Category: Economics Page 17 of 94

What Economics Gets Wrong (Almost Everything)

On April 25, 2022

Economics as a discipline is nearly worthless. What it teaches mostly isn’t true.

Decreasing price does not always increase demand and increasing price sometimes increases demand (aka. the law of supply and demand isn’t a law.)
People do not optimize utility (by any definition that is not circular).
People are not rational.
The market is not rational.
The market does not discount the future well at all.
Competitive markets are created by government, and destroyed by private actors.
Markets do not and never have properly priced externalities and never will do so while humans remain human. The only way to price externalities properly is thru government or custom (government in drag.)
Profit or loss in any enterprise in a modern economy is a social choice, entirely based on government and social decisions and mostly unrelated to fundamentals like energy in and energy out.
Railroads are far more efficient, energy wise than roads, but govt. subsidizes roads.
The vast majority of profit is based on market position and sustained profit is almost always based on having an unfair advantage that makes the market less competitive and therefore not have the virtues of competitive markets.
Genuine competitive markets don’t exist, and no businessman wants them to because they drive profits to almost zero.
The best economies the world ever saw went out of their way to keep wages and prices high, not to reduce them.
Any concentration of market power that is not regulated or broken up will engage in practices intended to buy/undermine government and destroy wages.
Higher CEO pay is correlated with lower company performance.
You cannot have a good economy for long without keeping the rich poor, weak and under your thumb. It is impossible.
Monetary efficiency between countries is bad. It should be hard to move large amounts money in and out of another currency or country.
Financial market efficiency is generally bad, and effectiveness and shock pads should be optimized for rather than financial efficiency.
Countries should, if it is possible, make or grow everything important inside their own borders and not trade for it.
People perform better when happy, healthy and at least moderately autonomous. The literature on this is so abundant it is silly. Bosses are authoritarian assholes because they like being authoritarian assholes who micro-manage employees. It’s what Bezos gets out of being Bezos.
Private money creation concentrated in a few hands is destructive to the economy, democracy and freedom (authority: Thomas Jefferson). It is also anti-competitive market, since you can’t compete with people who create money out of thin air.
Moderate levels of inflation are good, not bad, if they include assets, because they take away the control of people who won the past so they don’t control the present and the future.
Taxes should be low on ordinary people and high on anyone rich, including wealth and estate taxes. No one should be rich because their parents were.
People who lend money should lose that money if the person who they loaned it to can’t afford to repay it. The function of lending is “I know how to pick people who will use the money well.” If you can’t do that you deserve to lose the money, and govt shouldn’t collect it for you
bankruptcy should be easy, fast and leave people whole. Economically crippled people are not in the interest of society as a whole.
A UBI’s main function is allowing people to do what they want to do, and forcing bosses to make jobs good, not shitty.
Pensions should simply be handled by government or a general UBI.
Comparative advantage is a terrible strategy for improving your economy.
Free trade is garbage for most countries.
Raising the minimum wage is not correlated with increased unemployment
The unemployment rate measures supply driven wage push inflation pressure, not how many peole can’t get a job.
Initial capital for capitalism was primarily acquired by theft, first of European commons, then of non-European land, people and resources.

Essentially everything Economics teaches is wrong. If and when their prescriptions for action are followed, disaster ensues. With almost no exceptions every country which ever developed did so by not doing what economists say to do.

Economics also has a morally corrosive affect on those who study it. People mostly don’t free ride or otherwise act according to the maxims of economics: but people who have studied economics do.

Because economics is wrong and harmful about almost everything, and because economists do not say “please don’t follow our advice”, Economics should probably be banned and all Economics faculties shut down.

How Big Is The Chinese Economy Compared to The West?

On April 21, 2022

I recently came across these charts, of the biggest trade partner of each country, from 1990 and 2020.

To simplify: China is now more dominant in trade than the US at the height of its recent power. (Also of interest is the change in the UK and Japan’s position, though the collapse of Japan is overstated: it’s not #1, but it’s still a big trade power.

Let’s put the 2020 chart in numbers, bearing in mind that doing it in US dollars will overstate the relative size of the US.

For imports (from Wikipedia):

So, China is the primary trade partner of far more countries than the US. It exports more than the US, and imports less. These numbers understate the situation, though, since they are “goods and services.”

French Economist Jacques Sapir recently did an economic comparison by adjusting GDP numbers (not trade) as follows. First, change them for purchasing power parity (PPP), which is to say you can buy more with the same amount of money in China or Russia than in the US or Germany. Then adjust for the service sector being overvalued, so you’re left with manufacturing and the primary sector (digging things up and refining them) as the primary drivers.

Do this and Russia’s economy is 5% to 6% of the world economy, and much larger than Germany’s. China is about 30%, and the EU + US are about 30%.

Now I don’t entirely endorse this, there are some useful things in “services” like parts of the tech industry (much is worthless though, serving ads better does not increase a country’s actual economic strength. It might sap it.)

But it puts the situation in better perspective than using raw GDP.

Really there are three primary drivers of actual economic power: manufacuturing, resources and technology. Everything else either exists to service those 3 areas, or is nice and maybe even important to social stability (law, entertainment) but not primary.

China is the world’s primary manufacturing power. Russia is a powerhouse for resource exctraction. Russia is a leader in some types of military technology and not far behind in many others, and China is rapidly closing on the West in terms of tech and is even ahead in many areas (5G, for example, or hi speed trains, civilian use of drones, and so on.)

China also has something the US doesn’t have: a belief in technology. Robots and drones are common, technology is viewed as good, not bad and a threat. The Chinese believe in the future in a way that the west hasn’t since the 50s.

On top of all of this China is the world’s largest developer of nations: if you want ports, roads, train stations, hospitals, schools, smart cities or anything else, China will build them for you. They’ll finance them, and some exceptions aside they offer good loan rates because usually they’re more interested in good trade relations and getting your food/oil/minerals than they are about making a profit off building the infrastructure. In addition, Chinese construction companies building overseas infrastructure means those industries don’t have to downsize: they build China, now there isn’t enough work, so they’re off in Africa and South America.

To summarize then: China is:

the number 1 trade partner of more nations than anyone else, and more than the US had in 1990.
the world’s largest manufacturing nation
Technologically near even with the West, and in some places ahead.
The nation that helps the most other nations develop.
When you adjust for PPP and service sector crap, a larger economy than the US. With Russia, a larger economy than the US and the EU combined.

And this is the nation we want to enter into a Cold War with? We shipped them so much of our industry that they now have more than we do, and after doing that we decide it’s time to pick a fight?

One thing is true of post-industrialization great politics: industry, access to resources and tech are what determine power. Since there is no longer a situation where the West has technology that is vastly ahead of everyone else’s, it really comes down to industry + resources.

And with Russia locked in and South America and Africa tending to prefer it, China is ahead or secure in both of those those categories.

If we wanted to keep our supremacy, we had to not ship China our industry and our tech so we could make some of our elites even richer. The Chinese accurately sized up our elite’s weaknesses and exploited them to the hilt. They thought they were “international” elites and it didn’t matter where the manufacturing was done, or who had the technology. The Chinese, however, were a national elite, and they knew it did.

I’m not sure this was exactly a bad thing. The West, in the unipolar moment (and heck, before) vastly misused its power, over and over again. Maybe a two-polar world will be better, if it isn’t, at least all power won’t be centralized in America with a few satrapies getting a voice and maybe that will be better for many countries and billions of people.

Official Inflation vs. Real Inflation (Rent Edition)

On April 15, 2022

So, rent increases:

In the 50 largest U.S. metro areas, median rent rose an astounding 19.3 percent from December 2020 to December 2021, according to a Realtor.com analysis of properties with two or fewer bedrooms. And nowhere was the jump bigger than in the Miami metro area, where the median rent exploded to $2,850, 49.8 percent higher than the previous year.

Other cities across Florida — Tampa, Orlando and Jacksonville — and the Sun Belt destinations of San Diego, Las Vegas, Austin, Texas, and Memphis, Tennessee, all saw spikes of more than 25 percent during that time period.

Bozeman, Montana (not in that top 50):

According to the rental site Zumper, the average two-bedroom apartment in Bozeman surged from $1,300-a-month in February of 2020 to $2,175 in February of 2022.

BOOM.

The fact is that official inflation numbers (and even those are jumping) are underreported and have been for decades. The nonsense of hedonic adjustments, things like taking prices from places like CostCo which poor people can’t reach and how the basket is determined, among other things, have made inflation appear much less than it actually has been. In no way have wages for most people, especially in the bottom 50 percent, kept up.

Homes and apartments are being snapped up en-masse by private equity and other large private investors who are raising rents massively and holding vast numbers of properties off the market to keep prices up. Places like Bozeman get hit hard, as workers who can now work remote got there, and with their “big city” money drive up prices — which are still low to them, but which locals can’t afford, and so on.

Prices rising faster than wages is one of the simple stories of the last 50 years that rarely gets told, because official stats make it seem like it didn’t happen.

But people feel it, and it has political consequences. As people feel poorer and poorer, and perceive their future will be poorer still, they are willing to turn to people like Trump and LePen, or vote for policies like Brexit. They know they are in a trap, and they will do anything to get out, like a wolf who will chew of it’s own leg to escape a leg trap.

Wise governments and ruling classes don’t make their populations desperate, because desperate populations are the seeding ground for tyrants, men-on-horseback, fascism, and revolutions of all kinds.

Simple Ethics For Groups And Individuals

On April 6, 2022

The simplest thing we require in the social world, after food, water and shelter, is safety. Without safety, everything else is precarious and to live in constant fear destroys people’s psyches and health.

The basic rules required for a safe group are as follows.

First: each individual must not prey on others. Under no circumstances must they hurt another person or take from them just because they are weak and they can.

Second: anyone who does prey on others must be removed from the group. This may mean ostracism; it may mean confinement; or it may mean death.

Anyone who will prey on someone else who is weak, just because they are weak is a threat to you. One day you will be weaker than them, and if you have something they want they will take it. That could mean theft, violence or rape.

Whenever you encounter a predator or abuser, they are someone you cannot and should not trust. They have already said what they are, the only question is who they will do it to.

There are some complexities to this, mostly to do with “property” and “accumulation.” In a good society, the only time anyone would go hungry or without shelter is if there wasn’t enough, and only in cases where there was not enough would those who can “work” be prioritized. (Working means creating that which people need. Wall street jobs are almost all predator jobs.) In a vast surplus world like our current world, there is no reason for everyone not to fed, have a home and medical care.

People who have way more than they need while others don’t have enough are predators: abusers who prey on the weak. We have built up entire ideologies about why this OK, the most recent of which is modern capitalism.

Basically, you can’t, ever, tolerate predators or predation. Predation includes every job which preys on other people: health insurance in the US; most pharma jobs (except creating the drugs, and even many of those, since they create palliatives rather than cures in most cases), most financial jobs, almost all lobbying, the vast majority of the military-industrial complex and almost all “intellegence” agency jobs.

It is less important that everyone work, than that jobs be positive sum: creating more than they destroy, which includes not destroying the environment. It is better that a million people are supported, doing nothing, than that Jamie Dimon has a job.

The worst predators in most societies are the very rich and politicians. They kill and impoverish the most people with their actions and inactions, and they work for other predators.

Again:

First: each individual must not prey on others. Under no circumstances must they hurt another person or take from them just because they are weak and they can.

Second: anyone who does prey on others must be removed from the group. This may mean ostracism; it may mean confinement; or it may mean death.

These rules and guidelines may seem to be about ethics, but they are also the only way to create good prosperous societies and groups which last, which aren’t “suckers” (no violence ever) and which last. Any society or group which tolerates predators is eventually taken over by them, and any “prosperity” built in such ways is built on blood, bones and misery, and will eventually be lost.

Anyone who preys on others, will prey on you if they decide they can get away with it and your misery or death will benefit them.

Another Stock Up Moment

On April 4, 2022

This time everyone’s talking about inflation and the coming food and fuel issues, so you’ve probably read about them.

Russia and Ukraine are the first and fifth largest exporters of wheat. Russia is an important exporter of a vast number of minerals, as well as oil, gas and coal. Sanctions are completely disrupting markets, and Russia will not be exporting any grain or sugar to Europe and ex-Soviet countries till at least August.

This will have a ripple effect thru the entire supply chain. Everything that substitutes (rice, for example) will increase in price. Of course, there have already been significant increases, and I advised stocking up multiple times in the past, but there will be more. The NYTimes notes that even before Ukraine:

Between April 2020 and December 2021, the price of wheat increased 80%.

This is likely to be a multi-year phenomenon leading to a permanent decline in almost everyone’s standard of living, but I’ll discuss that in a separate article.

This will extend far beyond food and fuel, since fuel and minerals are important in the manufacturing and services prices, as well.

For now, buy up staples which can be stored safely if you can. If you have money and need to buy anything, in general, do so now. The prices aren’t likely to be lower any time soon. If you can figure out a way to grow some of your own food or arrange to reduce your vulnerability to food prices, do so. Note that every sign is also that rent increases will continue to be significant as well, and anything you can do to reduce your vulnerability will be wise.

Russian Debt Default + Consequences, Simply Explained

On March 16, 2022

I don’t want to spend a lot of time on this, but the fundamentals are worth a quick review.

Russia had hundreds of billions of dollars on reserve at central banks. We have frozen them so they can’t spend them, and we’ve also forbidden banks, in general, to do almost any business with them in dollars.

So they have the money to avoid default, but are not allowed to use it to pay their debts.

This is like if you personally had an account at the bank for $10 million and they said, “We’ve frozen it so you can’t spend it, and we won’t accept money from anywhere else, but we still expect you to pay your mortgage.”

It’s obviously unfair, and everyone outside of the West knows it, as many countries have invaded other countries and none of them were hit this way. This punishment is so harsh because Russia is outside the club and didn’t have the nod or a similar punishment would have been doled out over Iraq, Libya, and Yemen, among many others.

It has made other countries scared for their money. Even countries that have license, like Saudi Arabia — who is currently bombing the hell out of Yemen with a sanction in sight.

Saudi Arabia is considering accepting the Yuan for oil payments.

Of course, the US is pushing back hard — that oil is priced in dollars, and it’s one of the main reasons the dollar is the global reserve currency.

But while the Sauds are in good for now, who is to say they always will be? What if one day the US decides to sanction them? Perhaps they see it as in their interest to diversify their reserves. Perhaps they also see Beijing as FAR less likely to sanction them? If they do, I agree. Just don’t piss China off about Taiwan, and the odds of China ever freezing your Yuan reserves or sanctioning you is essentially zero, not least because in order to grab reserve status from the US, they need to be more trustworthy.

I don’t know if the Sauds will do this yet; the pressure the US must be bringing is immense. But I do believe that when we look back on these massive sanctions, we will see that forcing Russia into default was the end of the dollar’s hegemony. This weapon has been used before, but only on marginal states. To do it to a Great Power is quite different.

The US can’t be trusted with your money. Before, people was perceived the US was the safest place.

For most countries, the dollar hegemony has been terrible; they sold American stuff and got numbers on a computer in return. (China on the other hand, played the game smart. They got the US industrial base in return and, even if the US freezes every dollar they have, they’ll still be ahead.)

Most countries will be better off in a de-dollarized world. But the US won’t, and if Europe stays a US satrapy (which most indications suggest it will) then it will be bad for them. Ironically, back in the early- to mid-2000s, the Europeans had the opportunity to make the Euro an independent reserve currency, but, as usual for Europe in the age of American dominance, they lacked the guts.

None of this will happen immediately. But I believe we’re either at, or within, a year of when we will be able to look back and see this as the tipping point.

What Is Our Plan C if Sanctions and the Guerilla Trap Don’t Take Out Russia?

On March 11, 2022

First: To my knowledge, sanctions have never lead to regime change. They didn’t in Iran, Iraq, Venezuela, Libya, or anywhere else — not even North Korea and Cuba, which are still under some seriously savage sanctions.

Second: The targeted country’s leadership can still have pretty much whatever they want, it’s the population which suffers.

Third: While, in most ways, Russia is weaker than the USSR, it has a food surplus, while the Soviets always struggled. You can’t starve them out. It also has a fairly decent medical industry and access to Chinese and Indian medicines. Also, if sanctions continue, they will break our IP.

Fourth: The USSR didn’t have the largest industrial nation in the world as its ally (that would be China, not the US).

Fifth: China and Russia are synergistic. What China needs (food (desperately), oil, and minerals), Russia has. What Russia needs (consumer goods, medium to high-ish tech), China has. Plus, for China, having Russia as an ally mitigates the whole “US Navy cutting off supplies at the Straits of Hormuz” situation that every Chinese leader since Deng has stayed up nights worrying about.

Sixth: The logical response for Russia and China is to link their payments systems and to create an alternate monetary system. Because the West has repeatedly stolen billions of dollars from countries foolish enough to keep them on reserve in the West and then get on the West’s bad side, a lot of nations will move over to that system. Honestly, I’d trust China more than I would trust US not to steal my reserves, at this point.

Nobody seems to be thinking this forward. If sanctions don’t take out Russia and force it to collapse and/or have a government we like, what are we going to do next?

And as sanctions have never taken out a government, what’s our plan? Right now, it seems like the only alternative is to have a long guerilla war in Ukraine and bleed Russia dry. This strategy might work, though the human cost will be monstrous. (But then, why would the West care? We’re fighting to the last Ukrainian, after all.)

But if sanctions don’t work, and the guerilla trap doesn’t, what’s our Plan C? It’s particularly important because these sanctions are going to do a lot of damage to ourselves including, very likely, destroying the IP system that makes our rich so rich. (I, personally, look forward to Russia, and later China, breaking our IP system, but I don’t imagine high tech firms and/or Disney are as thrilled.)

Again, what’s our Plan C?