Archive for the ‘economics’ Category

Unseen Benefits of Brexit   Leave a comment

Madeline Grant

https://fee.org/articles/the-unseen-economic-benefits-of-brexit/

In a now-famous essay, “What is Seen and What Is Not Seen,” the great economist Frederic Bastiat warned against judging the value of any activity in a vacuum.

Brexit.pngBastiat’s “broken window fallacy” brilliantly exposes a common tendency to focus on the visible, tangible benefits of an action—the “seen”—while neglecting the “unseen” penalties and long-term drawbacks associated with the same activity—the invisible cost of opportunities foregone.

Though he wrote the essay in 19th-century France, Bastiat’s insights have a timeless wisdom. We live with the consequences of reductive “broken window” thinking every day, especially where public money is concerned. Politicians often praise the visible benefits of public spending, e.g. the number of jobs “created,” without considering whether the funds could have been spent more wisely elsewhere or even how the taxpayer might have spent the cash had it remained in his or her pocket.

For my money, the fraught Brexit debate badly needs a dose of Bastiat.

So far, discussions of the gains and losses of Brexit have understandably tended to focus on the most obvious costs, like the amount Britain may pay in any “Divorce Bill,” the potential “Brexit hit” to companies exporting to the EU, and so on. Of course, these concerns are vitally important, but our focus on the immediate costs of EU departure risks blinding us to the very real costs of maintaining the status quo.

Membership in the European Union carries huge unseen penalties whose implications may not be immediately apparent. The EU’s Common External Tariff, for example, raises prices and so reduces the quantities of goods and services available to ordinary consumers. Since shoppers in the EU lack the counterfactual experience of trading at world prices, this penalty goes unnoticed, but it involves a misallocation of resources on a vast scale.

In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world.

Negotiating the terms of our departure also comes with huge hidden dangers. In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world. It is often pointed out that the UK’s interests in trade agreements are primarily in services, but this makes it even more vital to maintain flexibility over what we can concede in goods to incentivize potential trading partners to strike a deal. The status quo, or anything close to it, carries huge opportunity costs of its own.

Due to a combination of the precautionary principle enshrined in the Lisbon Treaty and the difficulties of getting 28 countries to agree on anything, the EU, intentionally or not, often stands in the way of innovation.

In particular, the precautionary principle, the preferred risk management strategy of EU regulators, places the onus on creators of new technologies to prove their invention is safe where some risk may exist—even if there’s no scientific consensus to suggest any actual harm will occur.

In particular, the precautionary principle, the preferred risk management strategy of EU regulators, places the onus on creators of new technologies to prove their invention is safe where some risk may exist—even if there’s no scientific consensus to suggest any actual harm will occur.

The result? It’s often too much bother to innovate.

During the 19th century, many viewed the emerging railways with a great deal of suspicion. As recorded by cultural anthropologist Genevieve Bell, critics of early locomotives believed “that women’s bodies were not designed to go at 50 miles an hour” and worried that their “uteruses would fly out of [their] bodies as they were accelerated to that speed.” Had Victorian Britain followed some version of the precautionary principle, it’s hard to imagine a single track of rail being laid given the levels of contemporary railway fear.

Of course, moral panic over new technology is nothing new. Now, as in the 1850s, over-cautiousness risks hampering important drivers of future growth.

Given the EU’s structure, history, and current trajectory, the balance of probability suggests AI will be the latest in a long line of missed technological opportunities.

So far, the European Union has taken only tentative steps towards regulating artificial intelligence and robotics, though they are currently consulting on the issue. Yet given the EU’s structure, history, and current trajectory, the balance of probability suggests AI will be the latest in a long line of missed technological opportunities.

Take genetically modified crops. Since their commercialization in many parts of the world during the 1990s, GM crops have raised the quantity and quality of the global food supply while lowering fuel and energy usage, requiring fewer pesticides and reducing both soil erosion and carbon emissions—all with no scientifically-documented evidence of harm to human health. And yet, EU-wide precautionary thinking has meant a de facto ban on GM crops, only one variety of which has ever been approved and grown in Europe.

While farmers outside the EU continue to develop newer, better technologies, hysteria over man-made pesticides has kept European farming methods behind the times. Ironically, foregoing the GM revolution in insect-resistant plant breeding has left European farmers more reliant on pesticides than ever (as has the ECJ’s foolhardy ruling on genome editing earlier this year).

Just last week, the French Finance Minister claimed that EU member states are “very close” to agreeing on a counterproductive tax on the turnover of tech companies, a policy likely to discourage new entrants and inflate costs for consumers.

Given all the above, are the EU’s hyper-cautious regulators likely to pursue a different path when it comes to AI and robotics? Or will it be “business as usual”—namely, when in doubt, tax and over-regulate? Certainly, initial signs, including misguided calls for a “robot tax” from the likes of Guy Verhovstadt, don’t inspire confidence.

If you have to get a human to explain the logic, why bother investing in an AI solution in the first place?

The EU’s new General Data Protection Regulation (GDPR), implemented earlier this year, will almost certainly hinder the development of artificial intelligence by raising costs and limiting access to data. In particular, Article 22 creates a new requirement for humans to review certain algorithmic decisions, a restriction that will significantly raise labor costs, thereby creating a strong disincentive from using AI. After all, the whole point of developing AI is to automate functions that would otherwise be slower, costlier, and more difficult to complete if performed by humans. If you have to get a human to explain the logic, why bother investing in an AI solution in the first place?

These may seem like small concerns in the grand scheme of things, but taken as a whole—and the EU creates a whole lot of regulation—it adds up to an environment often hostile to innovation.

It’s no coincidence that Europe has lagged behind the US for decades when it comes to new inventions, innovations, and entrepreneurship. There are of course important cultural differences between these continents, but much relates to the US government’s comparatively light-touch regulatory approach. Not for nothing are there no tech giants in Europe to rival Facebook, Google, Apple, or Amazon.

Creating a competitive, innovation-friendly atmosphere is a huge potential hidden “win” of Brexit—with correspondingly huge opportunity costs from failing to do so.

Creating a competitive, innovation-friendly atmosphere is a huge potential hidden “win” of Brexit—with correspondingly huge opportunity costs from failing to do so. Indeed, with more leading universities than the rest of Europe put together and an already thriving tech sector, Britain has much to lose compared to many of its neighbors.

One can only imagine what Frederic Bastiat would have made of things like robotics, AI, and machine learning. But I suspect the spirit of his advice would be the same: consider the unseen, and don’t destroy the jobs of the future in a misguided attempt to protect the jobs of today.

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Posted November 2, 2018 by aurorawatcherak in economics, Uncategorized

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Sea of Red Ink   Leave a comment

The federal budget deficit has jumped 17% in 2018, to $779 billion. Scary, huh? Not quite as scary as it was in 2012, when it topped $1 trillion, but still, the federal government will borrow $870 billion this coming year.

Why? Well, it’s not being done under the guise of economic stimulus. This has been a year of “relatively strong economic growth, low unemployment and continued historically low interest rates”. So, why is the federal government is on track to borrow nearly $7,000 for every household in America?

Drowning Red InkThe future is looking grim. Even if the “Trump boom” continues, current tax and spending patterns indicate that deficits will continue to increase, approaching $1 trillion in two years and steadily rising afterward, on and on into the future. On the current path, the outstanding public debt will rise by one third to $20 trillion just five years from now. That works out at nearly $250,000 for a family of four, more than twice the median household wealth.

Scared yet? The Trump administration is using interest rates of 3.5% for its projections. If they rose to 5%, the interest costs alone on the projected debt would total $1 trillion annually. As the Washington Post economists note, “More than half of all personal income taxes would be needed to pay bondholders.”

No, the tax cuts are not responsible for the red ink. The Budget and Economic Outlook for 2018 to 2028 released by the Congressional Budget Office in April reveals that, as a share of GDP, tax revenues are currently 17.3% of GDP and the CBO forecasts this to rise to 18.5% in 2028. The argument that the cut in federal corporate tax rates is a cause of the increased deficits and debt is absurd. According to the CBO, there is no difference between tax revenues as a percentage of GDP in 2017 compared to their forecasts for 2028 (both will be 1.5%).

The real answer is out-of-control spending. The CBO forecasts that spending will rise from 20.8 percent of GDP now to 23.6 percent in 2028. But it is not increased “discretionary” spending such as defense or education that are driving spending upward. In fact, from 2018 to 2028, the CBO forecasts that discretionary spending will fall from 6.4 percent of GDP to 5.4 percent. Defense spending, for example, is projected to fall from 3.1 percent of GDP in 2018 to 2.6 percent in 2028.

The CBO is unequivocal that this increase in spending is being driven by out-of-control entitlement outlays. Between 2018 and 2028, spending on Social Security, Medicaid, and Medicare is projected to rise from 12.7 percent of GDP to 15.2 percent. Social Security spending is expected to increase from 4.9 percent of GDP to 6.0 percent, Medicare from 3.5 percent of GDP to 5.1 percent, and Medicaid from 1.9 percent of GDP to 2.2 percent. This is what is driving America’s catastrophic indebtedness. In another words, Granny’s eating our lunch and she’ll be kicking our asses come 2028.

America’s politicians know this and they have acknowledged the vast problems this borrowing spry is creating, but they aren’t attempting to mitigate it. Why not?

Economist Pierre Yared seeks to address this question in a new paper titled “Rising Government Debt and What to Do About It”, in which he dismisses the idea that these elevated levels of government debt represent an “optimal” policy response to either foreseen or unforeseen fiscal shocks.

You’d think governments would reduce their debt in preparation for the increased expenditures an older population will require. But that’s exactly what isn’t happening. Governments across the developed world have increased their debts. The wars in the Middle East and the 2008 crash added unforeseen pressures, but increases in government indebtedness long predate 2008 and are present in countries that did not intervene in the Middle East.

Yared suggests political polarization produces something like a ‘tragedy of the commons’ where “political parties acting independently engage in excessive targeted government spending since they do not internalize the shared financing costs of government debt.” Yared asserts aging populations care less about the future, citing evidence that younger households place a larger value on fiscal responsibility than older households. As a result, “countries with a large number of constituencies or deep disagreements in spending priorities across constituencies will incur larger government deficits, resulting in faster government debt accumulation.” Finally, electoral uncertainty “causes the current government to be impatient, since the party holding power recognizes that it may not have the opportunity to benefit from spending in the future.” Yared presents evidence that this political uncertainty has increased in recent decades as government indebtedness has risen.

Image result for image of drowning in red inkIf Yared is right, America’s fiscal outlook isn’t encouraging. None of these factors are going away anytime soon. America’s population is projected to continue aging for the next couple of decades. By 2035, according to the Census Bureau, there will be 78 million people 65 years and older compared to 77 million under the age of 18.

And who doesn’t love a sugar daddy to keep picking up the tab for our favorite goodies? Yes, American seniors have come to rely on Social Security and Medicare, but let’s be honest here — the money to fund them doesn’t magically appear simply because politicians promise the funding.

And does anyone think political polarization in the US is going to decrease much anytime soon? I certainly don’t.

The promises government makes cannot be supported by any reasonable expectation of tax revenue. Printing the money to cover these liabilities will result in inflation, which would decimate private retirement accounts as well as family budgets. At some point, the irresistible force of insufficient government revenues is going to meet the immovable object of entitlement commitments.

And, so, we face year after year of yawning deficits and increasing floors of red inks. Are you scared yet?

So, now the question becomes — what happens to  all the people who rely on that red ink?

Posted November 1, 2018 by aurorawatcherak in economics, Uncategorized

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Benefits of International Tax Competition for US Workers   Leave a comment

Romina Boccia & Julia Howe

Found on FEE

The Tax Cuts and Jobs Act is continuing to produce tangible benefits for Americans, growing the U.S. economy and making it more competitive for business investment and job creation.

Wages are rising, unemployment rates are declining, and there is more money in taxpayers’ pockets.

The larger economy materializes as significantly higher take-home pay for the typical American. According to a recent Heritage Foundation report, the average American will be $26,000 richer over the next 10 years, thanks to tax cuts and a larger economy.

There is even more good news: Tax reform has not only encouraged investment domestically but has fostered a more attractive investment climate on an international scale.

The corporate tax rate cut (from 35 percent to 21 percent) significantly improves America’s position in global financial markets. Businesses are more inclined to conduct and expand their operations within U.S. borders and employ American workers.

These critics fear countries will attempt to undercut each other with lower and lower tax rates.

Yet some have condemned the tax cuts on this very basis, arguing that they contribute to “unhealthy” international tax competition. These critics fear countries will attempt to undercut each other with lower and lower tax rates.

New York Times op-ed called international tax competition a “collective action problem,” suggesting that countries would benefit more from higher corporate tax rates and that they fail to cooperate in imposing higher rates because of incentives to compete for businesses and high-skilled labor.

The article claimed that the U.S. business tax cuts contribute to this problem by reducing tax revenue, thereby harming America.

That argument is flawed both in economic theory and in practice.

A recent paper authored by Assaf Razin and Efraim Sadka, published by the National Bureau of Economic Research, examines the implications of financial globalization, where mobile capital can easily respond to tax and regulatory conditions by moving across borders.

The paper uses a simple model to demonstrate that there are benefits from tax competition, and it shows that countries are better off when their corporate taxes are lower.

The high capital tax rate results in a less productive economy and smaller tax base.

The model assumes that as financial globalization increases, businesses can relocate to more competitive economic environments at a lower cost.

When tax rates in one country are consistently elevated, mobile capital moves to other jurisdictions. New investments in factories and research are made in countries with lower taxes.

Because the capital can move to other countries, workers are left with the tab through lower wages and fewer jobs. The “corporate tax burden” is shifted to labor or consumption in places with high capital taxes.

The high capital tax rate results in a less productive economy and smaller tax base. This combination causes revenue to decrease as there is overall less economic wealth generated and, therefore, less to be taxed.

In contrast, a lower corporate tax burden attracts businesses, creating an environment of greater innovation and prosperity, with benefits for all residents.

The model finds that workers at all skill and income levels are better off with lower business taxes. A bigger economy provides opportunities for greater financial security and income mobility, decreasing the need for government-provided assistance.

The U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 OEC) countries.

A new job or a higher wage help people in need more than a welfare check ever could. Less government intervention and a lower corporate tax rate help residents, providing them with valuable earning opportunities to become wealthier and more financially independent.

The tax burden is one of the 12 factors in The Heritage Foundation’s Index of Economic Freedom affecting the level of economic freedom that citizens can enjoy. Without accounting for the new tax law, the U.S. had a tax burden score of 65.1 in the index. The U.S. was nearly 12 points below the world average score of 76.6 and ranked as 153rd out of the 180 countries whose economic freedom the index assesses.

While the U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 Organization for Economic Cooperation and Development (OECD) countries, the new 21 percent rate is below that of 19 OECD countries.

The U.S.’s index score is likely to improve with the next iteration and demonstrates that the U.S. was in need of tax reform to be more globally competitive.

In addition to the corporate tax rate, the base of what’s taxed matters as well.

The tax law’s changes to expensing rules have important economic effects. Full expensing allows businesses to deduct all investment expenses from taxable income at the time the investments are made. This change encourages more investment in productive capital.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

These expensing provisions, which begin to phase out after 2022, should be extended permanently for even greater economic growth.

According to sound economic theory, the tax cuts are benefiting our economy through encouraging investment by domestic and international businesses, and there is ample evidence this theory holds true in practice.

There has been rapid growth in capital spending, with many examples of both small and large businesses investing in expanded operations. This is increasing worker productivity and wages.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

Capitalism vs. Socialism   Leave a comment

Several recent polls, plus the popularity of Sen. Bernie Sanders, demonstrate that young people prefer socialism to free market capitalism. That, I believe, is a result of their ignorance and indoctrination during their school years, from kindergarten through college. For the most part, neither they nor many of their teachers and professors know what free market capitalism is.

Found on Lew Rockwell

Free market capitalism, wherein there is peaceful voluntary exchange, is morally superior to any other economic system. Why? Let’s start with my initial premise. All of us own ourselves. I am my private property, and you are yours. Murder, rape, theft and the initiation of violence are immoral because they violate self-ownership. Similarly, the forcible use of one person to serve the purposes of another person, for any reason, is immoral because it violates self-ownership.

Tragically, two-thirds to three-quarters of the federal budget can be described as Congress taking the rightful earnings of one American to give to another American — using one American to serve another. Such acts include farm subsidies, business bailouts, Social Security, Medicare, Medicaid, food stamps, welfare and many other programs.

Free market capitalism is disfavored by many Americans — and threatened — not because of its failure but, ironically, because of its success. Free market capitalism in America has been so successful in eliminating the traditional problems of mankind — such as disease, pestilence, hunger and gross poverty — that all other human problems appear both unbearable and inexcusable. The desire by many Americans to eliminate these so-called unbearable and inexcusable problems has led to the call for socialism. That call includes equality of income, sex and race balance, affordable housing and medical care, orderly markets, and many other socialistic ideas.

American Contempt for …Walter E. WilliamsBest Price: $11.23

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Let’s compare capitalism with socialism by answering the following questions:

In which areas of our lives do we find the greatest satisfaction, and in which do we find the greatest dissatisfaction? It turns out that we seldom find people upset with and in conflict with computer and clothing stores, supermarkets, and hardware stores. We do see people highly dissatisfied with and often in conflict with boards of education, motor vehicles departments, police and city sanitation services.

What are the differences? For one, the motivation for the provision of services of computer and clothing stores, supermarkets, and hardware stores is profit. Also, if you’re dissatisfied with their services, you can instantaneously fire them by taking your business elsewhere. It’s a different matter with public education, motor vehicles departments, police and city sanitation services. They are not motivated by profit at all. Plus, if you’re dissatisfied with their service, it is costly and in many cases even impossible to fire them.

A much larger and totally ignored question has to do with the brutality of socialism. In the 20th century, the one-party socialist states of the Union of Soviet Socialist Republics, Germany under the National Socialist German Workers’ Party and the People’s Republic of China were responsible for the murder of 118 million citizens, mostly their own. The tallies were:

No such record of brutality can be found in countries that tend toward free market capitalism.

Here’s an experiment for you. List countries according to whether they are closer to the free market capitalist or to the socialist/communist end of the economic spectrum. Then rank the countries according to per capita gross domestic product. Finally, rank the countries according to Freedom House’s “Freedom in the World” report. You will find that people who live in countries closer to the free market capitalist end of the economic spectrum not only have far greater wealth than people who live in countries toward the socialistic/communist end but also enjoy far greater human rights protections.

As Dr. Thomas Sowell says, “socialism sounds great. It has always sounded great. And it will probably always continue to sound great. It is only when you go beyond rhetoric, and start looking at hard facts, that socialism turns out to be a big disappointment, if not a disaster.”

Why Worry about Income Inequality?   1 comment

I’m not rich by Alaska standards. I make less than the median Alaska income. That means I’m wealthier than 99% of the world’s inhabitants.

Image result for image of a snap recipient indulgenceIs that unfair? Hmm ….

Well, I can tell you that living at less than the median Alaska income presents challenges for my family. We aren’t as rich as some of our neighbors. There’s a man in this town who makes millions of dollars a year.

Is that unfair? Hmm ….

If I were to make somewhat less … let’s say so I’m in the 1% worldwide, I couldn’t afford to live in Alaska. So if you took the income of the people who live here and distributed it to all the “poor” people in the world, what would happen? People in Alaska would starve and freeze without shelter or fuel.

Would that be fair? Hmm ….

I make a whole lot more money and live in a nicer home than my working class parents did.

Is that fair? Hmm ….

My parents were always able to feed me. My mother’s parents, at the height of the Depression, struggled with that.

Is it fair that I grew up without going hungry, but my mom got rickets as a child? Hmm ….

So, then I think about all the “poor” people in the US who own cars, live in nice apartments, are able to buy food with SNAP benefits, and afford $100 a month smart phones, but they don’t actually work for their living.

Is that fair? Hmm ….

We have to careful not to confuse income inequality and poverty. Standards of living are increasing, albeit unequally, in most of the world. Developing countries are particularly benefiting handsomely from declining barriers to trade and movement of capital. That’s why inequality between countries is actually shrinking. As for inequality within countries, enrichment at the top has not caused mass impoverishment.

The market economy is not a zero-sum game, where someone’s gain must come at someone else’s expense. “The rich get richer and the poor get poorer” is a synopsis of the socialist critique of the market system, implying the perceived inevitability of what Marx called the Law of Increasing Poverty.

But, guess what? It’s a myth unsupported by empirical evidence. Absent government interference in the marketplace, the poor in most developing nations are gaining ground even as those at the top end of the income spectrum are also amassing greater fortunes. Poverty is reducing all across the world.

So what difference does it make if  your neighbor has a million dollars he won’t share with you if you’re making a real income far in excess of your basic needs?

Oh, right, fairness …. It’s not fair. Why can’t he give up some of it so I can be even richer?

Maybe because I didn’t earn it, but also maybe because he’s going to take that money and provide a job that will someday make my kid far wealthier than I ever hoped to be. But if I rob him of that money he earned, he won’t create that job because: a) without resources nobody can create jobs, and b) why should the victim feel beholden to the one who robbed him?

Have We Lost Our Minds?   2 comments

I like my house. When we first bought it, it was painted grey, which I didn’t like so much because on rainy days or winter days (and we have a lot of winter days), it just looked sad and depressed. Besides, the previous owners had messed up on the application so it was peeling less than two years after they painted it. So we power washed off the grey, re-primed and painted the house a kind of dark peach with green trim and it now looks more cheerful no matter what month of the year you see it. I am told by a neighbor who knows the folks we bought the house from that the wife doesn’t like our color choices and that’s okay because she no longer owns the house and we do. She can paint the house she owns any color she likes and I won’t critique it — though I was awfully glad when the new owners of the house across the street painted their black house (with red trim) a nice brown with white trim. I complimented them on the paint job, though I never said word one about the red-on-black scheme to the previous owners, because it was their house and not mine.

But imagine how I would feel if I came home one day and discovered that a renowned artist whose paintings were considered art treasures by experts had graffitied my house. Imagine if it were your house and that happened.

It’s my property, so — unless I really, really liked the graffiti, I’d immediately start cleaning the images from my house. So would you, I suspect. If they didn’t ask my permission, I’d want to sue them for whatever it cost me to restore my house to its preferred condition. You would too.

Then imagine that a few days later, you find you are being sued for breaking a law that protects public art of “recognized stature”. Because the artist who tagged your house is considered by someone to be a great artist, you must pay $6.7 million for whitewashing graffiti from your home.

That’s exactly what happened to Jerry Wolkoff, a Queens real estate developer, when he whitewashed dozens of graffiti murals at the 5Pointz complex, violating the Visual Artists Rights Act, “which has been used to protect public art of “recognized stature” created on someone else’s property.”

Wolkoff purchased the 200,000 square-foot former factory buildings in the 1970s for $1 million. Graffiti artists approached him in the 1990s, asking if they could display their art on the vacant five-story building. Wolkoff agreed. He wasn’t using the buildings and it seemed like a community-friendly thing to allow. In November 2013, Wolkoff decided to demolish the building in favor of new stores and apartments. He contracted painters to whitewash the decades of graffiti away under the cover of night to avoid conflict.

“It’s like a Band-Aid, I just wanted to take one rip off in one time. I felt it was best for them and I,” Wolkoff said. “I had tears in my eyes when I painted this morning.”

Okay, he probably shouldn’t have sneaked behind folks’ backs, but given them a chance to photograph and otherwise document what is ordinarily considered temporary works of art, but he knew what would happen — a long, drawn-out battle over the demolition which would harm his company’s bottom line. Twenty graffiti artists filed a lawsuit against the developer and in March 2017, Judge Frederic Block of U.S. District Court in Brooklyn ruled that their case could go to trail.

The New York Times declared this a great victory for the New York artist community and, indeed artists everywhere. I’m going to mea culpa here and admit that my daughter is a graffiti artist. After a close encounter with an angry building owner when she was 18 that resulted in having to clean his building to avoid jail, our beautiful anarchist renaissance woman now asks permission, often taking suggestions from willing participants, and then takes photos because she knows such art is temporary and adhered to other people’s property. When she travels back through a town, she looks for her murals and is always pleased when she finds them, but she also accepts that one day they may be gone. I haven’t had an opportunity ask her what she thinks of this. If she agrees with the artists, I expect her to change her mind after we’ve discussed it.

Wolkoff contended the graffiti artists knew that it wasn’t a permanent thing and one of them even admitted that in the press. Wolkoff granted only temporary permission. As the area around the complex was redeveloped, it should have been obvious to everyone that he was going to redevelop it and make some money from his investment. After all, it was his private property and he should be able to maintain his property as he sees fit. The fact that he knew announcing demolition would cause a court battle with the people he’d been so generous to for decades says he’d been thinking about how to resolve this issue for a long time before he took action. He had provided them with a place to legally do their particular kind of art and his decades-long willingness to provide that blank canvas for them helped to shift perceptions about graffiti and establish it as a celebrated folk art. Maybe they should have thanked him for that opportunity. Instead, in November 2017, a jury found the developer had violated the Visual Artists Rights Act in 45 cases and awarded the artists $6.7 million — the maximum damages possible.

Have we lost our minds?

 

It is essential for society to have a legal framework that doesn’t undermine private property rights. This happened in the United States where we are supposedly protected by the Fifth Amendment.  This wasn’t communist China where the government has granted itself the author to violate the liberties of its people. This is the United States where we’re supposed to be secure in our persons, property and papers. And a federal judge handed down this ruling.

Some people would argue that this is just a minor inconvenience to a rich developer. We all have to follow certain rules to live in society. He held onto those buildings for years without making substantial money from them, renting them to artists and small manufacturers. He could have developed the interiors and left the graffiti in place. People like graffiti … or if they don’t, they should recognize it as folk art that must be protected … Right?

In order for society to achieve economic prosperity there must be a legal framework that doesn’t undermine property rights. Take a look around the world and you find that the wealthiest nations have strong private property rights protection while the poorest nations do not. If I can come home tomorrow and there’s graffiti all over my house that undermines not only my resale value, but my neighbors’ property values, and I’m not allowed to correct the defacement of my property, that’s a problem … not just for me, but for everyone who owns a home or building or anyone who might want to in the future. One man’s folk art is another woman’s defacement and it is our property, not the graffiti artists’.

But in America today, you can actually find people who have no understanding of what private property rights mean. There’s three dimensions.

  1. The exclusive use of a resource
  2. The right to services or utilities rendered by it
  3. The right to exchange it at any price one considers appropriate.

Here’s a nice link for a deeper discussion of the topic. What happens when these rights are somehow restricted, limited or flagrantly violated by law?

The answer is found in the incentives those laws have created. From an economic point of view, an incentive is a potential pecuniary reward that moves someone to do something. When economists say that incentives matter, they mean that a legal framework that establishes the right incentives will result in economic growth and prosperity while the wrong incentives can lead a country into inescapable poverty. If you think this is just economic theory divorced from reality, Venezuelans might beg to differ since they’re living in the real-life consequence of price controls that violated their property rights..

There are many ways to violate property rights and governments do it a lot. Excessive tax burdens, regulations limiting the right to use your property (as happened to Jerry Wolkoff) or asset seizures by government are blatant violations of private property rights that end up depriving economic agents of incentives to create wealth, thereby demolishing one of the most fundamental pillars of prosperity.

Private property rights are incredibly important for any kind of prosperity … or for that matter, liberty … to exist.

So, again, I ask the question – have we lost our minds?

Electric Car Math   5 comments

These are Fairbanks, Alaska figures.

According to Plug In America, a quality electric car (a Tesla) uses 32 kwh to go 100 miles. For the record, 100 miles is less than one-third of the way to the nearest city in Alaska. I am so looking forward to stopping overnight on my way to Anchorage since the Tesla only has a 300 mile range.

Coincidentally, my car needs to be filled about every 300 miles. $2.38 a gallon for gasoline. I know, we produce the oil, so why is gasoline so expensive here. Nobody can give us an adequate answer. Economies of scale are the explanation given, but we produce the oil, so you’d think we’d get a break on reduced shipping, but apparently not.

Image result for image of tesla carElectricity is 27 cents a kilowatt hour in Fairbanks. So to travel 300 miles in a Tesla would cost me $26.00.

My car holds 18 gallons and can take me 300 miles. That’ll set me back $43. Oh, the cost is half, so get an electric car. But ….

BUT … I need a heater or I’ll die in Alaska’s frigid temperatures. Running a heater in a gasoline engine hardly reduces the gas mileage because it’s excess heat off the engine. Running a heater in a Tesla does reduce the range … by 50%. If I wanted to drive to Anchorage, 380 miles away, I’d have to stop for gasoline in Wasilla. That would take 15 minutes (half an hour if I decide to grab some food and use the facilities) and I’d be on the road again. I would not stop to sleep along the way as it only takes about seven hours to drive 380 miles.

Image result for image 2005 ford taurus covered in snowIf I was driving a Tesla in the winter, with only 150 mile range, I’d have to stop in Healey and Wasilla and sleep overnight – $120 per night for the hotel, $60 a day for meals, and two nights of my time since it takes a Tesla 9.5 hours to achieve a full charge (assuming it can do that when it’s -30 out). So what I save in gasoline over driving electric, I more than make up in other costs.

A $400 trip to Anchorage (round-trip – gasoline, meals and assuming a decent hotel) would become a $1300 trip in an electric car, plus add four days onto my trip.

So please stop telling me about how much money I would save with an electric car versus my gasoline car. Yes, commuting to and from work in a warm climate saves you money, but those savings evaporate in a cold climate and become a liability if you need to travel any distance.

 

Posted February 8, 2018 by aurorawatcherak in economics, Uncategorized

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