Tag: Basic Economics

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.

All Hail Hurricane Harvey, Savior of Our Economy

A lot of people like to write off the Austrian school of economics as lunacy. Those same people usually cite mainstream economics as the right and true school of thought. However, I have a difficult time taking their opinions seriously when they believe shit like this:

Devastating Hurricane Harvey, unprecedented in its rainfall, could be a slight negative for U.S. growth in the third quarter, but economists say it may ultimately provide a tiny boost to the national economy because of the rebuilding in the Houston area.

Goldman Sachs economists estimate a very preliminary impact of the storm to be $30 billion in property damages, making it the ninth largest since World War II in terms of domestic property damage. Goldman economists say, in a note, the storm could take 0.2 points off of growth in third quarter because of the impact to the energy sector.

The problem with mainstream economics is its reliance on activity. So long as money is changing hands mainstream economists see a strong economy. If $30 billion of property is destroyed, they see $30 billion of activity and therefore a stronger activity. What totally flies over their head is the fact that that $30 billion isn’t producing new wealth, it’s merely replacing lost wealth. The Austrian school of economics is at least intelligent enough to address this fact.

What’s especially bad about the viewpoint that destruction is good for the economy is that it was refuted by Frédéric Bastiat way back in 1850:

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Resources spent on rebuilding lost wealth cannot be used on creating new wealth. The rate of creation of new wealth is a far better indicator of the strength of an economy that simple economic activity.

Create Wealth, Not Jobs

Expanding on my previous post, many people have fallen into the trap of believing that the solution to unemployment is to create more jobs. On paper is seems to make sense. If people don’t have jobs then the solution is to create jobs. However, unemployment is a symptom of a problem, not the actual problem itself:

But employment is not an end in and of itself. Rather, it is a means to an end: namely the increased standard of living that the worker obtains by trading his labor for wages.

In a free market, employment is a value creation process — with jobs stemming from the wants and needs of consumers as conveyed through the price system.

It is this productive nature of free-market jobs that make them desirable and capable of increasing a worker’s standard of living.

Wages spring directly from, and are proportional to, the degree in which a job creates wealth by helping to satisfy an unmet need. As is the case for all mutually-agreeable trades in a free market, both sides gain and wealth is created: the worker receives wages that he values more than his labor and the consumer receives a product or service he values more than its price.

In other words, a worker’s wages are reflective of the additional wealth he helped create, which enables his newly improved standard of living.

Because government-created jobs are devoid of this wealth creation process, they are merely a transfer of wealth from taxpayers to the program’s beneficiaries.

Unemployment stems from a lack of wealth. Most often the lack of wealth is caused by government. Through their burdensome regulations governments place roadblocks in front of entrepreneurs that prevents them from creating new wealth. Through their burdensome taxes governments siphon wealth from practically everybody under their rule. Government regulations also force currently existing wealth to be misallocated.

Solving unemployment by having the government create jobs actually exacerbates the problem. Since governments needs to siphon more wealth from the economy to create jobs there is less wealth in the hands of producers and consumers, which means consumers aren’t able to buy as much so producers respond by producing less. Eventually the drop in production forces producers to lay off employees, which increases the amount of unemployment. You can see where this vicious cycle ends up.

The solution to unemployment is to reduce the amount of wealth being siphoned by governments. With more wealth in hand entrepreneurs can create more wealth, which will actually allow the unemployment issue to be solved.

The Result of Relying on Coercion Instead of Market Forces

Minimum wage laws are seen by many as a mechanism to uplift the poor by ensuring every employee receives a “living wage.” For the economically ignorant that fairytale makes sense. For those with even a slight understanding of economics it’s a recipe for disaster.

The problem with minimum wage laws is the same problem with any government writ, they’re based on coercion instead of market forces. Market forces are based on wealth creation. When more wealth is created employees can be paid. Government writ doesn’t create new wealth so minimum wage laws rely on the current amount of wealth. Since the employers don’t have more wealth to draw from they’re forced to increase their prices to compensate, which often makes their product unaffordable to those who could previously afford it:

The U.S. restaurant industry is in a funk. Blame it on lunch.

Americans made 433 million fewer trips to restaurants at lunchtime last year, resulting in roughly $3.2 billion in lost business for restaurants, according to market-research firm NPD Group Inc. It was the lowest level of lunch traffic in at least four decades.

[…]

Cost is another factor working against eating out for lunch. While restaurants have raised their tabs over the past few years to cope with rising labor costs, the price of food at supermarkets has continued to drop, widening the cost gap between bringing in lunch and eating out.

Statists often scoff at the idea that minimum wage laws hurt the poor. How could laws that are advertised as helping the poor possibly hurt the poor? By forcing employers to increase their prices and thus make their product that was previous affordable to poorer individuals unaffordable.

The best way to help uplift the poor is to create more wealth. Creating more wealth requires fulfilling the wants and needs of consumers. Commands from governments cannot accomplish that no matter how many people vote in favor of them.

Capitalism Cannot Give Consumers Taste

It was brought to my attention that an Internet meme managed to nail a multi-million reality television show. This news didn’t surprise me because she became an Internet meme by being trashy and trashy television sells. Some people aren’t happy about this because they think everybody should watch highbrow television (i.e., whatever television show they like). But the market has spoken and while the market can’t give consumers taste, it does at least give them a choice:

According to reports, Danielle Bregoli, the 14-year-old girl who became a popular internet meme this year due to a failed intervention on the Dr. Phil show, has signed a deal for her own reality television show. On a personal level, there is much to find offensive in Bregoli’s fame, in spite of her obvious marketing prowess. She is, after all, internet-famous simply for her improper English, toxic personal behavior, and apparent lack of respect for anyone around her. On an economic level, however, her rise is an interesting example of how capitalism rewards the interests of the masses, regardless of the opinion of the cultural elite.

[…]

Capitalism cannot give consumers taste, just as democracy cannot give voters wisdom. What capitalism does do, however, is give consumers choice — and creates the incentives necessary for producers to meet the desires of the people. Democracy simply offers the masses the ability to enforce the whims of the majority against the wishes of the minority. In America no one will be forced to watch a minute of a reality show about Danielle Bregoli, but should it find commercial success, its viewers will have the ability to shape American policy going forward.

A lot of people believe that their preferences should be everybody’s preferences. State socialism is the ultimate expression of their attitude because the State controls all means of production and therefore dictates what will and will not be provided to consumers. Whoever controls the State, in that case, controls what options consumers have.

Markets work the other way. Anybody can possess means of production and therefore bring options to consumers. Whether one wants media that forces a particular viewpoint down consumers’ throats, show epic space battles, or feature annoying teenage girls being jackasses, they can have their show under a market economy. So while I might judge your for your tastes, the market won’t.

Money Won’t Save Government Indoctrination Centers

How many times have you heard a statist claims that government indoctrination centers, or public education to use their euphemism, don’t receive enough money? If I had a nickel for every time I’ve heard that I’d have enough money to fund a government indoctrination center for 15 to 20 minutes!

Statists are predictable creatures. Whenever a government programs fails to deliver expected results they resort to claiming that the program simply didn’t receive enough funding. To them government programs are furnaces. If the program isn’t delivering expected results then you need to shovel more coal into it. But how much money is needed to make the furnace of government indoctrination centers produce some heat? Apparently a lot:

There’s also lots of waste and inefficiency when Uncle Sam gets involved. With great fanfare, President Obama spent buckets of money to supposedly boost government schools. The results were predictably bad.

[…]

The administration funneled $7 billion into the program between 2010 and 2015… Arne Duncan, Obama’s education secretary from 2009 to 2016, said his aim was to turn around 1,000 schools every year for five years. ..The school turnaround effort, he told The Washington Post days before he left office in 2016, was arguably the administration’s “biggest bet.”

It was a “bet,” but he used our money. And he lost. Or, to be more accurate, taxpayers lost. And children lost.

[…]

Indeed, I’ve seen this movie before. Many times. Bush’s no-bureaucrat-left-behind initiative flopped. Obama’s latest initiative flopped. Common Core also failed. Various schemes at the state level to dump more money into government schools also lead to failure. Local initiatives to spend more don’t lead to good results, either.

Throwing more money into government indoctrination centers is an exercise in doing the same thing over and over again and expecting different results. If shoveling money into the program was capable of fixing it then we’d have see at least some marginal improvement over the decades. But student performance continues to dwindle, the nation is becoming dumber.

Will statists listen to reason on this matter? Of course not. In their world all problems can only be solved by the State. If the State’s current initiatives aren’t working then it’s the fault of a hated political party, the free market, or a lack of funding. But the fault never lies with statism itself!