Thursday, April 17, 2014

Why Do We Trade?

Column for week of April 14, 2014

     Trading is at least as old as recorded history, most likely
older.  Even subsistence farmers trade.  In our specialized
industrial society each individual consumes little of what he
produces while producing little of what he consumes.

     Individuals producing for their own consumption is such
a small part of production that economists feel free to ignore
such production when calculating the Gross National Product
(GNP).  People still produce for themselves.  Who among us
would even survive without the goods produced by others?

     Why do we prefer to produce for others rather than for
ourselves?  By specializing and each only doing what he does
best we greatly increase productivity.  There is more for
everyone.

     Imagine that you divided your time among producing all
the things you have.  How many of those things could you
produce for yourself?

     We have three options for getting things produced by
others  --  gifts, theft or trade.  We are likely to come up a bit
short if we sit around waiting for others to give us what we
want.

     Granted, more and more people are choosing this route. 
Mostly they wait for government to take from others and give to
them.  If we continue this trend, soon there will be little left for
government to take and give.  Relying on direct theft by
consumers has no brighter future.  If we are to prosper we must
produce and trade.

     There are two possible kinds of trade -- coerced trade and
free trade.  In free trade we trade because we want to.  It takes
two to trade.  The only reason to freely trade is that both parties
believe they gain by trading.  In coerced trade individuals trade
because they fear that someone will hurt them if they don't trade,
or if they make the wrong trades.

     With all of the government restrictions on trade, fully
free trade is all but extinct.   People who believe they are
engaging in free trade probably aren't.  An individual may freely
choose to make a trade.  Still, he is only choosing from the
options government allows.  Would he choose the same trade if
government hadn't eliminated many of the possible options?

     Some claim there is good trade and bad trade.  Bad trade
supposedly hurts others.  All trades affect others.  If we ban
trades merely because they affect others, we must ban all trades. 
The consequences of eliminating trade would be that the few
survivors would all be reduced to being self sufficient
hunter-gatherers.

     Most opposition to free trade is from two sources.  One
is wasteful, inefficient producers trying to rip off consumers by
eliminating competition from those who serve consumers better. 
The other source is people who see only the detriments of trade
and miss the benefits.

     When consumers switch to different suppliers, the old
suppliers lose jobs.  The near endless list of job losers includes
weavers, buggy makers, telephone operators, and most farmers. 
Much of what we have today wouldn't exist if workers still
labored inefficiency in those old jobs.

     Some people get upset if the new jobs are in another
country.  Supposedly we are exporting jobs.  The only way we
export jobs is if imports are gifts.  Otherwise, someone must
make something to trade for the imports.

     When we buy cameras from the Japanese, someone in the
USA must make something to pay for the cameras.   If the
Japanese lend the camera money to the US government, or
someone else, we must produce something for the borrower.  All
we have done is trade less productive jobs for more productive
ones.  Free traders won't trade unless trading increases
productivity so that they get more by trading.

     It doesn't matter where the people we trade with live. 
We, and they, benefit from free trade.  The only losers are
exploitive special interests who can gain by denying us the
benefits of free trade.  Those losers are loud and have lobbyists.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, April 10, 2014

Blowing Bubbles

Column for week of April 7, 2014

     Bubbles grow in the economy when government
interferes with freedom in the marketplace.  The housing bubble
is the most famous of the great bubbles.  When it burst it reeked
havoc in the housing market leaving in its wake unstable banks
and millions of mortgage foreclosures.

     The housing bubble grew because government
manipulated interest rates and mortgage lending practices. 
Artificially low interest rates along with government support and
encouragement of high risk, low down payment loans
encouraged buyers to bid housing prices up to unsustainable
levels.  Builders responded by building more houses than people
could afford to buy and keep at the artificially inflated prices.

     Many appeared to prosper from the housing bubble.  It
wasn't until the bubble burst that those profits were exposed as
an illusion.  Some got to keep their profits, only at the expense
of others who suffered great losses.

     Government still interferes with freedom in the
marketplace.  The interference inflates economic bubbles by
diverting investment and spending from the things people want
most to things promoted by government.  Eventually these
bubbles will burst causing the loss of investment and jobs.

     I can't possibly cover all the bubbles in one column.  No
one person is capable of even identifying all the bubbles.  When
government actions create a bubble, that bubble creates
secondary bubbles that spread disruption across the economy.

     The rest of this column will be devoted to consideration
of a couple bubbles involving corn.  One bubble directly affects
corn.  Secondary effects of the other bubble flow into the corn
market.

     The biggest bubble affecting corn production is the
ethanol bubble.  About 40 percent of corn grown in the US is
used to make ethanol that contains barely, if any, more energy
than was used to produce it.  The ethanol industry in the US
wouldn't exist without government forcing and subsidizing
ethanol production.  Most consumers wouldn't, of their own free
will, buy a costly, wasteful, inefficient fuel.

     The ethanol bubble has altered the face of US agriculture. 
Millions of acres of otherwise unneeded corn is grown.  This
reduces the planting of other crops and affects the prices of all
farm products.  High meat prices are part of the ripple effect of
the ethanol bubble.  It also artificially inflates the price of
farmland and distorts production and prices of almost everything
involved in agriculture.

     The bursting of the ethanol bubble, beside rendering
billions of dollars of ethanol investment worthless, will rip the
farm economy apart and send destructive waves through the
entire economy.  Most likely the entire economy will be plunged
into recession as was the case with the housing bubble.

     Long before the ethanol bubble government created the
sugar bubble.  Government restricts sugar imports with tariffs
and quotas.  As a result sugar costs about twice as much in the
US as in the rest of the world.  This has driven most hard candy
makers and their jobs out of the US.

     The sugar producers don't mind the loss of sales as long
as it doubles the prices they can charge.  Those who buy
sweeteners seek alternatives to sugar.  One of the main
alternatives is corn syrup.  Those train loads of corn syrup
traveling across the country are mainly a product of the sugar
bubble created by government restrictions on sugar.

     The sugar bubble created the corn syrup bubble, which
contributed to the corn bubble, which contributes to the farmland
price bubble, and all the other bubbles in and around the farm
economy.  Kids blowing bubbles may be cute.  Government
blowing bubbles in the economy is anything but cute.

     You can be certain that government will do its best to
sustain and further inflate the bubbles.  For anyone who hasn't
noticed, inflating bubbles isn't a great way to keep them from
bursting.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, April 3, 2014

Who Is a Scientist?

Column for week of March 31, 2014

     Global warming fanatics often trot out statistics about
how many scientists agree that we are experiencing global
warming caused by man made greenhouse gases.  They also
claim that "the science is settled."  There is no room for further
debate about global warming.  Some go so far as demanding
prison for those who deny the existence of man made global
warming.

     One question this raises is, What is a scientist?  I am
reminded of an old riddle.  If you call a tail a leg, How many
legs does a dog have?   Answer: four.  Calling a tail a leg
doesn't make it a leg.

     Calling someone a scientist doesn't make them a scientist. 
Degrees in science don't make one a scientist either.  A real
scientist is one who uses the scientific method to understand
causes and effects in the universe.

     Isaac Newton was a scientist.  He collected data about
falling objects and their velocity.  He worked out a theory about
how falling objects accelerated.  Then he devised mathematical
formulas that he believed could predict the velocity of falling
objects based on how long they had been falling.

     This is the scientific method.  Collect data and devise
theories and formulas that appear to explain how one event
causes another.  The real test of the theory is, Does it
consistently predict future events?  Newton's theory of gravity
wasn't proven until it accurately predicted the velocity of falling
objects every time.  Even one failure would have proven the
theory to be flawed.

     Scientists who study human impact on world
temperatures face an awesome task.  First they must collect data
about past temperatures around the world.  They must collect
thousands of years of data.  Based on the data now collected we
know that world temperatures have been changing for thousands
of years.  The 120 or so years of data from thermometer
readings around the world can't possibly be enough to develop a
valid theory of how natural forces affect temperatures.

     The next step is to devise a theory that explains how
observed forces change world temperatures.  The test of that
theory will be, Does it accurately predict future world
temperatures?

     For the most part those who claim to know that
greenhouse gases are warming the world have ignored the
scientific method.  No matter what they call themselves, their
conclusions aren't based on the scientific method.

     Temperatures have been increasing since about 1860. 
For hundreds of years before that the world was in the Little Ice
Age.  Before that the medieval warm period peaked around
1100.  No one is in a position to determine the effect greenhouse
gases have on temperature until they are able to distinguish that
effect from natural temperature changes.

     No one is claiming that the significant warming from
1910 or so to the 1940s was caused by greenhouse gases.  Why
did the world cool for 30 or more years after 1940 while carbon
dioxide emissions soared?  Why have world temperatures been
stable to falling for the past 15 years while carbon dioxide
emissions continue to soar?  Why have observed temperatures
been substantially lower than temperatures predicted by
computers programed in accordance with the theory that carbon
dioxide causes substantial warming?

     Real scientists using the scientific method would ask and
answer these and other questions before daring to claim that the
science of global warming is settled.  Perhaps carbon dioxide is
causing some warming.  So far nothing in the temperature data
is inconsistent with the recent warming being a natural recovery
from the Little Ice Age.

     Scientists who study solar activity and its impact on
temperatures believe we are in the beginning of a 40-year cold
period that might plunge world temperatures back to the level of
1800.  This seems a bit extreme.  Let's hope they are at least a
little wrong.  Whatever, it is absurd to claim the science of
global warming is settled.  It is settled only in the minds of
politicians and hucksters.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, March 27, 2014

What Can War Accomplish?

Column for week of March 24, 2014       

     As US participation in the war in Afghanistan winds
down (hopefully) it seems appropriate to ponder what war can
accomplish.  The wars in Iraq and Afghanistan have
accomplished little worthwhile and at great cost in wealth and
lives.  It should have been obvious going in that a few years of
foreign intervention wouldn't end the strife among hostile ethnic
and religious groups.  The wars have given many people a few
more reasons to fear and hate the US.

     Saddam Husain's regime in Iraq was totalitarian and
brutal.  It was slightly stable, and balanced against the power of
Iran in the area.  The main accomplishment there was to allow
the feuding parties to get on with killing each other until a new
tyrant emerges.

     The continuing civil war in Afghanistan had reached the
age of majority before the US military arrived.  The US had
switched sides in that war after the Soviet Union pulled out its
military.  That civil war still rages and will continue until a
dominant tyrant puts a damper on it.  That damper won't end the
ethnic and religious hostility which will eventually erupt into
new violence.   Perhaps eventually one faction will eliminate the
rest.  Or, perhaps the factions will agree to divvy up the country.

     From the beginnings of the wars in Iraq and Afghanistan
there was no reason to expect the wars to turn either country
into a peaceful, prosperous nation.  Looking back a bit further it
is hard to see that Vietnam and the Vietnamese people are more
peaceful and prosperous than they would have been if the US
had left it up to them to settle their differences.

     We need to look back further to the two successful wars,
World War II and Korea.  I don't doubt that the defeat of the
totalitarian, materialistic governments of Germany and Japan at
least hastened the development of peace and prosperity.  Why?

     Most of the people of both Germany and Japan shared a
common culture.  Neither nation was at war with itself.   Both
nations had an educated productive population.  They couldn't
have caused so much devastation if they hadn't had strong
economies.

     The tyrants that ruled both nations misdirected the
productive capacity of the nations toward war and conquest. 
The US and its allies removed those governments.  War weary
people of both nations were ready to accept less ambitious
governments.  The peace and prosperity happened because of the
nature of the populations of the nations, not in spite of it. 
Striking down the governments of Iraq and Afghanistan did
nothing to change the people in a way to make cooperation,
peace and prosperity possible.

     East Germany provides more evidence that merely
striking down a destructive tyrant isn't enough.  With a new
militaristic tyrant East Germany languished for over half a
century.  Destruction of Germany's tyrannical, militaristic
government was of little immediate benefit to the people of East
Germany.

     The Korean war prevented the tyrant from the north from
dominating the entire country.  Like Germany and Japan, South
Korea wasn't at war with itself.  With a less oppressive
government than the North, South Korea has achieved peace and
prosperity although skill and education wise it started well
behind Japan and Germany.

     On this side of the pond repeated, and even long, US
interventions in Haiti have done nothing to change the corrupt
exploitive nature of its government.  The conditions and attitudes
in Haiti don't support such change.

     Destroying a tyrant is not in itself enough to change a
nation.  Unless the people are inclined toward peaceful,
productive cooperation, destroying the tyrant may do more harm
than good.

     Meanwhile, the US government steadily grows more
militaristic and tyrannical, more and more resembling the
governments it has destroyed.  When the time comes, Who will
be there to rescue the people of the US from their homegrown
tyranny?

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, March 20, 2014

Who Fears Competition?

Column for week of March 17, 2014                          

     Most people realise that if there is only one store to
choose it may not provide the best merchandise or the best
prices.  Why are customers usually better served by two stores
than by one?

     If the second store wants customers, it must serve them
better than the first store.  Why would customers even try the
second store unless they believed it might be better?  If it didn't
prove to provide better service, Why would the customers stay?

     Each customer sets his own standards for what makes
service better.  The better service may be lower prices, better
merchandise, greater variety of merchandise, more convenient
location, prompter service, or a whole host of other things.

     The customers decide which stores serve them best and
patronize them.  It is left up to each store to figure out how the
customers prefer to be served and provide that service.  The
customers' choices are final.

     Those customers with a choice will impose the death
penalty on any store, or other enterprise, which doesn't please
them enough.  Not all customers find the same things pleasing. 
Thus, businesses providing different types of service can coexist
and prosper.  Any enterprise that fails to please enough
customers to keep the cash registers ringing suffers the death
penalty.

     Some people believe that businesses like competition. 
Most businesses don't.  What would you prefer, owning the only
store in town, or having to compete with six other stores? 
Unless you believed you could efficiently please the customers
better than the other stores, most likely you would prefer to have
the only store in town.

     Many people in cities prefer to buy food from food
trucks.  The owners of brick and mortar restaurants don't like
competition from food trucks.  The restaurant owners get the
cities to pass ordinances restricting food trucks.  Often they are
prohibited from parking near a restaurant.  The restrictions may
make it nearly impossible for food trucks to operate.

     This denies the customers the service they prefer.  It
enables restaurants to keep customers who prefer the service
from the trucks.  Like most laws restricting competition, the
restrictions on food trucks protect the established well-connected
businesses from competition from new businesses without
political clout.

     Only enterprises that have confidence in their ability to
please customers want to compete.  Old, stale enterprises fear
competition and seek government protection against it.  They
want to keep their customers without having to please them.

     When enterprises face open competition little more is
needed to make the enterprises accountable to their customers. 
When customers have information about the alternatives
available and are free to choose, the enterprises must please the
customers, or else.  The "or else" is that death penalty.  A
morass of laws and legions of enforcers are totally unnecessary. 
Informed customers free to choose are their own enforcers.

     The fear of competition infects all enterprises, not just
businesses.  Most government enterprises are monopolies, or
close to it.  The revenue keeps flowing even if almost everyone
is displeased with the service.

     When you hear service providers railing against
competition, you can be certain that those providers fear that
they can't please customers who are free to choose an
alternative.  Government school administrators, teachers and
unions who rail against choice and competition are screaming at
the top of their voices that they fear that they can't please
customers who have choices.

     They fear that others will take away the customers by
providing better service.  When they have no confidence in their
ability to serve and please us, Why should we have confidence
in them?  Why should we consent to remain their captive
customers with no choice but them?

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Thursday, March 13, 2014

The Safest City in the USA

Column for week of March 10, 2014

     Today I will give some long over due recognition to the
safest city in the USA.  The usual way to announce such an
award is to start with a list of finalists and work from bottom to
top building breathless suspense.  You may have noticed that I'm
not big for doing things in the usual way.

     Besides, there isn't a list of finalists.  Charleston, South
Carolina is in a class all by itself.  Oops, did I just let the feline
out of the sack?  That's okay.  All the more space to praise
Charleston for how it won the award.

     Until I read a recent article from "Reason" I was unaware
that Charleston has no real crime, no robberies, rapes and
murders.  Apparently people don't even jaywalk, spit on
sidewalks, or litter the parks.  Certainly, if Charleston had real
crime its biggest problem wouldn't be finding something for
cops to do besides sit in donut shops all day and get fat.

     The city was a little short on ideas for dealing with this
problem.  Then someone discovered Charleston is blessed with a
number of pedal powered rickshaws that offer rides in the city.

     Police got a tip about a crime wave centered in those
rickshaws.  At least it was what passes for a crime wave in
Charleston.  Some rickshaw drivers were allegedly talking about
the city and its past while pedaling.  Apparently Charleston has
also eradicated texting while driving and moved forward to deal
with talking while pedaling.

     The ever diligent police swung into action.  They devised
a sting operation.  Cops ingeniously disguised as tourists
purchased rides in the rickshaws.  Once on board the cops tried
to entice the drivers to talk about the city's past.  One of six
drivers couldn't resist the temptation.  Like most hardened
criminals he gave in to his dark side and started talking about
the city's past.

     At the end of the ride the heroic undercover cop gave the
driver a ticket for talking too much about the wrong things.  The
ticket imposed a fine of more than a thousand dollars. 
Charleston gets serious when it ferrets out real crime.

     Why was talking about the city's past a crime?  Only
licensed tour guides who have paid their tribute/protection
money to the city may engage is such dangerous talk.  The
public must be protected from all others.  I hate to leave you
hanging but it is up to you to figure out how Charleston's
victimization of rickshaw drivers is different from Mafia
protection rackets.

     It must be comforting to Charleston residents that they
live in a city where the biggest crime is talking about the city. 
Of course some, such as rickshaw drivers, may consider other
crimes to be more serious.  The cops took some rather indecent
liberties with the Bill of Rights in general and free speech in
particular.

     The saga isn't over yet.  The Institute for Justice has
intervened on behalf of the rickshaw driver.  We can only hope
that in the end it is Charleston and its under worked cops who
get stung.

     A number of years ago I wrote about people in Rome
being arresting for pointing out landmarks without a license. 
Somehow it seemed a lot more humorous when it was on the
other side of the pond.

     I am generally all for the benefits of free trade.  I must
admit there is one import we should ban.  We produce a more
than adequate supply of our own.  We don't need to import more
bad laws.  Competition inspires innovation.  We don't need
anything that might inspire lawmakers to produce even worse
laws.

     Considering how unsafe Charleston is for our
Constitution, perhaps I should consider rescinding its award.  On
the other hand I don't know that the Constitution is any less safe
in Charleston than in the rest of the country.  The Constitution is
certainly no less safe in Charleston than in Washington, D.C.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum

Monday, March 3, 2014

What Is the Right Choice?

Column for week of March 3, 2014

     Consumers face endless choices.  What should they buy,
and how much?  A single principle guides all of the choices. 
What will bring the most satisfaction?   Satisfaction can't be
measured or weighed.  It is impossible to find that a burger will
yield 11 grams of satisfaction while a candy bar will produce 14
grams.

     Besides this, the choices will yield different satisfactions
for different individuals.  If that isn't enough uncertainty, the
satisfaction a person will enjoy from a choice varies from time
to time.  It is impossible to write a formula to calculate how
satisfying anything will be.

     When individuals venture into business, they still seek
satisfaction.  The business person may gain some satisfaction
simply from being successful.  The main highway to satisfaction
from a business runs through profit land.

     The business buys resources.  It uses those resources to
produce a product.  If the product pleases consumers and sells
for more than the resources cost, the business earns profits.  The
business owner can use those profits to purchase the things he
believes will yield satisfaction.  More profit means more income
with which to pursue satisfaction.

     The satisfaction still can't be measured.  The profits that
are the means to satisfaction can.  The primary goal for
businesses is to maximize satisfaction through maximizing
profits.

     The business must seek to buy only those resources that
will increase the value of its products more than the resource
cost.  Consider a corn farmer deciding whether to buy another
ton of fertilizer for $800.  The important issue is, Will the
fertilizer increase the value of the crop by more than $800? 
Another consideration is, Will some other use of the $800
increase the value of the crop even more?

     The same principles apply to all resources, including
labor.  Will hiring another employee to speed up planting
increase the yield enough to pay the cost of the employee?  The
cost of the employee isn't just wages.  Taxes, insurance, cost
of hiring, etc. are all part of the cost of hiring an employee.

     Suppose the farmer calculates that he can pay the
employee no more than $6.00 per hour and come out ahead.  If
it is illegal for the farmer to pay only $6.00 per hour he can't
afford to hire the worker, even if the worker is willing and eager
to work for $6.00.  Instead of working for $6.00 the worker
remains unemployed earning nothing.

     The farmer produces a little less corn.  The entire world
has a little less corn available to use.  This will tend to push
corn prices higher.  What happens to one farmer won't have a
noticeable impact on the total corn supply.  If it happens to
thousands, it can make a noticeable difference.  Meanwhile, the
unemployed worker may be drawing unemployment
compensation or getting welfare at someone's expense.

     The least skilled workers are the main victims of
minimum wage laws.  Businesses can't afford to pay workers
more than they produce, no matter how much the worker may
need more.  Minimum wage laws are one of the main reasons
unemployment is so high among young, unskilled workers.

     Not only are they producing and earning nothing, they
are denied the opportunity to get the work experience that would
enable then to become more productive and earn more.  Only 10
percent or so of workers remain at minimum wage for two years.

     A recent study found that only about 10 percent of
minimum wage workers live in a household that is in poverty. 
The other 90 percent live in households that have multiple
incomes and are above the poverty line.

     The minimum wage earner is rarely trying to support a
family.  Even if the minimum wage worker is trying to support a
family, pricing him out the labor market is a strange way to
help. Sure, some workers get a raise when the minimum wage is
increased.  They ride on the backs of the low skilled workers
forced into involuntary unemployment.

aldmccallum@gmail.com
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Albert D. McCallum