Category: Economics

Consumers Always Lose Trade Wars

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.

Censorship Is Good for Business

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.

I Am Altering the Deal

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.

Possible Theft Versus Guaranteed Theft

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.

Look at All the Economic Stimulus

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.

Value is Subjective

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.

The Cure to Inflation Must Be More Inflation

What happens when you give dictatorial powers to somebody who is entirely ignorant of economics? Socialism:

CARACAS (Reuters) – Venezuelan President Nicolas Maduro announced a 40 percent increase to the minimum wage as of January, a move that will foment what many economists already consider hyperinflation in the oil-rich but crisis-stricken nation.

Inflation is getting out of hand, what should we do? I know! We’ll increase the minimum wage! That’ll fix it!

Every proponent of a minimum wage is ignorant of the fact that mandating a minimum wage doesn’t actually increase anybody’s purchasing power. When you mandate a minimum wage you guarantee that any work that isn’t worth that minimum wage is eliminated. Teenagers bagging groceries may be worth $2.00 an hour but not $3.00. If the minimum wage is set to $3.00 an hour, those teenagers suddenly find themselves unemployed. The higher the minimum wage is set, the more jobs are eliminated.

In addition to eliminating jobs, minimum wage laws also increase inflation. Some jobs simply can’t be eliminated by a business, which is something many proponents of minimum wage bring up when the above point is brought to their attention. A restaurant can’t operate without cooks (At least not yet. But cost decreases in automation will make such restaurants feasible very soon). If a minimum wage is set to, say, $15.00 an hour but a cook is only worth $10.00, then the restaurant owner has to either close shop or increase their prices. Most restaurant owners will opt for the latter, which means the cost of a meal goes up. Suddenly an $8.00 mean becomes a $10.00 meal and everybody who eats out finds themselves with less purchasing power.

By increasing the minimum wage 40 percent, the Venezuelan government guaranteed the elimination of many jobs and major increases in prices. These two things will only cause the average Venezuelan more misery. But dictators are seldom concerned with the amount of pain the average person has to suffer. Dictators are concerned with enriching themselves.

The Rent Is too Damn High

Remember Jimmy McMillan, the founder of the Rent Is too Damn High Party?

He wasn’t wrong:

A recent survey by New York councilmember Helen Rosenthal found 12% of stores on one stretch of the Upper West Side is unoccupied and ‘for lease’. The picture is repeated nationally. In October, the US surpassed the previous record for store closings, set after the 2008 financial crisis.

[…]

“It’s not Amazon, it’s rent,” says Jeremiah Moss, author of the website and book Vanishing New York. “Over the decades, small businesses weathered the New York of the 70s with it near-bankruptcy and high crime. Businesses could survive the internet, but they need a reasonable rent to do that.”

Part of the problem is the changing make-up of New York landlords. Many are no longer mom-and-pop operations, but institutional investors and hedge funds that are unwilling to drop rents to match retail conditions. “They are running small businesses out of the city and replacing them with chain stores and temporary luxury businesses,” says Moss.

In addition, he says, banks will devalue a property if it’s occupied by a small business, and increase it for a chain store. “There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.”

Fucking late stage capitalism!

I wrote that sarcastically but there are people who are saying it seriously. If one only possesses an infantile knowledge of capitalism, it would be easy for them to blame this predicament on capitalism instead of the real culprit, government. The economic system the United States operates under can best be described as government manipulated privately held businesses. While businesses in the United States are nominally private they are heavily manipulated by government. Wealthy businesses are able to hire lobbyists who can influence politicians into massaging the regulatory field. The lobbyists work to create a regulatory field that favors their employers while simultaneously hurting their employer’s competitors. For example, a lobbyist working for Comcast might influence city politicians to raise the cost of the permits required to bury fiberoptic cable. A large Internet Service Provider (ISP) like Comcast can easily soak up those additional permit costs whereas small local ISPs are not able to and thus are forced to go out of business.

This manipulated environment is also a feedback loop. As wealthy organizations are able to push out more and more competitors they are able to become more and more wealthy. As they become more and more wealthy they are able to afford more regulatory manipulation and so on. The inevitable end of this feedback loop is an economy controlled by a handful of wealthy politically-connected players and devoid of small businesses. Banks, as major players in the regulatory manipulation game, recognize this and thus acknowledge that properties occupied or owned by large corporations are far more valuable that properties occupied or owned by individually owned businesses. Property owners going off of the banks’ assessments will let their properties sit empty until a large corporation shows interest in buying or renting it.

Parts of the United States are already reaching the point where individually owned businesses can no longer succeed. Other parts of the United States will eventually reach the same point. The feedback loop will continue until small businesses can only exist in the black market.

Increasing the Forced Labor Pool

The Pentagon has begun pushing for a policy to require women to also register for the draft. Why would the United States even bother with continuing the draft now that it’s using mercenaries for so much of its fighting? Because mercenaries want to get paid and the Pentagon wants to have the option of free labor available to it:

Not surprisingly, the Pentagon, the report reminds us, wants the Service Program to continue indefinitely. No surprise there. But now, the Pentagon wants to expand draft registration so it can include millions of young people who had not previously been eligible.

This proposed change will be couched in a variety of irrelevant issues like “gender equality” and “women in combat.” At the heart of the matter, however, is the fact that the Pentagon wants an even larger list of potential forced laborers who can be paid below-market wages. In other words, draft registration offers — and has always offered — a list of people who can be forced to pay higher taxes in the form of mandatory “service”:

“Conscription is slavery,” Murray Rothbard wrote in 1973, and while temporary conscription is obviously much less bad — assuming one outlives the term of conscription — than many other forms of slavery, conscription is nevertheless a nearly-100-percent tax on the production of one’s mind and body. If one attempts to escape his confinement in his open-air military jail, he faces imprisonment or even execution in many cases.

When you stop paying a mercenary, they go home. When you enslave draft an individual and fail to pay them or pay them below the market rate, they can’t go home because they’ll be arrested for desertion. The other downside with mercenaries is that you can’t force them to do anything. They’re contracted for a specific type of work. Drafted individuals, on the other hand, can be forced to perform any task:

Should the American state decide that it’s necessary to finally make use of the Selective Service lists, the new draftees won’t be people sent to carry rifles on the front lines. The military doesn’t want poorly trained conscripts in combat, anyway. But this fact by no means precludes the potential usefulness of conscription to the federal government.

What the US state does want — especially in case of dropping revenues due to economic crisis — is cheap labor to build military bases, drive trucks, prepare food, load cargo, mop floors, and perform the countless non-combat tasks that are required to further expand military prerogatives both at home and abroad. Yes, the US government can pay people to do all those things now. But conscripts could be much cheaper.

The Pentagon can have its cake and eat it too. By paying mercenaries to fight its wars, the Pentagon can have access to professional soldiers. By drafting people into slavery, the Pentagon can save money by having the infrastructure required to fight the war built for less than the market going rate.

Requiring women to register for the draft would offer the Pentagon an even larger pool of potential slave laborers, which would give it the option to expand itself further than it currently could without having to invest a lot more money.

Corporate Welfare Commission Decides Cheap Solar Panels Are Bad

Big corporations tend to be very friendly with big government because big government can help them monopolize their market. While this process of monopolization is bad for consumers, neither the government nor the corporations that have allied themselves with it give a damn. For example, solar power has become increasingly viable over the years thanks to cheap solar panels. However, these cheap panels are being produced overseas, where the lack of government restrictions makes it more viable to make cheap products. To compensate domestic solar panel manufacturers for the restrictions it put in place, the Corporate Welfare Commission, sometimes mistakenly referred to as the International Trade Commission (ITC), has ruled that overseas panels are a threat to domestic manufacturers:

On Friday, the International Trade Commission (ITC) sided with bankrupt solar panel manufacturer Suniva, voting 4-0 that cheap imported solar panels and modules have harmed domestic panel manufacturers.

The commission now has until November to send recommendations on remedies to President Trump, who will be responsible for either setting a tariff on imported solar materials or finding some other remedy. Given Trump’s promises to bolster American manufacturing, it’s likely that he’ll favor restrictions on solar panel imports.

I’m sure the ITC will settle on a tariff because the other remedy, removing government created restrictions from domestic manufacturers, is unthinkable. What does this mean for consumers? It means us consumers will be paying more for solar panels. This is a bit ironic since the government dumped so much money into encouraging manufacturers to make solar panels affordable in the first place. But what government giveth, government taketh away. It may favor cheap solar panels today and oppose them tomorrow.