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Free Markets Archive

Friday

2

December 2011

1

COMMENTS

Andy Stern Endorses Chinese-Style Central Planning

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

In one of the most outlandish economic screeds we’re likely to see for some time, Obama buddy and former SEIU President Andy Stern has declared his love for Chinese style economic planning, and wishes for the same in America:

I was part of a U.S.-China dialogue—a trip organized by the China-United States Exchange Foundation and the Center for American Progress—with high-ranking Chinese government officials, both past and present. For me, the tension resulting from the chorus of American criticism paled in significance compared to reading the emerging outline of China’s 12th five-year plan. The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanding next-generation IT, clean-energy vehicles, biotechnology, high-end manufacturing and environmental protection—all while promoting social equity and rural development.

Some Americans are drawing lessons from this. Last month, the China Daily quoted Orville Schell, who directs the Center on U.S.-China Relations at the Asia Society, as saying: “I think we have come to realize the ability to plan is exactly what is missing in America.” The article also noted that Robert Engle, who won a Nobel Prize in 2003 for economics, has said that while China is making five-year plans for the next generation, Americans are planning only for the next election.

American needs more 5 year plans! This sounds so familiar…

For those of us who love this country and believe America has every asset it needs to remain the No. 1 economic engine of the world, it is troubling that we have no plan—and substitute a demonization of government and worship of the free market at a historical moment that requires a rethinking of both those beliefs.

America needs to embrace a plan for growth and innovation, with a streamlined government as a partner with the private sector. Economic revolutions require institutions to change and maybe make history, because if they stick to the status quo they soon become history. Our great country, which sparked and wants to lead this global revolution, needs a forward looking, long-term economic plan.

It’s hard to know where to begin. Perhaps the most obvious starting point is his rosy view of the Chinese economy, which while improving, is still pretty bad. Pointing to their growth rate, for instance, doesn’t tell us much as they have considerably more room to grow.

Even his contention that China will surpass the US as the largest economy by 2025 (a reasonable estimate, I think) is misleading. They have 3 times the population that we do, so matching us in economic output means they are still only one-third as productive. What’s noteworthy, however, is how utterly poor so much of China remains today. For all their growth, they still have 128 million people living on less than $1 a day. That kind of poverty is all but unheard of in the US. As Dan Mitchell points out, the overall Chinese standard of living is simply a lot lower than it is here. Their per capita GDP is not even 25% that of the US. Why on Earth would we want to mimic them, as opposed to Singapore, which has both a freer market and higher per capita GDP than the US?

Contra Stern, the US does not employ a “free-market fundamentalist economic model.” There are economically freer nations, and according to the Heritage Index of Economic Freedom, we are becoming less and less economically free over time. In other words, we are already in the process of transitioning to the more centralized economy desired by Stern. It is that very shift which is holding us down.

But the fundamental flaw in his argument is Stern’s call for more planning. He favorably summarized Robert Engle as saying “that while China is making five-year plans for the next generation, Americans are planning only for the next election.” This is patently false, and confuses planning for central planning.

Planning is all around us. Businesses plan for future products, innovations, investments and expansions. Workers plan for climbing the ladder, providing for their families, and retirement. We have plans by the plenty, but Stern hardly notices. He doesn’t care about all these plans, but wants only one – by government.

What is the basis for his belief in the superiority of a single government plan over the aggregate plans of free people? There is no evidence for this belief that I can find. In every instance where one has been pitted against the other, the single plan as failed miserably. The information transmitted by individual transactions, through prices and countless other signals, is too vast to ever be captured, much less understood, by any single entity. In short, the planning of a benevolent economic dictatorship of the sort desired by Stern is no match for the planning of a truly free market.

Tuesday

1

November 2011

1

COMMENTS

You Can't Make This Stuff Up: OWS Wants Trademark Protection

Written by , Posted in Free Markets

The anti-capitalist crusaders of Occupy Wall Street want capitalist protections for their capitalist ventures:

In an application dated October 24, the unincorporated association “Occupy Wall Street” applied for the trademark to “Occupy Wall Street.” The trademark application says the group would like to use the phrase on merchandise such as clothing and bags, in periodicals and newsletters, and on a website featuring “photographic, audio, video and prose presentations” about the Occupy movement.

The Occupy group has been screen-printing t-shirts and other items in Zuccotti Park, and plans to continue doing so once it has trademark protection, according to a representative.

I’ll just let that one sink in.

Tuesday

1

November 2011

0

COMMENTS

Candy Capitalists

Written by , Posted in Free Markets

This NPR story on kids trading Halloween candy is definitely cute, but I think it’s also instructive. One part in particular stands out:

As the trading died down, the candy consumption began. Everyone seemed satisfied with the deals they had made. And if not, Tuesday at school would bring a whole new group of potential consumers to trade with.

Isn’t this interesting. Surely, everyone could not be satisfied? There must be a loser for every winner, right? For every one successful candy baron, there must be some number of exploited masses. At least, that’s what modern leftist economic ideas teach us. Though as this story illustrates, the reality is far different.

In voluntary exchange there are only winners. In order to trade one piece of candy for another, both children must desire the other’s candy more than their own. Thus, in trading they both win. Or as Milton Friedman summarized, “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.”

Friday

14

October 2011

0

COMMENTS

Wednesday

5

October 2011

0

COMMENTS

Illuminating Poverty

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

The latest Economics 101 video from the Center for Freedom and Prosperity brings clarity to the issue of poverty. Poverty is one of those key emotional issues for the left. Their logic typically goes like this: “There is poverty, therefore we need more government.” Or sometimes it gets flipped into: “You don’t want more government? Then you hate the poor!”

There are at least two problems with this logic. First, no connection between more government and alleviating poverty is established. In fact, as you’ll see in the video, an opposite connection likely exists: poverty was falling prior to the start of the War on Poverty, but has been stagnant since. Markets  have proven throughout history to work far better at increasing the lot of the poor than redistribution programs. In fact, it is only the free market system that has ever elevated the common man out of a state of poverty.

Second, there is a disconnect between the images evoked by the word poverty, and the state in which people falling under the governmental definition actually live. Because poverty is considered relative, the wealth of the poor has risen over time along with that of everyone else.  Today’s poor are in many cases as wealthy or wealthier than yesterday’s middle class. This isn’t to say that there aren’t actually folks living in conditions of grinding poverty, but they are far fewer than the official statistics would indicate.

But don’t take my word for it, check out the video:

Saturday

27

August 2011

1

COMMENTS

Private Sector Schools the Government on Emergency Response

Written by , Posted in Free Markets

We’ve seen the abysmal failures of government efforts at emergency response. Now, witness how the private sector does it:

Forecasters don’t expect Hurricane Irene to make landfall until Saturday. But for nearly a week now, big-box retailers like Walmart and Home Depot have been getting ready.

They’ve deployed hundreds of trucks carrying everything from plywood to Pop-Tarts to stores in the storm’s path. It’s all possible because these retailers have turned hurricane preparation into a science — one that government emergency agencies have begun to embrace.

At Home Depot’s Hurricane Command Center in Atlanta, for example, about 100 associates have been trying to anticipate how Irene will affect its East Coast stores from the Carolinas to New York.

…Those district managers have been focusing on stocking a short list of items, Householder says, including generators, chain saws, water and tarps.

Householder says those supplies are flowing to stores because of a process that began months ago, at the beginning of hurricane season.

…The system got a stress test a few days ago when Irene struck Puerto Rico, causing widespread power outages. Householder says Home Depot stores switched to emergency generators.

“All stores opened up the day after the storm came through,” he says. “We opened up on time and we were there, ready and waiting for our customers.”

…Walmart is able to anticipate surges in demand during emergencies by using a huge historical database of sales from each store as well as sophisticated predictive techniques, Cooper says.

He says that with Irene on the way, that system is helping them allocate things like batteries, ready-to-eat foods and cleaning supplies to areas in the storm’s path.

Walmart also has the advantage of having a staff meteorologist, Cooper says.

“When those forecasts come out, it’s great to have somebody in-house that can evaluate that information so that we can give real-time information to our associates, not only here at headquarters but out in the field,” he says.

Minor correction: Walmart does not have the “advantage” of having a staff meteorologist, they have the foresight to have hired a staff meteorologist.

Preparing and responding to emergencies is one of those problems typically cited as an example of that which only government can ever solve. Once again, this attitude is proven false. No one has greater incentive to meet the surging demand seen after emergencies than the private sector, and if government would remove its misguided barriers to the functioning of the price system and the free market, it could do an even better job in the future.

Thursday

26

May 2011

0

COMMENTS

Legalize, But Why Regulate?

Written by , Posted in Big Government, Free Markets, The Nanny State & A Regulated Society

First, this is excellent news:

Rep. Joe Barton (R-Texas) is planning to introduce legislation that would legalize and regulate online poker and said he hopes the measure can pass both chambers of Congress this session.

…The FBI shut down three of the largest online poker sites last month as part of the Obama administration’s enforcement of online gambling and piracy statutes.

U.S. Immigrations and Customs Enforcement seized another 10 online betting sites Monday, including two popular poker sites.

…Barton called the current law unenforceable and argued that online poker itself isn’t illegal, so the government has targeted the deposits made by players instead. An estimated 10 million Americans played poker online until recently, including roughly 50,000 PPA members who depend on it for their livelihood.

This is undoubtedly good news, should legalization pass, compared to the current environment of rampant government thuggery and ill-conceived prohibition.

But why must we legalize and regulate? Why can’t we just legalize? The market has proven perfectly capable of self regulating itself up to this point, with the top sites having worked hard to earn reputations as reliable and honest brokers. Sure there have been some scandals, but they were also dealt with. The market will punish thieves and fraudsters and reward quality service, as it has done up until now even with the legal clouds hanging over the market.

There’s little evidence that heavy handed regulation is needed here. I just don’t understand why poker advocates have gone into negotiations already ceding the big government point. Every time I hear poker advocates talk about legalizing the game, they follow it up with talk of regulating and taxing. I understand you need to make points about revenue to convince certain politicians, but let’s not get carried away on this taxing stuff. I also understand if some concessions need to be made regarding the scope of regulations in order to get enough votes, but why start from the position of regulation? Granted, we don’t know the details of this particular legislation yet, so perhaps it won’t involve too much government. But experience gives me reason not to get my hopes up.

Don’t get me wrong, it’s a big improvement in either case. Get it legalized now, and regulate it if the political dynamics require it, and then we can always deregulate later.

Wednesday

13

April 2011

0

COMMENTS

Are There Limits to Free Trade?

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

I am a strong advocate of free trade. I also tend to pooh-pooh complaints about “unfair” Chinese trade practices. I even advocate unilateral free trade in the face of international protectionism as a better alternative to domestic protectionism. Despite all this, there might be a time where even I think free trade can be problematic – or more precisely, when other considerations might trump free trade – and that’s when it involves national security.

Two companies are competing for a contract worth up to a billion dollars to supply the Air Force with a new kind of plane designed for light attack and armed reconnaissance (LAAR) missions. One of the companies is Hawker Beechcraft, a Kansas-based company, and the other is Embraer, which is Brazilian owned and operated. I won’t bother evaluating the relative merits of the two companies’ aviation production capabilities, because I wouldn’t know where to begin. I’ll limit my focus instead to the issues of trade and national security, topics of which I am more familiar.

If someone were to ask me if we should buy military equipment from overseas, I would be forced to give that favorite answer of academics and scientists: it depends. It depends on the equipment, on the country or origin, the available alternatives, and of course the various costs of each.

For instance, many might reflexively say it is better from a national security perspective (all economic considerations being equal for the sake of discussion) to build a plane in the U.S. than to buy it from overseas.  Sounds reasonable enough. But my knowledge of trade and globalization forces me to consider a related question: just how American are those American made planes?

Remember that whole auto bailout fiasco? There were many who justified the intervention on the grounds that there would be no American automotive sector without GM, Ford, and Chrysler.Let’s consider the assumption while setting aside the question of whether the companies would have died for good without government help. What about the cars made right here in America by Toyota or Honda? There is foreign investment in “American” GM, American investment in “foreign” Honda, American jobs created by Toyota, and foreign parts in Ford. In fact, Cars.com found a few years ago that the Toyota Camry was the most American vehicle, besting even Ford’s F-150 on the scale of ‘Americanness.’ So much for saving the “American” automobile sector.

Be skeptical of claims that simplify complex global economic systems into “domestic” versus “foreign.” It’s rarely so simple. The idea that we can construct something with as many working parts as a modern plane of war entirely within the U.S. is simply no longer practical. I’d bet money that even “American” Hawker Beechcraft will be using foreign parts.

Of course, this doesn’t exactly settle the question of whether national security dictates that normal economic considerations be overridden and domestic military manufacturing given special favor. For instance, buying a piece of an airplane from overseas is not exactly the same as purchasing the whole kit and caboodle. Unless the piece can only be purchased from that country, the producer really has no leverage over us, as we can always take our business elsewhere if they try anything fishy.

So where does this leave us? It depends. The issues of national security are grave enough, and the answers to these questions murky enough, that I’m willing to set aside my instincts for unfettered free trade and grant at least a slight home field advantage. I don’t think we should demagogue the idea of using the entire world marketplace to build our military forces where practical, but if it comes down to it, we should start the home team with some extra points on the board.

Saturday

12

March 2011

0

COMMENTS

$10 + Government Meddling = $1,500

Written by , Posted in Free Markets, Government Meddling, Health Care, Welfare & Entitlements, The Nanny State & A Regulated Society

And not in the good way.

A drug for high-risk pregnant women has cost about $10 to $20 per injection. Next week, the price shoots up to $1,500 a dose, meaning the total cost during a pregnancy could be as much as $30,000.

That’s because the drug, a form of progesterone given as a weekly shot, has been made cheaply for years, mixed in special pharmacies that custom-compound treatments that are not federally approved.

But recently, KV Pharmaceutical of suburban St.Louis won government approval to exclusively sell the drug, known as Makena (Mah-KEE’-Nah). The March of Dimes and many obstetricians supported that because it means quality will be more consistent and it will be easier to get.

None of them anticipated the dramatic price hike, though…

Of course they didn’t, because they don’t think about the consequences for their feel-good meddling.

Makena is a synthetic form of the hormone progesterone that first came on the market more than 50 years ago to treat other problems. Hormone drugs came under fire in the 1970s, following reports they might damage fetuses in early pregnancy. In the 1990s, the early incarnation of Makena was withdrawn from the market.

But the drug got a new life in 2003, with publication of a study that reported it helped prevent early births to women who had a history of spontaneous preterm deliveries.

…The study of women at risk for this condition found that only about 36 percent of those given the progesterone drug had preterm births, compared with 55 percent among those not on the drug.

…To get FDA approval, the company is spending hundreds of millions of dollars in additional research, including an international study involving 1,700 women, Divis said. The FDA last month signed off and gave Makena orphan drug status. That designation ensures Ther-Rx will be the sole source of the drug for seven years.

I’d say that the fools got what they deserve for wanting their precious “FDA approved” in front of what was already a perfectly good and safe drug, but really it’s the rest of us that will bear the costs through increased insurance premiums and entitlement subsidies, or loss of access to a beneficial drug.

It just amazes me that the doctors in the article, who are presumably intelligent people, are shocked and surprised that adding an expensive approval process and a government granted monopoly would make something more expense.

How can we ever hope to create good public policy with so much economic illiteracy to contend with?

Tuesday

1

March 2011

0

COMMENTS

Markets Do It Better: Space Edition

Written by , Posted in Big Government, Free Markets

I’ve written in the past on why we should not fret over the decline of NASA (which I’ve also argued is inevitable), and instead embrace the power of the market when it comes to space flight, as explained in this New York Times piece:

If all goes as planned, within a couple of years, tourists will be rocketing into space aboard a Virgin Galactic space plane — paying $200,000 for about four minutes of weightlessness — before coming back down for a landing on a New Mexico runway.

Sitting in the next seat could be a scientist working on a research experiment.

Science, perhaps even more than tourism, could turn out to be big business for Virgin and other companies that are aiming to provide short rides above the 62-mile altitude that marks the official entry into outer space, eventually on a daily basis.

A $200,000 ticket is prohibitively expensive except for a small slice of the wealthy, but compared with the millions of dollars that government agencies like NASA typically spend to get experiments into space, “it’s revolutionary,” said S. Alan Stern, an associate vice president of the Southwest Research Institute’s space sciences and engineering division in Boulder, Colo.

Now these won’t actually achieve orbit and offer only a few minutes of weightlessness. But that’s the power of markets. If it’s possible, they offer the service that is actually needed for an affordable price, rather than only what centralized bureaucrats decide should be done. There is apparently solid demand here, and it’s markets that have to get it done for a reasonable price.

So for many experiments, what takes government millions, markets can do for $200,000. Now imagine what markets could do with the really big government budget items.

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About Me

profileI serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.

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