Friday 31 January 2014

Friday Afternoon Ramble: The State of Disunion Edition

America, and half of what was once the free world, shut down last night to listen to a bloke talk nonsense.

“… I used to fume and fume about our latter-day Speech from the Throne, but lately I’m no longer sure it’s worth the bother. For the speech to be worth getting worked up about, somebody would have to be listening.”
The State of the Union Is…Irrelevant – Gene Healy, CATO AT LIBERTY

“President Barack Obama’s State of the Union address Tuesday wasn’t what I wanted to hear. This is what the president should have said.”
Re-state of the Union: What Obama Should Have Said – John Stossel, CAPITALISM MAGAZINE

“President Obama's State of the Union speech tonight is said to be focused on "income inequality” …
Today's State of the Union—The Fulfillment of Obama's Promise to "Fundamentally Transform America": The Legitimization of Freeloading – PRINCIPLED PERSPECTIVE

“’And when our children’s children look us in the eye,’ said President Obama in his State of the Union address, ‘and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did.’
“I do, too. But the way to do this is the exact opposite of Obama’s prescribed policies…”
The State of Obama's Energy Thinking – Alex Epstein, FORBES

At least Obama’s supporters know their real enemy, even if Obama’s enemies don’t.
Pick up those Ayn Rand books – VOICE OF REASON

“We are fast approaching the stage of the ultimate inversion: the
stage where the government is free to do anything it pleases, while
the citizens may act only by permission; which is the stage of the
darkest periods of human history, the stage of rule by brute force.”
- Ayn Rand

See. Cameron Slater can think when he wants to.
About Fiji's new constitution, and the new era that is dawning – Cameron Slater, WHALE OIL 
Just scratching a living in paradise – NOT PC, 2008

So the so-called “living wage” trumpeted by NZ’s so-called “social justice” campaigners is based on, what exactly? Looks like the ability to have Sky TV, computers, overseas travel…
Waldegrave on living wageDavid Farrar, KIWIBLOG

This is absolutely true, Sam. But you don’t find it odd coming from a politician?
Pacific people need to bring back entrepreneurial spirit – Sam Lotu-Iiga, NZ HERALD

Swanson Primary School is world-famous, for all the right reasons.
Bring back “british bulldog” and reduce bullying – CATALLAXY FILES

Gulags? What gulags?

The one concept you need to grasp to understand the failure of asset sales, the failure to recover, the lack of inflation, the failure of bank lending …
Adam Smith and Robert Higgs: Essentials for Understanding Today’s Retarded Recovery – CIRCLE BASTIAT

Malinvestment alert: An example of America’s future, said Obama when he opened it.  And so it is. “Intel has confirmed it is leaving vacant a massive new multibillion-dollar computer-chip factory in Chandler that President Barack Obama once touted as a symbol of the future of U.S. manufacturing.”
Intel says factory to stay shut for now – AZ CENTRAL

“Free our markets!” says John Stossel in this 40-minute special.

“The only thing that makes Bitcoins temporarily valuable is the belief that someone else will accept them in exchange.  In essence, Bitcoin is a like an even crappier fiat currency.”
Why Bitcoins Will Go To Zero, but Gold Will Not – Doug Reich, RATIONAL CAPITALIST

“..the best single-volume introduction to Hayek’s thought, if you are going to buy or read only one.”
F.A. Hayek, *The Market and Other Orders* – Tyler Cowen, MARGINAL REVOLUTION

He’s stepping down. Read it and weep.
Bernanke's Highlight Reel – ECONOMIC POLICY JOURNAL

“A first-class summary of the rise and fall of Michael Mann's bogus Hockey Stick graph, and the Mann-made global warming alarm along with it..”
The rise and fall of the Hockey Stick and Mann-made global warming alarm – THE HOCKEY SCHTICK

True story. (Someone tell the media.)
Shock news : Australia Has Always Had Heatwaves - CACA

Morality always trumps practicality: The Heilbroner Edition. “Socialism is widely recognized to have been a practical failure, but we still have a huge number of socialist-friendly individuals. Free-market capitalism, by contrast, is widely recognized to have been a practical success, but we still have a huge number of hostile-to-capitalism individuals. That indicates to me that beliefs about morality are driving the debate more than are beliefs about practicality.”
Robert Heilbroner on socialism’s mandatory labour – STEPHEN HICKS

The People’s Hero?
4 Things You Didn't (Want To) Know About Fidel Castro – THE BACKBENCHER

“’By almost any measure, the world is a better than it has ever been,’ begins the 2014 annual letter of the Bill & Melinda Gates Foundation, written by Bill Gates…
Bill Gates Explains How World Is Getting More Awesome and Less Poor – HIT & RUN

“Intellectuals’ obsession with income statistics — calling envy ‘social justice’ — ignores vast differences in productivity that are far more fundamental to everyone’s well-being.”
The Inequality Bogeyman – Thomas Sowell, CAPITALISM MAGAZINE

“Contrary to popular opinion, it’s time to spare a kind word and thought for the blessings that patent trolls bring to our nation and to our prosperity. No, this is not Jonathan Swift’s ‘A Modest Proposal.’”
Thank Heavens For Those Patent Trolls – FORBES

Ray BurmistonHow to succeed?
Be a Cocky Little Nobody – Ricky Gervais, TIME

“Here's how the drug war inflicts far more harm than drug abuse.”
Drugs vs. the drug war: A response to Michael Gerson – WASHINGTON POST

Why Isaac Newton is not Neils Bohr…
Newton Is Not “Bohr”-ing – David Harriman, THE LOGICAL LEAP

“MYTH No. 3: Poverty, not teacher quality, is the root of America’s educational woes… “
 The Myths of School Vouchers, Then and Now – Casey Given, THE FREEMAN

Hal Gregerson studies innovators. Guess what he discovered: “… in about one-third of the cases they [grew up] at Montessori or Montessori-like schools.”
The Innovator’s DNA — and Montessori education – STEPHEN HICKS

“A reader asks, ‘What happens if a client you see for therapy doesn’t agree with you on politics?’ Psychotherapy isn’t about politics. So there’s no need to ever discuss it, not in therapy.” However…
Politics and Psychotherapy – Dr Michael Hurd, DR HURD.COM

Another true story.
How Scientists Recorded the Music Inside One Woman's Head – SMITHSONIAN

“There is an old view of Robert Frost as a talented simpleton—but his letters reveal the deep intelligence behind his poetry.”
The sound of sense: Clive James on Robert Frost – PROSPECT

It’s not just the spelling, you know.
The Difference Between American and British Humour – Ricky Gervais, TIME

And Australian?
23 Uniquely Australian Status Updates – JEOBOX

Yep, that young Horowitz could play, all right.

‘Recycled’ music, from the Landfill Harmonic Orchestra.

Claudio Abbado, one of history’s finest conductors ever, has died,  aged 80. Here he was in 2004, with the loveliest piece of Mahler you will ever hear.

Calling it medicinal instead of recreational is so apologetic, don’t you think?
Alcohol therapy: medicinal drinking through the ages – BBC
Bring Back the Breakfast Drink – Jeffrey Tucker, MISES DAILY

And finally, let’s be careful out there …
Shedding the light on spoiled beer – Geoff Griggs, MARLBOROUGH EXPRESS

Thanks for reading,
Have a great weekend.
Cheers,
PC

PS: Claudio Abbado meets Pete Seeger?

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Sex: What Our Genes Have to Say

Guest post by Doug Hornig, from the Casey Daily Dispatch 

Human sexuality. It's complex and the subject of never-ending debate within our society. Could genetics help shed some light on the issue? Turns out, yes.

Specifically, it has something to say about what our "natural" pattern of mating behaviour might be.

Yes, I put "natural" in quotes because there probably is no such thing. Given human cultural variability, any kind of generalizing is about as useful as classifying flowers by stalk length. But there are a few things of which we are certain.

First of all, humans are unusual in that we're not slaves to an oestrous cycle, as most other mammals are. We get to choose when and where to have sex, with whom, how often, and for what reason.

We also bear children who cannot survive on their own for far longer than is the case with any other species, mandating the continued presence of one or both parents—or some other suitable surrogate—in their lives.

And finally, we are surely the only creature in this corner of the universe whose view of sexuality is so complicated that we feel compelled to make rules about it, frequently knotting it up with legal systems and religious beliefs.

It's that last (as well as the second) point that generally comes into play among people who contend we're biologically meant to form monogamous nuclear families, and the first is usually invoked by those who argue that we're innately promiscuous.

Now traditionally, when we wanted to theorize about how something evolved over the hundreds of millennia of our species' development, we looked at three sources of potentially relevant information: our closest mammalian relatives; the "stones and bones" evidence left by our ancestors; and present-day cultures that seem to most closely mirror prehistoric ones.

With regard to sex, we can study the behaviour of the other apes. The Lar gibbon, for example, has long been thought to be one of the only primate examples of monogamy. While it's true that they tend to form a strong pair bond and live in close-knit families, more recent research has shown mates occasionally philandering and even "dumping" the other. Orangutans are solitary, mate very infrequently, and then go their separate ways; it's kind of a wonder they've survived at all. Gorillas live in social groups, but sex is limited to contact between one dominant male and the females in his "harem."

Our closest relatives, the chimpanzees and bonobos, both have sex with multiple partners. But otherwise, they are very different (the two species are believed to have diverged about two million years ago). Chimps live in a hierarchical society with an alpha male at the top, other males below him, and females at the bottom. Sex is strictly about procreation. The alpha male may become aggressive—involving displays of, or actual, violence—about defending his sexual "rights." This does not prevent females from mating with other males in the group, though it is often done outside of his attention.

Bonobos are a real curiosity. Often politely described as "hypersexual," they engage in recreational sex—like humans and unlike chimps. They do it a lot. There is equality between the sexes and strong female bonding. Sex is used for conflict resolution and as a means of social communication. Bonobos practice both hetero- and homosexuality.

That's a pretty wide range. So not much help there in understanding who we are. The stones and bones don't add much either. They indicate people have lived in groups for a long time, and we can infer that there must have been strong bonds among them, due to the lengthy maturation process for humans and the need to protect them from predators until they could in turn reproduce. A strong male at the centre of things would help ensure survival of the species, but we don't yet know whether he was more likely to exert his influence over one or several mates.

Contemporary "primitive" cultures are likewise varied. Most are monogamous, a significant minority practice polygyny (one male, several females), a few practice polyandry (one female, several males), and a very few don't believe reproduction results from sex at all (the gods decide who gets pregnant and when).

Where does genetics play into all this? In her recent book, Paleofantasy, Marlene Zuk—a professor of ecology, evolution, and behaviour at the University of Minnesota—explains.

First, Dr. Zuk dispels a common misconception, the use of "evolution" and "natural selection" as synonyms. Evolution is the change in a species over time, whereas natural selection is one of the four mechanisms by which evolution proceeds. The other three are genetic drift, gene flow, and mutation.

Genetic drift is the alteration of gene frequencies through chance events. Suppose a population has an equal number of big-eared and small-eared people, with no evolutionary advantage conferred by ear size. One year, while the big-eared people are having their annual conclave, a tornado comes through and kills them all. But the small-eared people, having their own party a mile away, are spared. Henceforth, just by chance, small ears will predominate. That's genetic drift.

Gene flow is just the movement of individuals and their genes from place to place, thereby altering the gene frequencies of the group they move in and mate with.

Mutations, in Dr. Zuk's words, are "changes in genes that are the result of environmental or internal hiccups that are then passed on to offspring." These alterations are "usually harmful, simply because random changes to complex machinery are rarely an improvement."

While the other three are important, it's natural selection that primarily drives evolution.

Another misconception Dr. Zuk notes is the widespread belief that humans are fully evolved, and that we are only trivially different from our cave-dwelling ancestors (an attitude that has given rise to the current fad for the so-called "paleo diet," which is supposed to be more "natural," in light of our history).

This is demonstrably untrue, Dr. Zuk argues. Evolution doesn't have a purpose, nor does it strive for perfection. It had no intent to produce such an amazingly adaptable species as humans. Evolution just keeps on keeping on. Natural selection decrees that traits that improve the likelihood of being passed on (or are neutral) tend to survive; any that diminish that possibility tend to fade away.

Moreover, the time frame for dramatic change can be significantly shorter than many people think.

As an example, Dr. Zuk cites lactose tolerance. As infants, we're raised on mother's milk, which requires the ability to digest lactose. That's accomplished by an enzyme called lactase, the production of which is genetically controlled. However, Zuk notes, "lactase production in all non-human mammals, and in most humans as well, grinds to a near halt sometime after weaning."

Thus the "natural" human state is to be lactose intolerant as adults. Which was inconsequential, until we started domesticating animals about 8,000 - 9,000 years ago. At that time, people began consuming the milk of cows, goats, and sheep, and later made fermented milk products like cheese and yogurt. To do that successfully, they needed lactase persistence, which results when "the gene responsible for producing lactase continues to be active because of a mutation in another genetic region that ordinarily curtails the enzyme."

How lactase persistence became widely established—it's exhibited by about 35% of the modern world's population—was a long-time puzzle that wasn't solved until this century, when we became adept at reading the messages in our genetic structure. The details of the research are a bit technical, but the conclusion is simple: it was an adaptation due to natural selection that favoured individuals who could already digest milk, rather than a chance occurrence of genetic drift. Genetic flow was also involved, as newly lactose-tolerant individuals migrated into areas where people didn't already use milk.

And it all happened in the merest blink of the evolutionary eye, which turns out to be not that hard. Anthropologists have calculated that as little as a 3% increase in the reproductive fitness of those with lactase persistence would result in the widespread distribution of the gene after only 300-350 generations—8,000 or so years—roughly the amount of time animal milk has been available as a food source.

But back to sex, and the eternal question.

As science historian Eric Johnson colourfully puts it: "Were our ancestors polygamists, monogamists, or happy sluts?" Disappointingly (for those who've been expecting a payoff), we still don't know for certain. But genetic studies provide at least a partial answer.

Some current researchers in the field have been looking at genetic diversity in human chromosomes. As most people know by now, a person's sex is determined by the interplay between X and Y chromosomes. (Precisely how that works is something that isn't fully understood to this day, but selection for males seems largely due to the action of a single male-directed gene, SRY, on the Y chromosome.)

We all have one pair of sex-related chromosomes, called allosomes, along with 22 pairs of non-sex-related chromosomes, called autosomes. The smallest chromosome contains about 300 genes, while the largest contains about 8,000—for approximately 25,000 genes in total. And within that genetic makeup lies our diversity. There are differences between any given individual and the next, and among groups. Natural selection acts upon this diversity, with characteristics appearing and disappearing according to how likely those who inherit them are to make it to reproductive age.

Women have two X chromosomes (XX) and men have XY, so mothers always pass an X on to their children, while men pass one only to their daughters. Thus, women contribute disproportionately to the genetic diversity on the X chromosome, and what they do contribute will remain relatively stable, no matter their mating behaviour. On the autosomes, however, the genetic diversity will vary according to the number of men contributing. More men mating with a given female population = greater diversity; fewer men mating with that same population = reduced diversity.

So, one way of determining who was doing it with whom, historically, is to examine the genetic variability of autosomes as it relates to that of the X chromosome. This involves complex mathematical analysis, the gist of which is: If they track each other closely, then that means people were mating either monogamously or promiscuously, i.e., in both scenarios any given male had a roughly equal chance of producing children, compared with any other male. If guys made it to sexual maturity, they probably reproduced with someone.

But when the researchers picked our chromosomes apart, what they found was a relatively lower level of diversity among the autosomes, as compared with diversity among the allosomes.

This means that fewer men were contributing to the pool, which means that many were shut out entirely, which means we now know that some variation of polygyny has been a very common form of mating behaviour. It's written in our genes.

It doesn't mean, however, that prehistoric social groups were the gorilla-like beings of popular mythology, with alpha males hauling more than their share of available mates back to the cave.

Keep in mind that research in this area is very new, and at the moment it only extends back 10,000 years or so. That time frame marks the dawn of the agricultural revolution, fixed settlements, and the stockpiling of food and material goods. These are developments that favour polygyny, as the more affluent males accumulate the means to support multiple wives or mistresses and the power to keep them, while other men are left childless.

Delimiting what sort of sexual behaviour prevailed before that time will have to await further research, as we decipher the genetic code of ever more ancient humans. It could go either way. It's possible that the strong genetic evidence for polygyny only emerged since the invention of agriculture—as we saw with lactose tolerance, changes can happen quite fast—and that, prior to that time, we were mostly monogamous. But it's also possible that the genetic remnants of our polygynous past have actually declined over the past 10 millennia, as more and more groups began to adopt monogamy, for whatever reasons.

We're left with an intriguing mix of fact and speculation. But whatever the case, overall, the science of genetics is booming like never before…

Doug Hornig is the senior editor at the Casey Daily Dispatch, where this post first appeared.

Thursday 30 January 2014

A One-Way Ticket to Central Planning

Guest post by Nick Hubble from Daily Reckoning Australia

A One Way Ticket to Central PlanningWe’d like to give Australian banks some credit. They’ve finally gone and done it.

So what have the banks gone and done? They have caught up with 1960s technology. They’ve figured out how to use PIN numbers. How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your identity at the point of purchase is a good idea…

Credit card fraud costs the banks the banks around AU$35 million a year. In Canada, getting rid of signatures in 2008 saw card fraud fall by 36%. Sounds like a no brainer, right? In fact, it seems painfully obvious to us. Especially after being a victim of card fraud recently.

Can you imagine if bankers used their ingenuity and effort to make payment systems more efficient instead of devising weird investment schemes involving unaffordable mortgages or gold futures which don’t involve any physical gold? The economy would surge on a wave of efficiency instead of an upchuck of speculation.

But the banks’ revelations aren’t today’s topic. Instead, we’d like to confirm your booking on a one way trip to… well, we’re not entirely sure where to be honest. But it’s definitely a one-way ticket.

Money printing, stimulus, currency wars, bailouts and just about everything else you’ve seen since 2008 is pretty much irreversible. In fact, the bailouts part has always been there. Governments have always bailed out financial institutions.

We don’t mean that the policies of the past can’t be undone. It’s more the fact that they will forever be haunting our future.

The market now knows that central banks will print money if they need to. “Whatever it takes,” said European Central Bank President Mario Draghi. And he pulled it off without sounding like Gideon Gono, Zimbabwe’s former chief central banker.

The market knows big financial institutions will get bailed out. “I’ve abandoned free market principles to save the free market,” President George W. Bush told us with his sheepish grin.

Economists told politicians that, if they didn’t approve stimulus packages, the unemployment rate would rise to a whopping 8.8%. Congress voted for the stimulus, and unemployment rose above 10%. But people still see economic stimulus packages as credible. As soon as a recession hits, presidents and prime ministers will be on about their “shovel ready projects” again.

In Japan, the world had high hopes for Abenomics. The blend of monetary and fiscal stimulus, combined with devaluing the yen, looked set to spur Japan back on track. It hasn’t.

If a private company performed like the world’s politicians and central bankers, what would happen? The company would fail, and someone else would pick up the capital to have a go at doing something better. Creative destruction steadily improves the consumers’ and producers’ lots in life.

Do you think that politicians and central bankers close down shop and get a job elsewhere when they fail? No. They will do more of the same. The next time there is a recession, governments will pass stimulus packages without as much of a debate. Central bankers will revamp Quantitative Easing (QE) without any credible voices preaching about inflation. And every bank CEO will know his job is perfectly safe no matter what.

Rinse, lather, repeat. When you give someone the power to make laws, backed by a money printer to pay the bills, they will never see the error of their ways. It will always be a matter of doing more.

Until what? What breaks? How does this end? At what point do stimulus, money printing and bailouts fail so badly they lose all credibility? Because that’s the way we’re going. Even if there was a half decent recovery in the U.S. and Europe, it’s only a matter of time before a new recession.

Economist Friedrich Hayek explained that socialism fails because it relies on central planning. In other words, the motivations and altruistic aims of socialism may be workable and to your liking, but mostly not. And if not, the humanitarian with the guillotine is not available to take complaints.

Hippie communes, Israeli Kibitzes and nuclear families are examples where something resembling socialism can work. But it’s the central planning part that makes national socialism fail. National socialism, as in socialism on a national scale, that is.

There are a myriad of reasons for this. But an interesting one is that everyone’s plan is different. And not just inside a nation. Mario Draghi’s vision of Europe differs from Manuel Barroso’s (president of the European Commission), which differs from Nigel Farage (European politician and EU skeptic), which differs from everyone else’s.

That’s why you get a complete mess when you put a bunch of politicians in a parliament to decide how the world should work, instead of letting it work the way it inherently does. That applies whether it’s the European or the Australian parliament. If politics made any sense, the amount of laws needing to be passed would be a tiny fraction of those which are passed. Instead, each government meddles in its own different way. Right down to determining which way dinghies in Indonesian waters should be travelling.

This mess eventually becomes so bad that the people demand someone who can fix it. Someone strong, charismatic and accountable. That’s why all attempts at central planning end up with a power struggle at the top. And violent, corrupt and immoral people tend to win power struggles.

That was Hayek’s story of why socialism fails. These days we have all the problems of central planning without the warmth and fuzziness of socialism. In fact, socialism is discredited, despite the fact that conservative politicians practice it at home every day. But it’s central planning that is the problem.

Mainstream economists are completely clueless about this. To them, central planning makes a lot of sense. It provides data for their models (which is usually based on a mid-level bureaucrat’s fantasy), linear relationships (which don’t actually exist in economics) and a job.

Paul Samuelson’s 1960s economics textbooks featured charts like this one showing how the USSR would outgrow the U.S. because of its centrally planned policies:

a
Source: Marginal Revolution 

The best he ever managed as an acknowledgement of his failed predictions was that the weather was bad in Russia.

The same types of predictions are being made today. The IMF boosted its outlook for global economic growth. Our favorite is this chart, which shows the U.S. Department of Transportation’s predictions for road traffic:

How many times do they need to get it wrong?

The good news is that all this dawned on one politician recently. Strangely enough, it was the French President Francois Hollande. Sure, it’s only lip service, but he’s rather good at that apparently.

He recently told his fellow countrymen about the ramblings of a 19th-century French economist called Jean-Baptiste Say. Quoting the modern version of what economists call Say’s law, he said: “Supply creates its own demand.” That’s not a very useful way of putting it, we know. [Here are many more useful ways – Ed.]

Say’s point was that, if you want to buy something, you have to produce something first – or in Say’s own phrase: ‘products pay for products.’ To most economists, this is a chicken and egg problem. Supply-siders believe you need a chicken to lay an egg. Demand-siders say there has to be demand for eggs before anyone will bother with the chickens.

Now demand is effectively infinite. People always want more eggs. The question is whether they can afford them. And how do they afford them? By producing something that a chicken owner wants. Like chicken wire. Hence, producing the chicken wire (supply) allows someone to buy an egg (demand). Without producing the chicken wire, it’s difficult to get your hands on an egg.

keynes_stupid_buttonBut what if you can create purchasing power out of thin air? What if you can print up a few dollars and buy the egg? Demand-siders see this as solving the problem. Hence they want to stimulate demand.

And it does work… for a while. If it worked well enough, you wouldn’t ever have to produce much at all though. You could just print money and buy whatever you like. That’s what the U.S. has been doing. Hence the trade deficit. The country simply prints dollars to pay people to sell them stuff.

This can go on as long as people are willing to accept printed dollars in exchange for real stuff. But eventually they’ll get sick of all those dollars. That’s why China’s monetary meddling is so important. It’s steadily increasing its holdings of real assets like gold and productive capacity. Once it stops accepting so many dollars, America will have to produce something for China if it wants China’s goods.

Back to our original point. Once central planning has a grip on the economy, it won’t let go. Power over the law and currency is just too great a power. In our opinion, it can only be broken when people stop following the law and faith in the currency collapses. Usually that’s a combination of hyperinflation and a grumpy populace.

Nick Hubble is a feature Editor of The Daily Reckoning Australia and editor of The Money for Life Letter.

This post appeared previously at Laissez Faire Today.

How do you create lasting prosperity? [updated]

How do you bring real prosperity to somewhere like Africa?

Development Economist Jeffrey Sachs has just spent six years there, testing the hypothesis that charity is the answer.  The result, as author Nina Munk tells Russ Roberts, was failure.

Sachs’s story, told in Munk’s book The Idealist: Jeffrey Sachs and the Quest to End Poverty, “is one of the great lessons in unintended consequences and the complexity of the development process,” say Roberts.

Sachs’s idea was to spend a large amount of money to jumpstart the economies of a bunch of African villages and put them on a trajectory of growth … he thought that a full-scale attack on every front would do the job–improve health and agricultural productivity and education and eventually growth would begin.

But how do you sustain that trajectory? He couldn’t says Munk.

I think what we can all agree … that what’s essential is that there is some possibility of employment, of livelihood, sustained livelihood for the people who are living there. How can they earn a living? How can they keep themselves alive? Beyond the basic charity that was given to them right from the beginning. And in both of the villages that I spent the time in, there was really nothing at all, by the time I finished my reporting in 2012, to demonstrate that there was anything sustained here…

That certainly looks like failure. Roberts makes the reason clear in a great post at the Cafe Hayek blog:

What she is saying is that before Jeff Sachs arrived, the African villages had a primitive economy. Nothing changed after the money was spent and all the effort was made to help the people that lived there. But why not?
    And I think the right way to say it is that prosperity requires that people are able to specialise in something that helps their neighbours. Prosperity is about finding ways to help people other than yourself through exchange, what economists call a market. If you don’t have that, you have nothing. Or close to nothing–-you have a subsistence standard of living.
    But as I like to say, self-sufficiency is the road to poverty. Bettering yourself by bettering others is the road to prosperity. Without opportunities to help others and thereby help yourself, you’re stuck with subsistence.

The mistake Sachs was making, suggests Roberts, was confusing cause and effect.

Economies with markets have thriving health and education and are productive. But creating those effects with money doesn’t create anything real if there aren’t markets where people can exchange and better themselves by bettering others. Whatever you do will be ephemeral. You can help people for a while. But you can’t help them help themselves.

What is missing in the parts of Africa that Sachs was trying to help, says Roberts, is “exchange and specialization and the division of labour [that enables people to] get wealthy by figuring out ways to create products and services that have value to other people.  That is what is missing,” he concludes.

He’s certainly right that you can’t start from the top down, or by reversing cause and effect. And any prosperity at all is difficult when you have governments continually plundering both their people and each other, which describes so much of the African continent.

But it’s not true to say that people getting wealthy by creating products and services that have value to other people are totally absent. One inspiring story is Africa’s Export Trading Group, the winner of the 2013 African Agribusiness of the Year, and a company strongly focussed on growth from the bottom up. Tagline: “Linking Africa’s smallholder farmers to global consumers”:

UPDATE: A great short on-topic read here is Ludwig Von Mises’s essay ‘'Capital Supply and American Prosperity' from his seminal book Planning for Freedom (head here for a summary and free PDF download of the book). Don’t be put off by the essay’s title: it’s import is to explain as imply as one human being can how capital accumulation is the key to raising prosperity… and why what happens in places like Africa and 1950s India (on which Mises spends some time) have important lessons for us too.

One of the amazing phenomena of the present election campaign is the way in which speakers and writers refer to the state of business and to the economic condition of the nation. They praise the administration for the prosperity and for the high standard of living of the average citizen. “You never had it so good,” they say, and, “Don’t let them take it away.” It is implied that the increase in the quantity and the improvement in the quality of products available for consumption are achievements of a paternal government. The incomes of the individual citizens are viewed as handouts graciously bestowed upon them by a benevolent bureaucracy. The American government is considered as better than that of Italy or of India because it passes into the hands of the citizens more and better products than they do.
    Capital Investment Increases Production
    It is hardly possible to misrepresent in a more thorough way the fundamental facts of economics. The average standard of living is in this country higher than in any other country of the world, not because the American statesmen and politicians are superior to the foreign statesmen and politicians, but because the per-head quota of capital invested is in America higher than in other countries. Average output per man-hour is in this country higher than in other countries, whether England or India, because the American plants are equipped with more efficient tools and machines. Capital is more plentiful in America than it is in other countries because up to now the institutions and laws of the United States put fewer obstacles in the way of big-scale capital accumulation than did those foreign countries.
    It is not true that the economic backwardness of foreign countries is to be imputed to technological ignorance on the part of their peoples. Modern technology is by and large no esoteric doctrine. It is taught at many technological universities in this country as well as abroad. It is described in many excellent textbooks and articles of scientific magazines. Hundreds of aliens are every year graduated from American technological institutes. There are in every part of the earth many experts perfectly conversant with the most recent developments of industrial technique. It is not a lack of the “know-how” that prevents foreign countries from fully adopting American methods of manufacturing, but the insufficiency of capital available…

But this process doesn’t happen on its own:

What begot modern industrialization and the unprecedented improvement in material conditions that it brought about was neither capital previously accumulated nor previously assembled technological knowledge. In England, as well as in the other Western countries that followed it on the path of capitalism, the early pioneers of capitalism started with scanty capital and scanty technological experience. At the outset of industrialization was the philosophy of private enterprise and initiative, and the practical application of this ideology made the capital swell and the technological know-how advance and ripen.
   
One must stress this point because its neglect misleads the statesmen of all backward nations in their plans for economic improvement. They think that industrialization means machines and textbooks of technology. In fact, it means economic freedom that creates both capital and technological knowledge.

The simple lesson for us, in this election year?

To Raise Wages, Increase Capital Investment
    But it is exactly the perplexity of this situation that offers a favourable opportunity for the substitution of sound economic principles for the pernicious errors that prevailed in the last decades. Now is the time to explain to the voters the causes of American prosperity on the one hand, and of the plight of the backward nations on the other hand. They must learn that what makes American wage rates much higher than those in other countries is the size of capital invested and that any further improvement of their standard of living depends on a sufficient accumulation of additional capital. Today only the businessmen worry about the provision of new capital for the expansion and improvement of their plants. The rest of the people are indifferent with regard to this issue, not knowing that their well-being and that of their children is at stake. What is needed is to make the importance of these problems understood by everybody. No party platform is to be considered as satisfactory that does not contain the following point: As the prosperity of the nation and the height of wage rates depend on a continual increase in the capital invested in its plants, mines and farms, it is one of the foremost tasks of good government to remove all obstacles that hinder the accumulation and investment of new capital.

Flagging interest?

It’s  odd, that’s all I’m saying.

You can’t talk about changing the country’s flag every day – there are diminishing returns in the topic to make it useful as a permanent distraction – but as a temporary piece of misdirection, it’s perfect. “Look, over here, let’s talk about removing the Union Jack, and using a silver fern, and a black flag, and, and...”

So the country’s talking, but what is it we are being distracted from?

Is Key that worried about Silent T’s duplicitous“baby bonus” he wants us to talk about something else?

Or is he really that keen to get rid of the old flag that he wants us to be the only sovereign nation in the world to have have a flag that could be confused for the black flag of Al Qaeda.

Wednesday 29 January 2014

"… he lived and died at the hands of the vigorous interior decorators of his age"

Constance Perkins House, by Richard Neutra. Pic from Frank Lloyd Gallery.

Quick question before you start: Which famous novelist was killed by over-vigorous interior decorators.
Architect Richard Neutra has your answer: it was French naturalist writer Emile Zola.

Zola, said Neutra, “courageously advocated a consistent interrelation of all things, adherence to nature, indifference to conventions, and realistic logic.” In everything that is, but his boudoir. “When he came to build his own house in Meudon or furnish his apartment in the Rue de Boulogne, he certainly did not act like a champion of progress. His self-chosen physical environment was quite at variance with the spirit of his radical pronouncements.” And he died of it.

Neutra himself championed in architecture what he called naturalism – by which he meant “a return to nature by way of modern science.” Neutra biographer Sylvia Lavin says:

Neutra believed that the design choices made by your architect could kill you or thrill you, arguing for example that bad decor had done nothing less than murder Emile Zola. Neutra identified with Zola because he considered the writer a forefather of his own interest in [what he called] biorealism.  But Neutra believed Zola had died from sleeping in an over-accessorised and hermetically sealed bedroom. ‘His doctrine of naturalism was one thing; his apartment was another. He lived and died at the hands of the vigorous interior decorators of his age.’

Emile Zola · Édouard Manet. Oil on canvas, 146 1/2 × 144 cm

They say the climate’s “changing” … [updated]

It’s no longer about “global warming,” they say, it’s now all about climate change.

Global warming, they say, is causing the climate to change extremely. We are going to have hotter summers and colder winters, they say.  We’re having them now, they say.  It’s hotter (and colder) than it’s ever been, they say.

Is it?

Here’s a map showing the hottest and coldest recorded temperatures on your favourite continent.  Fact: there have been No New Continent ‘Hottest’ Temperature Records Since 1978.

Looks like the more things change, the more they stay the same.

UPDATE: Ultra-warmist ‘Bill Nye the Science Guy’ debates Climate Depot’s Marc Morano on climate change …

Pete Seeger: “If I had a hammer and sickle”

America’s most famous, and most successful, Communist has just died.

Pete Seeger, folk singer, banjo player, successful communist recruitment tool – the man some dubbed Stalin’s Songbird – was 94.

The conventional wisdom holds that it was ever so—that American popular musicians have always been leftists, and that music-as-radical-politics has stretched across the decades, expressing the nation’s social conscience. The late New Left chronicler Jack Newfield, for instance, celebrated a “native tradition of an alternative America” that included not just such openly activist musicians as Woody Guthrie but also apparently non-political singers like Hank Williams and Mahalia Jackson.
    Yet this “native tradition” is a myth. Until quite recently, popular music’s prevailing spirit was apolitical … The politicisation of American pop … grew out of a patient leftist political strategy that began in the mid-1930s with the Communist Party’s “Popular Front” effort to use popular culture to advance its cause…
    Adopted at the Seventh Congress of the Communist International in 1935, the Popular Front tasked communists in the West with building “progressive” coalitions … The Popular Front sought to enlist Western artists and intellectuals, some of them not party members but “fellow travelers,” to use art, literature, and music to insinuate the Marxist worldview into the broader culture. The murals of Diego Rivera, the poetry of Langston Hughes, the novels of Howard Fast—all exemplified this approach…
    Thirty years after the Popular Front issued its call to transform culture through music, it had now become proper, even natural, for popular music to embrace leftist moral and political causes and for many young Americans to look to musicians for guidance on such matters…
    One figure stands out in this enterprise: the now—[deceased] singer, songwriter, “folk music legend,” and onetime party stalwart, Pete Seeger. Given his decisive influence on the political direction of popular music, Seeger may have been the most effective American communist ever…

As Mark Steyn said on the occasion of Seeger’s 90t birthday:

One must congratulate the old banjo-picker on making it to four score and ten, which is a lot older than many "dissenting artists" made it to under the regimes he's admired over the years…
    Yes, [his tunes are] dopey nursery-school jingles, but that’s why they’re so insidious. The numbing simplicity allows them to be passed off as uncontentious unexceptionable all-purpose anthems of goodwill..

Read more in this lengthy and well-argued 2005 piece at CITY JOURNAL: America’s Most Successful Communist; in this obituary of the old commie at HUFFINGTON POST: Pete Seeger, "Folk Music" and the Left; and in the title of this piece linked by Andrew Bolt: If only Leni Riefenstahl was a Communist like Pete Seeger...

MORE: 

  • “Until Pete Seeger’s death at 94 last night, he was perhaps the last man alive to say that he supported Hitler, Stalin, and Ho Chi Minh. That’s quite the totalitarian trifecta.”
    Pete Seeger’s Totalitarian Trifecta – Ed Driscoll,PJ MEDIA
  • “Americans have a great capacity to forgive and a small capacity to remember, which has been a great asset to the career of folk singer and national monument Pete Seeger. He was recently given two of the country's highest arts awards despite a life spent laboring on behalf of the most malignant political ideology ever put into practice.”
    America Honors Its Troubadour Of Totalitarianism – Stephen Chapman CHICAGO TRIBUNE, 1995

Here, below, is one of his most lucrative tunes, and here the story of the dirt-poor shanty-town African stole it from and never acknowledged.

Tuesday 28 January 2014

Quotes of the day: The David Cunliffe edition

“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury.” – attrib. to Alexander Fraser Tytler

"Every election is a sort of advance auction sale of stolen goods." - H. L. Mencken

“Institutions purely democratic may endure until the day politicians discover they can bribe the public with the public's money.” – attrib. to Alexis de Tocqueville

"Democracy will fail when people begin to think they can vote themselves rich." - PJ O’Rourke

Talent will out

Does anyone remember, years ago, when four Swedes called ABBA were banking truckloads of money in their very small country while Muldoon down here was busy taxing the bejesus out of recorded music, that there was an argument had that instead of shitting all over music-buyers and local musicians, Muldoon would do better to remove the thumbscrews and get out their way, and then maybe, one day, a New Zealander or two  might enjoy the same sort of success that might just benefit all of us as well?

Have we just seen that, much belatedly, with Lorde and Joel Little – their success, their awards, their Grammy performance seen by tens of millions?

Not that promoting musos should be anything to do with govt policy per se, but given that so much of what passes for policy is predicated on raising NZ’s profile in the world, I wonder if some enlightened soul in Treasury could do the sums and work out some sort of policy recommendation based on how many folk overseas paid attention to New Zealand because of the half-billion the govt the taxpayer forked out on the Rugby World Cup, or the tens of millions given as welfare to yachties, compared to how many noticed us down here because of two very talented individuals who just got on and did their own thing.

It shouldn’t take very long to do the sums.

More middle-class welfare [updated]

Family benefit

There’s nothing like a new idea to give a politician hope in an election year – and what Labour leader David Cunliffe pledge yesterday to big acclaim  in a speech much-hyped by his supporters yesterday was nothing like a new idea. Or a good one.

It was what columnist George Will once called “the politics of seeming to care,” expressed by Cunliffe in rummaging through the recycling bin of the Ghosts of Elections Past.

Didn’t we have a universal “family benefit” back in the day, finally abandoned only in 1991?

Didn’t we have a Labour hopeful here some years ago offering a “baby bonus” to a ungrateful electorate? And see it rejected by Australian Labor as recently as last year. (Why? Because they couldn’t afford it.)

Haven’t we already seen a Labour party here, just recently, buy a win with an election bribe, Welfare for Working Families – premised on “lifting everyone out of  poverty” while enlisting most of NZ’s middle class as welfare beneficiaries?

There’s nothing new in buying votes from people with their own money. Perhaps the only thing new in Silent T’s latest offering, having tots on the taxpayers’ tit from birth, is pretending this is “targeted” welfare – when the target is every family in the country with an income under $150,000.

Welfare for the rich, you might call it.  Or, an election  bribe for the many.

So, with corporate welfare and Cunliffe welfare added in, will be anyone in the country soon who isn’t eligible for handout from other taxpayers?  A country of four million, all of whom are on the mooch?

UPDATE: Top tweets about the taxpayer top-up.

Saturday 25 January 2014

Fossil fuels are immoral?

Are they?

Center for Industrial Progress president Alex Epstein tells John Stossel “we live on the cleanest, safest planet in history … because we burn fossil fuels.”

Friday 24 January 2014

China’s Coming Default?

NZ’s rock star economy is relying heavily on China this year for our economic progress. In this guest post, David Howden wonders how long China’s own progress can last un-busted– and is pessimistic.

Last June I pointed to four unfortunate facts in the Chinese economy.

  1. Overall credit had increased to $23 trillion dollars, up from $9 trillion as recently as 2008.
  2. This amount of credit was over 200 percent of GDP, an increase of 75 percentage points in just five years. (By comparison over the same period the United States’ ratio of debt-to-GDP increased by 40 percentage points.
  3. The credit rating agency Fitch had downgraded the Chinese government’s debt to AA-.

Most damning if not ominous, though, was the fourth fact:

4. The cost of short-term borrowing (seven-day) on the Shanghai repo market jumped to nearly 11 percent. This was the highest rate since March 2003. (Zerohedge reported the overnight repo rate was as high as 25 percent at the time.)

In writing Deep Freeze: Iceland’s Economic Collapse, my coauthor Philipp Bagus and I observed a similar set of events with regards to Iceland. Artificially low interest rates, and especially short-term interest rates, created an environment of heavy indebtedness. Entrepreneurs borrowed money on very-short-term loans in continual need of rolling over. By financing projects with, e.g., a one-month loan at a very low interest rate, the borrower could finance a long-term project provided the credit market remained liquid and interest rates remained low. Every month he would just borrow back the amount of money to pay off the existing loan. It is somewhat akin to taking out a new credit card to pay off your old balance, which works as long as you have decent credit and the card issuer keeps interest rates low.

At the time I reported that China was on the precipice of a looming bust, the inevitable result of a credit-fueled boom. Like most things, the bigger they are, the harder they fall.

Chinese state media recently warned that investors may not be repaid by the China Credit Trust Co. when some of its wealth management products mature on January 31, the first day of the Year of the Horse.

You say you’ve never heard of the “China Credit Trust Co.”? It was recently spun off by the world’s largest bank by assets, the Industrial and Commercial Bank of China. ICBC has recently suggested that it will not compensate investors for losses and that it will not assume any responsibility.

Indeed, writing for Forbes, Gordan Chang reports that “it should be no mystery why this investment, known as “2010 China Credit-Credit Equals Gold #1 Collective Trust Product,” is on the verge of default.” China Credit Trust loaned the proceeds from sales of a half billion dollars of product to an unlisted coal mining group. The coal company is, according to Chang, probably paying upwards of 12% for the money as it was desperate for money given that it has already been declared bankrupt.

There has never been a default in a Chinese wealth management product other than some delayed payments. Besides being the first, this one could be a sign of things to come. [Time to follow the implications of the £70bn capital hole in the HSBC, uncovered by Forensic Asia, suggesting its “stated capital ratios would appear to be nothing more than a mirage” – Ed.]

Of course, some observers are not worried. As Chang correctly notes: “”To have a market meltdown, you have to have a market” and China does not have one.  Instead, Beijing technocrats dictate outcomes.”

That is indeed correct, but there is the unfortunate fact that private money is on the line. People have invested in China thinking the party would never stop. The Chinese government acting as a surrogate for the market is also the reason why China is heading for the granddaddy financial collapses.

Chinese GDP has not contracted on a year-on-year basis since 1976, the year the great communist leader Mao Zedong died and optimists note that the Chinese government and central bank are flush with cash. This may be, but there are a lot of dodgy wealth funds out there. At the end of 2013 there was as much as 11 trillion yuan ($1.8 trillion) invested in wealth management products, just like the one expected to default at month´s end.

As I said, the bigger they are the larger they fall. After recently dethroning Japan as the world’s second largest economy, China is about as big as they come. Size is not substitute for stability, however, and China´s years of dependence predicated on short-term loans might just prove the point.

David  HowdenDavid Howden is Chair of the Department of Business and Economics and professor of economics at St. Louis University's Madrid Campus, Academic Vice President of the Ludwig von Mises Institute of Canada.
Originally posted at the
Ludwig von Mises Institute of Canada.

Thursday 23 January 2014

It must be election year

The shadows fall across our summer earlier this year.

One unwelcome sign that this must be election year is that politicians who are normally still at the beach until the dog-and-pony show in late January at the Ratana Church, are instead already cluttering up summer news broadcasts with pretentious, confusing, and probably disastrous election promises – promises and platforms they each hope will set the tone for this election year.

A few years ago Russel Norman was telling us we needed to retrench and change our ways, because “peak oil’ was upon us. Now however that oil continues to be found despite Russel and his predictions, he’s skiting this morning that the Greens are now the only party opposing oil drilling off New Zealand.

So I guess this signals a(nother) year of dog whistles to the deluded and self-contradictory.

Another clear sign it’s election year is Labour producing their tri-yearly magic money pot – this time be taking back a tax cut for the poor, something they once claimed to be for. Making a virtue out of what they calculate has become an electoral necessity, they are talking about “freeing up” $1.5 billion of tax revenue by abandoning what I thought were sensible plans to cut low-income earners some slack by exempting their first $5000 of income from tax. As PM of NZ says however, “that fabled money pot is not 'freed up’' it is already being used to service the black hole of a 'decade of deficits' left by the last Labour magicians' smoke and mirror act.”

Labour are clearly gambling that the sleight of hand won’t be noticed, and that there are more votes in higher impact “game-changing” election bribes to be announced closer to the election date – their voters, they think, having short memories.

Meanwhile, instead of going to Orewa John Key is going to smile and wave at a school – which he obviously hopes will be a winning battleground for him this year.

And Kim DotCon, first out of the blocks this election year by virtue of Martyn Bradbury’s sterling work at launching DotCon’s party by leaving his strategy document lying around for Cameron Slater to pick up, is perhaps hoping the launch of the new DotCon album in all formats will generate the momentum they need to get them into parliament and hopefully into coalition. According to reviewers however, the music doesn’t even have enough momentum to glue itself together.  “If indeed Good Times is to be taken seriously, then good luck to it, but don’t expect it to steamroll the charts,” says one.

Or to help steamroll Mr DotCon’s team into parliament. If he still has one.

And what of the Zero Percent Party? ACT acolytes hope the sharp and literate Jamie Whyte can lift their support several-fold and make them a game player again, using the publicity of a bogus leadership “race” to help catapult him to media prominence. The problem for the acolytes though is not any lack of smarts in the new man, it is the toxic environment of their own party – which, instead of being raised last time to the levels of electoral support achieved by Don Brash when leading National, managed instead by feat of arms consisting of an orgy of internal backstabbing to drag him down to theirs.

It will be an entertaining election year, that’s already started way too early. But a crying shame at the end of the day that you and I will be paying for it all.

Tuesday 21 January 2014

“…it is time to question the motives of socialism's advocates.”

“Fifty years ago, there might have been some excuse (though not justification) for the
widespread belief that socialism is a political theory motivated by benevolence and
aimed at the achievement of men's well-being. Today, that belief can no longer be
regarded as an innocent error. Socialism has been tried on every continent of the globe.
In the light of its results, it is time to question the motives of socialism's advocates.”
- Ayn Rand, ‘The Monument Builders’

Rand wrote that just over fifty years ago, in 1962.

In your view, is there more or less evidence now for its thesis?

Or is time for questioning over?

Famous film quotes charted

Famous movie quotes as charts

It’s hard to see unless you click to open it, but this snip of just the top corner gives you an idea of how sharp this is …

image

Head to Flowing Data to pre-order it as a poster.

Man’s inhumanity to man: Death by immigration

“Most of the harm in the world is done by good
people, and not by accident, lapse, or omission.”

- Isabel Paterson,
The Humanitarian With the Guillotine

Think you’re a humanitarian?

Then open up that picture above (or head to its original site) and sit and think for a moment.

Think about people dying in pursuit of a better life.

Contemplate the number of deaths in Europe every year directly caused by barriers put up to stop people yearning to breathe freer—including human beings killed by drowning; by asphyxiation; by hypothermia, accident, exhaustion or minefield; by suicide; violence by policemen or border guards; or by sailors bodily throwing live human beings overboard.

That thousands every year still risk these journeys gives some indication of how bad their lives are in the place from which they’re trying to escape. And all these barrier are put up to stop them, by people who love their children, pat their dogs, do good works on the weekends, and probably donate to charities.

Why do they do it?

Because people like you ask them to.

Because the truth at the heart of the welfare state – of every welfare state, not just the European experiment – its dark underbelly which is here laid bare, is its utter inhumanity.

"How so?' you ask. "Isn't the Welfare State a model of benevolent charity?" No, it’s not.
    The Welfare State is not voluntary charity, it is based on compulsion, forcing every person to be responsible for every other person whether they like it or not. And like it or not, those who pick up the cheque for the welfare state resent that forced imposition.
    It makes them view others not as another human being, but as just another mouth to be fed at their expense, another wallet to fill by emptying theirs, another family to be funded by funding your own that much less -- and the people whose wallets are being picked are naturally upset at the prospect of many more mouths being fed at their expense
    By its very nature, the Welfare State dehumanises people - viewing them as just a wallet or a mouth.

That map above, and the corpses floating in their droves off Australia, are the modern symbols of the ‘benevolent’ Welfare State. They are eloquent symbols, because the flip side of forced charity is the gun.

The simple equation is this: Immigration Plus Welfare State Equal Police State.

And that’s as deadly as hell.

[Hat tip Open Borders Australia]

RELATED READING:

Immigration and the Statue of Bigotry – Peter Cresswell
Welfare State Leaves People to Die – Peter Cresswell
Bloodstains on the Refugee Red Carpet – Peter Cresswell
Good news about globalisation – Peter Cresswell
How about a little common sense on immigration - Tony Snow
Immigration plus Welfare State equals Police State - George Reisman
Immigration and the Welfare State - the real root of the problem - Brian Doherty
Who's milking who? - illegal aliens pay more in taxes than they impose in costs - Shikha Dalmia
Don't bad-mouth unskilled immigrants - Tyler Cowen & Daniel M. Rothschild
Exploitation or expulsion - illegal immigrants in a double bind - Jesse Walker
Fighting terrorism requires legalizing immigration
- James Valliant
Worse than a wall - Kerry Howley
A legacy of the unforeseen - Carolyn Lochhead
Breathe free, huddled masses - Cathy Young
Open the borders - why should citizens of NAFTA countries need visas at all - Tim Cavanagh
Bush's border bravado - non-militarized solutions to a non-problem - Nick Gillespie
Open immigration, Si! Open borders, No! - Sixth Column

And of course there are the two classic Harry Binswanger articles which are 'must-reads' for the moral and practical case behind open immigration (note, open immigration, not open borders.):
The solution to 'illegal immigration' - Harry Binswanger
Immigration Quotas vs. Individual Rights: The Moral and Practical Case for Open Immigration
- Harry Binswanger
There. That should answer your questions...

Monday 20 January 2014

Australasia: the world leader in excessive house prices

Alan Moran at the always enlightening Australian economics blog Catallaxy Files is uncomfortable sharing his country’s appalling housing affordability ranking with New Zealand.

There is one area where Australia leads the world [which it shares with New Zealand].  Demographia’s 10th Annual Survey of house prices - this one covering 360 cities in nine countries – shows Australasia imperiously blitzing all opposition other than Hong Kong in house prices.  To ensure against distortions from different standards of living and costs, the survey compares median house prices in terms of average family incomes.

Although considerably higher than land-constrained Hong Kong, Australia (and New Zealand is similar) has average house prices relative to incomes that ate 60 per cent higher than those of the US, 12 per cent above the UK and 20 per cent above Japan.  Australian house prices are even higher than those of Singapore.

The prices are driven by the stock of new houses being built in comparison to the demand for houses – a significant factor of which is population growth.  Although new houses add only 2-4 per cent of total stock each year, it is these small numbers that drive the overall average price levels.  And the number of new houses built is critically dependent on approval regimes.

imageThis can be seen by breaking down new house costs into their three components: the house itself, the land preparation and the land itself.  Thus for Sydney, a standard “22 square” new house itself costs some $130,000 and the preparation of land, roads, sewerage etc. costs a further $70,000.

While the third component, the land itself is worth only $2,000 as farmland (far and away the most prevalent usage of the land) because of government rationing (euphemistically called “planning”) the block costs perhaps $300,000.  So a new house which should cost under $250,000 costs twice this much and this lifts the whole of the market – the median price of a house in Sydney is now $723,000 and in Melbourne it approaches $600,000.

The comparisons are even more stark once individual cities are taken into account.  Australia’s restrictive planning laws are pretty much a constant across the continent but Melbourne and Sydney are two of the least 10 affordable cities worldwide.

Remember, these comparisons take into account different building costs and income levels.   Relative to income levels, even thriving metropolises like Atlanta, Dallas, Memphis and Houston have house prices that are half those of Australasia’s major cities…

You might say, as the ignorant do, “Oh well, they can’t be unaffordable if people can still afford to buy them.” This ignores that the price effect is created by a small number of purchasers on the margin, a small few to whom housing is so important they have to forego whatever else they might have done with the extra money needed to pay for their house; it ignores the destructive “wealth effect” created when other home-owners’ paper profits encourage them using their house like an ATM machine; it ignores that large gobs of otherwise productive capital is instead tied up in folk chasing riches through selling houses to each other.

And it ignores the many injustice created by restricting what land-owners can do on their own land, and the interest groups who encourage it.

For our part we have pressure groups that prevent ‘sprawl’ whose fellow-travellers now dominate the planning department that control land use backed up by thickets of interlocking regulations amassed over decades.  Some relief is possible by redevelopment of the brownfield sites along the lines that [London mayor] Boris Johnson claims to support.  But though he suggests there are thirty such areas in London, he does not specify their size and even if, his goal of them providing 47,000 new homes a year were to be realised this would be inadequate.  Moreover, Johnson will find, as redevelopment proposals in Australasia find, that there is persistent and vigorous opposition to such plans, even for areas … where the population density today is only a third of its level two generations ago.

Inner city redevelopment is a help but the only solution to the exorbitant house prices faced by Australasian non-house owning younger people is to free up land supply.  Few politicians will bite this bullet, not only because of the bicycle riding anti-urban-sprawlers, but also because of existing home owners who have paid for the costs imposed by supply restraint and do not want to see the values of their investments brought down to their underlying worth.