Category Archives: Economics

Stop The Presses!

In a “man bites dog” moment, Lester Brown gets something right:

Just a single fill of ethanol for a four-wheel drive SUV, says Brown, uses enough grain to feed one person for an entire year. This year the amount of US corn going to make the fuel will equal what it sells abroad; traditionally its exports have helped feed 100 – mostly poor – countries.

From next year, the amount used to run American cars will exceed exports, and soon it is likely to reduce what is available to help feed poor people overseas. The number of ethanol plants built or planned in the corn-belt state of Iowa will use virtually all the state’s crop.

This will not only cut food supplies, but drive up the process of grain, making hungry people compete with the owners of gas-guzzlers. Already spending 70 per cent of their meagre incomes on food, they simply cannot afford to do so.

Time to stop this latest nuttiness in farm subsidies.

Poverty Curve

The original poverty line was based on having enough money to select a nutritious diet in 1963. It was $3,100/year for a family of four with two adults and two children. In 2005, it was $19,800. In constant 2005 dollars using the consumer price index, the 1963 poverty line would be $18,900. Using the GDP deflator (which is based on changing rather than fixed buying patterns), we get $15,400. That is, a family at the poverty line today will buy different items today implying a $4,400 improvement in the standard of living from 1963 to 2005.

Life expectancy has gone up almost 5 years over that time. The white/black life expectancy ratio has been converging from 1.11 to about 1.07 over the same period.

Both the GDP deflator and life expectancy measures indicate those below the poverty line are getting better off in an absolute sense. A couple more are in this week’s Economist. The definition of poverty evolves over time and is more of a curve than a line so that there will alway be people in poverty.

Get Rid Of The Corporate Income Tax

So writeth Jane Galt (not the first time she’s clamored for this).

While undoubtedly the discovery that most of the tax burden falls on employees will be for some a strike against the tax, and for others a sign that we need some stiff laws to force those corporations to place the burden elsewhere, it seems to me that this piece of information makes the corporate income tax no less attractive than it was before–which is to say, not at all. Levying a corporate income tax is a very inefficient way to do what we want, which is to redistribute money from the company’s richer owners, customers, and managers to its poorer employees.

(All right, maybe we don’t all want to do this; no doubt many of my readers are even now cringing in horror at the thought. But let us posit, for the sake of discussion, that we do want to do this, because that is at heart of all the arguments I have ever heard in favour of the corporate income tax, and even assuming the ends, the means make no sense.)

I agree. The corporate income tax is nuts, and arguments for it are born purely of economic ignorance.

Heading South?

Has the oil fever finally peaked?

…the recent record-high prices have fueled a boom in exploration. And as that boom begins to yield more oil, the industry will gain a greater ability to ramp up production in one place in order to make up for any shortfall elsewhere.

This should reduce the impact of a supply disruption in, say, Iran or Nigeria, and ease what experts refer to as the security premium that’s currently build into oil prices.

“That [premium] is in the neighborhood of $25 dollars a barrel,” said James Williams, an energy economist at the consultancy WTRG Economics. “That number would go away, or most of it would go away, if we had more spare production capacity.”

And that’s not even considering shale and the tar sands, which are now coming on line, and will remain that way, as long as prices don’t drop back into the twenties.

Capitalism Bubble

Property prices are rising fast in Eastern Europe according to Financial Times:

…property prices in Riga, the Latvian capital, surged by 45.3% in the year to June, following on from a rise of 73.5% in the preceding year, with growth also buoyant in Bulgaria and Estonia. Mr. Bailey [head of residential research at Knight Frank] attributed this to a “levelling up” of prices across Europe, particularly in the former eastern bloc nations that have joined the European Union. “Wage inflation, growing prosperity and access to less constrained mortgage finance have all contributed to rapidly rising prices,” he said.

The same transformation could occur wherever property rights are dim and mortgage rates are high. I am thinking of Jamaica, Lebanon, Mexico, Iraq and many, many other places around the globe. Dollarize (or Euro-ize) the economy, offer subsidized mortgages, low property and capital gains taxes for houses, no rent control and put home improvement shows on TV and we will have a global home boom. These are sitting assets that can be taxed and repossessed. They create a home ownership culture, security of a locked door and a place to hang mosquito netting. $30,000 of cinder block housing for every 4th person on the globe would be $45T. This is the head end of the promise of capitalism with liquid lending.

Extremely Benign Neglect

Don Boudreaux says that we need to ignore global warming:

Those of us who recognize these important benefits of capitalism — those of us who understand that capitalism’s true greatness lies not (as many critics insinuate) in producing oceans of pointless trinkets and baubles but in making the lives of ordinary people richer and fuller and longer — are reluctant to yield power to governments to tackle global warming. We worry that this power will kill the goose that’s laying this golden egg.

If you think that such a worry is exaggerated, recall the language Al Gore used in his book “Earth in the Balance.” The former Vice President asserted that we are suffering an “environmental crisis” that can be avoided only if we “drastically change our civilization and our way of thinking.”

“Drastically change our civilization.” Hmmm. This sounds like a call to significantly scale back markets, trade and industrial activities in order to lessen humankind’s “footprint” on the Earth and its environment. We can, no doubt, make our environmental footprint smaller — but how great a benefit will this achievement be if it returns us to the ages-old condition of high mortality and morbidity?

I wasn’t sure whether to file this under “Science And Society,” or “Economics.” Had to go with the latter (particularly since so much of the global warming debate is entirely devoid of this topic).