue:

Democrats are torn individually (a state I share). On one side, they favor helping those in need, which inclines them to look sympathetically on immigrants; plus they’re relatively open to a multicultural, multiracial society. I know that when I look at today’s Mexicans and Central Americans, they seem to me fundamentally the same as my grandparents seeking a better life in America. 

On the other side, however, open immigration can’t coexist with a strong social safety net; if you’re going to assure health care and a decent income to everyone, you can’t make that offer global. 

So Democrats have mixed feelings about immigration; in fact, it’s an agonizing issue.

My concern here is that this is in fact not an agonizing issue for Democratic voters, while it is most likely on the radar for Democratic politicians. To often, I see rank and file Democratic voters speaking about the legend of infinite wealth, where the government should be strengthening the social safety net with no consideration on costs because America is "rich."

Perhaps I'm wrong, maybe this is something they really do agonize over in private and don't like to talk about in public.

What I find most frustrating about this is the way immigrants are often portrayed as a burden when they should really be considered an asset. Bryan Caplan's analysis of the data tells us that most studies show immigrants pay more in taxes than they use in benefits, and the ones that show a net loss only show a small one.

Our borders need to be open for everyone, even the uneducated and the poor. Maybe we'd make some progress on this issue and pass immigration reform is everyone stopped talking about poor people as victims in need of saving and instead as untapped resources that can help us if given better incentives.
Read more...

Obama's views on Chinese trade make no sense

The week President Barack Obama complained that China is subsidizing some of its automobile exports, and this government funding breaks competition.

Keep in mind is the same president who bragged about bailing out the incompetent General Motors automobile company during the State of the Union address and put a $7,500 tax credit on the American-made Chevy Volt. He even toyed with the idea of raising that amount to $10,000.

Previously, President Obama howled that China was being unfair when it subsidized solar panels and slapped tariffs on the imports, even though he had made subsidizing and tax breaks to American "green" energy companies a central plank in his campaign. He also supported Quantitative Easing 2 after accusing China of manipulating the trade value of the yuan.

President Obama's views on international trade with China make as much sense as chocolate-covered dog treats. All three foot-stomping episodes were example of Chinese taxpayers subsidizing the purchases of American consumers, but he treated them as acts of war.

Granted, I'm used to ignorance of international trade being part of public policy, but did the O-man really have to go the extra mile and mix hypocrisy in too?

About 15 years ago liberal economists like Larry Summers and Paul Krugman would be ridiculing these oafish episodes. Today, they sit quietly on the sidelines out of fear of harming the progressive movement even while the president trips over his own clown shoes.
Read more...

Add Rana Foroohar to the list of Pop Internationalists

NPR's Tom Ashbrook interviewed non-economist Rana Foroohar this week on her TIME magazine piece arguing that local production is the future of manufacturing.

It was like 45 minutes of hearing someone say Halloween is caused by a surplus of monster costumes and candy.

She hits on all the cliches. There are calls for protectionism (and concerns other nations will also be protectionist), focusing on creating meaningless jobs and not improving efficiency, claims that the rules of economics have fundamentally changed, summaries of international trade as if countries compete with each other like rival businesses, requests for government subsidies, the presentation of labor rates as the sole determinant of manufacturing location and she speaks about the loss of manufacturing jobs as if they simply moved to other nations, instead of being replaced by robots.

There isn't enough time to dive into every fallacy she presents, but the most important thing to say here is that despite her claims, nothing about international trade has really changed.

She misinterprets new American manufacturing jobs as some kind of shift in attitudes about international trade. In reality, it's the total cost of producing a unit and the reliability of the infrastructure that encourage businesses to set up show in one area over another. Some jobs are coming back to America because the labor rates aren't so different, the infrastructure is trusted and we are good at producing that product. As soon as we can get them cheaper from Estonia, we will.

Foroohar does not seem to care one bit about the prices consumers pay, merely on who gets stuck making the product. That's not how you improve an economy; it's how you reward cronies at the expense of the public..

I'm reminded of one of my favorite Paul Krugman lines on this subject:

Exports are not an objective in and of themselves; the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.

Read more...

How not to defend local food

Fresh from losing a debate with author Pierre Desrochers, loco-vore Jill Richardson has posted an article responding to several arguments she claims he makes. Tellingly, the article provides no link or mention of their interaction two weeks ago.

It's as if she wants the public to see her respond to Desrochers, but not in a venue where they can immediately hear his response.

Some of the arguments she attempts to thwart are straw men. For example, I don't know of anyone who is claiming GDP is the end-all way of measuring progress. There's also some slimy cherry picking. When trying to decide if eggs from free-range chickens are better or worse than conventional ones, she could have cited a USDA study or an experiment conducted by Mother Earth News. The two gave conflicting results, but her article ignores this and just focuses on what she wants to be true.

There's no need to dig further than her fourth point. Like so many failed DIY economists before her, she claims comparative advantage can be rejected and ignored. This is like a creationist rejecting Gregor Mendel's work on genetics as an outdated concept. She wrote:

The idea is simple. If Idaho can produce potatoes cheaper than California can, and California can produce strawberries cheaper than Idaho can, then Idaho should grow all of the potatoes and California should grow all of the strawberries, and they should trade. To some extent, this makes sense. No one is suggesting that Mexico attempt to produce its own maple syrup or that Vermont should try to grow its own pineapple. But relying on large-scale monoculture as suggested by the notion that California should supply the nation with strawberries runs into the need for toxic agrochemicals.

Richardson goes on to hype fears of toxic death from living near large-scale food production. This is more of a wandering response to economies of scale, not comparative advantage.

Read more...

In praise of Matthew Yglesias

There are a handful of leftie economists I'm eager to quote or draw inspiration from. They include Paul Krugman, Brad Delong, Ezra Klein, Matthew Yglesias and of course, Lord Keynes himself.

I think Yglesias deserves more praise for being so consistent with his economics while being very serious about his progressive views. He makes a serious attempt to understand his intellectual opponents, and he's not afraid to criticize people on his side. Look at yesterday's post on barber licensing for a perfect example.

I see breaking up the barber cartel and increasing competition for barbering services as a progressive measure, because if you reduce the cost of things that poor people buy, you increase their real living standards. A contrary view espoused in comments is that since barbering is a working class occupation, we ought to favor cartelization as a means of increasing working class income.

But he wasn't done.

But to perhaps gesture at a “theory of politics” issue, I think part of what bugs people about the barber issue is that they’ve developed the implicit view that for progressive politics to succeed we need to raise the social status of “big government,” and that it’s counterproductive to this mission to highlight any misguided “big government” initiatives. It’s acceptable to criticize excessive spending on the military and on prisons, because the conservative critique of “big government” often exempts those institutions. But if conservatives attack “regulation,” then “regulation” must be defended or, when indefensible, ignored.

Well played, good sir, well played. Being automatically against all "deregulation" means tolerating - if not embracing - a lot of bogus regulations that didn't work the way they were supposed to.
Read more...

China accused of offering foriegn aid to America

One of the hidden benefits of internet communication is that you end up with a written transcript of your conversations. In reference to reports of China subsidizing its paper industry, my friend Chris recently asked me:

"According to Milton Freidman, the Chinese subsidizing paper for us to buy would be a good thing, because they absorb the extra costs and sell it to us cheaper (the same as his Japanese steel analogy). But, this is eliminating jobs here in the US. So, wouldn't you think that ultimately the most important thing is jobs? Apparently Congress things so. Wouldn't banning or placing tariffs on Chinese imports be a good solution to create jobs in the US again?"

Chris is referring to what Friedman said about allegations that Japan was subsidizing its steel industry, and what it would do to the American economy:



As Friedman said, channeling the wisdom of Adam Smith, Americans will simply get cheaper steel. The American steel industry will shrink, and steel workers will get other jobs in America. These jobs will be created because the Japanese will have American dollars to spend and will spend it on other American goods. Other American industries will grow, compensating for the loss of the steel industry. Meanwhile American consumers will benefit because their steel purchases were subsidized by the Japanese taxpayers. Friedman compared this to receiving foreign aid.

Chris was right to compare the two examples. Chinese paper will be no different. If it's true and Americans buy cheaper paper from China, the American paper industry will get smaller while other American companies get bigger as exports increase.

So the actual number of jobs will not change. The tariffs would make imported paper more expensive, so Americans will buy less of it. This means less American dollars abroad, so the increases to exports will not happen. The difference is that we will protect the visible jobs we can name, at the expense of the invisible jobs that will happen, but we can't say where.

A tariff is supposed to be a tax a company pays to import something to America. But in reality, a tariff is a tax consumers must pay for the right to buy things produced in other countries. If there is a $5 tariff for a unit of paper, the paper will cost the American consumer $5 more than it should. The paper company already paid that $5 to the government and will have to charge the customer for it.


Can tariffs create jobs?

The second part of the question is if tariffs should be used to create American jobs. Let me be clear, tariffs absolutely create jobs, just as blinding half the population would create jobs to take care of them, or burning Paris would create construction jobs.

But those are terrible things to do. Creating jobs is not a goal in and of itself. It's the creation of goods and services that make a society wealthy, not keeping people busy.

George Will has a Friedman anecdote that sheds light on this:

"He went to Asia in the 1960s and was proudly taken by the government to see a public works project. They were building a canal. He was struck everyone was digging the canal with shovels. Friedman says, why no heavy earth-moving equipment?

"They said, oh, this is a jobs program. So Friedman says, why don't you give them spoons instead of shovels?"

Who cares how many people are kept busy? It's productivity that matters. As an industry gets more productive, it doesn't create more jobs - it destroys them. As Paul Krugman wrote:

"The kinds of jobs that grow over time are not the things we do well but the things we do badly. The American economy has become supremely efficient at growing food; as a result, we are able to feed ourselves and a good part of the rest of the world, while employing only two percent of the work force on the farm. On the other hand, it takes as many people to serve a meal or man a cash register as it always did; that's why so many of the jobs our economy creates are in the food service and retail trade. Industries that achieve rapid productivity growth tend to lose jobs, not gain them."

Using tariffs to protect American jobs is not a new idea. It's not even a new idea during times of high unemployment. The Smoot-Hawley Tariff of 1930 was the exact same idea. Tariffs were established on some 20,000 imported goods. It did not work and the United States sank deeper into the Great Depression. Imports went down, as did exports.

As I've said before, reject any scheme to improve an economy or increase wealth by being purposely inefficient. Jobs should be created as a side effect of improvements to our society. If you aim to improve the quality of peoples lives by offering new goods and services, the jobs will follow.

Read more...

Did Obama appoint a mercantalist to oversee trade?

Don Boudreaux certainly things so. Three posts in two days at Cafe Hayek are about nonsense Francisco Sanchez has said. Sanchez is the Undersecretary of Commerce for International Trade, which is a pity, as Boudreaux thinks Sanchez fails to understand international trade.

From a letter to the Wall Street Journal by Sanchez:

"What Sen. Johanns dismisses as "dither[ing]" on free-trade deals, is in fact Ambassador Ron Kirk's commitment to negotiating tough bargains, ensuring that when America gives other countries the privilege of free and fair access to our market, U.S. businesses will get the same treatment in theirs...

"We heartily agree that exports deserve to be a national priority because, as Sen. Johanns said, 'Increased exports mean more jobs for American workers and more dollars in American pockets.'"

Some of us don't heartily agree. As Paul Krugman wrote in what has become one of my favorite quotes:

"... Imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment."

Free trade is not conducted like a peaceful end to a Mexican standoff, where both sides uneasily cooperate in hopes their opponent will do the same. We do not allow other nations to import to America as a compromise so that we can export goods to them, as I've written before. Instead, we benefit from imports directly because Americans can now buy cheap goods and save money, or as Sanchez put it, keep "more dollars in American pockets."

Sanchez certainly has a great resume for politics. And it certainly didn't hurt that he was an early Obama supporter and fundraiser. However, his expertise seems to be in negotiations and policy issues - not international trade.

Sanchez could learn a lot from Boudreaux, who wrote:

"Exports, as such, are no more or less fundamental to a country’s economic prosperity than are, say, products that are yellow. Suppose that in competitive markets growers of lemons and sunflowers thrive, along with producers of yellow polka-dot bikinis. Would it therefore be wise economic policy for government – impressed by the profits earned by these yellow-thing producers – to artificially encourage the production of greater numbers of yellow things? Clearly not; such a conclusion is obviously unwarranted. Yet a similar error in reasoning is applauded when the products are labeled 'exports.'”

Looks like another case of a non-expert appointed to a planning role.
Read more...

The basics still haven't changed

Occasionally I'll be at a social event and someone will make the following claim:

"Local production will be the norm of the future. All of the cross-country shipping and large-scale productions we're used to are based on cheap gasoline, and will go away when oil prices rise."

Honestly - my social life really does include elaborate localist encounters and rhetoric.

The fallacy here is the assumption that buying local conserves fuel.

The majority of fuel is used in the production of goods, not transportation, and local production is less efficient. Even ignoring that, it's a bogus assumption that a fleet of pickup trucks going 15 miles is always more efficient than a tractor trailer going across the country, as George Mason University's Don Boudreaux recently wrote.

The activists are claiming that only transportation fuel counts, and even those numbers are against them.

The entire notion that mere petroleum prices will throw everything we know about production out the window is cringe-worthy. I'm reminded of something Paul Krugman wrote in Pop Internationalism:

"Pop Internationalism proclaims that everything is different now that the United States is an open economy. Probably the most important single insight that an introductory course can convey about international economics is that it does not change the basics: trade is just another economic activity, subject to the same principles as anything else."

Every few years some demagogue proclaims we have to throw everything we know about economics out the window. Things are different now, they say, and we need to update the textbooks.

But those same textbooks they claim to care so much about never graced their bedside tables. They are throwing out ideas that they never understood.

I anticipate rising fuel costs to be a temporary problem. It may end up lasting for a few decades, but economic history suggests that we'll just end up finding a new energy source, like we did after whale oil peaked in the 1840s.

So what will rising oil prices actually do to local production? Since local production and transportation are both fuel hogs, the price gulf between local and regular goods will continue to widen. Unless the market is interfered with (subsidies, tariffs, localist activism) than there will be less local production in the future, not more.

Read more...

My greatest intellectual influences

Not too long ago Kevin "Angus" Grier and Tyler Cowen wrote about the books that influenced them the most and I feel inspired to do the same. The catch is that my generation also learns a lot from videos, podcasts and essays, so I've included them as well.

• Politics and the English Language by George Orwell. This brilliant essay introduced me to six of the seven rules of writing I live by (the extra one was provided by a high school English teacher - put the focus of the sentence at the beginning, and not the end). In addition, Orwell mocked the blocky, obtuse writing of eggheads - something I have never stopped doing. A companion influence is The Elements of Style by William Strunk and EB White.
  
• Guns, Germs and Steel by Jared Diamond. A research trip to Papua New Guinea for bird physiology lead to Diamond's provocative explanation for international inequality and provides powerful examples of how innovation, trade and specialization all create wealth. I confess to never reading the book and only watching the National Geographic documentary.
• Economics in One Lesson by Henry Hazlitt. This taught me the Broken Window fallacy, and it's countless forms. Fallacies have an eternal nature and its important to recognize all their mutations. Companion influences are essays by Frédéric Bastiat; both That Which is Seen, and That Which is Unseen and the satirical Candlemakers' Petition.
• Milton Friedman. His entire body of work is so important to me that it's hard to find a single lecture, essay, book or video to link. Hopefully this 1978 exchange does the trick. There has never been a greater champion for the rights of the individual than Friedman. He taught me that trying to save a society directly will destroy it, while empowering the common man will save the society at large.
• Economics for Dummies by Sean Masaki Flynn. I was concerned I was learning too much of economics from libertarian sources, so I went out of my way to learn the basics from a neutral source. Flynn was the right man for the job - a Keynesian who wasn't shy to call Karl Marx discredited. Flynn reminded me that reasonable people can disagree.
  
• Pop Internationalism by Paul Krugman. I'm a Krugman hipster - I like his old stuff better. David Henderson called this the best book on trade around. Krugman outlined the case for free trade and dismantled a number of economic fallacies in a short, accessible format. This is a lively book and I still enjoy thumbing through it. A companion influence is Krugman's 1997 article In Praise of Cheap Labor which nailed the moral argument in support of sweatshop labor.
• Cornucopia: The Pace of Economic Growth in the Twentieth Century by J. Bradford DeLong. Originally, I started referencing Krugman and Delong because their status as loud left wingers made my economic points appear stronger and universal. Today I link them because they have produced some amazing work. This essay on how much wealthier we are today, and how hard it is to measure that wealth, is nothing short of astounding. It's easy enough for anyone to read, and absolutely everyone should read it.
• The Demon-Haunted World by Carl Sagan. The best introductory book to scientific skepticism around. Chapter 18, The Wind Makes Dust, taught me to appreciate Yankee ingenuity for what it is: people learning science the moment it becomes practical to their lives. A companion influence is the Skeptics' Guide to the Universe podcast.
• Seanbaby. My favorite internet comedy writer. He shaped my sense of humor and steered me towards appreciating the hokey, the kitschy and the unintentional.
• The Road to Serfdom by Friedrich August von Hayek. This book solidly trounced the concept of central planning. However, it suffers from the strained writing style of Austrian-born Hayek. George Orwell reviewed this book, which tells us he read it. Unfortunately, Hayek couldn't read Politics and the English Language before he wrote this important book; this book predates that essay by two years.
• The Myth of Violence by Steven Pinker. This 20 minute lecture is the ultimate answer to anyone who argues that modern society have brought about an epidemic of violence. Pinker demolishes that idea, shows its quite the opposite and makes a strong case for the peaceful effects of international trade.
• EconTalk hosted by Russ Roberts. I found this podcast when I wanted to find out what economists think of "buy local" campaigns - and boy did I get an answer. Roberts has a constant stream of fascinating and counter-intuitive guests. When I was a kid I always saw intellectual programs as stuffy and dull. I've learned this is seldom the case, and when Roberts invites Mike Munger onto the show I know I'm in for some solid humor as well as economics.

Read more...

Scandanvian countries are not socialist

We've all heard people on the left claim that America should be more like the Scandinavian countries, with high tax rates, little inequality and as a supposed result, a high standard of living. Sometimes Scandinavian countries are used as positive examples of socialism.

But Scandinavian countries - Denmark, Finland, Iceland and Norway and Sweden - aren't socialist. Don't take my word for it, look at what else the socialists say.

Modern socialists try to distance themselves from the brutal regimes of the twentieth century by saying they weren't really communist. Noam Chomsky tried to justify this by saying the Soviet Union,

"...was about as remote from socialism as imaginable. The core notion of, atleast traditional socialism is that working people have to be in control of production and communities have to be in control of their own lives."

This sounds a little like the No True Scotsman fallacy and a lot like the Moving Goalpost. Socialist intellectuals, the kind that volunteered to fight in the Spanish Civil War, fawned over the Soviet Union. George Orwell was a notable exception - a socialist who was critical the communist regimes of his day - and Christopher Hitchens argues that Orwell's condemnation of Stalin and other socialist experiments earned him the hatred of sincere socialist groups.

But it didn't work. Even with the enormous sacrifice of all standards of human rights, communist countries did not outproduce capitalist nations. Paul Krugman wrote that their success was all an illusion from the start:

"Most of the speculation about the superiority of the communist system including the popular view that Western economics could painlessly accelerate their own growth by borrowing some aspects of that system - was off base. Rapid Soviet economic growth was based entirely on one attribute: the willingness to save, to sacrifice current consumption for the sake of future production. The communist example offered no hint of a free lunch."

While investing all resources into capital investments and neglecting day-to-day spending works at first, Krugman said this system can not continue to last long. You could make a five-foot high column out of pressed beach sand, and you may find a way to build faster than a stone mason or a carpenter at first, but you will not be able to build indefinitely high. You will have the same end result that the Soviet Union and the "Asian Miracles" experienced.

But back to the chilly nations with cross-motif flags.

Socialists are taking back what they said about the wonders of Russia and are now disqualifying the USSR because the state owned all of the businesses - not the people. I suppose there must be a big battle between these new socialists and progressives who defend government encroachment by trumpeting "the government is us, the people!"

If that's such an important criterion, you can not brand Scandinavian states as socialist because there is no collective ownership of businesses there either. That's because Scandinavian nations are welfare states with glorious free markets. That is the source of their wealth. Although they do have high taxes, those tax rates have fallen substantially since 1980 when almost all countries in the world moved toward economic liberalism - free markets. The Scandinavian nations are no exception, as Scott Sumner illustrates:

"Between 1980 and 2005 only New Zealand moved toward free markets more rapidly than Denmark. My interpretation is as follows. Free market reforms threaten to erode rents earned by various special interest groups. Thus after 1980 these reforms were more likely to occur in countries where the civic culture is more oriented toward the common good. (In other words if you hear that culture is “tribal,” or that “family comes first,” it’s economy is likely to have statist economic policies.)"

Sumber suggests the ability for a nation to have a welfare state without becoming a nation of lazy playboys, and eventually running out of money, rests on its culture. If the culture promotes hard work and discourages collecting government handouts, it can survive. He cites a study on civic virtue that shows Danes are one of the least likely people to say they'd accept government benefits they are not entitled too.

I add to that that the Scandinavian countries have ghastly limits on immigration simply to keep people from showing up to collect public assistance. This protects the welfare state from filling up with moochers, but it keeps out sincere immigrants who want to work and benefiting the economy.

Members of the right who wish to call Obama's welfare state policies "socialist" may wish to calm down their rhetoric. Someone with that definition of socialism would be forced to include the Scandinavian countries, and that would imply that socialism works.

How free are Scandinavian economics?

Denmark leads the world in the Forbes magazine business climate ranking. The top ten are Denmark, Ireland, Finland, the United States, the United Kingdom, Sweden, Canada, Singapore, Hong Kong and Estonia.

The Heritage Foundation has a similar ranking for economic freedom. Denmark comes in 9th, Finland 17th, Iceland 18th, Sweden 21st and Norway 37th out of 179 countries.

The Economic Freedom Network placed Denmark in 12th, Finland 16th, Iceland and Norway tied for 24th and Sweden came in 40th out of 141 countries.

Now let's compare that to the Corruption Perceptions Index, where countries are ranked on how little entrusted power is used for private gains.

Denmark came in 2nd, Sweden 3rd, Finland 6th, Iceland 8th and Norway in 11th.

Other chart-toppers on the corruption index include New Zealand, Singapore, Canada, Hong Kong and the United States - all of them were top scorers on the economic freedom rankings. It's clear that there is a strong correlation to free markets - where the government has little control over the business world and a lack of politicians and bureaucrats using their position for financial gain.

It could be simply because they don't have enough power to abuse. It's very foolish for a company to bribe a bureaucrat if that bureaucrat can't do anything to help them.

The key to Scandinavian prosperity is free markets. It is not the child of a generous welfare state. Instead, free markets are able to provide a lot of wealth in culture of people who don't seek government as a source of wealth, and that's why the government is able to run a generous welfare state. Time will tell if that welfare state will corrupt the Scandinavian culture.

For now, what works in Scandinavia must be seen as a packaged deal. While they did lower their tax rates in the last few decades, they are still much higher than ours. It would be a mistake to assume our prosperity would go unpunished if we introduced higher tax rates without increasing economic freedom, magically eliminating the sense of entitlement from our culture, making standard of living compromises and imposing strict immigration limits.
Read more...

What if Maine produced all of its own food?

Last night I attended a presentation by Cheryl Wixson called the Maine Local Twenty, which introduced 20 foods that Maine could potentially produce to feed its residents if a big wall was built around the state.

Now some of these listed foods are specific items, like carrots, while others are broad categories, like seafood. That's not worth griping about because the point is to see if Maine could feed itself with any number of foods that can be found here, not to narrow it down to some arbitrary number.

And no, we wouldn't all die from scurvy. We could get vitamin C from Maine tomatoes.

The other 17 entries are blueberries, apples, potatoes, carrots, beets, salad and braising greens, garlic, cabbages, onions, winter squash, milk, cheeses, eggs, ground meat, maple syrup, honey, dry beans and grains.

Some of the questionable benefits touted from this restricted menu include antioxidants from the blueberries (which is forgivable) and the homeopathic healing ability of garlic (which is not). Wixson didn't spend much time talking about homeopathy, except to call it the "Russian Penicillin."

That's one of the biggest problems I have writing on localist issues. Our world views are very far apart because we're playing with different sets of facts. I know homeopathy is bunk with total confidence, and I have serious qualms with some of the other recurring themes; organic production, isolationism, anti-fossil fuel, anti-genetically modified organisms, etc. Because of this, I have to choose my battles on what facts to focus on, and I don't expect to hear things I agree with very often.

Which totally set me up for some happy surprises with Wixson's talk. She made a compelling argument for deregulating Maine food companies - such as ending a stupid law that Maine chickens can't be slaughtered at the same farm where they live. After all, she said, businesses proudly put their labels on their products, and it's in their best interest to keep their products safe.

It was like she was channeling Milton Friedman. She also hinted at Bruce Yandle's Bootlegger and Baptist theory, that the people calling for regulations sometimes have selfish interests in mind, and not the safety of the public.

If that wasn't enough, she discovered David Ricardo's beautiful theory of Comparative Advantage. Wixson told the 70 assembled localists (and me) that she grows her own vegetables, and has a exchange worked out with someone where he gives her lobster and she gives him vegetables.

I think she undersold how great this is. She has access to lobster without having to get a boat, a trap, some bait, a yellow plastic outfit and a gun.

The gun isn't for shooting lobsters, it's for scaring off lobster thieves and trap saboteurs. Being armed is an integral part the Maine lobster industry.

Instead of casting off into the sea, when Wixson wants lobster she just grows more vegetables at home. She already has the skills and the equipment. By trading with a lobster specialist, she is able to make herself wealthier in terms of food variety. This doesn't come at the expense of the lobsterman, he benefits too. Both parties are wealthier because they specialized and traded.

Even if the lobsterman happened to be a skilled gardener - perhaps more skilled than Wixson, they could both benefit from trading because specialization is so much more productive.

What would an "independent" Maine look like?

Even though Wixson demonstrated the beauty of comparative advantage - whether she knows the history of the idea or not - she does not have a solid foundation of Adam Smith to truly understand the relevance. Smith argued that if another nation can produce something cheaper than a domestic producer, than you should just go out and buy it.

It's not fair to compare Wixson to a mercantalist the way I do with most localists because she was silent on exporting. She said Maine produces more blueberries and potatoes than it eats, which means some of the crop is exported out of state, but her plan never said if those exports should stop or continue.

Instead, her plan detailed a Maine that is self-sufficient in terms of food.

There's a reason self-sufficient societies have always been subsistence societies, according to Don Boudreaux, chairman of the economics department at George Mason University. On the "buy local" episode of EconTalk, Boudreaux said:

"They have this notion that much of what we today enjoy as wealth would somehow be out there and still be available, but it would just be available from people that you know, rather than from strangers. In fact, much of our wealth today would disappear if we gave up exchanging globally. It would just go away."

Now how is that claim justified?

I'm going to steal an example from Pop Internationalism, Paul Krugman's amazing book on international trade. I don't feel bad about taking it because he took it from James C. Ingram's 1983 International Economics textbook.

Suppose Wixson found another person to trade her vegetables with, a rancher who is so productive he will trade her twice as much meat as any other rancher in Maine. That rancher would be praised as a marvel - a visionary who's innovative farming techniques will make Maine wealthier. Sure, a lot of the other farms will have to copy his methods or risk going out of business, but people accept that's how markets work.

However, an investigative reporter reveals the rancher is a fraud. He was simply selling Wixson's vegetables and buying meat out of state with the money. No one is willing to trade or buy from him again.

Small farms are never going to be as efficient as large farms. That's how economies of scale work. Sure, all 50 states could each build one large carrot patch, one large pig sty and so on, but that still wouldn't be efficient enough. They would still irrationally follow meaningless political borders - state lines.

I realize a lot of the localists think large farms are immoral, and this isn't the place to delve deeply into that subject. However, suppose they were right. Gains from specialization is a basic economic concept, and there's nothing in the rule to suggest that those gains come exclusively from moral compromises. If there are bad things happening on those large farms, they could be erased. A large good farm is more productive then a series of small good farms.

If Maine wanted to produce all of it's own foods, there would be a lot more jobs in agriculture in Maine. But as I've said before, this is not a good thing. Paul Krugman called this a "paradoxical principle" in 1995:

"The kinds of jobs that grow over time are not the things we do well but the things we do badly. The American economy has become supremely efficient at growing food; as a result, we are able to feed ourselves and a good part of the rest of the world, while employing only two percent of the work force on the farm. On the other hand, it takes as many people to serve a meal or man a cash register as it always did; that's why so many of the jobs our economy creates are in the food service and retail trade. Industries that achieve rapid productivity growth tend to lose jobs, not gain them."

Relying on local foods is a purposely inefficient scheme. If the number of people needed to produce our food went up to twenty percent of the population, those workers would have to abandon other careers - like medical researchers, artists or social workers. But it wouldn't matter that we didn't have people available to fill those jobs, the cost of food would jump up and a lot of those jobs world be cut as well. The opportunity cost would be staggering.

Alan Moore wrote about a young man resigning from the patent office in Victorian England because he believed "everything had already been discovered or invented." thus there was no further use for a patent clerk. I'm unsure if that anecdote if real or not, but the mindset is important. As Jared Diamond said in Guns, Germs and Steel, freeing people from food production gives them time to invent and discover new things. This is where wealth comes from.

Wixson's plan would make Maine more like a poor African nation than anything else. There would be a lot of poverty and some jobs would need to come from out of state. We would be able to import technology from out of state, assuming Maine was the only place that decided to try this and that people weren't fed up with it within the first year. We would have to forsake a lot of luxuries, more than supporters realize, because of the loss of wealth.

Having more potential trading partners to pick from means more chances of saving money. However, the localist strategy grossly limits trading partners. It means we only have small, inefficient producers to pick from. It's a recipe for poverty.

While it's true we wouldn't waste our money on stupid things like singing fish plaques and spinning rims, we would also miss out on important things like new communication technologies, medical care and comfortable housing.

Some of Wixson's supporters argued we will return to ancient farming techniques, like plowing with oxen, because we're going to run out of fossil fuel and the world will collapse. This is a lot more far fetched than people realize, and it wasn't part of Wixson's argument, but it is important to address. What I didn't understand is that some of them seem to welcome this regression.

After all, one of them said, those people were able to feed themselves. Yes, that's true, but that's pretty much all they did do. They didn't have nuclear magnetic resonance imaging or X-rays, they had leeches. They didn't have the Internet, they had books. There were no cars, only horses. Sure, some of those things are still fun (except for the leeches) but life was a lot harsher than we romanticize. Our standard of living would go down much more than they realize.

This argument, that the world is very different today and all the old rules of economics must be thrown out the window, comes up all the time. It wasn't true before, and it's not true today. Petroleum is just a single resource and it can not be critical enough to change what we know about economics.

The basics of economics are very real, scientific concepts and people who attack them are not sophisticated experts who seek to overturn a dusty, antiquated idea. They are enthusiastic guessers who don't understand them.

I want to stress that I'm not saying localists are stupid. Far from it. Some are agriculture and botany experts. What they aren't, however, is economic experts. And since this is a question of resource distribution, economics is the relevant field to study.

Why should Maine bother to feed itself?

Wixson's talk focused on if Maine could feed itself, not if it should, so I asked her directly what are the best reasons we should switch to her plan, and what trade-offs we could expect. I informed Wixson what kind of blog I write and she still answered my questions civilly, and she deserves a lot of respect for that.

The biggest issue to her was food security. Her example was last summer Maine had a fungal infection from tomato stores, which traced back to the much-maligned "big box stores." Her group argues that trading with other states runs the risk of bringing out of state crop diseases with it.

Well yes, it does, but that's a lot more circular than Wixson realizes. The people hurt by the tomato blight, according to her own website, were gardeners who bought partially-grown plants - not professional farmers. The tomato blight hurt a lot of people, but it wasn't like tomato blight was unheard of in Maine before. From the University of Maine Cooperative Extension in 2008:

"Early blight of tomato, caused by the fungus Alternaria solani, is perhaps the most common foliar disease of tomatoes in the Northeast and is also common on potatoes"

I don't want to completely write this off. We can insulate ourselves from some crop diseases by shutting down our food borders. The questions is, at what cost? There is still the risk of Maine-based crop diseases spreading within the state, but she didn't argue to only buy from the same town - or the same street. That would insulate it even further, but the costs are a lot more obvious.

Our current food pool is still vulnerable to food contamination, like the spinach scare a few years ago. However, that risk would still exist in her plan, but it would be concentrated to specific producers. I'm not sure that would be any safer, and once again there is a heavy cost to using that system.

Wixson said again and again that America only has a three day supply of food, and some large disaster could cut off our shipments of new food. She said she solves this by keeping a well-stocked root cellar of Maine-produced food for herself.

Well first of all, we've had a lot of large disasters in America, and we've always been able to get food through, so I don't find this as scary as she does. But more importantly, if running out of food is a problem, then couldn't we solve it simply by keeping canned food in our basements? That's what the Mormons do.

Behind security, Wixson listed economics. That is the focus of my blog, and I feel I've already done a bang-up job at burying the buy local economic myth. If not, maybe David Henderson or Karen Selick are more convincing.

Wixson does not recognize her plan's vast trade offs, which I've already gone over. She said the only trade off will be our food variety will be smaller.

But this will give us "a deeper appreciation for luxury goods," she said. Which I completely agree with. She shared a personal story - and my mother has told me the same story about my grandfather - about Christmas in old Maine. There was a tradition of getting a single citrus orange in the toe of your Christmas stocking, and that would be the only orange you see all year. Because of this, you appreciated that orange a lot more.

Of course this is correct. It's like in Charlie and the Chocolate Factory when Charlie gets to have a chocolate bar, which is a rare treat for someone as poor as him. However, this is clearly just a demonstration of poverty in action. We could achieve the same results by making everyone homeless for 51 weeks of the year. We would absolutely love the one week we got to sleep indoors, but does that sound like a sensible thing to do? Why should we impoverish people in order to heighten the thrill when that poverty is temporarily lifted?

But there is one sneaky detail I've left out and Wixson included this on her list of reasons - and I completely agree with her. She genuinely gets a kick from knowing the food she eats is from Maine. She loves organizing her root cellar - she said she spends several hours doing so each week.

Wixson does not go to grocery stores, and instead works in her garden, trades with other food producers and spends time in the root cellar. She clearly loves doing all of this, and it saves her the chore of the grocery store. Therefor, it's completely rational of her to live like this. She can afford the time and cost of eating Maine foods, and she would be miserable if she didn't have that option.

And other localists feel the same way. It makes perfect sense for them to live like this. Other people, like me, don't feel the same way. I don't care what side of the New Hampshire border my food came from, or what side of the American border for that matter

The people of Maine have a wide diversity of views on this issue, and the best solution is for people to simply buy the foods they want. The localists are able to drum up a market for what they want, and I'm still able to buy food from away.

Maine already produces its own food

The most important thing I want to stress is that Maine already produces all of it's own food.

Back to her vegetables-for-lobster exchange. What if instead of producing vegetables, she produced firewood and traded that for lobster? In that limited world, there are now three ways to produce lobster: lobstering, gardening and chopping firewood. This will save the lobsterman the trouble of getting his own firewood, and both parties benefit.

But hold on, someone is exchanging firewood for food - doesn't that mean there will be less food? No, again, the lobsterman will catch a little more lobster and waste less time on his own firewood. Everyone ends up doing what they're best at.

It makes no sense to only exchange food for other types of food - but that is what her argument boils down to.

Would it change anything if the lobsterman lives on the New Hampshire side of the border? Not one bit.

In the real world, Mainers go to work and do their jobs. Instead of directly trading one resource for another, they change those resources into dollars and trade with those. Money is just a proxy for resources, and it's a lot easier to find trading partners by using money.

Whether a Mainer is gardening or welding iron together, that labor produces the food Maine residents eat. It's a beautiful system and it already works fine.

Read more...