Remember what we said about the importance of net investment to economic growth? This article discusses what has happened to net investment in recent years.
Saturday, February 26, 2011
Why Boom Is A No-Show: A Lack Of Net Investment - Investors.com
Remember what we said about the importance of net investment to economic growth? This article discusses what has happened to net investment in recent years.
Should you "buy local?" - Russ Roberts
EXCERPTS:
"The way to prosperity is to find ways to serve others by producing something you value enough to pay the price I charge. If I serve you poorly either by making a lousy product or one that is more expensive than the alternatives, but ask you to buy from me anyway, that is charity. That may be a nice thing to do. I may choose to do it because I care about you. But don’t pretend that it creates wealth when I am getting less value for my money than I could get elsewhere. It doesn’t. What it does is put my purchasing power in your pocket.
But shouldn’t we support and help each other by buying local? Maybe. But don’t pretend it creates material prosperity. It reduces material prosperity unless I get equal or greater value from purchasing local compared to the alternatives. But in that case, buying local comes naturally and you don’t need to exhort anyone to do it.
When my neighbor asks me to buy his product because he is local, he is asking me to forego benefits. If we all choose to do so and if everyone outside of our community does the same–they only buy locally in their communities–we restrict the range of people we can buy from and sell to. We reduce the range of people we can cooperate with implicitly via specialization. That makes us poorer."
"The way to prosperity is to find ways to serve others by producing something you value enough to pay the price I charge. If I serve you poorly either by making a lousy product or one that is more expensive than the alternatives, but ask you to buy from me anyway, that is charity. That may be a nice thing to do. I may choose to do it because I care about you. But don’t pretend that it creates wealth when I am getting less value for my money than I could get elsewhere. It doesn’t. What it does is put my purchasing power in your pocket.
But shouldn’t we support and help each other by buying local? Maybe. But don’t pretend it creates material prosperity. It reduces material prosperity unless I get equal or greater value from purchasing local compared to the alternatives. But in that case, buying local comes naturally and you don’t need to exhort anyone to do it.
When my neighbor asks me to buy his product because he is local, he is asking me to forego benefits. If we all choose to do so and if everyone outside of our community does the same–they only buy locally in their communities–we restrict the range of people we can buy from and sell to. We reduce the range of people we can cooperate with implicitly via specialization. That makes us poorer."
Reckless Spending and lofty words - Thomas Sowell
EXCERPTS:
"Nothing more clearly illustrates the utter irresponsibility of Barack Obama than his advocacy of "high-speed rail." The man is not stupid. He knows how to use words that will sound wonderful to people who do not bother to stop and think.
High-speed rail may be feasible in parts of Europe or Japan, where the population density is much higher than in the United States. But, without enough people packed into a given space, there will never be enough riders to repay the high cost of building and maintaining a high-speed rail system.
*******
"High-speed rail" is simply another set of lofty words to justify continued expansion of government spending. So are words like "investment in education" or "investment" in any number of other things, which serves the same political purpose.
Who cares what the realities are behind these nice-sounding words? Obama can leave that to the economists, the statisticians and the historians. His point is to win the votes of people who know little or nothing about economics, history or statistics. That includes a lot of people with expensive Ivy League degrees.
To talk glibly about spending more money on "high-speed rail" when the national debt has just passed a milestone, by exceeding the total value of our annual output, for the first time in more than half a century, is world-class chutzpa. The last time the U.S. national debt exceeded the value of our entire annual output, it was due to the cost of fighting World War II."
"Nothing more clearly illustrates the utter irresponsibility of Barack Obama than his advocacy of "high-speed rail." The man is not stupid. He knows how to use words that will sound wonderful to people who do not bother to stop and think.
High-speed rail may be feasible in parts of Europe or Japan, where the population density is much higher than in the United States. But, without enough people packed into a given space, there will never be enough riders to repay the high cost of building and maintaining a high-speed rail system.
*******
"High-speed rail" is simply another set of lofty words to justify continued expansion of government spending. So are words like "investment in education" or "investment" in any number of other things, which serves the same political purpose.
Who cares what the realities are behind these nice-sounding words? Obama can leave that to the economists, the statisticians and the historians. His point is to win the votes of people who know little or nothing about economics, history or statistics. That includes a lot of people with expensive Ivy League degrees.
To talk glibly about spending more money on "high-speed rail" when the national debt has just passed a milestone, by exceeding the total value of our annual output, for the first time in more than half a century, is world-class chutzpa. The last time the U.S. national debt exceeded the value of our entire annual output, it was due to the cost of fighting World War II."
Roosevelt on government spending, inflation, profits, and prices
The first two minutes of this video gives you a sense of how Roosevelt (president from 1933 through 1945) viewed profits, prices, and the role of government. The rest of the video deals with the tendency of price controls to lead to black market activity.
Wednesday, February 23, 2011
The alternative to unions - Russ Roberts
EXCERPTS:
"The effect of unions, to the extent they are effective at all, is to make it harder for people to find work in particular areas. Unions try to raise wages above what they would otherwise be. Employers respond by trying to substitute capital for labor or more skilled workers for less skilled workers.
You want negotiating power? Get educated. Get a skill. What keeps wages up in a world of 7% unionization in the private sector is that I have alternatives. So stay in school and study something serious that has value alongside whatever else you’re interested in. Or study something interesting that has little market value. But if you do that, don’t complain about your low salary and lack of a union.
The bottom line–you don’t need a union to protect you from your employer. You need alternatives–you need to have a skill that more than one employer values. If you have no skills, you are in trouble and the union won’t help you either except at the expense of other workers."
"The effect of unions, to the extent they are effective at all, is to make it harder for people to find work in particular areas. Unions try to raise wages above what they would otherwise be. Employers respond by trying to substitute capital for labor or more skilled workers for less skilled workers.
You want negotiating power? Get educated. Get a skill. What keeps wages up in a world of 7% unionization in the private sector is that I have alternatives. So stay in school and study something serious that has value alongside whatever else you’re interested in. Or study something interesting that has little market value. But if you do that, don’t complain about your low salary and lack of a union.
The bottom line–you don’t need a union to protect you from your employer. You need alternatives–you need to have a skill that more than one employer values. If you have no skills, you are in trouble and the union won’t help you either except at the expense of other workers."
Monday, February 21, 2011
Saturday, February 19, 2011
The Weekend Interview with Charles Plosser: The Fed's Easy Money Skeptic - WSJ.com
This is a good overview of the policy the Fed is currently following, often called QE2 (Quantitative Easing, part 2).
Tuesday, February 15, 2011
New Heroes vs. Old - Thomas Sowell
EXCERPTS:
"When I mention that my family used kerosene lamps when I was a small child in the South during the 1930s, that is usually taken as a sign of our poverty, though I never thought of us as poor at the time.
What is ironic is that kerosene lamps were a luxury of the rich in the 19th century, before John D. Rockefeller came along. At the high price of kerosene at that time, an ordinary working man could not afford to stay up at night, burning this expensive fuel for hours at a time.
Rockefeller did not begin his life as rich, by any means. He made a fortune by revolutionizing the petroleum industry. Although we still measure petroleum in barrels, it is actually shipped in railroad tank cars, in ocean-going tankers and in tanker trucks.
That is a legacy of John D. Rockefeller, who saw that shipping oil in barrels was not as economical as shipping whole railroad tank cars full of oil, eliminating all the labor that had to go into shipping the same amount of oil in numerous individual barrels.
That was just one of his cost-cutting innovations. If there was a better way to extract, process and ship petroleum products-- or more products that could be made from petroleum-- Rockefeller was on top of it.
Before he came along, gasoline was considered a useless by-product that petroleum refineries often simply dumped into the nearest river. But Rockefeller decided to use it as a fuel in the refining process, which made it valuable, even before automobiles came along.
"When I mention that my family used kerosene lamps when I was a small child in the South during the 1930s, that is usually taken as a sign of our poverty, though I never thought of us as poor at the time.
What is ironic is that kerosene lamps were a luxury of the rich in the 19th century, before John D. Rockefeller came along. At the high price of kerosene at that time, an ordinary working man could not afford to stay up at night, burning this expensive fuel for hours at a time.
That is a legacy of John D. Rockefeller, who saw that shipping oil in barrels was not as economical as shipping whole railroad tank cars full of oil, eliminating all the labor that had to go into shipping the same amount of oil in numerous individual barrels.
That was just one of his cost-cutting innovations. If there was a better way to extract, process and ship petroleum products-- or more products that could be made from petroleum-- Rockefeller was on top of it.
Before he came along, gasoline was considered a useless by-product that petroleum refineries often simply dumped into the nearest river. But Rockefeller decided to use it as a fuel in the refining process, which made it valuable, even before automobiles came along.
Saturday, February 12, 2011
The most basic economic question
"The most basic question is not what is best, but who shall decide what is best." – Thomas Sowell
Friday, February 11, 2011
Saturday, February 5, 2011
"Saving" the Housing Market - Thomas Sowell
EXCERPTS:
"Why are politicians so focused on one set of people, at the expense of other people? Because "saving" one set of people increases the chances of getting those people's votes. Letting supply and demand determine what happens in the housing market gets nobody's votes.
If current occupants are put out of their homes and the prices come down to a level where others can afford to buy those homes, nobody will give politicians credit-- or, more to the point, their votes. Nor should they.
Rescuing particular people at the expense of other people-- whether the others are taxpayers, savers or prospective home buyers-- produces votes. It also produces dependency on government, which is good for politicians, but bad for society.
"Why are politicians so focused on one set of people, at the expense of other people? Because "saving" one set of people increases the chances of getting those people's votes. Letting supply and demand determine what happens in the housing market gets nobody's votes.
If current occupants are put out of their homes and the prices come down to a level where others can afford to buy those homes, nobody will give politicians credit-- or, more to the point, their votes. Nor should they.
Rescuing particular people at the expense of other people-- whether the others are taxpayers, savers or prospective home buyers-- produces votes. It also produces dependency on government, which is good for politicians, but bad for society.
Friday, February 4, 2011
Egypt's Economic Apartheid - WSJ.com
EXCERPTS:
"Today, when the streets are filled with so many Egyptians calling for change, it is worth noting some of the key facts uncovered by our investigation and reported in 2004:
• Egypt's underground economy was the nation's biggest employer. The legal private sector employed 6.8 million people and the public sector employed 5.9 million, while 9.6 million people worked in the extralegal sector.
• As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title.
• We estimated the value of all these extralegal businesses and property, rural as well as urban, to be $248 billion—30 times greater than the market value of the companies registered on the Cairo Stock Exchange and 55 times greater than the value of foreign direct investment in Egypt since Napoleon invaded—including the financing of the Suez Canal and the Aswan Dam. (Those same extralegal assets would be worth more than $400 billion in today's dollars.)
The entrepreneurs who operate outside the legal system are held back. They do not have access to the business organizational forms (partnerships, joint stock companies, corporations, etc.) that would enable them to grow the way legal enterprises do. ....
Nor can such enterprises benefit from the economies of scale available to those who can operate in the entire Egyptian market. The owners of extralegal enterprises are limited to employing their kin to produce for confined circles of customers.
Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called "dead capital"—property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor. The only thing that can emancipate them is legal reform. ...
The key question to be asked is why most Egyptians choose to remain outside the legal economy? The answer is that, as in most developing countries, Egypt's legal institutions fail the majority of the people. Due to burdensome, discriminatory and just plain bad laws, it is impossible for most people to legalize their property and businesses, no matter how well intentioned they might be.
The examples are legion. To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.
All this helps explain who so many ordinary Egyptians have been "smoldering" for decades. Despite hard work and savings, they can do little to improve their lives.
Bringing the majority of Egypt's people into an open legal system is what will break Egypt's economic apartheid. Empowering the poor begins with the legal system awarding clear property rights to the $400 billion-plus of assets that we found they had created....
"Today, when the streets are filled with so many Egyptians calling for change, it is worth noting some of the key facts uncovered by our investigation and reported in 2004:
• Egypt's underground economy was the nation's biggest employer. The legal private sector employed 6.8 million people and the public sector employed 5.9 million, while 9.6 million people worked in the extralegal sector.
• As far as real estate is concerned, 92% of Egyptians hold their property without normal legal title.
• We estimated the value of all these extralegal businesses and property, rural as well as urban, to be $248 billion—30 times greater than the market value of the companies registered on the Cairo Stock Exchange and 55 times greater than the value of foreign direct investment in Egypt since Napoleon invaded—including the financing of the Suez Canal and the Aswan Dam. (Those same extralegal assets would be worth more than $400 billion in today's dollars.)
The entrepreneurs who operate outside the legal system are held back. They do not have access to the business organizational forms (partnerships, joint stock companies, corporations, etc.) that would enable them to grow the way legal enterprises do. ....
Nor can such enterprises benefit from the economies of scale available to those who can operate in the entire Egyptian market. The owners of extralegal enterprises are limited to employing their kin to produce for confined circles of customers.
Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called "dead capital"—property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor. The only thing that can emancipate them is legal reform. ...
The key question to be asked is why most Egyptians choose to remain outside the legal economy? The answer is that, as in most developing countries, Egypt's legal institutions fail the majority of the people. Due to burdensome, discriminatory and just plain bad laws, it is impossible for most people to legalize their property and businesses, no matter how well intentioned they might be.
The examples are legion. To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.
All this helps explain who so many ordinary Egyptians have been "smoldering" for decades. Despite hard work and savings, they can do little to improve their lives.
Bringing the majority of Egypt's people into an open legal system is what will break Egypt's economic apartheid. Empowering the poor begins with the legal system awarding clear property rights to the $400 billion-plus of assets that we found they had created....
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