Wednesday, January 4, 2017

Q&A - 4/1

Larry Summers

But I am most troubled by what the President-elect did with Carrier to hold on to an extra 700 jobs in Indiana [..] I have always thought of American capitalism as dominantly rule and law based.  Courts enforce contracts and property rights in ways that are largely independent of just who it is who is before them.  Taxes are calculable on the basis of an arithmetic algorithm.  Companies and governments buy from the cheapest bidder.   Regulation follows previously promulgated rules. In the economic arena, the state’s monopoly on the use of force is used to enforce contract and property rights and to enforce previously promulgated laws.

Even though we know of instances of corruption, abuse of power, favoritism and selective enforcement, we take this rules-based system for granted.  But looking around the world today or back through American history, this model is hardly a norm.  Many market economies operate what might be called ad hoc or deals-based capitalism:  Economic actors assume that they have to protect their property and do their own contract enforcement.  Tax collectors use discretion in assessing taxes.  Companies and governments buy from their friends rather than seek low cost bids.  Regulators abuse their power. The state’s monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.

This is the world of New York City under Tammany Hall, of Suharto’s Indonesia, and of Putin’s Russia.

Reliance on rules and law has enormous advantages.  It greatly increases predictability and reduces uncertainty.  It reduces expenditures on both guarding property and seeking to appropriate property.

Right

I believe some people have problem understanding scale; only incentives can create beneficial results at scale, one-one-one cajoling with single person at the center will have a hard time causing change, at scale. I remember one developing-world politician (a true imbecile) say once about unemployment "if every employer in the country hired one more person, there would be no more unemployment". This is true, in the sense that if everyone gave me a cent, I'd be a millionaire. Would people do it? Of course not. But why not? Because there is no incentive to do it.

I can't even categorize these people's approach as economics at macro. This is a sort of .... "bleeding-heart micro". They imagine a situation that is ideal, then divide that final goal into pieces, and that is what everyone needs to do. If everyone at the micro level did this little piece, we'd be fine. But.. if everyone did their piece in Communism, that ideology would have worked too.. It didn't because people won't perform their little pieces if it does not fit their (human) nature.

Article

[Paraphrasing] Obama saved General Motors because he really wanted to save [their experimental electric car] Bolt.

Yeah well.. 

Saving the auto industry was a mistake. There are many ways US gov could have saved that one vehicle, spawn it off to a seperate company, etc. The money that saved GM  could have gone to a dynamic start-up instead of a slow-moving colossus. Maybe we'd have another Tesla today.

Summers

Former Treasury Secretary Lawrence Summers on Tuesday criticized a paper jointly written by Peter Navarro and Wilbur Ross — both tapped for top positions in President-elect Donald Trump's administration — as "beyond voodoo economics" and equal to "creationism."

Damn

Health Apocalypse Now

Link Much of my time for the past year has been spent navigating the medical maze on behalf of my mother, who has dementia. I obser...