Finance: History and Policy

Sunday, November 17, 2024

Why We Need More Electoral Colleges

Many state division and secessionist movements are afoot, including one that I had previously not known about, "New Illinois," which would be Illinois minus Chicagoland. See the WSJ's coverage here: https://www.wsj.com/us-news/rural-counties-new-illinois-california-1e1badb5?mod=djem10point

If you look at a map of any recent presidential election, you will see a sea of Republican red with splotches of Democrat blue. The Red areas also mostly rural areas and the blue ones mostly big cities and their burbs, with some Indian Reservations tossed into the mix.

The Founders and Framers devised the Electoral College (EC) to ensure that presidents would be chosen with input from states and not just majority rule because the president is supposed to represent the nation and not just densely populated areas. Democrats hate it for that reason and are actively trying to undermine it at the national level.

What true small-d democrats should be doing though, is replicating the EC at the state level so that big cities do not dominate rural areas, as they do in California, Illinois, New York, Massachusetts, and other states where blue metro areas control state government. They need to find some way for rural residents to have more say in policy, at least enough to veto policies that actively hurt them for no good reason.

One problem with straight majority rule is that only one voting precinct needs to be corrupted to throw a close election to the wrong party. Another problem is that if even a real majority lives in a small space or is otherwise narrowly interested in a subject, it can impose its palpably poor policies at low or no cost to themselves on people living in places the majority knows nothing about.

Consider, for example, the silly prohibition on trapping beavers in Massachusetts. People in Boston passed that because they think beavers are cute. They are, I guess, but they build dams that can damage people's property, not in "the Blue Blood streets of Boston" but in the Berkshires, hours away. The dumbest thing of all about the law is that people can still call exterminators to take out the beavers and hence have an incentive to ERADICATE the busy furry fellows so they do not have pay the exterminator fee again. If they could trap the beavers, they actually have an incentive to cull them rationally because beaver furs have some value. For more backup on this, see https://www.scirp.org/journal/papercitationdetails?paperid=124716&JournalID=192 (no paywall).

As our governments grow ever bigger and more powerful, incentives to break away from ones that do not represent all people will grow. If urban centers do not relinquish their death grip on rural areas by building something like state-level ECs, we may end up with 100 states, or maybe with two national governments, a democratic one that respects minority rights, and a Democratic one that does not.

For more on that, see another open source article I recently published here: https://link.springer.com/article/10.1007/s44282-024-00065-5

Unconstrained democracy has been compared to two wolves and a sheep voting on what is for dinner. The sheep needs a veto and so do our rural residents.

Friday, June 28, 2024

Secondary Sanctions: Limited Effects and Potential Backfire

No earthly power, short of nuclear annihilation, can stop Russia and China from trading. The countries share a 4.3 thousand kilometer long border over which bulk commodities like oil can be exchanged for precious commodities like gold. Physical currencies, including dollars, euro, renminbi (CN¥), and rubles (₽) can also flow across the border, by plane, train, automobile or, if necessary, camelback.

Physical means of payment need to be safeguarded from third-party bandits, which adds to expenses, but the counterparties need not fear expropriation so long as Putin and Xi remain allied, for each retains incentives to enforce the foreign contracts of the companies in their respective countries. Given the likely size and profitability of current and future trade, private contracts will largely be self-enforcing anyway because the costs of reneging on a deal, loss of future dealings, will exceed the expected benefits of future trade. That is why hundreds of billions of dollars can exchange hands in foreign exchange deals daily with nary a default.

For transactions requiring more speed, or some sort of collateral, Bitcoin or other cryptoassets could be used, and probably already are.

The cheapest and fastest method to make payments, though, is simply bank to bank, CN¥ for ₽ deposits and vice versa. To thwart such transactions, U.S. officials have imposed secondary sanctions, i.e., sanctions on foreign banks and other financial intermediaries engaged in sanctioned transactions.

The U.S. officials who imposed secondary sanctions are either daft or engaged in vote mongering. Hopefully, it is the latter because the former continues down a road more costly to the U.S. than to Russia.

Some segment of U.S. voters blames Russia for the invasion of Ukraine and wants the American government to do whatever it can to defeat Putin. Some would even support direct military intervention but most appear content with what is termed “virtue signaling.” In other words, they want to think that U.S. policymakers are actually inflicting harm on Russia’s military capabilities by thwarting its trade. Such voters do not understand even their own domestic finances much less international ones and are easily swayed by headlines and pundits telling them that sanctions have been “strengthened” or “tightened” or other impressive sounding words. Most such people will not vote for Trump but they might also abstain from voting at all unless they can be made more enthusiastic about Biden.

U.S. policymakers, though, might actually believe that their secondary sanctions will prove effective although they simply move the core issue to another level. Much like the internet itself, financial systems are networks and highly malleable ones at that. Information/cash flows that hit nodes (financial institutions) that are blocked due to sanctions or other causes simply reroute to active nodes. Moreover, new nodes can be created at any time to “launder” the money, or in other words to hide its “dirty” origins. Despite decades of effort, U.S. officials have been unable to stop the laundering of illicit drug money by domestic agents and hence stand no chance against foreign launderers, whose transaction data can be altered or hidden from prying eyes.

Policymakers could take more extreme measures but again they can only increase transaction costs, not interdict mutually beneficial trade. Moreover, at some point, they risk their actions hurting an already troubled domestic U.S. economy by making U.S. companies fearful of doing business abroad, which appears to be the main effect of the secondary sanctions so far. In the limit, their actions could be seen as an act of war, like a physical blockade of Russian ports certainly would be.

Extending sanctions to tertiary transactors and beyond threatens a return to a bipolar world, like that of the Cold War era, with two competing spheres or “worlds” that trade in limited quantities and only with government approval. Such an outcome would decrease world output by limiting the gains from trade to those available within the two blocs and also increase the probability of the outbreak of a major war by decreasing economic ties.

The “Free World,” led by the U.S., prevailed in the Cold War but the same outcome is not assured should global trade again be divided. America’s free enterprise system proved more productive relative to the command economies of the two major communist foes, the USSR and China. The economies of the EU and the U.S. today, however, are much more controlled than they were then and the economies of Russia and China are now more fascist, and hence flexible and productive, than the economies of their communist forebears.

Moreover, how the world would divide remains unclear. After decades of invasions and occupations of foreign countries, as well as numerous documented instances of interfering with foreign nations’ sovereignty, the U.S. has lost the moral high ground it possessed after World War II. The Anglosphere, the EU, and India would likely remain within the U.S. bloc but much of the rest of the world could fall into the Sinosphere, creating a rough economic parity that never really existed during the Cold War. Undoubtedly, some countries would play off the two blocs, much as India did for decades, for their own gains.

In sum, the latest round of U.S. sanctions against Russia and those doing open business with Russia might raise transaction costs but cannot stop trade between Russia and China. Hopefully, U.S. policymakers cynically attempt to increase votes to Biden knowing full well that their efforts are too miniscule to affect Russia’s war machine more than at the margin. If they actually believe that sanctions can work if only further tightened, their miscalculation may lead to much higher costs for Americans while actually bolstering China and Russia.

Monday, May 27, 2024

The Protectionism Gambit

President Biden now tries to out-Trump former President Trump on protectionist trade policies. Not only did he leave most of Trump’s tariffs in place, he matched Trump’s call for 100 percent tariffs on Chinese EVs and supported a Section 301 petition that, when implemented, will impose still undetermined port duties on Chinese-built ships.

Bilateral trade restrictions like those reduce the economic output of both trading partners. Specifically, the tariffs and port duties hurt U.S. consumers by raising the price they pay for Chinese goods and hurt Chinese manufacturers by eliminating their cost advantages. U.S. manufacturers may benefit, but it is just as likely that untaxed foreign producers that are more efficient than U.S. ones, like Japanese shipbuilders or European EV makers, will gain instead.

By raising the price of all EVs sold in the U.S., tariffs on Chinese EVs will also discourage EV adoption, a purported goal of the Biden administration’s so-called Green New Deal.

Why, then, would Biden turn toward Trumpian protectionism? Because it will certainly generate votes in November.

U.S. politicians routinely lie to the media and the public, so the only way to know what policymakers are truly thinking is to access their correspondence via a FOIA request. If that is unavailable, as it usually is because they routinely illegally destroy official correspondence, use unofficial back channels to communicate, or redact key information from the documents they are forced to disclose, analysts must follow the money or votes by analyzing who wins or loses, or who thinks they will win or lose, due to specific policy changes.

One possibility is that the Biden administration believes that high tariffs will somehow reduce Chinese military capacity. That seems unlikely, however, as the tie is tenuous. Moreover, the last time that the U.S. imposed heavy economic sanctions and other economic costs on an ambitious East Asian empire, war resulted.

More likely, Biden’s handlers believe that he can take voters from Trump, specifically some untold number of millions who like Trump’s trade policies but who dislike Trump himself, by implementing Trumpian tariffs. Moreover, because independent presidential candidate Robert F. Kennedy, Jr. has also come out in favor of tariffs against China (and any other nation that allows the “exploitation of workers”), Biden does not have to worry about losing any votes due to his trade policies.

Some subset of the anti-Trump the man, pro-Trump trade policy bloc might overlook Biden’s other policies, like the open southern border, just to avoid voting for Trump while still getting Trump-like tariffs. As it becomes clear to Biden’s advisors, however, that most swing voters (not dedicated to either major party) do not believe Biden’s claim that Republicans are to blame for the border crisis by blocking border reform legislation, look for Biden to make some grand gesture towards border security in the months before the November general election, as he tries to win over more of the swing bloc.

That Biden would sacrifice consumer interests to gain votes is unsurprising. Like other U.S. presidents dating back at least to Franklin D. Roosevelt (1933-1945), Biden openly buys votes with taxpayer money. He continues to insist on student debt relief, for example, even though the courts have rebuffed his previous plans. Here, the strategy seems to be to appear to put up a good fight, but if U.S. courts stymie his efforts he can credibly pledge to get a student debt relief bill through Congress during his second term.

High tariffs on Chinese ships and EVs hurt most Americans in their role as consumers. The costs per American per year are too modest to force them to take action, but for decades they understood that free trade promotes their interests and voted accordingly. How, then, can all three leading candidates for president in 2024 support tariffs?

The events of 2020-22 proved that many, if not most, Americans have been poorly educated in biology, economics, and civics. Most willingly followed obviously flawed pandemic policies, many of which were concocted out of thin air (social distancing and masking), and took untested, experimental vaccines simply because authority figures told them to. Government censorship of dissenting voices pointing to the misaligned incentives of vaccine manufacturers and the self-serving regulations and lockdowns imposed by politicians made it difficult to direct people toward unbiased sources and more logical analyses of data about Covid IFR, vaccine danger signals, and the like. Trillions of dollars and millions of lives were lost as a result.

When it comes to economic policies, government censorship is largely unnecessary because aside from those interested in investment decisions, most Americans do not seek out alternative economic policy viewpoints, or fully grasp any randomly encountered. Were a claim about the destructive nature of trade restrictions against China to become popular, however, the U.S. government now has all the tools necessary to squelch it and to discredit the author(s), just as it discredited and disqualified doctors pointing to the true nature of Covid-19 and the effective clinical treatments they developed during the pandemic.

In short, so long as the U.S. government can force traditional mass and social media to censor contrary viewpoints, its policies, including its economic policies, voters will not constrain policymakers. Higher prices will be put down to “corporate greed” and restricted supplies to “global supply conditions.” Budget deficits will continue to grow and military aid to flow. In short, expect more economically irrational policies from Washington.

Monday, April 29, 2024

Economic and Political Analysis of the Recent Section 301 Petition Re: the Chinese Ship Industry

In a 137-page and 150-exhibit petition filed with the U.S. Trade Representative (USTR) in March, attorneys and consultants for five large U.S. labor unions allege that the “Government of China” engages in “unfair trade practices” that precipitated the relative demise of America’s shipbuilding industry since 2000 and prevent its recovery. It was filed under Sections 301 and 302 of the Trade Act of 1974, which empowers U.S. economic entities to petition USTR to investigate and rectify non competitive foreign business practices and policies.

Although its economic claims are nonsensical, the petition does have a valid legal basis. Most importantly, it will have strong political support, so its nostrums, including a port levy on Chinese-built ships, may prevail in a US election year. The short- and long-run economic effects of the port levy on China, however, can only be stated in general terms until the details are determined.

The petition does not claim that China has broken any international laws or treaties. Rather, it rests on a part of U.S. trade law that considers “unreasonable” the policy of any foreign government that is “unfair and inequitable.” Such policies include “export targeting,” which U.S. law defines as “any government plan or scheme consisting of a combination of coordinated actions (whether carried out severally or jointly) that are bestowed on a specific enterprise, industry, or group thereof, the effect of which is to assist the enterprise, industry, or group to become more competitive in the export of a class or kind of merchandise.”

Like the legal concept of “export targeting,” the petition contains little economic merit. The complaints amount to no more than admissions of Sino superiority in shipbuilding. They focus on Chinese government investment in the sector rather than U.S. disinvestment in maritime industries, due, in large part, to the actions of the complainants themselves, which raise U.S. labor costs above competitive levels.

The petition complains of practices also employed by the US government. For example, it notes that “the China Export-Import Bank has provided tens of billions of dollars in loans to support the construction of thousands of vessels in China for export to foreign owners,” without also noting that the United States government has employed an Export-Import Bank since 1934. According to the U.S. House of Representatives, “The Export-Import Bank of the United States (Ex-Im) opens up international markets to U.S. businesses by financing and insuring the sale of U.S. exports when private sector financing is prohibitively expensive or simply not available.”

The petition also claims that “China has given its domestic shipbuilding unfair advantages by mandating the purchase and use of Chinese ships by Chinese state-owned shipping enterprises and state-owned oil companies.” Yet it calls for the strengthening of the Jones Act, also known as the Merchant Marine Act of 1920, which protects the domestic U.S. shipping industry from foreign competition. Almost 50 countries enforce similar “cabotage” laws.

The biggest flaw in the petition may be that it doesn’t recognize that the “Government of China” is merely the agent of the Chinese Communist Party (CCP), the largest and most powerful de facto corporate conglomerate the world has ever seen. The many Chinese state-owned enterprises (SEOs) are best understood not as corporations aided by the Chinese government but as de facto subsidiaries of the CCP’s conglomerate.

Unlike most conglomerates, the CCP is not publicly traded, but rather has taken the form of a private equity venture, with rents accruing to party members. It behaves, however, as many international corporate conglomerates, from the Dutch East Indies Company to 3M, have for centuries by strategically expanding the geographical and industrial scope of its business activities.

For example, the “CCP Inc.” shifts resources between its many units to leverage emerging international opportunities. Its Belt and Road and Maritime Silk Road initiatives differ from the activities of Western multinational corporations, many of which were government subsidized, only in scale. Like other conglomerates, the CCP favors trade between its subsidiaries, a conventional and rational business practice the petition derides as “discrimination against non-Chinese producers and operators.”

The petitioners also lament many discrete facts, like the production of 70 percent of the world’s cargo cranes by a Chinese SOE. Without evidence of coerced sales, all that means is that the Chinese must produce cargo cranes with the best combination of quality and price. It should be thanked for the same reasons that consumers thanked Standard Oil for supplying the world with inexpensive oil. The petition itself notes that China has decreased the global price of commercial vessels, which of course is a problem only for less efficient competitors, like U.S. shipbuilders. Its claim that “non-market acts and policies” allow China to underprice competitors remains completely unsupported.

British shipbuilders made similar complaints about the Japanese ship industry in the 1970s and 1980s. Then and now, such complaints display a profound ignorance of the workings of the free enterprise system, whereby any economic entity, including sovereign governments, remain free to invest in whatever industries they like, while also bearing the costs of overinvestment, as Japan did for several decades after its acclaimed “economic miracle” ended in the 1990s.

The petition also raises the specter of compromised U.S. national security. It remains unclear, however, why peacetime ownership of ports and ships matter in wartime. In both world wars, for example, the U.S. government nationalized the physical and financial assets of enemy combatants in areas within its control, turned their administration over to the Alien Property Custodian, and utilized them in the war effort. Similarly, U.S. corporations could buy relatively inexpensive Chinese cargo ships in peacetime but deploy them on behalf of the U.S. military if called upon to do so. Steel, after all, owes allegiance to no country. (Computer chips might, but the petition makes no such claim.)

U.S. corporations buy so few Chinese ships that the petition does not call for higher tariffs on Chinese-built ships. Tariff revenues would simply accrue to the U.S. Treasury anyway. Instead, the petitioners want much more direct aid, in the form of the USTR charging Chinese-built ships (regardless of flag) a port fee dedicated to a U.S. Commercial Shipbuilding Revitalization Fund “to help the domestic industry and its workers compete.” Such protectionist measures, however, cannot increase competitiveness because they allow uncompetitive businesses and their unionized workers to continue to conduct business as usual rather than make the difficult choices necessary to increase productivity.

The next step in the process is for the USTR to consult with the Chinese government and to hold a public hearing on the petition. Written comments must be submitted by 22 May, a week before the scheduled start of the public hearing in Washington DC. A week after the hearing ends, post hearing rebuttal comments fall due. After that, USTR will likely make policy recommendations to POTUS.

Section 301 has long been a matter of controversy between the US and the World Trade Organization (WTO). In 2020, the US formally questioned the legality of the WTO’s dispute settlement system, particularly its Appellate Body. To move the dispute to the WTO likely would delay any policy implementation for years, so POTUS might act unilaterally in this matter.

As this is an election year, POTUS may use the USTR’s recommendations to try to garner votes. As discussed elsewhere, US politicians have increasingly jettisoned free trade for protectionist policies in the hopes of alleviating the nation’s looming fiscal crisis by taxing foreign firms, especially Chinese ones, to the limited extent possible. A secondary goal is to appear “tough on China,” even if the main effect of a policy is to tax U.S. consumers to subsidize special interests, like unions, sympathetic to the political party currently in power.

Judging the precise effects of the proposed port fee is impossible before USTR and POTUS agree on the specifics. The petitioners want the port fee to be a tonnage duty so that bigger Chinese-built ships pay more, but they do not specify if they want the per-ton fee to increase with ship size. If the last ton costs as much as the first, the port fee will not distort the size of Chinese-built ships docking in the US. If the per ton fee increases steeply, however, smaller ships will be favored.

The petitioners also want the fee to decrease with the age of the ship, which will encourage keeping older, less energy-efficient, and more accident-prone ships to remain in service. Environmental groups will likely oppose that part of the proposal and prevail.

The precise definition of Chinese-built will also be important. If ships built in a foreign country by a Chinese SOE will not be subject to the fee, it will encourage the globalization of Chinese-owned shipbuilders.

The petitioners also want the fee to increase regularly until China’s shipbuilding dominance ends, but they do not specify rates or intervals. They suggest $1 million per ship per clearance as a hypothetical but it is unclear if they see that as a starting or ending figure.

To the extent that the fee becomes high and is binding, the Chinese will have an incentive to hide their ownership of shipbuilders in other countries through complex and opaque chains of shell corporations, secret ownership stakes, or convertible debt financing. Such tactics can be difficult to detect or police.

If the regulations and their enforcement are tight enough, the biggest winners from the proposed port duty in the long term may well be Japanese and South Korean shipbuilders, not the much less competitive American ones. The petition suggests that those countries too might be guilty of “export targeting” but slapping duties on America’s most important allies in any future war ith China will be a much harder sell politically.

Moreover, the more countries whose ships are subject to a port fee the more the fee will fall on U.S. consumers in the form of higher prices for imports. Ostensibly, the first reaction to a port fee on Chinese-built ships will be to not use those ships, however defined, in international trade to the U.S. That could reduce future demand for Chinese-built ships, lowering the quantity sold at any given price.

If ships built in Japan, South Korea, and elsewhere were subject to the port levy, however, shippers would have no choice but to pay the port fee and there would be no reason to prefer non-Chinese-built ships. The port fee would then be similar to a tariff, but one based on the tonnage (and potentially age) of the ship rather than the value of the goods aboard. The cost, in other words, would be largely or wholly passed on to American consumers and become just another example of special interest legislation that aids the few by placing a small and difficult to detect tax on the many. The petition recognizes this, but trivializes it by estimating the cost at half a cent per pair of blue jeans. A fee of $1 million per vessel, however, would generate billions of dollars in revenue, which is billions of dollars per year diverted from the pockets of the Americans wearing those blue jeans to uncompetitive U.S. shipbuilders, employees, and unions.

Sunday, November 12, 2023

The College Curious Need New “ESG” Ratings

The publication of this two-parter by the Martin Center reminded me that I had drafted something on the topic of college ratings but dropped it. Here it is for your edification and "enjoyment":

Those interested in attending, or sending their children, to university must decide if the time and monetary investment is worth it and, if it is, where to spend their precious dollars. Strident claims by presumably knowledgeable government officials that student loans should be wholly or partially forgiven suggest that many students made the wrong decision and shouldn’t have gone to school at all, or at least not majored in Oppression Studies at Woke U. Some of the “college curious” may have decided on emotional or other irrational grounds based on family history or an affinity for certain sports, while others were undoubtedly led astray by college rankings.

The notion that colleges and universities can be confidently ranked from top to bottom smacks of deep intellectual hubris. Even the bond rating agencies attempt only to lump securities into classes based on risk of default and often get even that wrong, as anyone who lived through 2008, 1997, 1982, and so forth may recall. To ascertain that institution X is a smidge “better” than Y, the rankers rely upon small changes in various quantitative metrics. Because administrators’ careers and tuition rates often depend upon rankings, those quantitative metrics have been manipulated or even concocted, most recently by Columbia University, the shenanigans of which were exposed by a whistleblower who believes that college rankings are essentially worthless. Before making any decisions, the college-bound at least need to realize that a more highly ranked school may simply be better at gaming the ranking system, at being dishonest in other words.

In addition, properly interpreting many metrics requires context that is not easily quantified. A school with a high 8-year graduation rate (as measured by the Washington Monthly), for example, may have an abysmal unreported 4-year rate, suggesting that it is adept at bilking students for more tuition than expected by making it difficult for them to graduate on time but easy for them to eventually get a degree, perhaps by making courses challenging but pressuring faculty to relax the requirements for students making up incompletes or retaking classes who appear ready to bail. A relatively low graduation rate, by contrast, might indicate that a school is trying to maintain standards and willing to fail out students to do it.

Most importantly, major rankings never include arguably the two most important metrics, learning (what students know/can do upon graduation minus what they knew/could do upon admission) and lifetime earnings. Some measure purported job placement rates and even initial salaries but those skew toward schools with sticky reputations, usually hoary institutions that continue to attract the attention of recruiters from high paying firms because they presumably produced quality graduates in the past. Most of the college curious, however, care more about lifetime earnings than initial salary. Moreover, the trajectory of earnings provides more information about the quality of a school’s ability to educate, rather than to merely train or signal the employability of, their students because it proxies the original stated goals of higher education, which is to cultivate lifelong learning and independent thought, both of which remain essential to a robust private economy and a vibrant civil society.

I first called for such metrics over a decade ago, in a book (Higher Education and the Common Weal: Protecting Economic Growth and Political Stability with Professional Partnerships, 2010) so controversial it could only be published in India and is already out of print. Universities do not want to track systematically the careers of graduates, at least those unlikely to make big donations, or to measure learning because such information might expose their individual and collective weaknesses. Once informed of the industry’s overall ineffectiveness, fewer people would opt for “higher” education in the first place and many others would attend less expensive, but pedagogically equivalent, institutions. That, of course, would tend to dampen tuition, or at least its rate of increase, forcing universities to invest more in pedagogy (and its crucial cognate, research) and less in sports complexes and complex administrative systems. Rest assured, then, that the college curious will never know with certainty which schools are most likely to increase both their ability to earn a living and their ability to positively impact the social sphere.

Rankings, however, do not have to be so rank. To better aid those interested in attending college, a disinterested third party could create a grading system focused on three major cognates of lifetime learning and social and economic achievement. I call it “ESG,” not for the thoroughly debunked environmental, social justice, and corporate governance investment grading system recently popular in Woke circles but for intellectual energy, social engagement, and university governance.

Intellectual energy refers to the atmosphere on campus, including the number of outside speakers and respectful attendees of their talks (not anti-intellectual protestors). Contrast Hillsdale College, where I recently spoke to over two score faculty and economics students on a balmy weeknight during Homecoming, with another midwestern college of similar size where during an otherwise uneventful week only a few students turned out on the same subject (the economics of slavery) and had to be bribed with “extra credit” to sit physically in the room while investigating their social options later that evening on their phones.

By social engagement, I mean old-fashioned civic engagement and well-informed, dare I say research-based, attempts to ameliorate social problems. In other words, schools should be judged not on the extent that they encourage mere virtue signaling, which signals only iniquity and an anti-intellectualism unbecoming any institution devoted to “higher” education. Universities should be judged on the extent that they encourage students to engage in rational action. Society needs the energy, verve, and long-term outlook of its youth but is not aided by inducing young people to slavishly follow fads ginned up by the Left, or the Right for that matter. Universities should inculcate responsible free speech by directing students to research, write, and orally defend their positions before protesting or engaging in other direct action.

The quality of a university’s governance should be assessed by the checks and balances that it incorporates to ensure that it keeps its promises and does not distort its record. As the Martin Center has shown, some schools have forced out tenured non-Woke professors by threatening the budgets of noncompliant departments and members of promotion and tenure committees and by employing non-disclosure agreements in unethical, if not illegal, ways. If accreditors will not discipline, an outside rater should expose such schools because they cannot be trusted to administer donations in line with donor intent, let alone to put the interest of students first during public health or other emergencies.

The college curious need quality university quality ratings like “ESG” because often they do not (yet) have the intellectual tools needed to properly assess the claims that college admissions officers and marketing materials make. Few, for example, understand the implications of public choice theory or its application to public and private university administrators. They do not realize that the beautiful school with the great reputation and super sports teams may be run to serve the interests of administrators, coaches, and, to a lesser extent, faculty, not students. Such institutions of course claim to be student-centered but do not credibly commit to putting students first in any but the most cursory fashion. They may be highly ranked but in the “ESG” system sketched above would be graded low.

In fact, most of America’s colleges and universities would receive a failing “ESG” grade, at least initially, because most have repressive intellectual atmospheres where mindless Woke virtue signaling prevails, implicitly supported by faculty cowed into submission by the ouster of outspoken opponents of the status quo enabled by poor governance practices. FIRE and College Pulse join forces to rank universities on 13 free speech metrics. The rankings are relative, though, not absolute. The fact that the University of Virginia ranks sixth best suggests that the rankings only gauge speech prohibitions and do not measure positive campus intellectual energy (the E in my “ESG” rating) because a recent Heritage report reveals that Virginia’s universities are “drowning in” DIE (diversity, inclusion, and equity) administrators and policies, and that UVA is the second worst offender.

Presumably, though, to attract more students from a shrinking pool some universities will reform to achieve a higher “ESG” grade. Indeed, some new institutions with stronger “ESG” bona fides have formed and a few incumbents have reformed their cultures rather than joining the race to the bottom taking place in standards. American higher education remains sick, perhaps chronically ill, but by exposing its rotten parts while highlighting those institutions that remain true to the industry’s original mission of helping students to become independent thinkers capable of adding value to both the economy and society, it could improve outcomes without further ballooning the national debt.

Friday, November 10, 2023

Let's Ban Professional Sports 2nd Amendment SATIRE

NB: Tried this at several satirical websites but some of the humor was too high brow. I mean who jokes about the Ninth Amendment?

The government should ban sporting events forthwith because they encourage the consumption of alcohol and other inebriates, gambling, harming animals, idleness, and violence. It doesn’t matter that millions of Americans love to watch sporting events live or on television because sports are not explicitly protected by the Constitution, they divert resources away from BIPOCs, and they emit literally tons of carbon into the atmosphere.

Anti-sporters like myself have never played or watched any professional sport in our lives, but we know everything there is to know not to like them and that is sufficient to call for a ban. Millions of Americans just like me wonder how long policymakers are going to allow this, this, this genocide to continue. It has got to stop and here is why.

First, while like-minded allies long ago managed to curtail alcohol sales late in games, all that did was to induce people to start drinking earlier. Now, we’ve discovered via a thorough investigation conducted on Tik Tok, fans show up in the parking lots of sporting events hours early so they can get drunk, gorge themselves on animal products, and likely fornicate too.

Some might say that impaired driving, not alcohol or drug use per se, kills people and that responsible drug and alcohol use isn’t hurting anyone. Those people are idiots. We don’t have any reliable statistics, but we know that literally millions of babies have been killed by drunk or high sports fans. (Yes, some of those babies may have been squirrels but squirrels are people too!)

Namby-pamby types will also claim that gambling doesn’t hurt anyone, except the losers, but they knew what they were getting into. But gambling is an addiction, just like drinking and drugs. Again, we don’t have statistics, but we heard an anecdote about a baby run over by a guy checking his phone to see if “da Iggles” covered the spread. We don’t know what that means exactly but we know it is about sports gambling.

As for harming animals, footballs, we learned on Wikipedia, are made from pig skin. The thought of all those skinless hogs running around somewhere just makes our blood boil. There must be some pretty cold cows out there, too, because baseball gloves and balls are made from cowhide. We’re told that every time a baseball touches the ground, it gets replaced. That’s a lot of baseballs and although cows are pretty big that must be a lot of harmed cows.

The idleness and violence go hand-in-hand with drinking and gambling. How many trillions of dollars are wasted each year as people watch some guys pat each other’s butts and smash poor balls, or each other? Again, nobody is tracking these things but it is obvious that it is a giant waste.

It is equally obvious that professional sports are bad for the environment. We can’t find it right now, but we once saw a study that claimed that up to half of global warming is caused by lacrosse alone.

If people worked instead of wasting their precious time on professional sports, America could easily afford to pay reparations to BIPOCs and other oppressed groups du jour. The athletes themselves would have to get real jobs too, thus providing even more support for the economy. And taxpayers could stop subsidizing sports stadiums and increase subsidies for worthy things, like NPR and carbon pipelines.

Banning professional sports might sound unconstitutional. Didn’t the government have to pass an amendment before it banned alcohol? Yes! I’m an expert because I have read the Constitution all the way through, except for the boring and confusing parts, almost three times. One approach would be to convinces states to ban sports. Start easy, like the Dakotas, which don’t have any sports, except maybe for rodeos.

Then California because while policymakers there like drug use, they don’t like carbon emissions and need money to pay reparations. The leagues will then lose a lot of their teams and won’t be able to afford to defend themselves in other state legislatures. Then the federal government could step in under the interstate commerce clause. I couldn’t actually find an amendment saying this, but I have it on good authority that the greatest president of all time, Franklin D. Roosevelt, packed the Supreme Court full of the greatest justices of all time and they all agreed that the Constitution doesn’t mean what it says, it means what they say it means, and they said it means the federal government can do whatever the heck it wants if it affects the economy in any way. If you don’t believe me, ask Farmer Filburn.

There is an amendment that bothers us, though, the Ninth. It seems to say that people have a bunch of other rights not explicitly mentioned in the Constitution and, taken with the Preamble, suggests that the government ought to leave people to do what they want for the most part. Hardly anyone ever mentions that amendment, though, so we’re guessing it was really about slavery.

In sum, we don’t like sports though we know nothing about them but we feel that they are bad and are willing to concoct evidence and twist reality to convince a slim majority of our fellow Americans to join us in banning them.

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research and a part time satirist who loves sports and also firearms, which are explicitly protected by the U.S. Constitution yet under assault in Massachusetts.

Tuesday, August 15, 2023

Worker Productivity Through the Ages

NB: 100% sure I wrote this but I don't recall when or why! Found it on my Google Drive. Pretty sure it isn't published anywhere.

Worker Productivity Through the Ages

Productivity is generally defined as total output divided by total input, which can be stated in terms of time or some unit of currency. If output increases (decreases) while input stays constant, or if output increases faster (slower) than inputs, productivity rises (falls). Productivity is related to, but should not be confused with, efficiency, which is the expected input divided by actual input needed to achieve some level of output, often stated in percentage terms by multiplying by 100.

Despite its simple definition, productivity remains so difficult to meaningfully measure that economists generally treat it as a residual by lumping the productivity of different types of workers into total factor productivity (TFP), the portion of increases in output not explained by increases in inputs (more formally, Y = A*K*L, where Y is total output, A is TFP, K is capital’s share of input, and L is labor’s share of input) (Comin 2008). Increases in TFP can usually be linked to specific technological advances, as Shackleton does for the USA after 1870 (Shackleton 2013). Economists generally dislike measures of worker productivity, however, because most merely measure the efficiency of individual workers, while others compute averages instead of the productivity of the marginal worker, i.e., the last worker toiling to complete some task. For over a century, economists have argued that marginal analysis trumps the analysis of averages or other central tendencies. (Harry Jerome, “The Measurement of Productivity Changes and the Displacement of Labor,” American Economic Review 22, 1 (March 1932): 32-40; George Stigler, “Economic Problems in Measuring Changes in Productivity” in NBER, Output, Input, and Productivity Measurement [Princeton: Princeton University Press, 1961], 47-78.)

In short, productivity measurement remains inherently contextual, varying with the question the measurer seeks to address as well as the physical realities of different workplaces and spaces (Sena 2020). Measurements appropriate for one time and place may prove entirely inappropriate, or downright impossible, for another. Even simple measures of labor productivity, like output per unit of time, can depend crucially on raw material input availability, incentives to work, market demand, and seasonality. Output quality must also be considered, especially when concepts like minimal acceptability are unavailable or inappropriate.

This section, “Worker Productivity Through the Ages,” provides important examples of the changing contextuality of productivity from humanity’s origins through the Neolithic Revolution to ancient historical civilizations and the modern productivity revolutions in agriculture, communication, manufacturing, and transportation, to the recent domination of labor share by construction, government, and knowledge workers.

Prehistoric Productivity

Early humans (hominins) coevolved with their technologies to the point that modern humans themselves could be considered the first general purpose technology (GPT-HS). It appears likely that evolution by means of natural selection drove early humans to use productivity gains – perhaps from technologies like fire or other ways of denaturing/predigesting food (Sanfelice and Temussi 2016), stone tools (Semaw et al. 2009), and trade – to biologically purchase bigger, more complex brains capable of developing yet more sophisticated technologies or of producing existing technologies more efficiently (Ofek 2001)(Wilson 2020). The medium of purchase was calories and the other nutritional inputs needed to grow and fuel brains, which are biologically expensive (Kotrschal et al. 2013). While the precise timing and mechanisms remain unknown, hominin encephalization certainly occurred over several million years as average brain volume grew faster than body weight, from 440 cc to over 1,300 cc. From impressions left on fossil craniums, scientists know that hominin brains also grew more complex as human-technology coevolution occurred (Rightmire 2009; Gunz et al. 2020; Tarlach 2020; Price 2021).

Except for stone and bone tools and hearths (fire pits), most early human technologies left little or no direct evidence in the archeological record. Although measuring stone or bone tool production productivity in the modern sense will remain impossible, scientists have estimated manufacturing efficiency by modeling the ratio of waste rock to useful blades, or length of cutting edge to original stone mass, after reconstructing the knapping or fracturing process employed. Some conduct experiments by knapping rocks themselves using the same tools and techniques that early humans did, and comparing the results to archeological data taken from ancient lithic quarries and tool manufacturing sites (Schlanger 1996).

Scientists have generally found gradual increases in raw material efficiency over lithic technological evolution (Castañeda 2016; Muller and Clarkson 2016). Other specialists have performed similar experiments on bone tools (Karr 2015; Karr and Outram 2015). The complexity of stone and bone tools has also been quantified and shown to have increased over time (Perreault et al. 2013), as exemplified by lithic miniaturization, or the production of microliths – very small stone tools with high cutting efficiency by weight (Pargeter and Shea 2019).

Similarly, while scientists will never know with certainty how long it took early humans to start or maintain fires (Alperson-Afil 2017), they can discern which fuels were used. Iron Age farmers in northwestern continental Europe, for example, used all available fuel sources: dung, peat, and wood (Braadbaart et al. 2017). The efficiency of hearth construction (Black and Thorns 2014; Graesch et al. 2014) and hearth placement in caves and manmade structures (Kedar et al. 2020; Kedar et al. 2022) has also been measured by comparing experimental to archaeological data (Brodard et al. 2016).

Measuring the productivity of hunting and gathering remains fraught because the amount of time it took to acquire sufficient food, clothing, and tool materials was undoubtedly partly a complex function of the ratio of the human population to target species and the intensity of trade networks (Deino et al. 2018). Scientists presume, however, that more complex technologies increased productivity by making it easier/faster to harvest animals as well as sundry vegetable materials like fruits, nuts, seeds, and tubers. The ability to haft stone points, for example, allowed early human hunters to more effectively kill large game animals starting half a million years ago (Wilkins et al. 2012), while the ability to create cordage from animal sinews or vegetable matter allowed them to make better clothing, carry packs, mats, huts/homes, and even boats (Hardy et al. 2020). Indeed, new evidence suggests that over 40,000 years ago some human groups regularly caught pelagic fish (e.g., tuna), implying both deep sea boating and fishing technologies (O’Connor et al. 2011).

Such improved technologies rendered early humans more productive, freeing their time to develop yet more complex technologies, plus cultural goods that both displayed and aided their conceptual prowess in ways too complex and distant to be disentangled (Wadley 2013).

Productivity Gains During the Neolithic Transition to Agriculture

Early humans were productive enough to survive and spread across most of the Old World (Deino et al. 2018; Gunz et al. 2009). Although population estimates vary, genetic and ecological studies indicate that early humans clearly were less populous than humans today (Huff et al. 2010). Adoption of agriculture, the domestication and deliberate production of numerous plant and animal species, drove additional technological changes, like those associated with small-scale metallurgy and manufacturing (Moorey 1999), that eventually made higher human population levels possible.

Scientists still do not fully understand, however, why the Neolithic Revolution, the transition from hunting and gathering to agriculture, occurred when and why it did (Weisdorf 2005) because farming initially meant more work, higher incidences of disease, and increased mortality (de Becdelièvre et al. 2021). It increasingly appears that small groups grew into farming over time instead of transitioning in large numbers in a single generation as sometimes supposed. Herding and hunting were complimentary activities, as were fishing and farming, suggesting that mixed subsistence strategies could sustain growing populations until agricultural productivity in the richest agricultural areas improved due to learning-by-doing, increased climatic stability (Matranga and Pascali 2021), and perhaps improved property rights (Bowles and Choi 2019; Bowles and Choi 2013).

Measuring Productivity in the Ancient Historical Era

The ancient Chinese, Greeks, Indians, Mayans, Mesopotomians, Persians, and Romans invented several crucial new general purpose technologies, including writing (Bywater 2013) and mathematics (Boyer and Merzbach 1993; Cuomo 2005), that increased productivity directly and also led to new or greatly improved specific technologies (Krebs 2004). The Romans, for example, developed or improved boats, wheeled vehicles, water-lifting technologies, and watermills, among many other technologies (Greene 1990), while the Greeks invented coins, a mechanical astronomical computer, and napalm, among other things (Freeth et al. 2021).

Although all flourished during golden ages, typically periods characterized by high levels of economic freedom (Bergh and Lyttkens 2014), none of those civilizations experienced the sustained, across-the-board increases in TFP associated with modern economies. Indeed, many collapsed politically and economically for reasons not fully understood (Tainter 1988). Some may have succumbed to the sunk cost fallacy, clinging to old habits and habitations even after they became environmentally untenable (Janssen and Scheffer 2004). Others appear to have suffered from the increased power of rent seeking institutions that constrained property rights and thus limited incentives to innovate (Westermann 1915; Bó et al. 2015).

Productivity in the Age of Economic Revolution

After the demise of the ancient civilizations, the productivity of agricultural workers stagnated, though subject to intermittent reversals and shocks like the Black Death (Jonathan Jarrett, “Outgrowing the Dark Ages: Agrarian Productivity in Carolingian Europe Re-evaluated,” Agricultural History Review 67 (2019): 1-28.) Introduction of the heavy plow around 1000 AD, for example, allowed for more extensive cultivation in Northern Europe that aided nascent urbanization and hence economic specialization, long considered a driver of non-agricultural productivity increases (Andersen et al. 2016).

Starting in Holland in the seventeenth century, rapid increases in agricultural productivity freed up farmers, and especially their children, to work in emerging or rapidly growing industries, including those in the trade, transportation, industrial, and communication sectors. Eventually, those sectors also shed workers as technology-induced productivity increases rendered their labor unnecessary (Ville 1986).

Agricultural productivity increases stemmed only in part from mechanization (Collins and Thirsk 2000), productivity increases in which were often driven by competition between small farm implement manufacturers (Binswanger 1986). At first, productivity increases derived mainly from improved techniques and seeds (Olmstead and Rhode 2008), as well as productivity improvements in fencing, ditching, and draining (Baugher 2001). Although it proved difficult to compare agricultural productivity internationally, slower agricultural productivity growth clearly constrained economic, especially industrial, development in twentieth-century Europe (O'Brien et al. 1992; Cosgel 2006) and elsewhere (Baumol 1987). Countries with robust increases in agricultural productivity, like the USA, by contrast, also experienced rapid increases in industrial productivity (Broadberry 1994; Broadberry and Irwin 2004).

Following Marx and others (Shantz et al. 2014), many scholars have assumed that industrialization, especially under the so-called “scientific management” principles of Frederick Taylor and his disciples (Gilbreth 1914), alienated and de-skilled workers, turning them from GPTs into the appendages of machines. Evidence of large scale de-skilling over the nineteenth and twentieth centuries remains scant (Form 1987), though deskilling may cycle (Sabel and Zeitlin 1985), increasing when disruptive new technologies proliferate rapidly but declining over time as workers learn to troubleshoot and fix the machines they tend and feed with raw materials or data (Form and Hirschhorn 1985).

Just as productivity increases freed agricultural workers to move into industrial jobs, productivity increases freed industrial workers to move into government and service jobs and to morph into “knowledge workers” who rely on the power of their brain rather than their brawn.

Difficulties Measuring the Productivity of Knowledge and Government Workers

In the second half of the twentieth century, knowledge workers came to dominate labor share in leading economies like that of the USA (Drucker 2018; Cortada 2009). Government workers, including direct employees and contractors, also became an increasingly large percentage of the workforce in many countries after World War II (Light 2019).

To this day, it remains difficult to measure the productivity of knowledge workers (Ramírez and Nembhard 2004), in part because worker inputs cannot be easily discerned. Engineers, for example, may be physically present at work but mentally absent (Jones and Chung 2006). Ditto financial services providers (Zieschang 2018). Construction industry productivity also fluctuates due to mental inattentiveness to measurements and plan details (Motwani et al. 1995). Measuring the productivity of nurses also remains difficult because of the mixed physical-mental nature of their jobs and the necessity of maintaining quality of care standards above all (Nania 2006). Measuring the productivity of knowledge workers who work in, or for, government remains notoriously difficult, but almost everyone concedes it is relatively low (Bouckaert 1990) due to the nature of bureaucracies and compulsory monopolies (Haenisch 2012).

In some specific contexts, knowledge worker productivity can be estimated (Iazzolino and Laise 2018) or deduced from efficiency, utilization, or quality measures (Al‐Darrab 2000). Trends in management productivity can also be deduced from changes in the productivity of factory workers or other laborers whose productivity can be more directly assessed (Goldman 1959). Moreover, knowledge worker productivity usually varies strongly and positively with compensation and other incentives (Kaufman 1992). Their productivity is also positively associated with educational level (Rangazas 2002), age (Burtless 2013), and healthy sleep patterns (Nena et al. 2010).