The Government to the Rescue!

Ha ha, made you look! I always thought cigarette companies weren't really worth defending. But this is a case of me making conclusions before understanding the situation. Here's another step on this road of understanding, courtesy of David Henderson at EconLog.

What Has Government Done to... Our Stock Returns?

Leaving aside for a minute the Austrian theory of the business cycle, and asset bubbles and whatnot, this graph shows pretty explicitly just how damaging inflation is. 

CPI is the red line, indexed to the secondary axis. The S&P 500 nominal is the blue line (Adj. Close) which includes dividend adjustments. The green line is the real (adjusted for inflation) S&P500, indexed to be equal to nominal S&P500 in Jan. 1960. Both S&P 500 indices are mapped onto the primary axis. Yeah. Prof J out.

Can buying local lead to inflation?

Russ Roberts blogs over at the Café about buying local in “Don’t follow the money.”  In his post, Russ talks about why buying local can be loco, especially if you’re spending more to essentially get less.  Makes sense to me.  

A reader then posts a comment linking buying local to inflation.  It’s an interesting comment, and while in theory it could happen, I’m skeptical.  So, I’ll throw it out there and perhaps we can get Prof J to leave a few comments.

Here’s the quote from Michael:

“Since local production omits economies of scale, production will be lower and less goods and services will be produced. Goods will be sold outside the community, but only green pieces of paper will come in - not other goods. The amount of money inside the community will increase while the goods and resources they represent will diminish - therefore, inflation. Prices will continue to rise from this localized inflation.”

Some Thoughts on Big Business and Big Government

Greg posed the question the other day, and I'll paraphrase, that asked why libertarians appear to worry so much about the problems of big government, and not so much about the problems of big business. Fair question. The answer is that we do, but to a great extent we believe the solution to big business is to shrink the government. What we're talking about here, really, is crony capitalism. This is a similar concept to mercantilism and fascism (as an economic system, not a political one).

Quickly, the reason one worries about big government is twofold: public choice issues, and knowledge problems. The public choice problems are that agents of the government can use their office to pursue their own agendas, rather than the agenda that is in the public interest. The knowledge problem is that the government agents do not (cannot) know all the relevant facts of a particular problem, so that their solutions in fact make things worse rather than better. There's boatloads of research on this, I just wanted to get into place for the next step.

The reasons we worry about big business are: monopoly/monopsony power; externalities that cost the public something but the company doesn't have to answer for (think poisoning water ways through pollution); and the ability to 'capture' regulators. I believe these are legitimate concerns, except for concerns over "natural" monopolies since these are unlikely to exist.

Where I'm from, certain utilities used to be monopolists. Some still are. The reason they were monopolists was because the government would only allow one company (in fact the state-owned company) to provide the utility in question. The reason was because it was a critical utility (telephony) and the government didn't want the people to be at the mercy of greedy capitalist pigs (my words). Eventually, the monopoly was ceased and competition opened up. The price of telephone service subsequently dropped precipitously. This trend is ubiquitous when a monopoly is ended. Therefore, this was not a natural monopoly, but one created by the government. Thus we should oppose governments giving monopolies to any business (yes, this included the Federal Reserve being the currency monopolist).

The other concern is that "business" can act as a monopsonist in the labor market and dictate terms to those who want to work for them. I think there are times that has been true - West Virgina coal mines come to mind. But to me it seems the solution is to have more business, not government control. Why? Because with government control comes the opportunity for political entrepreneurship - the big business has the resources to influence politics. I think we can all agree this is not desirable from a people point of view. It benefits a few at the expense of the many. The financial sector is a very good example of this behavior, by the way. The connections between Wall Street and the federal government are deep.

Finally, pollution. Here's another area where big business captured government power. But, I think this pollution issue is going to make for a different direction, so I will carry on later - need to get my thoughts together first.

I hope I have shown that, in fact, libertarians want to reduce government not just because government is bad but because big business feeds off big government.

We can learn from Angie’s List

You’ve heard of Angie’s List – the subscription based rating service that assigns letter grades to contractors based on performance.  I had heard of Angie’s List and decided to buy a year’s subscription after moving to San Antonio, TX.  It has proven to be a valuable resource, and one that can have broader implications.

The American populace suffocates under needless regulation – rules that promise to protect us from Visigoths and fly-by-night contractors.  Many states have enacted laws requiring practitioners of countless trades to obtain professional licensure in an effort to protect the needy.  While the rules may weed out a few bad seeds, these laws usually do more harm than good.

Often, licenses require a minimum number of educational hours, or the passing of a exam before obtaining the blessing of the state.  These rules force practitioners to spend valuable time away from their trade and depart with their hard-earned money, while doing little to protect the public.  Many professions grow large and lobby state legislatures for even more stringent minimum standards in an attempt to thwart competition.  These rent-seeking lobbyists serve only to drive up costs for consumers and ultimately reduce quality and standards on their products and services.  I propose to replace this distorted system with something akin to Angie’s List.

Angie’s List allows consumers to grade the services they receive from contractors.  Angie ranks providers based on customer feedback, and potential customers can peruse the rankings and read full reports at anytime.  This information is much more useful than knowing a contractor passed a test and obtained a license from the state.  Instead of abdicating our responsibility to the state, let’s make an effort to be responsible for our own decisions.  

I give Angie’s List an A+ for advancing the interest of the consumer.

Think you know what you want?

Not sure how I came across this video, but I found it pretty interesting.  It's about 17 minutes long and the talk is about how we make decisions.  Good stuff.

Behavioral Economist Dan Ariely on Decision Making

Who are the Great Presidents?

A new ranking method, based on the principles of peace, prosperity, and liberty, ranks the presidents.

I always thought Coolidge was my main man.