A Geek With Guns

Chronicling the depravities of the State.

Archive for the ‘Economics’ Category

How Tariffs Work

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People who subscribe to mercantilism tend to favor internal trading over external trading. If external trading is to occur, they prefer that their nation only export goods while the other nations of the world only import goods. But that ideal is difficult to realize because people in one nation are often interested in the goods and services provided by people of other nations and that interest leads to mutual trade. How can a mercantilist thwart this mutual trade? By imposing artificial barriers on international economic activity. While there are many such barriers that can be raised, the most popular barrier today is the tariff. The Mercantilists imagine that implementing tariffs means that its people will develop a preference for domestic products over foreign products while foreigners will still prefer importing the goods of their nation. Nobody likes an unfair deal so in actuality all that happens is that the nation implementing the tariffs is bypassed:

The European Union and Japan have signed one of the world’s biggest free trade deals, covering nearly a third of the world’s GDP and 600 million people.

One of the biggest EU exports to Japan is dairy goods, while cars are one of Japan’s biggest exports.

The move contrasts sharply with actions by the US Trump administration, which has introduced steep import tariffs.

If the United States won’t play fair, then it won’t get to play at all.

The current administration is playing a stupid game. It’s trying to develop domestic economic activity by artificially raising the price of imported goods even though the United States doesn’t have the experience or capacity to manufacture many imported goods on a scale that can satisfy demands. The result of this game is that consumers in the United States will be forced to pay more for their goods while the rest of the world bypasses the United States.

Written by Christopher Burg

July 17th, 2018 at 10:00 am

Unsurprising Results

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What happens when your government decides to place additions taxes in the form of tariffs on imported materials that your business relies on? You face the possibility of going out of business:

Steel tariffs could force the nation’s largest nail manufacturer to close or move to Mexico.

The Mid-Continent Nail plant in Poplar Bluff, Missouri, laid off 60 of its 500 workers last week because of increased steel costs. The company blames the 25% tariff on imported steel. Orders for nails plunged 50% after the company raised its prices to deal with higher steel costs.

The company is in danger of shutting production by Labor Day unless the Commerce Department grants it an exclusion from paying the tariffs, company spokesman James Glassman told CNN’s Poppy Harlow.

Shocking, I know.

This isn’t the first business to announced difficulties due to Trump’s new tariffs. Harley Davidson announced that it will move at least some production outside of the United States to get around the new tariffs. More dominoes are likely to fall as well.

“But, Chris, why don’t these unpatriotic companies buy American steel instead,” you ask? Because America doesn’t produce a whole lot of steel and what steel it does produce costs more than imported steel. “Well these tariffs will cause domestic steel production to increase, right?” Not so much. Profit is only one reason for the lack of domestic production. There is also a terrible amount of red tape strangling steel production. The environmental regulations on mining raw materials are many and when those regulations are finally dealt with the refineries get to deal with a bunch of additional environmental regulations. Labor is another factor. American labor isn’t cheap, especially when employers are required to pay Social Security, Medicare, disability, and other mandatory benefits for each employee they hire. Then there is the simple fact that a lot of Americans don’t want a job working in mines or refining metals.

Domestic manufacturers import foreign steel because it’s cheaper but foreign steel is cheaper due to many factors. While the recently implemented tariffs are likely to encourage some increase in domestic steel production, the additional steel probably won’t be enough to satisfy domestic needs and will almost certainly be more expensive than foreign steel, which means domestic manufacturers will still have to move outside of the country if they want to keep their prices at a level to which consumers have become accustomed.

Written by Christopher Burg

June 27th, 2018 at 10:00 am

Somebody Pilfered the Lock Box

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The Ponzi schemes that is Social Security is, not surprisingly, facing some financial issues. Apparently somebody has pilfered the lock box because the program is going to be dipping into its reserves:

Medicare’s finances were downgraded in a new report from the program’s trustees Tuesday, while the projection for Social Security’s stayed the same as last year.

Medicare’s hospital insurance fund will be depleted in 2026, said the trustees who oversee the benefit program in an annual report. That is three years earlier than projected last year.

This year, like last year, Social Security’s trustees said the program’s two trust funds would be depleted in 2034.

For the first time since 1982, Social Security has to dip into the trust fund to pay for the program this year.

This shouldn’t surprise anybody. The entire idea behind Social Security, forcing employees to put money into a government account so they can withdraw from it when they reach an arbitrarily defined age (which continues to increase), is impossible to maintain with a deflationary currency. An employee who puts a dollar into an account in 1960 will only withdraw $0.12 worth of purchasing power in 2018. Under these conditions either the amount of money available to retirees has to be increased, which will deplete the account quickly, or the retiree cannot be given the same purchasing power that they deposited (which, in effect, means their purchasing power was stolen from them).

But inflation isn’t the only issue facing Social Security. Ponzi schemes require a constantly increasing number of participants. With the birth rate declining rapidly in the United States, there aren’t going to be as many workers as there once were so the number of people paying into Social Security will diminish while the number of people extracting from Social Security will increase.

The bottom line is, regardless of what politicians claim, Social Security is doomed.

Written by Christopher Burg

June 6th, 2018 at 10:00 am

With Friends Like the United States, Who Needs Enemies

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A lot of people refer to Trump as a fascist. While he (along with almost every other politician) certainly displays a lot of fascist tendencies, I think it would be more accurate, at least economically, to refer to him as a mercantilist. His policies have been aimed at discouraging importing goods in favor of internal trade. While many people still believe that mercantilism is a sound economic policy, it wrecks havoc on international relations:

The US is to impose tariffs on steel and aluminium imports from key allies in Europe and North America.

The US said a 25% tax on steel and 10% tax on aluminium from the EU, Mexico and Canada will start at midnight.

The move immediately triggered vows of retaliation from Mexico, Canada and the EU, which called the tariffs “protectionism, pure and simple”.

With friends like the United States, who needs enemies?

Mercantilism falls apart because it discourages international trade. First one nation implements a policy that harms another nation. Then that nation implements its own policy in retaliation to harm the first nation. This cycle can continue until trade between the two nations halts entirely.

I know a lot of people believe that this will bring prosperity to the United States. However, if you believe that policies like this will bring back the good old days of the 1950s where a single factory worker could buy a house, truck, and boat, you’re sorely mistaken. Manufacturing is highly automated, which reduces the number of available factory jobs. Moreover, the regulatory red tape makes many economic activities such as resource extraction, resource refinement, and manufacturing cost prohibitive. In addition to all of that, the United States has been out of the game for so long that it lacks the experience and knowledge necessary to mass produce many desired consumer goods. Overcoming all of those issues will take a significant amount of time and even if they are overcome, the available market will be tiny because foreign nations will have already implemented retaliatory policies prohibiting trade with the United States (not having the biggest market in the world, China, available would itself strongly discourage manufacturing goods in the United States).

Written by Christopher Burg

June 1st, 2018 at 10:00 am

Consumers Always Lose Trade Wars

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Trade relations between the United States and China had been relatively smooth in recent years. Had is the keyword there. Trump decided to provide some protection to his cronies by implementing a series of tariffs to artificially raise the price of imported goods. He sold these tariffs as job creators. Not surprisingly, China retaliated with its own tariffs. Now Trump is planning to retaliate against China’s retaliation with even more tariffs:

US President Donald Trump has instructed officials to consider a further $100bn (£71.3bn) of tariffs against China, in an escalation of a tense trade stand-off.

These would be in addition to the $50bn worth of US tariffs already proposed on hundreds of Chinese imports.

China’s Ministry of Commerce responded, saying China would “not hesitate to pay any price” to defend its interests.

Tit-for-tat trade moves have unsettled global markets in recent weeks.

Governments and their cronies are the only winners in a trade war. Tariff profits go into government coffers while domestic cronies can increase their prices since goods from their imported competitors are now artificially higher. Meanwhile, consumers are forced to pay artificially higher prices for goods. If, for example, a $100 tariff is put on all imported cell phones, the government pockets an extra $100 and you pay $600 for a cell phone that used to only cost $500.

As this trade war wages, consumers are going to get raked over the coals. The only upside is that in the end this will screw over the United States government as well since it will lose tariff profits when imported goods become so expensive that consumption drops significantly.

Written by Christopher Burg

April 6th, 2018 at 10:30 am

Censorship Is Good for Business

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A lot of popular websites have begun increasing the amount of user content they censor. This post isn’t going to devolve into a freedom of speech rant. I believe that private companies have every right to decide what they will and will not host on their websites. This post is going to be discussing an interesting economic phenomenon related to censorship.

I think many of the people who have been pushing sites like Facebook, Twitter, Discord, and YouTube to more heavily scrutinize user content honestly believe that if those companies remove content, that content ceases to exist on the Internet. While the content ceases to exist on those websites, it can be uploaded elsewhere, which creates a business opportunity for competitors of those websites.

The users being censored will seek another way to publish their content. These users become a new potential customer base that didn’t previously exist. Entrepreneurial types can profit from this by attracting that customer base with an offer to exercise less scrutiny over user content.

Online censorship doesn’t remove content, it merely shifts revenue. While YouTube may stop hosting a video, one of its competitors may be willing to host it or an entrepreneur may decide to start a website that is geared towards hosting content that has been censored by YouTube. Whoever ends up hosting the censored content stands to make money that YouTube is no longer making.

This phenomenon is nothing new though. Censorship has always been good for business. Whenever a publication has refused to publish something, another publication either stepped in or was created.

Written by Christopher Burg

March 2nd, 2018 at 11:00 am

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I Am Altering the Deal

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I have a theory that the biggest threat a government poses to an economy isn’t any specific set of regulations but constantly changing regulations. One day your business venture is perfectly legal, the next day it’s illegal:

The 2015 Butte wildfire had ripped through nearly 71,000 acres in Amador and Calaveras counties and left millions of dollars in damages behind. More than 900 structures were destroyed in the two counties, according to Cal Fire. Some residents left the community, deciding not to rebuild.

County supervisors embraced legalizing cannabis as a way for the local economy to generate revenue that could help it recover. Enticed by cheap land and friendly laws, the rural county of 45,000 people saw an influx of pot growers.

Not long after, however, anti-pot supervisors, including Mills, were elected to the five-member board. They had promised to ban cultivation in Calaveras County. In January they scored a victory with a 3-2 vote ordering growers to cease operations by June.

With a single vote a bunch of perfectly legal businesses became illegal. While the farmers are talking about suing, they won’t be able to operate their farms during the lawsuit, which could last years, and may not win anyways.

I think this story also explains the obsession most business ventures have with maximizing profits at all costs. Anti-capitalists like to blame capitalism for this obsession but any capitalist would tell you that maximizing long term profits is a better way to maximize overall profits… unless you’re operating in an environment where your business might be declared illegal overnight. I’m of the belief that business ventures are obsessed with short term profits at all costs, at least in part, because they have no idea what the rules regulating their business will be tomorrow. You can’t make any realistic long term goals when you don’t know what the rules will be tomorrow, in a month, or in a year.

This story will likely incentivize cannabis growers in California to maximize short term profits and give little through to long term profits. And when they do, anti-capitalists will blame capitalism instead of the real culprit, government.

Written by Christopher Burg

March 2nd, 2018 at 10:30 am

Possible Theft Versus Guaranteed Theft

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There are a lot of criticisms against cryptocurrencies. One criticism that I see come up periodically is that transactions can’t be reversed. If somebody manages to steal your cryptocurrency, there is no way to reverse the fraudulent transfer. Fraudulent electronic transactions in dollars, on the other hand, can be reversed.

That is a valid criticism. But I would like to point out something that is generally ignored by advocates of government issued money. Holders of dollars are being stolen from every moment of every day via purposeful inflation and there is no way to recover the purchasing power lost to inflation.

Cryptocurrencies can be stolen and if your cryptocurrency is stolen, there isn’t a damned thing you can do about it. However, government issued money is guaranteed to be stolen and there isn’t a damned thing you can do about it.

Written by Christopher Burg

March 1st, 2018 at 11:00 am

Look at All the Economic Stimulus

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A lot of statists cheered when it was announced that the Super Bowl would be coming to Minneapolis. Not only would Minneapolis have the honor of hosting the larger religious festival of the year but its piousness would be rewarded with untold riches from a million, err, 125,000 visitors hurling cash at the local establishments!

As it turns out, the fantastic economic stimulus that was promised was just that, fantasy:

Restaurants along Nicollet Mall and at the Mall of America saw plenty of traffic, but many eateries located away from those immediate areas reported quiet weeks as regular customers stayed at home to avoid the expected Super Bowl bedlam. Downtown Minneapolis skyway eateries also saw customer counts dwindle as the week went on as more downtown workers stayed away from the office and worked remotely.

Super Bowl week was “the worst week ever for us,” said Brenda Langton, co-owner of Spoonriver, located by the Guthrie Theater and just blocks away from U.S. Bank Stadium, site of Super Bowl LII. Sales were down by 75 percent.
Langton also voiced frustration that the media repeated claims by the Minnesota Super Bowl Host Committee that the Super Bowl would draw 1 million visitors, a number that turned out to not reflect the actual number of out-of-towners coming to the area. The big-number prediction wound up scaring office workers and suburban diners away from crowds that never existed, she said.

“The media needs to stop putting the fear of God into everybody and understand that other cities have weathered [the Super Bowl] just fine and not to terrify everyone,” Langton said. “I just want to have people come back downtown and get over the Super Bowl. It was very good for a few people and that’s what happens.”

PinKU Japanese Street Food, a quick-service Japanese restaurant in Northeast Minneapolis, had some of its slowest days of business ever during Super Bowl weekend, said Co-founder and Head Chef John Sugimura On Super Bowl Sunday, for example, the restaurant made just $303, only 15 to 20 percent of its typical Sunday revenue.

While the entire article lies behind a paywall, it’s not a very effective one. Just disable JavaScript for the domain and the story will display. You can also find the contents of the article in the page’s source code.

This news is only surprising to the economically ignorant. Stadiums and large events don’t create wealth. The most they do is shift wealth around. Money that individuals would have spent on other forms of entertainment are instead spent on attending stadium events. Moreover, large events can run the usual customer base out of town. If I’m an employee working near a stadium and want to grab a quick lunch, I’m going to likely avoid any restaurants in my area during stadium events because I’m worried that they’ll be too busy for me to get served within the block of time I have.

The security large events like the Super Bowl employ can also scare people away. I, for one, have a policy against attending events that require military hardware to defend. Any event that’s thought to be a big enough target to warrant such security is riskier than I want to bother with. I also have a general distain for militarization in general so even if the risk isn’t high enough to warrant the security, I don’t feel like living the life of a poor bastard in an occupied foreign city even for only a few hours.

So stadiums and large events merely shift wealth around. A few establishments will enjoy a significant windfall but they are the exception that proves the rule. Most establishments will notice, at most, a minor increase and oftentimes they’ll suffer a notable decrease in business.

Written by Christopher Burg

February 9th, 2018 at 10:00 am

Value is Subjective

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A lot of libertarians falsely believe that there is such as thing as intrinsic, or natural, value. People who believe gold has intrinsic value will spout off the industrial uses that gold has. But all value is subjective. What may be worth a great deal to one person may be entirely worthless to another. For example, lithium may be very valuable to a company that builds batteries. Lithium may also be valuable to people who sell resources to battery manufacturers. Lithium will likely be seen as worthless to a hunter-gatherer tribe in the Amazon which neither knows about batteries or selling resources to manufacturers.

What may be the best example of the subjectivity of value though are “precious” gems:

RIGHT NOW, IN A VAULT controlled by the Los Angeles County Sheriff’s Department, there sits a 752-pound emerald with no rightful owner. This gem is the size of a mini­fridge. It weighs as much as two sumo wrestlers. Estimates of its worth range from a hundred bucks to $925 million.

$100 to $952 million is quite the range.

“Precious” gems are a good illustrator of the subjectivity of value because their primary use is decorative. While some gems, such as diamonds, have a plethora of industrial uses, others are used far less. But many people find them pretty and the simple fact of being pretty can make something extremely valuable in the eyes of some.

I would certainly value a 752-pound emerald higher than $100 because novelty is worth something to me but I wouldn’t value it anywhere near $1 million, let alone $925 million.

If value is subjective, how can the value of something be determined? Through the market. The amount something can be sold for is its value. The iPhone X, for example, is worth $999.00 for the 64GB model and $1,149.00 256GB model. While I personally don’t view either model to be worth their respective prices, I feel safe in saying that they’re priced appropriately because they’re flying off the shelves.

Written by Christopher Burg

January 3rd, 2018 at 11:00 am