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Free Markets Archive



January 2016



Why Just Stop With Tariffs on China?

Written by , Posted in Economics & the Economy, Free Markets

Noted scholar and respected intellectual Donald Trump has unveiled another part of his plan to “make America great again:”

Donald J. Trump said he would favor a 45 percent tariff on Chinese exports to the United States, proposing the idea during a wide-ranging meeting with members of the editorial board of The New York Times.

…“I would tax China on products coming in,” Mr. Trump said. “I would do a tariff, yes — and they do it to us.”

Mr. Trump added that he’s “a free trader,” but that “it’s got to be reasonably fair.”

“I would do a tax. and the tax, let me tell you what the tax should be … the tax should be 45 percent,” Mr. Trump said.

Now, I know I’m just a simpleton, but something strikes me as off about this plan. Perhaps The Donald can help a poor confused sap make sense of all this.

Presuming he believes this tariff on goods coming in from China will benefit Americans, why does he not propose similar measures on goods from other countries?

But why stop there. If a tariff on goods coming into the U.S. is good for those within the U.S., then so too must a tariff on goods coming into a state be good for those within that state. Should Florida, then, tax goods made in Texas at 45%, or better yet, do so for goods made in any state other than Florida?

It seems to me that Donald Trump believes taxing goods when they cross borders makes us better off, so I’m having a hard time understanding why he isn’t compassionate enough to want to improve our lot even more by implementing that policy across the board. I mean, it’s all well and good to “make America great again,” but why not make it SUPER DUPER great? Hmm?



November 2015



Market Power

Written by , Posted in Economics & the Economy, Free Markets

The Week has a great story (hat-tip: Alex Tabarrok) about how Feeding America, which runs the largest network of food banks and is the third largest non-profit in the U.S., drastically improved its operations by adopting a market approach to solve its food distribution problem.

Supermarkets usually donate food directly to their local food bank. But large food manufacturers often donate to Feeding America headquarters, which then allocates this food across its nationwide network of food banks…

Before 2005, Feeding America allocated food centrally, and according to its rather subjective perception of what food banks needed. Headquarters would call up the food banks in a priority order and offer them a truckload of food. Bizarrely, all food was treated more or less equally, irrespective of its nutritional content. A pound of chicken was the same as a pound of french fries. If the food bank accepted the load, it paid the transportation costs and had the truck sent to them. If the food bank refused, Feeding America would judge this food bank as having lower need and push it down the priority list. Unsurprisingly, food banks went out of their way to avoid refusing food loads — even if they were already stocked with that particular food.

It shouldn’t be difficult to see the warped incentive structure and information shortfalls that would plague such a system. Indeed, the author notes:

This Soviet-style system was hugely inefficient. Some urban food banks had great access to local food donations and often ended up with a surplus of food. A lot of food rotted in places where it was not needed, while many shelves in other food banks stood empty. Feeding America simply knew too little about what their food banks needed on a given day.

After seeking the advice of four University of Chicago economists, Feeding America adopted an internal price and auction system to take advantage of the vastly superior ability of price signals to transmit information.

Here’s how the new system works:

Every day, each food bank is allocated a pot of fiat currency called “shares.” Food banks in areas with bigger populations and more poverty receive larger numbers of shares. Twice a day, they can use their shares to bid online on any of the 30 to 40 truckloads of food that were donated directly to Feeding America. The winners of the auction pay for the truckloads with their shares.

Then, all the shares spent on a particular day are reallocated back to food banks at midnight. That means that food banks that did not spend their shares on a particular day would end up with more shares and thus a greater ability to bid the next day. In this way, the system has built-in fairness: If a large food bank could afford to spend a fortune on a truck of frozen chicken, its shares would show up on the balance of smaller food banks the next day. Moreover, neighboring food banks can now team up to bid jointly to reduce their transport costs.

Note everyone was thrilled with the idea, however:

Initially, there was plenty of resistance. As one food bank director told Canice Prendergast, an economist advising Feeding America, “I am a socialist. That’s why I run a food bank. I don’t believe in markets. I’m not saying I won’t listen, but I am against this.”

But the Chicago economists managed to design a market that worked even for participants who did not believe in it. Within half a year of the auction system being introduced, 97 percent of food banks won at least one load, and the amount of food allocated from Feeding America’s headquarters rose by over 35 percent, to the delight of volunteers and donors.

I can’t help but wish for some follow-up with Ms. Prendergast to see if her experience with the market system, and its superiority over the prior approach, has caused her to rethink her preference for central planning over markets. I argue in my column at EveryJoe this week that greater exposure to functioning markets, such as those popular in the emerging sharing economy, poses a threat to the political left. So her answer could help determine if I’m right.



October 2015



Getting Better All The Time

Written by , Posted in Economics & the Economy, Free Markets

You wouldn’t know it from the popularity of Thomas Piketty’s anti-capitalism treatise, or the Pope’s routine railing against free markets, but the world is getting ever more prosperous. The dramatic decline in global poverty in the last few decades is nothing short of remarkable.

According to a recent World Bank report, extreme poverty is expected to fall below 10% by the end of 2015, which will be a first in human history. I mentioned a few other improvements in a recent EveryJoe column chastising the Pope for spreading economic ignorance:

Across a variety of metrics, life continues to get better and better. Extreme poverty – measuring those living on $2 per day or less – has been cut in half since 1981 and will be all but eliminated by 2030. Global GDP per person has never been higher. Pick a measure of human wellbeing and it’s virtually the same story over and over again: life expectancy is up, infant mortality rates have plummeted, women are better represented in governments than ever before, etc. etc.

The world is simply not the horrible place the pope describes. It is better than it ever has been and we have precisely those institutions that he savages to thank for it.

Over at Cato, Ian Vásquez ties the decline in global poverty to the spread of economic freedom:


Using updated methodology, the World Bank recalculated poverty figures back to 1990. The new data track closely with previous Bank figures, which I use in the graph to show the fall in poverty since the early 1980s when 43 percent of the world’s population was extremely poor…The drop in poverty also coincides with a significant increase in global economic freedom, beginning with China’s reforms some 35 years ago and the globalization that followed the collapse of central planning in the late 1980s and early 1990s.

Much more could be said on that point, but there are any number of examples demonstrated the superiority of market freedom when it comes to producing wealth (Argentina versus Chile, Venezuela versus Singapore, etc.). Yet the more things get better, the more we seem to worry that they’re not. As the totality of social problems decreases, we devote more energy to those that remain. Which in many ways is healthy. A benefit of being better off overall is that we need not tolerate things which we had no choice but to accept in the past.

But we must be careful not to lose perspective. Exaggerating current problems can lead to poor policy choices if it causes us to disregard the means by which we achieved our current prosperity in the first place.



August 2015



Third Time Won’t Be the Charm in Greece

Written by , Posted in Big Government, Economics & the Economy, Foreign Affairs & Policy, Free Markets, Taxes

Greece is getting bailed out for the third time in just five years, proving yet again that lessons from political mistakes are rarely heeded. As I wrote last month in a column for EveryJoe:

The simple explanation is that Greece tried socialism and it predictably failed, as socialism is wont to do… More specifically, Greece has saddled its economy and its people with heavy taxes to fund a corrupt government weighed down by excessive pensions for their bloated workforce. A byzantine and oppressive regulatory system further stifles growth and prevents the economy from keeping up.

To put some numbers on the problem, Greek debt exceeds 177 percent of its GDP. That means Greeks would have to work almost two years to produce an equivalent amount of goods and services. It’s unfunded future liabilities, which includes generous pensions, tops 875 percent of GDP! Its yearly spending on pensions alone accounts for a whopping 16 percent of Greece’s GDP, and overall the government spends upwards of 50 percent.

If all this proves that Greece is suicidal, it was its entrance into the European Union that gave it the rope needed to hang itself. When it joined the EU, Greece suddenly had access to levels of credit it never had before thanks to the implicit backing of stronger EU economies like Germany. Creditors determined – correctly, apparently – that if Greece couldn’t pay its debt then they would be bailed out by the larger economies. And like a kid that got his hands on his parent’s credit card for the first time, Greece went nuts. In economic terms that’s called a moral hazard, and the latest bailout has only reinforced it.

This week’s announcement of yet another bailout will only exacerbate the moral hazard, and demonstrates the continued folly of the EU’s grand experiment with a common currency without a common fiscal policy.

Continuing to prop up Greece’s bloated government will not solve the problem. There are no good solutions, but the least bad option is for them to go bankrupt and solve the root of their problem, which is excessive government spending.

Instead, Germany and the rich EU nations are offering yet another loan to the demonstrably irresponsible, on condition that they raise taxes and cut spending. Unfortunately, only one of those conditions will help while the other will prove counterproductive. Leftist bleating about ‘austerity’ conflates tax hikes with spending cuts, but the former is bad for growth and saps the political will for belt tightening, while the latter is a proven path toward fiscal solvency.

What Greece needs is to tear down its bloated bureaucracy and insane regulatory regime, but that won’t happen so long as the EU continues acting as enabler.



November 2014



No, The World Is Not Running Out of Chocolate

Written by , Posted in Free Markets

A Washington Post headline blares “The world’s biggest chocolate-maker says we’re running out of chocolate.” No such thing is happening, but this is a good opportunity to talk about prices and how they work.

First, the story. It begins hysterically:

There’s no easy way to say this: You’re eating too much chocolate, all of you. And it’s getting so out of hand that the world could be headed towards a potentially disastrous (if you love chocolate) scenario if it doesn’t stop.

Indeed, there are reasons to believe that supply is decreasing:

Chocolate deficits, whereby farmers produce less cocoa than the world eats, are becoming the norm. Already, we are in the midst of what could be the longest streak of consecutive chocolate deficits in more than 50 years. It also looks like deficits aren’t just carrying over from year-to-year—the industry expects them to grow. Last year, the world ate roughly 70,000 metric tons more cocoa than it produced. By 2020, the two chocolate-makers warn that that number could swell to 1 million metric tons, a more than 14-fold increase; by 2030, they think the deficit could reach 2 million metric tons.

The problem is, for one, a supply issue. Dry weather in West Africa (specifically in the Ivory Coast and Ghana, where more than 70 percent of the world’s cocoa is produced) has greatly decreased production in the region. A nasty fungal disease known as frosty pod hasn’t helped either. The International Cocoa Organization estimates it has wiped out between 30 percent and 40 percent of global cocoa production. Because of all this, cocoa farming has proven a particularly tough business, and many farmers have shifted to more profitable crops, like corn, as a result.

So they’re on to something, right? Seems “disastrous” indeed! Not so fast.

The article presumes that demand exists in a vacuum and is entirely divorced from prices. Current demand is simply a reflection of how much chocolate we want to eat, the thinking goes, and therefore reduction in supply means that some will go without. The horror!

The reality is far more mundane. Demand is actually very price dependent, and cannot be interchanged with desire. People have always desired more chocolate than is produced, just not at the actual price of chocolate. Consider this thought experiment: how much chocolate would people eat if the cost were zero? Surely, a lot more than they do now. It would make little sense to claim chocolate to be running out in this scenario, though, seeing as how it is constantly being produced, though some would have trouble acquiring it. That’s because it would be under-priced.

What happens in reality is that prices reflect demand vis a vis supply, such that an equilibrium price develops where the demand from willing buyers equals the supply from willing sellers. Some of the people who would eat chocolate at zero cost would not do so at $1, and more would not do so at $5, or $10, etc. In other words, the fact that more chocolate is being eaten than produced simply means that the current price is below the equilibrium price. Price increases would cause demand to decline and, if increased enough, entirely end the “deficit” caused by over consumption.

Prices don’t just influence consumers. Higher prices would encourage production of more cocoa, as well as efforts to find new and cheaper ways to do so. In fact, the Post article acknowledges later on, where after the initial emotional blitz the author becomes more sober in his analysis, that these forces are already coming to bear:

Efforts to counter the growing imbalance between the amount of chocolate the world wants and the amount farmers can produce has inspired a bit of much needed innovation. Specifically, an agricultural research group in Central Africa is developing trees that can produce up to seven times the amount of beans traditional cocoa trees can.

In other words, it’s just run of the mill market forces at work. There’s no cause for panic. Chocolate is not going anywhere, though it might cost you a little bit more for a while.



October 2014



Minimum Wage Follies

Written by , Posted in Economics & the Economy, Free Markets

The great Krugtron the Invincible argues the minimum wage can be increased without much consequence. He says there’s “hardly any cost to raising it,” and that “we can raise these wages without losing lots of jobs.” Notice the weasel language. We can raise it without losing “lots” of jobs, but regardless of what he subjectively considers to reach the “lots of jobs” threshold, there will unarguably be a lose of some jobs.

Bringing in some data, Antony Davies at the Mercatus Center demonstrates that as relative minimum wages have increased, so to has unemployment rates for those with anything less than a college diploma.

Min wage vs Unemployment by edu

So Krugman’s job is safe, but plenty of those poor folks he claims to champion will feel the warm, fuzzy benefits of his proposal all the way to the unemployment line.

In the latest episode of Hotnomics, host Emerald Robinson looks closer at the numbers and lays out the evidence against raising the minimum wage.



May 2014



Reading Rainbow Ditches Government

Written by , Posted in Culture & Society, Free Markets

Reading Rainbow was an iconic children’s show with a long run on PBS that ended in 2006. As one of millions who grew  up watching the show – it aired for the first time just days before I was born – I’m happy to see it returning to encourage new generations to read. LeVar Burton, long time host and a major force behind the show, announced on Kickstarter plans to revive the program as a web-based program and get it into classrooms for free. The campaign quickly blew through its $1 million goal, which was hit in less than 24 hours. The revival is not a return of the TV show, though, but rather an evolution appropriate for reaching new generations.

It is also a testament to the fact that government is not a necessary ingredient for the provision of educational content, especially in the age of Kickstarter and ubiquitous crowdsourcing. Proponents of public television will no doubt argue that the campaign would not have caught fire if it weren’t for the decades of exposure the program already had on government subsidized television. This is a far point. But even accepting this particular project might not have gotten precisely as much support as it did, and as quickly as it did, if not for its previous exposure, does mean that: 1) such exposure could not have come without government or, 2) that it or similar worthy causes could not thrive otherwise.

So for fellow fans of Reading Rainbow, celebrate not just its return, but also that it is doing so through voluntary support instead of government force.



April 2014



Statists Getting Heartburn Over Free Internet?

Written by , Posted in Big Government, Free Markets

The latest digital scare to captivate the media is the so-called Heartbleed bug, which constitutes a major vulnerability in OpenSSL, a common encryption program. In light of the find, the Washington Post’s Craig Timberg penned an article less about the bug itself and more about his discomfort at the idea that there are systems which operate outside the heavy hand of government or other centralized control. Wringing his hands over the “chaotic nature of the Internet,” Timberg finds it “terrifying” that the internet is “inherently chaotic,” and that there’s “nobody in charge of it all.” Give me a break.

Keep in mind that the Heartbleed bug was discovered by security experts and the news at this stage is just a proof of concept. No major infiltration has yet been attributed to the vulnerability, though it’s apparent lack of a footprint means they may still have occurred. But even if there were, it would hardly justify concern over the internet’s free nature, nor the prevalence of open source programs, which Timberg spends an inordinate amount of time dissecting. Despite his fretting that “volunteers and nonprofit groups that often create [open source software] lack the time and expertise to continually update their work,” such programs nevertheless are found in many ways to outperform enterprise or closed-source developments, or do just as well across a range of metrics. It’s the power of emergent order on display.

Likewise, there is little reason to be great central control would make vulnerability like Heartbleed less likely to occur. If you want an idea of what the internet would be like with “someone in charge of it all,” just look to any of the number of failed Obamacare exchange launches for guidance.

Bugs and vulnerabilities in code are a fact of life. There is nothing that will ever prevent them entirely. But a robust, innovative system unencumbered by centralized, bureaucratic control is far more likely to possess the nimble responsiveness necessary to react quickly and minimize the damage.



February 2014



Let Them Eat (Someone Else’s) Cake

Written by , Posted in Big Government, Culture & Society, Free Markets, Liberty & Limited Government

At RedState Erick Erickson weighs in on the debate over whether or not bakers should be required to supply wedding cakes for gay couples if they don’t want to. He looks at the issue through the prism of Christianity (which is not unreasonable given that most of those refusing to do so are Christian). But I’m not particularly interested in the theological aspects or what a good Christian ought to do. I’m interested in policy.

Erickson states:

If a Christian owns a bakery or a florist shop or a photography shop or a diner, a Christian should no more be allowed to deny service to a gay person than to a black person. It is against the tenets of 2000 years of orthodox Christian faith, no matter how poorly some Christians have practiced their faith over two millennia.

And honestly, I don’t know that I know anyone who disagrees with any of this.

I don’t know Erickson, so his statement remains true, but I emphatically disagree that “a Christian should no more be allowed to deny service to a gay person than to a black person.” In fact, I’d take that in the exact opposite direction than he intended and say that both should be allowed.  In a free society, anyone should be free to choose not to engage in commerce with anyone else, for any reason.

Erickson chooses to approach the issue from the angle of religious freedom:

The disagreement comes on one issue only — should a Christian provide goods and services to a gay wedding. That’s it. We’re not talking about serving a meal at a restaurant. We’re not talking about baking a cake for a birthday party. We’re talking about a wedding, which millions of Christians view as a sacrament of the faith and other, mostly Protestant Christians, view as a relationship ordained by God to reflect a holy relationship.

I think he’s attempting to cut too fine a line. Moreover, I think the religious freedom argument is weaker than the property rights and freedom of association arguments. These rights are simple to digest: I own my labor and that which it produces, and I therefore own the right to choose with whom I shall trade my goods. The government has suppressed this right by asserting that stores are “public” if they allow people to enter freely, and by being “public” they must serve everyone. This is and always has been hogwash, and the requirement that a business serve everyone has no basis in any authority granted to government.

Similarly, the freedom to associate necessitates an implied freedom of disassociation. Without the right to refuse association, the right to associate with those whom we choose is meaningless. And if the right to disassociate with a person or entity does not encompass the ability to refuse an economic transaction with that person or entity, then it is a hollow right.

Matt K. Lewis similarly addressed the issue at the Daily Caller, in the context of a proposed Arizona law to allow Christian businesses to refuse work for same-sex weddings. I don’t care for the specific law, which is parochial and targeted in a way that suggests animus and bigotry as its intent rather than true preservation of rights. But that aside, Lewis doesn’t tackle the right question:

The truth is, this is a tough issue that pits things we value as a society against things we value as a society.

We have reached a point in the gay rights debate where all the low-hanging fruit has been picked. We are now entering into the zero-sum game phase of the debate, where gay rights and religious liberty must collide. (In other words, the cake is only so big. If you take a piece, you are guaranteeing the other guy has less cake.)

So who’s right? My guess is one could guarantee public opinion is on either side of the issue, depending on how you frame the question. If, for example, you were to ask someone whether or not “businesses should be allowed to deny services to same-sex couples,” the answer would, of course, be “no.”

On the other hand, ask Americans if “government should have the right to forcefully coerce Christians to violate their convictions,” and the answer would also be “no.”

He is probably right that people would answer the question of whether a business has the right to deny services to same-sex couple in the negative, but that’s in part because it’s the wrong question. We might find it utterly distasteful when someone refuses to serve another for bigoted reasons, but we also find it distasteful when others express bigoted opinions. The right to free speech is nevertheless widely acknowledged as protecting their rights to do so. Why are economic rights taken less seriously? So contra Lewis, what we should be asking is whether “business should be allowed to deny services to anyone,” or even whether “exchange should ever be compulsory, instead of voluntary.” These are the questions at the heart of the matter, and these are the questions which too long have been answered incorrectly by government, the courts and even voters.



January 2014



If Government Healthcare is So Wonderful, Why Are Many Seeking Private Alternatives?

Written by , Posted in Free Markets, Health Care, Welfare & Entitlements

I’ve written before about Canadians having to turn to the private sector in order to receive timely and quality healthcare, despite supposedly having “universal” coverage. Similarly, most Medicare recipients in the U.S. have supplemental plans, despite the almost $600 billion spent on the program in 2013.

Now it turns out that Sweden, much celebrated for its generous welfare, is seeing growth in private plans due to the long lines – including year-long waits for cancer patients – and inadequate care provided by government:

Sweden, a country famous for a welfare state that has actually been trimmed back substantially in recent years, is experiencing a phenomenon unlikely to bring cheer to those Americans who think the answer to Obamacare’s problems is more government involvement in medicine. Tired of long waits and inadequate care, Swedes increasingly purchase private health insurance policies to gain access to the care the state can’t provide.

Proponents of government-run healthcare routinely point to other nations as proof that central planning can work. But merely pointing to a system that has not yet collapsed is not the same as proving that it can sustain itself. What we are increasingly seeing is that so-called universal healthcare is self-defeating, but its inherent faults sometimes take time to fully metastasize.