The Filter^

The Free Lunch Machine

If you haven't come across Clive Crook's assessment of the failure of the Doha round, I urge you to take a look (via Tim Worstall). It's reminiscent of James Ingram's classic, and surely should be the basis of consensus (see Larry Elliot)? The greatest challenge facing development economist's is to bury the mercantile myths that continue to muddy the debate on trade. In recent posts (here and here) I argued that opposition to free trade seemed to rely on either

a mercatile view of economics (i.e. exports make a nation better off, imports harm them) and the infant-industry argument (governments can generate economic gains by supporting new firms in industries with high economies of scale)

I think that Quinn and Jim accepted this point, but Jim added a third factor - the awareness that tariffs can make some people better off, as well as making some people worse off, while sanctions are designed to inflict maximum hurt

I still don't understand this point since he applies tariffs to the actual effects, and sanctions with the intended effects - he's not comparing like with like. Surely the following statement is just as true: the awareness that sanctions can make some people better off, as well as making some people worse off, while tariffs are designed to inflict maximum hurt

The leader in this week's Economist underlines the mercantile folly behind trade talks:

The benefits from free trade come more from imports than from exports. Imports of cheaper or better goods give consumers more for their money and, through competition, raise domestic productivity. Multilateral liberalisation is a sort of jujitsu that uses exporters' determination to get into foreign markets to overwhelm domestic lobbies that would sooner keep home markets closed. The trade diplomat's incantation that to open his market is a “concession” granted in exchange for an opening somewhere else is economic nonsense spouted for domestic political purposes. But it is remarkably fruitful nonsense because, within the World Trade Organisation, any concession to one trade partner is automatically extended to all members. This trick has helped the world enjoy decades of prosperity.

Either way, we have at our disposal a policy that would lift millions out of poverty but are choosing not to use it because of concerns about who gets what. Surely the fairest thing would be to let the people themselves decide whether they want it? But giving them choice would be giving them freer trade. So to deny them liberalised trade is to deny them the choice of deciding who gets what. I'd prefer that consumers - rich and poor alike - decide who gets the gains from trade rather than bureaucrats in Switzerland. They've had long enough to come up with a solution - lets now put it in the hands of the consumers.

Who's the extremist in this debate? It's not a simple distinction between those who favour protection and those who favour free trade, since any of the intended results of protection (the preservation of domestic industries, the environmental benefits of localised trade, the community ethos of small cooperatives) are inherently part of a free trade system. The people arguing for the opposite of protection - deliberate mechanisms to destroy domestic production and force consumers to trade internationally - are not aguing for free trade and those of us who are dissasociate ourselves from them. I'd be interested in a sceptic of free trade using my own argument against minimum wages against me. Perhaps i'm being inconsistent on these two issues. The floor is open.

A Confederacy of Dunces

One thing that always depresses me about politics today is the cheap, opportunistic point-scoring that so many journalists and MPs themselves indulge in. It tells us nothing of policy, of values, and of the processes of government that shape our land.

So what better way to confront this ignorance than to compile a list of the stupidest / funniest / most repulsive tory MPs of all time. Feel free to extend this list, but only tories please (it's not that I'm a labour supporter, it's just that it's funnier with tories, isn't it?).

1. Adam Ricketts (fair enough, not technically an MP yet, but if Cameron gets his way this ex-soap star turned ex-soap star will be the member for Wetherfield or something...) 

2. Boris Johnson (some people think he's funny, but there's nothing funny about this man being paid over three times my salary by the taxpayer to do fuck all as MP for Henley on Thames whilst editing magazines and hosting quiz shows)

3. Rupert Allason (spoke at my sister's school prize-giving, in which he said the most important asset in a woman was good handwriting; lost a series of libel actions which have rendered it legal for him to be termed a 'conniving little shit' in print; allegedly supports capital punishment)

4. Theresa Villiers (the worst ever performance by a guest on Question Time - an embarassment)

5. Jonathan Aitken (you know the story)

6. George Osborne (he's a right one isn't he? Let's pray he never becomes Chancellor)

More please...

Absence of Reviews

Regular visitors to The Filter^ might have noticed a lack of opera/classical reviews recently. This is just to say that if The Filter^ is still up and running in February '07 then I plan to post a ranked and pretty brief summary of all the operas in London in 2006 (which I'm currently seeing but can't comment on) of which there have already been many and are still many to come. Should be a fun list. Then from January 2007 it should be back to normal. I bet you're all glad to hear that - all three of you. As for concert reviews there should be some on the way hopefully.

Dump on me! (with a caveat)

I've never quite understood the problem about "dumping" - where food that's been over produced due to subsidies is sold at below market prices in other countries. When EU taxpayers fund our farmers to produce a butter mountain, it's obvious that we suffer. But it seems odd that people think the people who are dumped on lose out. Consumers love to be dumped on! Daniel Davies argues this case in the Guardian.

I think the problem with dumping stems from a few problems:

1. It violates the mercantile view that economic prosperity stems from strong exports, and since most development economists susbribe to this view they think that competition for African producers is bad. But dumping helps consumers - it makes them richer - and therefore should be applauded
2. Dumping makes EU taxpayers worse off and African consumers better off. Therefore it's obvious why many Westerners think it's bad. For me the CAP should be abolished, but given that it exists, dumping is a good thing. It's a shame that it's a state-administered charity intending to support domestic farmers, but the unintended consequences of providing cheap food for the poor cushions the blow
3. Subsidised farming distorts price signals, and therefore makes the market inefficient. This complicates the production decisions of African farmers (because they're being fed innacurate information), but most importantly dumping is a market abhoration. Since it rests on political rather than economic decision making, it's harder to predict the size and scope, and therefore (I think) is more volatile.

In an ideal world there'd be no farm subsidies and no dumping. This would create a geniunely level playing field for African farmers to interpret market signals and produce profitably. However given farm subsidies exist, dumping can benefit the very poor. My main concern is how volatile these policies are, and the market distortions that result.

Whilst we're on the subject of Africa, Owen shares a quote:

Today there is a second wind of change blowing across Africa, ... Understanding the day-to-day stories of Africa means abandoning preconceived notions. ... With better media coverage, the United States and the world would realize that there is more to Africa than death, disease, disaster, and despair.

My comment:

Shame tha there isn’t more to African media coverage than pomposity and soundbite though

Not more...

More here

Fable of the Wasps

A few days ago we suspected that we had a wasps nest somewhere near the spare bedroom window, but it's been hard to tell because the wall doesn't face our garden, and we rarely have the windows open near there. However the wall does face next door, and they do have their windows open, and yesterday our neighbour told us that she thought we had a nest and the wasps were coming into her kitchen. The nest is clearly on our property, but it's only affecting them.

Who should pay to have the nest removed?

Presumeably if both households were libertarian, or both households were socialist, agreement would be easy. Since we're neighbours there's little point trying to stab each other in the back for the sake of £25 as we don't know what future issues might arise, and therefore we have a Veil of Ignorance. Both parties would agree that we should implement a rule, and that rule would depend on whether we're both libertarians or socialists.

What would the libertarians rule be? What would the socialists rule be?

However the issue is more complicated, because we both have different notions of property rights and morality. And this is precisely why the ethical vacuum of the Coase Theory (.pdf) is so important - it can make the issue of who should pay irrelevent.

As it now stands, the gardener has been paid, but ourselves and our neighbours are in a dispute about who should bare that cost. But if it wasn't for the Coase Theory - that (when transaction costs are low) the allocation of goods is the same regardless of endowments - the wasps would still be in their kitchen.

It's easy for libertarians or socialists to argue that the ethical principle should matter, but if we accept true subjectivism then the ethical debate will always be ongoing, and won't secure an efficient outcome. The wealth effects are real - and we'll continue to argue our case - but the actual outcome is efficient and mutually satisfactory.

Yes, this is a blatant attempt to coax Steve out of hiding. If a horrible plagiarism of Stephen Cheung doesn't force Mr Lai to respond I don't know what will!

Minimum Wage: The Cloak Comes Off

We've discussed a minimum wage in the past (see here and here), and I think i'm right in saying that both sides acknowledge the economic logic that a miniumum wage, ceteris parabus, increases unemployment (especially amongst low-skilled workers).

You might believe that the labour market is fairly inflexible, and that the firms can absorb the rise in costs to imply that in practice a minimum wage merely creates a slight reduction in expansion (and no new unemployment) coupled with mild inflation. It's an intuitive belief, but try claiming it with a straight face in light of this.

In short, I don't think there's enough employment opportunities for young, non-white, low-skilled workers, and therefore miniumum wage laws are inherently wrong. They protect the relatively well off at the expense of the relatively worse off.

I also think both sides in the debate accept that minimum wage laws were founded on sexist and racist principles: the progressives knew full well what the effects were. Their policy wasn't based on ignorance, but on eugenics.

Nowadays though advocates of a minimum wage are left in a difficult position. They support something which they know is harmful (they don't doubt the economic theory), and something that they know is grounded in eugenics (they don't doubt the economic history). So how can one support a minimum wage without either being ignorant or an advocate of eugenics? (That question isn't rhetorical by the way..)

Alex Tabarrok points out a horrific NYT op-ed that acknowledges that an economically literate non-racist can't support minimum wages. The cloak comes off and they declare themselves as racist and nationalist:

If we are really serious about turning back the tide of illegal immigration, we should start by raising the minimum wage from $5.15 per hour to something closer to $8.
...
If we raise the minimum wage, it’s possible some low-end jobs may be lost; but more Americans would also be willing to work in such jobs, thereby denying them to people who aren’t supposed to be here in the first place.

In other words, because a minimum wage hurts foreigners even more than Americans, it should be adopted. The policy harms immigrants, and also harms low-skilled (typically African-American) US workers, but because relatively high-skilled (typically White) US workers benefit it's deemed good.

It's refreshing for minimum wage advocates to cut out the rhetorical bullshit about wanting to help the poor, and actually admit that it's a policy for racists and nationalists, and the uninformed. For such vocal supporters of a minimum wage to say "Yes, we accept it's a racist policy and that's why we like it", should, hopefully, further undermine a policy that may not create much economic damage, but certainly is symptomatic of how faulty economic reasoning can persist.

Milton Friedman Interview

Milton Friedman is everyone's idea of an American oracle, an American sage

Read the interview here, (via New Economist)

Milton Friedman is everyone's idea of an American oracle, an American sage

Read the interview here, (via New Economist)

Everton's Title Achievement

only Everton have spent more seasons in the top division.

But Everton fans will feel a little aggrieved at their position just below Leeds United and Villa, given that they are the only club to pass the century of seasons among the elite and are second only to their neighbours, Liverpool, in the points tally. Nor is Everton’s status purely a product of longevity — with nine titles, they outstrip all but the big three in what is surely the most important measure of success

That's from The Times

Can't take my eyes off you...

I won't be looking at the back page of tomorrow's Daily Mail, and neither should you.