Government Versus Private

George Leef at NRO Corner is trying to get you to read an article at at the Martin Center.  He starts out with this:

It isn’t easy for any private institution to survive when it has to compete with government-funded institutions. That’s very much the case when it comes to private schools.

We suppose we could give George extra credit for the word easy.  It isn’t easy to compete with other private institutions either.  As we see it, it is easier to compete with government-funded institutions.  Federal Express and UPS seem to be doing fine.  Yale, Stanford, and Hillsdale seem to be doing just fine.

The difference between private institutions and government-funded ones is that the former can go bankrupt while the latter get many more chances to survive.  Jim Geraghty’s The Weed Agency is a wonderful fictional account of how a government agency survives.  It is easier to compete with government-funded institutions because they don’t have an incentive to change.  Their centralized decision making process also makes it difficult for them to change.

What is true is that a poorly run government-funded school is more likely to survive than a poorly run or underfunded private school.  We think that is the advantage of private institutions.  We think George should appreciate that.

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Suicide Of The West

Jonah Goldberg’s Suicide Of The West is a book everybody should read.  It is not a great book but it has parts that are absolutely awesome and is full of thought provoking moments.

The best part is the discussion of what Jonah calls The Miracle and Deirdre McCloskey calls the Great Enrichment.  On titles, we’re with Deirdre but we will use Jonah’s here.  Jonah does a great job of explaining the extent of The Miracle.  We love his “most important “hockey stick” chart in all of human history” on page eight.  It shows actual global GDP over the last two thousand years and we get a hockey stick.  He doesn’t limit himself to one method of teaching so everyone should get it.

Sidebar: We thought of saying that everyone should be required to read Jonah’s introduction and appendix but we can’t count on everyone’s sense of humor.  Everyone should read it but we are not into coercion.  End Sidebar

Jonah’s book’s appendix has a nice summary of his four core arguments which we have abridged even more here:

The Miracle has caused us to be unnaturally prosperous
We stumbled into The Miracle and we can stumble out
Human nature is fundamentally unchanging
Human nature can overpower the institutions that make prosperity possible

We agree.  We are fans of the growth fairy so we would add (and think that Jonah agrees based on the last argument) that we now have the knowledge to make prosperity more likely.  We think that Jonah would say that our romantic side, the feelings of human nature, cause the conflict that might end prosperity.

Part of his stumble out argument is that we got The Miracle by argument and rhetoric and we can lose it the same way.  Here Jonah cites Deirdre’s article above.  We love both of them and especially Deirdre’s Rhetoric of Economics.  It was a light from above in our understanding the intellectual differences between economics and accounting.  When Deirdre finds rhetoric for the second time it is less convincing to us.

The conflict of the book is the the rationality of the discussion of economics and human nature and Jonah’s feelings towards The Donald.  Jonah despises The Donald because he has brought tribalism to the right.  With an already tribal left then there is little to do but despair for The Miracle because corruption will set in and capitalism will become ineffective.

In summary, we were beyond delighted that somebody made such a beautiful and sincere argument for capitalism.  Jonah hasn’t convinced us to share his pessimism but we are concerned.  It is an important book that you should read but it is not a great book.

 

Measuring Inflation

There is a problem with measuring inflation as technological change continues to accelerate.  Andy Kessler at the WSJ gives us a couple of examples of the problem of measuring inflation over time when products didn’t exist at the start of the period. He uses the examples of automatic emergency breaking on cars and cell phones that were not available in the seventies.  He could have compared our 19 inch TV that weighted 80 pounds (a guess) and was called a portable.

He doesn’t tell us how he made the estimate but he has a reasonable argument that the Consumer Price Index (CPI) overstates inflation over a time frame that is long enough to encompass technological change.  He comes to an extreme answer:

Freezing today’s lifestyle and going backward, I estimate a “true” median income of $347 in 1973 against the $51,640 of 2016. Today’s middle class isn’t hollowed-out. It’s living high on the hog.

That’s right, Andy is telling us that income went up by 14,785% rather than down by 4%.   We need to see more data to be convinced that Andy is close but we remember the seventies.  Cell phones, Internet, tablets, and personal computers did not exist.  Vinyl is still great but we have more audio options now.  TV is incomprehensibly better on both our sets and the ability to record images.  The difference in watching sports on TV is astounding.  We think he is right about the direction of the adjustment if not the extent of it.

Sidebar: We have been reading Sue Grafton’s mystery series that start in 1982.  We are up to one published in 1993.  The heroine still has to use pay phones to communicate at critical times.  A brief review: The Kinsey Millhone series is like a TV show.  You must read them in order and you’ve got to get to J to be able to evaluate the series.  End Sidebar.

Andy is on to something on the CPI.  It is a big deal.  We make policy on it.  Is the middle class hollowed out?  We make payments like Social Security based on it.  We adjust tax brackets based on it.  We need some one handed economists.

 

Common Sense Is Not Common

We came across a six-week old opinion piece from Rhea Suh in Detroit Free Press.  Here is how she starts out:

We all want to buy less gasoline for our daily commute, grocery run or trip to the beach. We want to promote innovation, create jobs and leave our children a livable world.

Well, let’s start with the first sentence.  We suppose theoretically it might be true.  We would like to buy less gas.  Even more, we would like to pay less for gas.  But our actions are exactly the opposite.  MPG goes down as MPG go above 50:

While each vehicle reaches its optimal fuel economy at a different speed (or range of speeds), gas mileage usually decreases rapidly at speeds above 50 mph.

You can assume that each 5 mph you drive over 50 mph is like paying an additional $0.20 per gallon for gas.

We tried an experiment this weekend.  On a trip with 220 miles of highway driving we set the cruise control at the speed limit, 70 MPH.  Excluding commercial vehicles, RV, and folks towing stuff (not many of any of those) we passed seven vehicles.  We couldn’t count all the cars that passed us but it was several hundred.  We got the nice improvement on MPG that each one of those vehicles passed up.

Then there are the vehicles that we are driving.  It is obvious on the highway that there are lots of big ones.  This list for 2016 shows the top three sellers as pick-up trucks.  So folks are driving big vehicles fast.  Their actions show that they don’t care much about the amount of gas they use.

Then there is the second sentence about promoting innovation, jobs, and a livable world.  That doesn’t seem universal given the actions of the previous administration but Rhea puts it as a difference of opinion when she reports:

On Tuesday, Pruitt announced plans to weaken the successful clean car and fuel economy standards the U.S. Environmental Protection Agency and the U.S. Transportation Department put in place in 2012.  [Emphasis added]

We have no doubt that Pruit’s actions will promote innovation, jobs, and a livable planet but Rhea thinks we can regulate the economy to success.  Here is a fun irony from her:

And, building on the success of its all-electric Chevy Bolt, General Motors is planning to add 20 new electric models by 2023.

Sidebar: We got confused between a Volt and a Bolt.  We actually saw one of the former on our trip.  We are yet to make the acquaintance of the latter.  End Sidebar.

Success? Well we can’t find Bolt sales but HybridCars tells us

The first-generation extended-range electric Volt was launched late 2010 for model year 2011 and sold just 7,671 units during a protracted rollout. Its peak sales in 2012 amounted to 23,461 units. In 2013, sales were flat with 23,094 units; in 2014 they dropped to 18,805 units, and in 2015 as word of the pending second-generation Volt spread, sales were just 15,393.

The only success of the Volt is in garnering subsidies.  This estimate of over $250,000 per car might be high but electric vehicles are highly subsidized.  We are delighted that the current administration has cut back on the foolish regulations of the previous administration that would reduce innovation, jobs, and safety.  We often disagree with The Donald but here he is on the correct side and perhaps too reticent.  A more interesting question is: why does the federal government have any interest in the average MPG of any auto maker?  Let’s go the common sense route and continue to reduce regulations.

Being Out

Kevin Williamson has left The National Review (and NRO) to write for The Atlantic.  It is a loss for the former and a massive gain for the latter.  Otherwise we would be stuck with only Bad American Habits I Kicked In Finland.  Really, we are not making this up.  Kevin weighs in for we think the first time (clicking on Kevin shows only one article) with The Passing Of The Libertarian Moment where he says:

It was only a few years ago that the editors of Reason magazine held [Rand Paul] up as the personification of what they imagined to be a “libertarian moment,” a term that enjoyed some momentary cachet in the pages of The New York TimesThe AtlanticPolitico (where I offered a skeptical assessment), and elsewhere. But rather than embodying the future of the Republican Party, Paul embodies its past, the postwar conservative era when Ronald Reagan could proclaim that “the very heart and soul of conservatism is libertarianism,” when National Review founder William F. Buckley Jr. could publish a conspectus of his later work under the subtitle “Reflections of a Libertarian Journalist,” and young blue-blazered Republicans of the Alex P. Keaton variety wore out their copies of Milton Friedman’s Free to Choose.

We shared Kevin’s skepticism on the moment and recommend you read all of Kevin’s piece in The Atlantic and anything else he writes there.  The Venn Diagram of politics for Kevin and MWG has a substantial overlap.  We disagree on a number of areas like the growth fairy, we believe and he doesn’t, but we mostly agree.  We would like to continue his discussion being out as in out of the current political moment.  We think in the US with two major political parties most folks are going to be out much of the time.  Kevin thinks it is worse now concludes:

 If the Democrats were more clever, they might offer the libertarians a better deal on trade, criminal justice, and civil liberties. Instead, they are dreaming up excuses to sue or jail people for their views on climate change, and the United States is for the moment left with two authoritarian populist parties and no political home for classical liberalism at all.

We would have put it differently: If the libertarians cared about winning elections they could have taken over the Democrats.  The Democrats care too much about winning elections and he libertarians care too little.  It would be great if Kevin and MWG had a choice in the election rather than a choice to vote or not vote.

The problem is that almost all folks that spend some time thinking about politics are going to be unhappy with both parties.  Reducing taxes would be a core belief of most conservatives and libertarians but all recent GOP presidents have disappointed us on taxes.  We are sure those on the left and center could recite their own litany of woes.  The point is that most of us that spend some time thinking about politics are out most of the time.  Political parties need to generate a majority so approximately zero people get all that they want.  Then there is the need to compromise among the folks in Congress.

For example, because of our differences on the growth fairy, Kevin was out on the 2017 tax reform and MWG was in and especially in on corporate tax reform.  This year is different and The Donald’s tariff foibles have Kevin out and MWG doubly out because we agree on zero tariffs but disagree on the growth fairy.  Politics is always going to vary from philosophy.  Neither a corporate tax rate of zero nor zero tariffs are going to happen soon.  We can still fight to move in the right direction but we are going to be out most of the time.

Buck up Kevin, it will get better but it will not get much better because you need a majority to win elections.   You won’t find a majority based philosophy.  Make sure you check out Kevin at The Atlantic.

Tammy And The Donald

The title refers to escapades economic rather than sexual.  Tammy is Wisconsin’s Democrat junior senator, surname Baldwin, who is running for reelection this year.  The Donald is undoing his previous good work on corporate and personal taxes by raising the excise taxes called tariffs.  It might cause a trade war.  It is certainly not well received in the equity markets.

Tammy is highlighting her agreement with The Donald on protectionism and trying to get him to take additional foolish actions on trade.  On tariffs she seems to agree but tries not agree with The Donald:

Bad actors like China are not playing by the rules on steel, aluminum and paper. We need the new tools provided in this legislation to take on China’s cheating,” said Senator Baldwin.

We’re not sure how this is different from The Donald:

Trump said this week he’ll slap 25% tariffs on $50 billion to $60 billion in Chinese exports to the U.S., including aerospace, information and communication technology, and machinery. The move is aimed at countering Chinese cyber and intellectual property theft of U.S. technology. It also tries to push back against China’s demands for technology transfers from U.S. companies in return for access to China’s market.

She is trying to move The Donald even more into the protectionist camp.  We see her touting her buy [more expensive] American in her TV ads.  Here is a press release that explains her position:

“We need to put America to work rebuilding our infrastructure and strong Buy American standards need to be at the foundation of any plan. Taxpayer money should not be spent on foreign steel from Russia and China. American workers need to rebuild our infrastructure with Made in America products,”

Of course, increasing tariffs and buying American are two sides of the same coin.  In both cases you are charging all Americans more to benefit a few Americans and harm other Americans.  There is no reason that we can’t work on infrastructure without without paying economic rents Tammy’s friends.

Sidebar: Tammy chided the administration for not being explicit about buy American in their infrastructure proposals.  We can’t find the WSJ op-ed on the cost of American infrastructure but we would support eliminating all restrictions on infrastructure projects so Americans can get full value for their tax dollars.  Tammy wants the opposite: high prices for everyone with the benefits going to her favored few.  End Sidebar.

We hope that Tammy and The Donald don’t end up in the same political bed on buy American.  We hope that the GOP can find a good replacement for her.  Tammy’s actions reveal that the Democrats are highly unlikely will have a better replacement for The Donald in 2020 or 2024.

Too Kind

David R. Henderson is exactly right in his title but way too kind in his WSJ Op-Ed entitled A War On The Rich Won’t Help The Poor that analyzes the Oxfam report Reward Work Not Wealth.  David starts out with a dichotomy that he shows a counter example of later:

There are two ways to close the gap. The first is to concentrate on making the poor better off. Mostly that has happened, thanks to liberalized international trade and reduced costs for shipping goods. Just as Walmart and Amazon have cut costs for Americans, the introduction of container shipping crushed transportation costs for the world. The second way to reduce inequality is to make the rich worse off. Any guess which method Oxfam’s report emphasizes? “Governments should use regulation and taxation to radically reduce levels of extreme wealth,” the authors conclude.

The problem is that he has accepted the Oxfam starting point that inequality is the problem.  Inequality is not the problem and Oxfam is (or perhaps no longer is) an antipoverty organization as David describes it.  The Oxfam report uses the catch phrase, “Even It Up.”  The first might not close the gap as David demonstrates:

Say that wages in a developing country rose by 10%, and in the U.S. by only 1%. For a family in the poor country earning $2,000, that would mean an extra $200. But for a family in the U.S. making $50,000, it would equate to $500. In other words, income inequality would increase, even though wages grew 10 times as fast for the poor family.

The second way has no assurance that it will close the gap either.  Eating the rich, or some variant of it, will likely have a negative impact on the poor.  Will the gap, however measured, be reduced or increased?  It should not matter because making the poor worse off is a bad idea.  Go check out Venezuela.  We are sure there are studies of various plans to punish the rich but we doubt they are definitive.  The solution is to work on poverty by encouraging markets, rule of law, free trade, allowing GMOs, and so on.  Income inequality is uninteresting and unimportant.  Don’t get sucked into it.