Words Poorly Used #140 — Corporatism

In its worst misuse, “corporatism” is given as a synonym for capitalism.  Corporatism is made of fictions, while capitalism is a natural economic occurrence.  Corporatism is the case where statism is used to control purely natural market activities.  When well-meaning people complain about the excesses of capitalism, they are usually resenting the dodging of responsibility, legislatively by the state-licensed corporation or illegally by the marauder.

In free markets, where individual actors make economic choices, interchange will be optimized — both parties will approach satisfaction with the transaction because that was their intent on entering the engagement.  One or both parties may be dissatisfied, to some degree, with some outcomes.  This is a critical point.  The partners in the transaction may realize that dissatisfaction is part of the risk of free exchange, or a partner may feel that she needs help from some authority, some corporate protection from the state.  The alternative may be that an aggrieved party will violate laws to seek adjustment.  When this type of crime is organized we have another form of corporatism — Might makes right.

The capitalist, however, underwrites risk.  She understands that her best interests are served by the risk management that is typical of her field of endeavor.  The finest example of risk management is in maintaining cordial, voluntary exchange.

— Kilgore Forelle

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Big Government and Big Tech versus the Internet and Everyone

Governments around the world began trying to bring the Internet under control as soon as they realized the danger to their power represented by unfettered public access to, and exchange of, information. From attempts to suppress strong encryption technology to the Communications Decency Act in the US and China’s “Great Firewall,” such efforts have generally proven ineffectual. But things are changing, and not for the better.

The European Parliament recently passed a “Copyright Directive” which, if implemented, will force Internet platforms to actively monitor user content instead of putting the burden of proving copyright infringement on those claiming such infringement. The Directive also includes  a “link tax” under which publishers will charge aggregation platforms for traditionally “fair use” excerpts.

The US government’s Committee on Foreign Investment is attempting to force the sale of Grindr, a gay dating app, over “national security” concerns. Grindr is owned by a Chinese company, Beijing Kunlun. CFIUS’s supposed fear is that the Chinese government will use information the app gathers to surveil or even blackmail users in sensitive political and military jobs.

Those are just two current examples of many.

Big Governments and Big Tech are engaged in a long-term mating dance.

Big Governments want to regulate Big Tech because that’s what governments do, and because, as with Willie Sutton and banks, Big Tech is where the Big Tax Money is.

Big Tech wants to be regulated by Big Governments because regulation makes it more difficult and expensive for new competitors to enter the market. Facebook doesn’t want someone else to make it the next MySpace. Google doesn’t want a fresh new face to send it the way of Yahoo.

It’s a mating dance with multiple suitors on all sides.

The US doesn’t like Grindr or Huawei, because FREEDUMB.

The Chinese don’t want uncensored Google or Twitter, because ORDER.

The EU is at least honest about being sexually indiscriminate: It freely admits that it just wants to rigorously screw everyone, everything, everywhere.

Big Tech wants to operate in all of these markets and it’s willing to buy every potential Big Government as many drinks as it takes to them all into the sack.

Everybody wins, I guess. Except the public.

Governments and would-be monopolists are fragmenting what once advertised itself as a Global Information Superhighway into hundreds of gated streets.

Those streets are lined by neatly manicured lawns per the homeowners’ association’s rigorously enforced rules, and herbicide is sprayed on those lawns to kill off the values that made the Internet the social successor to the printing press and the economic successor to the Industrial Revolution.

As Stewart Brand wrote, “Information Wants To Be Free. Information also wants to be expensive. … That tension will not go away.”

Big Tech and Big Government are both coming down, increasingly  effectively,  on the side of “expensive” and on the side of Ford’s  Model T philosophy (“you can have any color you want as long as it’s black”).

They’re killing the Internet. They’re killing the future. They’re killing us.

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Reviewing Paranoia

We often hear about “movies that are better than the book,” but rarely of “book reviews that are better than the book.” Cato’s Alex Nowrasteh has just published one such book review.  Here’s Nowrasteh on Reihan Salam’s Melting Pot or Civil War? A Son of Immigrants Makes the Case Against Open Borders:

The gap in quality between the book described by reviewers above and the actual book Melting Pot or Civil War? is wider than in any other book that I can remember reading. Descriptions of “calm” and “reasonable” are the most perplexing. True, he appeals to Americans “who are willing to meet others halfway” to solve the problems that he’s identified. On the other hand, he also argues that we need to follow his policy recommendations or face a racialized civil war. That is the very opposite of a “calm” or “reasonable” argument. A better description would be “hysterical” or “paranoid.”

Hysteria and paranoia aside, what’s wrong with the book?  Salam engages in extreme reverse engineering, where even the most favorable facts about immigration somehow become extra reasons to oppose it:

For example, Salam disagrees with himself over whether the goal of immigration policy should be to increase wages and employment for low-skilled immigrants and their descendants, or per capita productivity growth in small sectors of the economy. He rightly claims that immigration barely affects wages in the United States, but then argues that a major benefit of stopping low-skilled immigration is higher wages for native-born and immigrant dropouts. Salam correctly points out that low-skilled immigrants today compete mostly against other low-skilled immigrants, so he wants to help low-skilled immigrants here by stopping more from immigrating in the first place.

Much of the book, moreover, is simply odd:

Forgetting everything that he wrote about labor markets, Salam praises a science fiction-esque scenario of “virtual immigration” where workers would work remotely by operating robots in the United States from their home countries — even though the labor market effects of that would at best be economically identical to allowing them to immigrate and work here. Salam argues that “virtual immigration will do more good than harm for U.S. workers, provided we have the right safeguards in place [emphasis added].” Salam does not explain what those safeguards are, how they would prevent competition in labor markets, and why the government couldn’t just apply those same safeguards to prevent labor market competition between low-skilled immigrants and low-skilled natives.

And:

Salam mentions the enormous economic cost to those foreigners who would be locked out of the United States under his preferred immigration policy. He proposes a package of U.S. foreign aid to bribe foreign governments to establish charter cities so that low-skilled immigrants can go there instead of the United States. Oddly, he predicts those charter cities will become “fonts of entrepreneurship and public policy solutions” and that excellent new ideas developed there will enrich America. If low-skilled immigrants are entrepreneurs who will create fantastic new ideas in these charter cities that will eventually make it to America, why not just let them come here in the first place? Why spill so much ink supporting a utopian scheme of charter cities as a solution to global poverty when immigration is a tried and true method?

You might think the “civil war” stuff is just hyperbole on the book cover, but no:

To his credit, Salam does admit that there is no private political violence in American today that is comparable to the chaos before the Civil War, but that “it is hard to shake the feeling that our luck might soon run out.” Civil war is a deadly serious topic and perhaps this reviewer is being too nitpicky, but I require more than Salam’s difficultly in “shaking a feeling” to take his worry seriously. He should have done more to show that the choice is really between his “melting pot” or a “civil war.”

Better yet, Salam should have proposed a bet.  I say that America – indeed, the entire First World – is not only too rich, but too electronically sedated, to physically fight about much of anything.  The risk of civil war in the First World is small enough to make even the trivial danger of terrorism look big by comparison.

If you think me naive, come take my money.

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Two Economic Tragedies

Two economic tragedies:

1. Refusing to acknowledge any forms of value that don’t make money.

(Ie. “Friendships and hobbies are a waste of time unless they advance your career.”)

2. Resenting markets for not rewarding all the things we value in terms of money.

(Ie. “I enjoy laughing, listening to music, and hanging out at the beach. It’s unfair that nobody wants to give me a job or pay me money for those things.”)

#1 = a failure to understand why money matters and how it relates to the pursuit of meaning.

#2 = a failure to understand how value-creation works and why people choose to pay for things at all.

The way out:

Understand your why.

Respect other people’s.

Figure out how to use the former to serve the latter.

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Will Elizabeth Warren Take on the Biggest Monopoly of All?

For a “progressive” presidential candidate, US Senator Elizabeth Warren (D-MA) is remarkably, well, conservative. Her proposals are neither new nor of the “democratic socialist” variety.  In fact, her aim is, as Matthew Yglesias puts it at Vox, “to save capitalism”  with stock proposals from the first half of the last century.

Much of her campaign platform co-opts Franklin Delano Roosevelt’s  1930s “New Deal” emphasis on social welfare, job creation, infrastructure, and highly progressive taxation to pay for it all — solutions she considers proven, for problems she considers similar.

Her latest proposal, though, takes an earlier Roosevelt as its model. Like  “Trust Buster”  Teddy Roosevelt, she wants to use regulation and antitrust enforcement to “break up monopolies and promote competitive markets.” Her initially announced targets for the idea included Facebook, Google, and Amazon. A couple of days later, she added Apple to  the list.

Interestingly, in her search for monopolies to slay, she ignores the biggest, most powerful, and most lucrative monopoly in America: The US government.

In 2020, the federal government expects revenues of about $3.4 trillion.

That’s more than 60 times what Facebook brought in last year. 25 times as much as Alphabet’s 2018 revenues (Alphabet is Google’s parent company). More than 14 times Amazon’s total 2018 take. Nearly 13 times Apple’s haul.

And then there’s market share. No one really has to do business with Facebook, Google, Amazon, or Apple. There are numerous alternatives to the offerings of each, and many consumers choose those alternatives.

Uncle Sugar, on the other hand, boasts 100% market share for his offerings. You’re required to be his paying customer whether you like it or not. Many of the alternatives are outright illegal, and among the ones that aren’t, you’re required to pay for them in addition to, not instead of,  the federal government’s services.

That’s the very definition of “monopoly.” And it’s the monopoly Elizabeth Warren wants to serve as CEO of.

Is Senator Warren is serious about “breaking up monopolies” and “promoting competitive markets?”

If so, I look forward to her proposal for breaking up the federal government and allowing real alternatives to compete for its market share.

A good start would be 100% federal tax deductibility for the purchase of private sector services that replace the government’s offerings, or a pro rata clawback for binding agreement to not use a particular government service.

Absent such a proposal, seems to me she’s just another greedy monopolist looking to suppress the competition.

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I Win My European Unemployment Bet

In 2009, the U.S. unemployment rate exceeded Europe’s for the first time in decades.  Apologists for European labor market regulation rejoiced, so I publicly bet that European unemployment would exceed U.S. unemployment over the next decade.  The original authors I targeted turned me down, even after I offered a 1 percentage-point spread.  But noted economist John Quiggin took the bait.  Our final terms:

The stake is $US100 and the agreed criterion is that, for Bryan to win, the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points.

Ten years later, the bet’s results are now in.  The average U.S. unemployment rate during this decade was 6.8%.  The EU-19 (the original EU-15 plus the Baltics and Slovakia) was 10.3%.  Since the EU-15 is no longer widely available, Quiggin would have been within his rights to hold out for slightly adjusted numbers, but via email he has nobly decided to concede.   Since the Baltics and Slovakia have low populations, they couldn’t sway the final figure much – and in any case, unemployment rates for the Baltics and Slovakia aren’t major outliers.  The upshot is that I won the European unemployment bet by an enormous margin of 2 full percentage-points (on top of the original 1.5 percentage-point edge).

What does this all mean?  To me, this bet is just a small extra piece of evidence in favor of the orthodox and blindingly obvious theory that Europe has higher unemployment than the U.S. because it has stricter labor market regulation.  Flexible labor markets respond more sharply to shocks, but yield lower unemployment rates overall.  As I originally explained:

During the dot-com bust, U.S. unemployment remained below Europe’s, but it clearly rose faster.  Isn’t this further evidence that the mainstream case against European labor market regulation is overstated?

On the contrary, this is precisely what the mainstream case predicts!  Europe makes it harder to get rid of workers, so it’s only natural that when a big shock hits, U.S. unemployment rises more.  However, precisely because it is easier for American wages to adjust and American employers to change their minds, our labor market is also relatively quick to recover.

Disclosure: From the outset, Quiggin argued that the U.S. unemployment rates were artificially suppressed by high incarceration.  This has always seemed crazy to me, as I explained back in the day:

From a labor market perspective, though, Quiggin’s incarceration adjustment would only make sense if you thought that most or all of the people in jail would be unemployed if they were released.  That doesn’t make sense to me – while the people currently in American prisons might not be model workers, most of them could easily be gainfully employed on the outside.

Notice: Even if you think that the people in jail have no desire to work, you’d expect this to show up in labor force participation, not unemployment.  After all, to keep counting as unemployed, you have to keep trying – and failing – to find a job.

That said, I heartily commend Quiggin for actually making our bet.  He towers above all of the apologists for European labor market regulation who refuse to put their money where their mouths are.

Stepping back: Isn’t it possible that European-style labor regulation still helps workers, because the extra wages outweigh the lost hours of employment?  To be fair, this optimistic story is consistent with standard estimates of labor demand elasticity.  However, the optimistic story overlooks a pessimistic truth: Most of the harm of unemployment is psychological, not material.  Holding income constant, the employed are much happier than the unemployed.  Hence, no sensible person would want to see U.S. workers’ wages rise by 10% if the unemployment rate rose 3.5% as a result.  And psychology aside, remember that the welfare state forces active workers to support the idle.  So when regulation forces wages up, even the lucky workers who keep their jobs ultimately forfeit much of what they gain.

What did I learn from this bet?  Back in 2009, I was unaware that Germany had seriously liberalized its labor markets a few years earlier.  Since then, German unemployment has fallen from a peak of over 11% in 2005 to 3.3%.  The Great Recession barely happened in Germany; unemployment inched up from 7.1% in late 2008 to 7.9% in mid-2009, then continued its free fall.  There’s no reason all of the other high-unemployment countries in Europe can’t swallow their pride and follow Germany’s path to progress.  Well, unless “We’re too busy debating populism versus socialism” counts as a reason.

By my count, this betting victory brings my record to 19 wins, 0 losses.  Yes, perhaps I’ll see my first defeat later this month.  But even if I do, I’m not afraid to repeat that I have publicly demonstrated that my judgment is good.  And in my demonstrably good judgment, radical deregulation of Europe’s labor markets is long overdue.  I’m happy to make the Quiggin bet all over again with anyone who’s interested, but what’s the point?  My homeschooled sons understood all of this when they were 12.  Forget ideology.  Let’s all join hands, admit that labor market regulation is a scourge, and tear down these paper walls.

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