The West Mimics Mao, Takes a Green Leap Forward

My takeaway is "Look before you leap".

Not everyone is enthused about how governments are pushing green energy.

"One of the essential lessons from China’s Great Leap Forward is that catastrophic failures inevitably follow from politicians’ insistence on ignoring reason, logic, truth and economics. Europe’s current energy crisis, California’s continuing power outages and Sri Lanka’s food shortages are all warning signs. The Green Leap Forward has set humanity on a fast track to another man-made catastrophe." WSJ, Sept. 2022

Another opinion in today's WSJ bemoans the proclivity of Telsa batteries to overheat and catch fire. Who knew?

This lesson should be the main one taught by economics

"The main lesson of economics is the mutual gains from trade and the peaceful social cooperation under the division of labor that a modern commercial society engenders" Peter J. Boettke, “Liberalism, Socialism, and Our Future,” The Struggle for a Better World (2021).

So says Don Boudreaux.

Property rights mean self-interested monitors.

"No one kills the goose that lays the golden eggs when it is his goose" (Sowell, Knowledge and Decisions, 1980).

Mark Perry says to give thanks for "'spontaneous order,' 'self-interest,' and the 'invisible hand of the free market" as you eat your Thanksgiving turkey (Carpe Diem, Nov. 2021). 

More Small Businesses Than Ever Raising Compensation

James Freeman's piece describes how markets react to and automatically reduce shortages (WSJ, Nov. 2021).  Shortage ⇒ increase in price ⇒ decrease in shortage. 

Experts v. Markets

"Who better to boss us around than the “expert class”? But markets, with billions of price signals, always know better than 537 elected politicians" (Kessler, WSJ,Nov. 2021).

The Knowledge Problem

A society of men, free to choose individually, and therefore free to make as many successes or failures as there are choices freely made, is definitely greater than the controlled society, limited to the powers and finite qualities of its collective controlling mind (Cafe Hayak, Oct 2021).

 

"In any case, private boondoggles have one big advantage over public ones: they don’t force uninvolved taxpayers to pay for them" (Cafe Hayek, Oct 2021).

Taught properly, economics provides a lens to understand the way the world works

 

"Taught properly, economics provides a lens to understand the way the world works. It is about how humans interact and make choices, and how an undirected market process unleashes the forces of invention, innovation, imagination, and improvement. The result is nothing short of miraculous.

"We ignite a spark in the minds of students when we show them how Adam Smith’s Invisible Hand motivates a self-interested individual to “promote an end which was no part of his intention” and thereby serve the needs of others. This seemingly simple concept explains why there was someone at your neighborhood coffee shop early this morning ready to serve you hot coffee, why a pilot spent years in training to fly you safely to Washington for this ceremony, and how something as simple as an ordinary lead pencil is the result of the peaceful cooperation of thousands upon thousands of individuals who will never meet" (From remarks by Fund for American Studies president Roger Ream, a recipient of the 2021 Bradley Prize, in Washington, Sept. 13).

ROOFS OR CEILINGS?

Milton Friedman and George Stigler use historical accounts from San Fransciso and New York City to compare the effects of using price to ration housing with what happens when the government imposes rent controls. (FEE, 1946). They classify what happens when the government imposes rent controls as using chance and favoritism to ration housing.

Here are some money quotes.

1. "In both 1906 and 1946, San Francisco was faced with the problem that now confronts the entire nation: how can a relatively fixed amount of housing be divided {that is, rationed) among people who wish much more until new construction can fill the gap? In 1906 the rationing was done by higher rents. In 1946, the use of higher rents to ration housing has been made illegal by the imposition of rent ceilings, and the rationing is by chance and favoritism. A third possibility would be for OPA to undertake the rationing."
2. "Advertisements in the San Francisco Chronicle again document the effect of rent ceilings. In 1906, after the earthquake, when rents were free to rise, there was 1 'wanted to rent' for every 10 'houses or apartments for rent'; in 1946, there were 375 'wanted for rent' for every 10 'for rent.'”
3. "Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidization of new construction and a future depression in residential building. Formal rationing by public authority would probably make matters still worse."

 

Russ Roberts and the Wonderful Loaf is a great site.

1. Read the poem here. Some highlights are:
   "Because there’s order all around us—things look as if they’re planned
   Like the supply of bread in a city—enough to match up with demand
   And though flour is used for more than just bread, we never have to fight
   Over where it goes and who gets what. So why do we sleep so well at night
   
   "Knowing nobody’s in charge , it looks like all is left to chance
   Yet in New York, or London as well as Paris, France
   No one’s worried the shelves will be empty, we take supply for granted
   But it’s a marvel, it’s a miracle, the world’s somehow enchanted
   
   "Could a minister of bread do even half as well?
   Would there be enough of every kind of bread upon the shelves?
   How could he know how much to make of each kind every day?
   There’d be shortages and surpluses and waste and much dismay
   
   "Every morning the bakers rise early to make sure your bread is fresh
   And the world gets more complicated but the plans just continue to mesh
   Every morning the bakers rise early, though not under anyone’s command
   Where in the anatomy textbooks can I view an invisible hand?
   
   "The key to the process is prices and the freedom to shop where you want
   Competition among all the bakers, makes sure that they rise before dawn
   To make sure the bread’s near perfection, to make sure that the buyer’s content
   You don’t have to know economics to know when your money’s well-spent
   
   "With each other. Order’s everywhere. Yet we humans too create it
   It emerges. No one intends it. No one has to orchestrate it.
   It’s the product of our actions but no single mind’s designed it
   There’s magic without wizards if you just know how to find it."

1. The reading list is great. Two highlights are:
1. Hayak, "The Use of Knowledge in Society"
   "t is a problem of the utilization of knowledge which is not given to anyone in its totality"
2. Roberts, "Profits v. Love"
   " was induced by the invisible hand to be altruistic. How sad it is that people think economics is the study of money or that economists believe in elevating mercenary motives above compassion. The great insight of economics is that people make tradeoffs. The basis for that insight is a recognition that behavior is complex and that no one has a single-minded motivation or a single goal. "

Walter Williams on the Invisible Hand

In the first 3 minutes of this video, Walter Williams argues that "greed" is a better motivator for doing wonderful things than "caring for others". 

Telling people how to use their capital is futile

Craig Smith summarizes the knowledge problem and the poor incentives in place when "statesmen" tell people how to use their assets (Cafe Hayak, Dec. 2020).

Bad consequences of the knowledge problems when government tries to control an economy

"A report found 13% of children under 5 are stunted; oil-rich nation is ‘on the edge of an irreversible catastrophe’" (WSJ Oct 2020).

Bill Gates says most tests for coronavirus are "garbage"

 

"But people aren’t getting their tests back quickly enough.

"Well, that’s just stupidity. The majority of all US tests are completely garbage, wasted. If you don’t care how late the date is and you reimburse at the same level, of course they’re going to take every customer. Because they are making ridiculous money, and it’s mostly rich people that are getting access to that. You have to have the reimbursement system pay a little bit extra for 24 hours, pay the normal fee for 48 hours, and pay nothing [if it isn’t done by then]. And they will fix it overnight.

"Why don’t we just do that?

"Because the federal government sets that reimbursement system."

Here is the full interview.

What happens when coronavirus makes a plant an unsafe place to work?

The coronavirus pandemic hit meat-packing plants hard. The owners of the plant have responded many ways (WSJ, July 2020).

1. The demand for PPE increased. What do you think happened to prices for PPE?
2. The supply of labor decreased; people don't want to work where the probability of getting sick is high. What happened to the price of labor?
3. Owners are substituting machines for people to pack meat. Would they substitute more and faster when the price of labor is low or when it is high?

Are the responses by owners what a benevolent social planner would order?

Why is the response to increase in demand for PPE slow in the USA?

One reason to encourage firms to raise prices when demand surges is to allow producers to accept the higher costs that they incur to ramp up production (https://marginalrevolution.com/marginalrevolution/2020/04/ppe-shortages-and-the-failure-to-increase-prices.html). The post also points out that the long-run response by producers to higher prices is > the short-run prices: over time either prices will decrease or consumers will purchase even more.

Is command and control the best way to increase the supply of ventilators?

President Trump invoked the Defense Production Act to force GM to make ventilators (WSJ, March 2020). Three questions come to my mind.

1. What process determines the price of ventilators, supply and demand, negotiations between buyers, sellers, and third-party payers and facilitators, government regulations, or some combination?
2. Which would increase supply more efficiently and quickly, an increase in the price or government command-and-control?
3. Will the government reimburse GM for their opportunity costs or treat GM and its employees as conscripts?

Rationing Healh Care

Coronavirus has rekindled discussions about the best way to ration health care (WSJ, March 2020). The opinion mentions ways to increase capacity to provide health care. Two questions arise in my mind.

1. Does a lottery or algorithm increase capacity when shortages occur?
2. Would the market system increase capacity when shortages occur?

This later post discusses another WSJ article on rationing ventilators.

No one can "understand" the economy

To try to "understand" the economy is a fool's game, according to Donald Boudreaux (AIER, March 2020).