Hoovernomics

This piece appeared in the WSJ the other day. It touches on some points sometimes overlooked in discussions of that era:

Around our offices, we're still recovering from the fact that Hoover was the last Presidential candidate we've endorsed. We've been trashing Hoovernomics ever since. The issue this year, however, is who is really pursuing the Hoover model.

To hear Mr. Schumer and his fellow-traveling columnists tell it, Hoover's great policy blunder was to do nothing, all the while insisting that everything was fine. But the problem with Hoover's economic policy isn't that it was passive but that it was actively destructive.

In 1930, he signed the Smoot-Hawley Tariff Act, setting off a wave of protectionist retaliation that undid the globalization of the preceding decades and did far more harm to the world economy than the stock-market crash ever did. Two years later, amid a bad recession, he undid the Calvin Coolidge-Andrew Mellon tax cuts, raising the top marginal income-tax rate to 63% from 25%. The recession became a Depression.

Note that although Smoot-Hawley was signed in 1930, contemporaneous accounts show that ideas about the likelihood of passage shifted dramatically towards the affirmative in October of 1929, just before the stock market crash. Make of it what you will. Also, dramatically raising marginal tax rates with a contracting economy, in a desperate attempt to balance the budget, is not exactly a pro-growth policy. When I first learned of that step, many years ago, I nearly fell out of my chair.

There you go again

Historically, natural resources have been subject to long periods of chronic scarcity or abundance with prices rising and then falling back towards their cost of production for extended periods of time. The bullish phases have typically lasted 15 to 25 years until supply finally overtakes demand again. This adjustment usually entails some combination of greater production, more efficient usage and/or creation of a substitute. Countries which are large net exporters of natural resources will seem to have an economic wind at their backs during the bullish phase (think Russia, Brazil and Australia) and more of an economic headwind during the bearish phase. Note also that the magnitude of the price swings and the difficulty of adjustment can be exacerbated by bad economic policy.

This Malthusian redux appeared recently, although in fairness, the authors are not quite full-blown apocaholics.

Now and then across the centuries, powerful voices have warned that human activity would overwhelm the earth's resources. The Cassandras always proved wrong. Each time, there were new resources to discover, new technologies to propel grow.

Today the old fears are back.

Although a Malthusian catastrophe is not at hand, the resource constraints foreseen by the Club of Rome are more evident today than at any time since the 1972 publication of the think tank's famous book, "The Limits of Growth." Steady increases in the prices for oil, wheat, copper and other commodities -- some of which have set record highs this month -- are signs of a lasting shift in demand as yet unmatched by rising supply.

As the world grows more populous -- the United Nations projects eight billion people by 2025, up from 6.6 billion today -- it also is growing more prosperous. The average person is consuming more food, water, metal and power. Growing numbers of China's 1.3 billion people and India's 1.1 billion are stepping up to the middle class, adopting the high-protein diets, gasoline-fueled transport and electric gadgets that developed nations enjoy.

The result is that demand for resources has soared. If supplies don't keep pace, prices are likely to climb further, economic growth in rich and poor nations alike could suffer, and some fear violent conflicts could ensue.

In the past, economic forces spurred solutions. Scarcity of resource led to higher prices, and higher prices eventually led to conservation and innovation. Whale oil was a popular source of lighting in the 19th century. Prices soared in the middle of the century, and people sought other ways to fuel lamps. In 1846, Abraham Gesner began developing kerosene, a cleaner-burning alternative. By the end of the century, whale oil cost less than it did in 1831.

A similar pattern could unfold again. But economic forces alone may not be able to fix the problems this time around. Societies as different as the U.S. and China face stiff political resistance to boosting water prices to encourage efficient use, particularly from farmers. When resources such as water are shared across borders, establishing a pricing framework can be thorny. And in many developing nations, food-subsidy programs make it less likely that rising prices will spur change.

Indeed, the true lesson of Thomas Malthus, an English economist who died in 1834, isn't that the world is doomed, but that preservation of human life requires analysis and then tough action. Given the history of England, with its plagues and famines, Malthus had good cause to wonder if society was "condemned to a perpetual oscillation between happiness and misery." That he was able to analyze that "perpetual oscillation" set him and his time apart from England's past. And that capacity to understand and respond meant that the world was less Malthusian thereafter.

Political responses can alter rules and institutional arrangements so as to facilitate the adjustment by consumers and producers or they can make things worse, particularly by trying to choose the solutions. (Think ethanol from corn...)

I suspect that many people haven't met The Doomslayer.

This is the litany : Our resources are running out. The air is bad, the water worse. The planet's species are dying off - more exactly, we're killing them -at the staggering rate of 100,000 per year, a figure that works out to almost 2,000 species per week, 300 per day, 10 per hour, another dead species every six minutes.We're trashing the planet, washing away the topsoil, paving over our farmlands, systematically deforesting our wildernesses, decimating the biota, and ultimately killing ourselves.

The world is getting progressively poorer, and it's all because of population, or more precisely, overpopulation. There's a finite store of resources on our pale blue dot, spaceship Earth, our small and fragile tiny planet, and we're fast approaching its ultimate carrying capacity. The limits to growth are finally upon us, and we're living on borrowed time. The laws of population growth are inexorable. Unless we act decisively, the final result is written in stone: mass poverty, famine, starvation, and death.

Time is short, and we have to act now.

That's the standard and canonical litany. It's been drilled into our heads so far and so forcefully that to hear it yet once more is ... well, it's almost reassuring. It's comforting, oddly consoling - at least we're face to face with the enemies: consumption, population, mindless growth. And we know the solution: cut back, contract, make do with less. "Live simply so that others may simply live."

There's just one problem with The Litany, just one slight little wee imperfection: every item in that dim and dreary recitation, each and every last claim, is false. Incorrect. At variance with the truth.

"Our species is better off in just about every measurable material way," he says. "Just about every important long-run measure of human material welfare shows improvement over the decades and centuries, in the United States and the rest of the world. Raw materials - all of them - have become less scarce rather than more. The air in the US and in other rich countries is irrefutably safer to breathe. Water cleanliness has improved. The environment is increasingly healthy, with every prospect that this trend will continue.

Julian Simon: The facts are fundamental.

Garrett Hardin: The facts are not fundamental. The theory is fundamental. - from a 1982 debate with the UC Santa Barbara biologist The doomslayer-doomsayer debate, Simon thinks, is an opposition between fact and bad theory, a case of empirical reality versus abstract principles that purport to define the way things work but don't.

"It's the difference," he says, "between a speculative analysis of what must happen versus my empirical analysis of what has happened over the long sweep of history."

The paradox is that those abstract principles and speculative analyses seem so very logical and believable, whereas the facts themselves, the story of what has happened, appear wholly illogical and impossible to explain. After all, people are fruitful and they multiply but the stores of raw materials in the earth's crust certainly don't, so how can it be possible that, as the world's population doubles, the price of raw materials is cut in half?

It makes no sense. Yet it has happened. So there must be an explanation.

And there is: resources, for the most part, don't grow on trees. People produce them, they create them, whether it be food, factories, machines, new technologies, or stockpiles of mined, refined, and purified raw materials.

"Resources come out of people's minds more than out of the ground or air," says Simon. "Minds matter economically as much as or more than hands or mouths. Human beings create more than they use, on average. It had to be so, or we would be an extinct species."

The defect of the Malthusian models, superficially plausible but invariably wrong, is that they leave the human mind out of the equation. "These models simply do not comprehend key elements of people - the imaginative and creative."

As for the future, "This is my long-run forecast in brief," says Simon. "The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today's Western living standards.

"I also speculate, however, that many people will continue to think and say that the conditions of life are getting worse."

Eventually the current bullish phase for natural resources will end, although not without more predictions of doom, and those familiar with the ideas of the doomslayer will smile.

See also videos of Julian Simon.

The Ultimate Resource

Alex Tabarrok sounding like Julian Simon:

(from Forbes via The Club For Growth):

Forget the talk of recession. The world is about to enter a new era in which miracle drugs will conquer cancer and other killer diseases and technological and scientific advances will trigger unprecedented economic growth and global prosperity.

Pie in the sky optimism? Perhaps. But there are reasons to be optimistic, and they rest not on science fiction but within the badly misnamed "dismal science," economics.

To understand why economics triggers such optimism, imagine that there are two deadly diseases. One disease is relatively rare, the other common. If you had to choose, would you rather be afflicted with the rare or the common disease?

If you don't want to die, it's much better to have the common disease. The reason? The cost of developing drugs for rare and common diseases are about the same, but the revenues aren't. Pharmaceutical companies concentrate on drugs with larger markets because larger markets mean more profits.

As a result, there are more drugs to treat diseases with a lot of patients than to treat rare diseases, and more drugs means greater life expectancy. Patients diagnosed with rare diseases--those ranked at the bottom quarter in terms of how frequently they are diagnosed--are 45% more likely to die before age 55 than are patients diagnosed with more common diseases.

So imagine this: If China and India were as wealthy as the U.S., the market for cancer drugs would be eight times larger than it is today.

Of course, China and India are not yet as wealthy as the U.S., but their economies are growing rapidly, and with them, the market for new drugs. Cancer is now China's leading killer, with spending on treatment increasing by 17% per year. To be close to the Chinese market, AstraZeneca and Novartis are building major research facilities in China, which will benefit patients everywhere.

Like pharmaceuticals, new computer chips, software and chemicals also require large research and development (R&D) expenditures. As India, China and other countries become wealthier, companies will increase their worldwide R&D investments. Most importantly, as markets expand, companies and countries will put to work the greatest asset of all for the betterment of mankind: brain power.

Amazingly, there are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. Poverty means that millions of potentially world-class scientists today spend their lives trying to eke out a subsistence living, rather than leading mankind's charge into the future. But if the world as a whole were as wealthy as the U.S. and were devoting the same share of population to research and development, there would be more than five times as many scientists and engineers worldwide.

People used to think that more population was bad for growth. In this view, people are stomachs--they eat, leaving less for everyone else. But once we realize the importance of ideas in the economy, people become brains--they innovate, creating more for everyone else.

New ideas mean more growth, and even small changes in economic growth rates produce large economic and social benefits. At current income levels, with an inflation-adjusted growth rate of 3% per year, America's real per capita gross domestic product would exceed $1 million per year in just over 100 years, more than 22 times higher than it is today. Growth like that could solve many problems.

In the 20th century, two world wars diverted the energy of two generations from production to destruction. When the horrors ended, the world was left hobbled and split. Communism isolated much of the world, reducing trade in goods and ideas--to everyone's detriment. World poverty meant that the U.S. and a few other countries shouldered the burdens of advancing knowledge nearly alone.

The battles of the 20th century were not fought in vain. Trade, development and the free flow of people and ideas are uniting all of humanity, maximizing the incentives and the means to produce new ideas. This gives us reason to be highly optimistic about the future.

Whatever problems we will struggle with in the short term, there is indeed reason to be optimistic. It is also good to understand that although globalization means more competition, more trade and more people working on new innovations is very much a positive sum game.

People, even better when they are free, are the ultimate resource!

Drunken Debauchery of the Past

Reading Throwing out the baby and keeping the bathwater at Thought Mesh reminded me of a blues song I wrote in the 70's called Wellesley which chronicles the drunken debauchery of those around me (Note that it's not about me; it's about a frat brother). I didn't actually get around to recording the song till much later, but it still captures the essence of some behaviors from thirty years ago. This song is actually a man-bites-dog story in that, unusually and surprisingly, the drunken encounter didn't actually end with sex.

The amazing thing about being alive a long time is that you see that human nature and behavior changes very, very, very slowly, if at all.

National Health Insurance vs. Competition

Very few are happy with the state of health care in the United States. Many want to go to a single payer system like the Physicians for a National Health program. Others think that if somehow more competition could be interjected into health care, things might improve.

I recently received an email from a friend containing the following excerpts:

I thought you all might be interested in this article: http://www.pnhp.org/facts/singlepayer_faq.php?page=1

If you look at nothing else, look at the table on page 6.

It is my contention that healthcare is a fundamentally different type of "good," the provision of which is not well-served by the free market. The evidence is overwhelming that our current system is tremendously flawed. I'm in favor of National Health Insurance (as promoted by Hillary - even though I voted for Barack for other reasons). We are currently spending around 30% of our healthcare dollars on administration. That would be sliced way down with NHI. And, there is strong evidence that the quality of healthcare would increase. [...]

[P]lease forward this article to help people understand that there is nothing to fear from a national health insurance program. Much of the rest of the world has already proven it is far better than our current system. It takes tortured logic to argue otherwise. [...]

The article does a good job of addressing the common concerns which are raised about national health insurance.

This PNHP proposal for National Health Insurance works for me.

It's funny, but just recently I was thinking that I'd like to stop working, but because of health insurance I couldn't quite afford to do so, especially since now that I'm getting a bit older, health insurance is getting more and more expensive. With the PNHP proposal there would be absolutely no advantage to continue working from the perspective of paying for my health care and it would thus remove one of the biggest impediments keeping me from stopping working. I'm more than willing to kick back and fly kites at the beach in San Diego while all the young whipper-snappers work their butts off at low wage jobs in order to provide health care insurance for me. How could I argue against that? It won't be a very lavish retirement, but hey, the house is paid off, and food is cheap enough, so if health care is covered, I'm good.

On the other hand, I can't really advocate for this proposal because I just can't seem to understand the logic behind it. It seems that the gist of that logic is as follows:

A. Health care is one the least free markets in the nation with the tentacles of government regulation and control reaching into nearly all aspects of the market with government already involved directly or indirectly in over 60% of all health care expenditures in the country; and

B. Everyone agrees that the current system is tremendously flawed, especially compared with the efficiency and progress in many other non-regulated markets.

Therefore,

C. Let's make the government become even more intrusive in the health care market.

In other words, government intervention is substantial and the market sucks so let's add more government intervention!

Now, there's a much simpler set of logic that explains why I don't understand why that makes sense:

X. I'm fairly conservative; and
Y. All conservatives are stupid.

Therefore,
Z. It's not surprising I can't grasp the why the “A B -> C” logic above makes sense.

I'm sure if I had adequate mental capability I could understand all the nuances that turns NOT C into C, but I don't. So be it.

Nonetheless, it's quite hard for me to support, advocate and vote for something that doesn't make sense to me, so the best I can do in this case is abstain and make it work for me personally (i.e. fly kites at the beach) if it comes to pass. Indeed, because of my apparently limited understanding, I think it's probably bad for my children, if for no other reason than if enough reasonably productive people such as myself retire an extra decade or two early, it doesn't seem to me that that would be particular good for average prosperity. Since I know a number of people in their fifties and sixties who are working primarily to keep their health insurance going, I suspect that a fairly large number of productive people will retire significantly before they otherwise would've, assuming that the PNHP proposal is implemented. With any change in a system, there are always winners and losers, and I have little doubt that people who are between 50 and 65 years of age are the big winners if the PNHP proposal is implemented.

On the other hand (actually, I guess that's the third hand), there is a version of national health insurance that I could both understand and support. Unlike my uber-libertarian friends, I generally don't mind the concept of “safety nets”, especially ones that allow people to absorb risk and become more entrepreneurial. For example, I think that Social Security enables people to be somewhat more entrepreneurial since they can be a bit less worried about their financial state in their old age and take more risk when they're younger. I just don't think that “free rides” like the PNHP proposal that remove incentive for people to be productive are generally a good idea.

The alternative I'm talking about is a catastrophic only version of the PNHP proposal. I'm not sure what the exact numbers should be, and there are certainly gazillions of other details to work out, but the gist would be something like this: 95% of everything over $5,000 per year per family of medical expenses is covered and 95% of everything over $50,000 per individual per lifetime of medical expenses is covered.

Then, everybody is covered against severe financial ruin due to health problems. Keep in mind the following: other programs for the very poor like Medicaid can provide insurance for the first $5,000 if necessary; private insurance can provide coverage for some portion of the first $5,000 for the non-poor if people want that and it should be relatively cheap since a significant portion of the cost of health insurance currently goes to pay for the catastrophic cases; other preventative programs such as providing free prenatal care are not excluded by catastrophic health insurance if that's still necessary; etc.

For everything else (under the $5,000 per year per family), allow a free market to operate. This includes greatly deregulating the private insurance market, greatly deregulating all health care including allowing more alternative medicine, and removing the tax break for employer provided health insurance (which mostly helps the relatively well-off anyway). We should then commit to the program for 15 to 20 years in order for the change to stabilize and to allow the profit motive a sufficient window to make investment potentially profitable.

At the end of 15 to 20 years we will be able to at least partially answer two questions: are government administrative costs and government ability to control quality of care, access, and cost really better than the private insurance companies (for catastrophic health problems); and can a market freed of government intervention for services below $5,000 per family per year adapt and provide better choice and higher quality of care at lower cost? In other words, we can gather data on how well a national single-payer system would really work before committing whole hog and we can gather data on how a free-market approach might work in the mean time. All of this data would be new.

When the new data becomes available, we can re-evaluate and make modifications if necessary to enhance the system based on the new information in a decade or two.

In summary, I personally can make use of the PNHP proposal, if implemented, but I think it may be a bad idea overall. However, I've proposed an alternative that would be much less expensive and much more free-market that accomplishes many of the stated goals of the PNHP proposal.

Denying what works

Bill Easterly has some thoughts abouts recent statements made by Bill Gates:

Profit-motivated capitalism, on the other hand, has done wonders for poor workers. Self-interested capitalist factory owners buy machines that increase production, and thus profits. Capitalists search for technological breakthroughs that make it possible to get more output for the same amount of input. Working with more machinery and better technology, workers produce more output per hour. In a competitive labor market, the demand for these more productive workers increases, driving up their wages. The steady increase in wages for unskilled labor lifts the workers out of poverty.

The number of poor people who can't afford food for their children is a lot smaller than it used to be -- thanks to capitalism. Capitalism didn't create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history.

The parts of the world that are still poor are suffering from too little capitalism. Foreign direct investment in Africa today, although rising, amounts to only 1% of global flows. That's because the environment for private business in Africa is still hostile. There are some industry and country success stories in Africa, but not enough.

Mr. Gates also announced his foundation is starting "a partnership that gives African farmers access to the premium coffee market, with the goal of doubling their income from their coffee crops." This is fine as a modest endeavor to help a few Rwandan and Kenyan coffee farmers, but it's hardly going to remake capitalism. The main obstacles to exports in poor countries are domestic ones like corruption and political strife, not lack of interest from rich-country buyers for premium coffee.

Moreover, how do philanthropists choose just which product is going to be the growth engine of a country? Much research suggests that "picking winners" through government industrial policy hasn't worked. Winners are too unpredictable to be discovered by government bureaucrats, much less by outside philanthropists. Why did Egypt capture 94% of Italy's import market for bathroom ceramics? Why did India, an economy with scarce skilled labor, become a giant in skill-intensive IT and outsourcing? Why did Kenya capture 39% of the European market in cut flowers? Why did tiny Lesotho become a major textile exporter to the U.S.? Why did the Philippines take over 72% of the world market in electronic integrated circuits? Because for-profit capitalists embarked on a decentralized search for success.

Sure, let those who have become rich under capitalism try to do good things for those who are still poor, as Mr. Gates has admirably chosen to do. But a New-Age blend of market incentives and feel-good recognition will not end poverty. History has shown that profit-motivated capitalism is still the best hope for the poor.

Points worth reemphasizing:

The main obstacles to exports in poor countries are domestic ones like corruption and political strife.

Much research suggests that "picking winners" through government industrial policy hasn't worked. Winners are too unpredictable to be discovered by government bureaucrats, much less by outside philanthropists.

...for-profit capitalists embarked on a decentralized search for success.

History has shown that profit-motivated capitalism is still the best hope for the poor.

Help and encourage institutional reform consistent with local culture and then see what happens.

Puddin'

Many Europeans think of their generous welfare states as being quite civilized while considering the American model to be nearly barbaric. In light of this, I rather like this take:

Bruce Thornton, a classics professor at California State University, is the latest to take up this thesis. In Decline and Fall, he makes the case that a number of factors—including unsustainable welfare states, dwindling birthrates, undiscriminating immigration laws, a society disconnected from the transcendent truths of Christianity, and a failure to confront the gathering threat of Islamic jihadism aggressively—are leading Europe to commit “slow-motion suicide.”

Government largesse may seem an unlikely source of civilizational decline...

To the contrary, the point of the welfare is that it acts as a solvent upon all of the civilizational ties that made men independent of the state. Once you have individuals completely atomized they're easy to control. They've traded liberty for security.

That's why the Left fights against the Third Way so hard, even though it advances their putative goals. Sure it can provide universal education, housing, health care, unemployment insurance, etc., but by doing so in a way that makes the citizenry independent it strikes at the core of the secular statist project.

Demographic and financial factors mean that the Europeans should hit the wall before we do. A welfare state that provides services and benefits in a manner that promotes dependence rather than independence creates citizens who are more resistant to competing in and adapting to a changing world. Just like the failure of socialism, the proof will be in the pudding.

Liberal Fascism

You're probably aware that Jonah Goldberg's new book is causing quite a stir.

This via Instapundit:

TAKE THAT, TROLLS! (CONT'D): Jonah Goldberg's book is now up to #8 #7 #6.

And, if you somehow missed it, our podcast interview with Jonah is here.

UPDATE: Reader Chris Nath emails:

I just went to the local Barnes & Noble where I found Keith Olberman's "Truth and Consequences" prominently displayed on a middle of the aisle table - impossible to miss. Curious, I went in search of Jonah Goldberg's book and where did I find it? A single copy languished on the bottom row of the current events rack with just the binding end of the book showing. Coincidence?

I'm sure. (Bumped).

The Author also speaks here.

This from Daniel Pipes via Dissecting Leftism(scroll down):

Liberal fascism sounds like an oxymoron - or a term for conservatives to insult liberals. Actually, it was coined by a socialist writer, none other than the respected and influential left-winger H.G. Wells, who in 1931 called on fellow progressives to become "liberal fascists" and "enlightened Nazis." Really. His words, indeed, fit a much larger pattern of fusing socialism with fascism: Mussolini was a leading socialist figure who, during World War I, turned away from internationalism in favor of Italian nationalism and called the blend Fascism. Likewise, Hitler headed the National Socialist German Workers Party.

These facts jar because they contradict the political spectrum that has shaped our worldview since the late 1930s, which places communism at the far Left, followed by socialism, liberalism in the center, conservatism, and then fascism on the far Right. But this spectrum, Jonah Goldberg points out in his brilliant, profound, and original new book, Liberal Fascism: The Secret History of the American Left from Mussolini to the Politics of Meaning (Doubleday), reflects Stalin's use of fascist as an epithet to discredit anyone he wished - Trotsky, Churchill, Russian peasants - and distorts reality. Already in 1946, George Orwell noted that fascism had degenerated to signify "something not desirable."

To understand fascism in its full expression requires putting aside Stalin's misrepresentation of the term and also look beyond the Holocaust, and instead return to the period Goldberg terms the "fascist moment," roughly 1910-35. A statist ideology, fascism uses politics as the tool to transform society from atomized individuals into an organic whole. It does so by exalting the state over the individual, expert knowledge over democracy, enforced consensus over debate, and socialism over capitalism. It is totalitarian in Mussolini's original meaning of the term, of "Everything in the State, nothing outside the State, nothing against the State." Fascism's message boils down to "Enough talk, more action!" Its lasting appeal is getting things done.

In contrast, conservatism calls for limited government, individualism, democratic debate, and capitalism. Its appeal is liberty and leaving citizens alone. Goldberg's triumph is to establish the kinship between communism, fascism, and liberalism. All derive from the same tradition that goes back to the Jacobins of the French Revolution. His revised political spectrum would focus on the role of the state and go from libertarianism to conservatism to fascism in its many guises - American, Italian, German, Russian, Chinese, Cuban, and so on.

I think the observation is more than some people can stand.

Update via Instapundit:

JONAH GOLDBERG IS CURRENTLY #1 on Amazon. I hope he sends a nice thank-you note to all the lefty bloggers who have been savaging him. I don't think he could have done it without them!

Confused? Or Corrupt?

A recent decision by the Massachusetts State Public Health Council paves the way for CVS Corp. and other retailers to open medical clinics inside their stores. These are quick and convenient mini-clinics where you can get inexpensive care for minor health issues.

In a statement regarding the decision, Boston Mayor Thomas Menino said:

"Allowing retailers to make money off of sick people is wrong."

Let's think about this.

CVS is a for-profit company that operates a chain of drugstores. At those stores, precious few of the drugs that they sell are recreational. Therefore, the drugs are specifically sold to people who are not completely well. In other words, the entire reason for the existence of CVS Drugstores is to make money off of sick people. And thank heavens for that! When I'm sick I'm oh so happy to buy my drugs there!

So what can it possibly matter if CVS starts a new service that also makes a little bit more money off of sick people? Also, don't doctors, nurses, hospitals, etc. make money off of sick people? Your average heart transplant surgeon isn't operating on well people, is he?

Mayor Menino is either awfully clueless about the fundamentals of why CVS and other health care retailers exist, he wants to turn all health care (including buying aspirin) into not-for-profit, or someone is "influencing" him to get him to fight this new and excellent development in health care delivery. If it's the latter, I think that whoever or whatever is funding that "influence" is not getting their money's worth since that statement of his sounded awfully stupid to me.

The Earth's Lungs?

The following multiple choice question appeared on my eight year old daughter's homework:

Which of the following is the reason that tropical rain forests are called the Lungs of the Earth?

The answer was:

They breathe out more than 20% or the Earth's oxygen.

I had never heard that specific tidbit before and initially thought, "Oh, well, that's interesting." But then I thought about it a little more and quickly came to the conclusion that the answer was nonsensical. The first thing that struck me was the 20% figure. Twenty percent of what? Total oxygen in the atmosphere? That seems unlikely. Twenty percent of all oxygen consumed? Must be it, but that's not made clear by the answer.

But the "breathe" and "Earth's lung" concepts seem even more problematical to me. After the oxygen is breathed out, is it all breathed back in? If so, that's just another way of saying that twenty percent of the Earth's total metabolic processes occur in the tropical rain forests and that they are their own lungs, not lungs for the Earth.

The other choice is that the tropical rain forests breathe out and the oxygen is exported to the rest of the world. Indeed, that's what the answer to the question seems to imply. But where does this oxygen come from? I think the only plausible choice is that it's stripped from CO2. But if the rainforest is a net exporter or "O", then there's that pesky residual "C" left laying around in the forest. If the carbon isn't somehow also exported, it will start to pile up. I don't think much of the carbon is exported in any other form than CO2 (which requires "O" to produce). Therefore, if oxygen is exported, we would see a net increase, year after year, of carbon based compounds in the tropical rain forests.

I don't think that happens. Sure, when a tree grows it collects carbon. But when it dies, it rots and the carbon is converted back to CO2 by insects, fungi, micro-organisms, etc. The tree starts as nothing and ends as nothing. All of the tree, including it's leaves, seeds, etc., are ultimately consumed except for tiny fractions on average that may get buried. But I find it unlikely that those tiny fractions add up to anywhere near 20% of the earth's consumed oxygen.

I didn't (and still don't) know if my analysis was correct. So, I googled it. Many sites confirm the concept of the tropical forests being the earth's lungs. Here's one for example:

The Amazon Rainforest has been described as the "Lungs of our Planet" because it provides the essential environmental world service of continuously recycling carbon dioxide into oxygen. More than 20 percent of the world oxygen is produced in the Amazon Rainforest.

However, numerous others agree with my analysis. Wikipedia, for example, states:

Tropical rain forests are also often called the "Earth's lungs", however there is no scientific basis for such a claim as tropical rainforests are known to be essentially oxygen neutral, with little or no net oxygen production.

What do you think? Who's right? Is my child being fed bogus propaganda? Or scientific fact?

From One Sinking Ship to Another

Over the past couple of years I've been studying the physics behind the concept of greenhouse gas based global warming and the more I study, the more it's becoming clear to me that it's just not a significant problem. Yes, the world has probably been warming over the last few hundred years. Yes, the additional CO₂ that humanity has added to the atmosphere has possibly caused some part of that warming. However, the amount of warming will be a fraction of the UN's central estimate of 3.0 degrees Celsius per doubling of CO₂ in the atmosphere and it will not be catastrophic.

I don't expect many people who read this post will believe me. After all, I'm not a credentialed global warming scientist, so I don't blame you in the slightest if you don't. I also don't expect many people to do as much research into the subject as I have, either because of lack of time, interest, or expertise. Thus, I expect most everybody will continue to buy the UN's story of catastrophic global warming. Though I was somewhat skeptical, that's more or less what I did until I did the research for myself.

For the remainder of this post, I ask you to suspend disbelief and assume that I'm right. In that case, from my point of view, the whole thing is a rather amazing phenomenon. How can thousands of scientists and tens of thousands of advocates and tens of millions of people all have bought into a story that I'm virtually certain is false?

I think Richard Fernandez describes the big picture well while writing about the recent climate change conference in Bali:

The history of every millennial movement starts out quietly enough. At first only those who have heard voices or received messages by moonbeam come stumbling in through the tent flap. Shortly they are followed by academics who have finally found someone who understands their theories and will popularize them. Then, as the crowd swells, come the curious, lost, desperate, and heartbroken. Soon follow the peddlers who sell peanuts, popcorn, and crackerjacks to the rapt crowd; then the pickpockets, hangers-on, con artists, and small-time grifters. In the latter stages come the political entrepreneurs, demagogues always on the lookout for ready-made crowds ripe for the leading. Finally come the lawyers, regulators, and venture capitalists to turn it all into an industry. [...]

Environmentalism has become the political lifeboat into which the survivors of the socialist shipwreck have crammed themselves. The need to “manage the climate” became the new foundation on which to base regulatory structures, impositions, and taxes which were formerly justified by the imperative to manage the “commanding heights of the economy.”

That describes the beginning and growth of the movement which sounds much like the fable of "Chicken Little and The Sky is Falling". But there's also the question of sustaining the catastrophic warming movement: how can so many scientists continue to subscribe to catastrophic CO₂ based global warming when it should be plenty clear to them that the subscription has run out?

The are two answers. The first is that more and more scientists are beginning to question the magnitude and impact of the increase of CO₂ on global warming. As one example, in a open letter to the UN Secretary General regarding the Bali conference, dozens of scientists including 24 distinguished emeritus professors write:

In stark contrast to the often repeated assertion that the science of climate change is “settled,” significant new peer-reviewed research has cast even more doubt on the hypothesis of dangerous human-caused global warming.

The US Senate has produced a report collating numerous other examples;

Over 400 prominent scientists from more than two dozen countries recently voiced significant objections to major aspects of the so-called "consensus" on man-made global warming. These scientists, many of whom are current and former participants in the UN IPCC (Intergovernmental Panel on Climate Change), criticized the climate claims made by the UN IPCC and former Vice President Al Gore.

The other reason that many scientists still subscribe to catastrophic global warming is that they're ultimately going to look quite foolish when the day of reckoning comes - just like Chicken Little. The most vocal catastrophic global warming advocates will have a huge amount of egg on their collective faces when strong doubt is cast on catastrophic CO₂ based warming. I can imagine that they're in no hurry for that.

I suppose we shouldn't be in any hurry either because, like true believers, they'll all just jump on the next collectivist ship leaving the port.

Happy New Year!

Every year we throw a New Years Eve party at the beach. We count down to midnight GMT time which conveniently happens to be 4 PM here in San Diego. This shot was taken a bit after sunset and the temperature had dropped to about 62F, which for us San Diegans, is brutally cold (note the ski jackets and hats).

In case you're curious, I'm 3rd from the right in the above shot in the ski jacket, shorts, and barefoot. There are actually a bunch of children at this party too, but they're always running hither and thither and never seem to end up in any the party pictures.

After drinking copious amounts of champagne, we carefully set the sun into the water for the last time of the year...

...pack up, and head off to other parties.

Have a Moderate Christmas

According to psychologist John Masterson, Christmas is the perfect day for moderation:

Christmas Day is the one day when you can indulge so many of your pleasures that you end up doing each in moderation -- a little gin and tonic, a little champagne, a little white wine, a little red wine, a little dessert wine, a little port...

That's my kind of moderation!

Have a Merry, but Moderate, Christmas all!

From Every Mountain Top ...

I found this Walter Williams column of interest:

All too often defenders of free-market capitalism base their defense on the demonstration that free markets allocate resources more efficiently and hence lead to greater wealth than socialism and other forms of statism. While that is true, as Professor Milton Friedman frequently pointed out, economic efficiency and greater wealth should be seen and praised as simply a side benefit of free markets. The intellectual defense should focus on its moral superiority. Even if free markets were not more efficient and not engines for growth, they are morally superior to other forms of human organization because they are rooted in voluntary peaceable relationships rather than force and coercion. They respect the sanctity of the individual.

...acts such as murder, rape, and theft, whether done privately or collectively, are unjust because they violate private property. There is broad consensus that collective or government-sponsored murder and rape are unjust; however, government-sponsored theft is another matter. Theft, being defined as forcibly taking the rightful property of one for the benefit of another, has wide support in many societies that make the pretense of valuing personal liberty. That theft, euphemistically called income redistribution or transfers, is often defended by lofty phrases such as: assisting the poor, the elderly, distressed business, college students, and other deserving segments of society. But as F. A. Hayek often admonished, “[F]reedom can be preserved only if it is treated as a supreme principle which must not be sacrificed for any particular advantage. . . .” Ultimately, the struggle to achieve and preserve freedom must take place in the habits, hearts, and minds of men.

Or, as admonished in the Constitution of the state of North Carolina: “The frequent recurrence to fundamental principles is absolutely necessary to preserve the blessings of liberty.” It is moral principles that deliver economic efficiency and wealth, not the other way around. These moral principles or values are determined in the arena of civil society.

For individual freedom to be viable, it must be a part of the shared values of a society and there must be an institutional framework to preserve it against encroachments by majoritarian or government will. Constitutions and laws alone cannot guarantee the survival of personal freedom, as is apparent where Western-type constitutions and laws were exported to countries not having a tradition of the values of individual freedom.

Societies with a tradition of freedom, such as the United States, have found it an insufficient safeguard against encroachment by the state. Why? Compelling evidence suggests that a general atmosphere of personal freedom does not meet what might be considered its stability conditions. As is often the case, political liberty is used to stifle economic liberty, which in turn reduces political liberty.

If we were to rank countries according to: (1) whether they are more or less free-market, (2) per capita income, and (3) ranking in Amnesty International’s human-rights protection index, we would find that those with a larger free-market sector tend also to be those with the higher per capita income and greater human-rights protections. People in countries with larger amounts of economic freedom, such as the United States, Canada, Australia, Hong Kong, Japan, and Taiwan, are far richer and have greater human-rights protections than people in countries with limited markets, such as Russia, Albania, China, and most countries in Africa and South America. That should tell you something.

Economics, politics and social order are all intertwined. Economic freedom can be foundational to advancing political freedom and human rights. These are all effected by culture and attitudes.

Skeptical Optimist Watch: You Pay for It!

As regular readers of this blog know, I have no problem with the government borrowing money in order to finance its spending, especially with the deficits relative to GDP at the current low levels. However, whether government spending is financed with taxes or borrowing, it has an immediate cost when the spending occurs. The cost is not deferred just because the money is borrowed instead of being paid for by taxes.

In a recent post, Steve Conover wrote:

... the false premise [is] that everything the government buys must be paid for right now with tax receipts or spending cuts, or else we shouldn't do it.

Everything the government buys incurs a cost right now. Every new program is paid for now by foregoing other potential consumption and/or investment. Either it's paid for by foregoing other specific government programs, or it is paid for by consuming or investing less in unforeseeable ways in the private sector. Just because you can't identify exactly what consumption and/or exactly which investments don't happen does not mean you're not redirecting current resources. It also doesn't much matter if taxes or borrowing are used to suck resources from the private sector into the government.

What I'm pointing out is the distinction between the financing of spending and the spending itself. I absolutely agree that financing by borrowing is perfectly okay, especially when in the range of just a few percent of GDP. However, the cost is immediate at the point of spending. Resources (labor, tangible capital assets, etc.) are now deployed because of the spending. When the government spends money, those resources are no longer available for other productive purposes.

Again, the financing method chosen in order to deploy the resources is immaterial. But when scarce resources like labor are deployed somewhere, they cannot also be deployed somewhere else. That is an immediate and unavoidable cost which we have no choice but to "pay" as we "go".

There are possible exceptions. If unemployment is quite high, then labor intensive programs don't necessarily have much of a cost since those resources were not deployed anyway. However, I believe that 4.7% is low enough such that incremental government spending on labor will transfer resource from the private sector to the government. The lower the unemployment, the closer to unity this effect will be.

I have no problem with the government spending money. But let's not pretend that there's no cost just because we use borrowing as the method of financing that spending. There is cost, and it's incurred at the point of spending (deploying the resources), unless those resource would not have been otherwise deployed.

No matter what, when the government spends money, you pay for it.

Cool New Warming Research

Though the global warming consensus is supposedly etched in stone (we're all gonna die!!!), there's been quite a bit of new research in the last few months that calls some of it into question (maybe we'll live after all).

Much of the general freakout is due to the belief that the 20th century was the warmest of the last millennium. This belief is based on reconstructions of past temperatures using tree ring data. However, Loehle recently combined a group of other, non-tree ring temperature reconstruction proxies and got significantly different results. As shown in the figure above, the 20th century wasn't anomalous at all according to Loehle's temperature reconstruction. Indeed, it was nearly exactly average for the last 2000 years.

Loehle's results were published in the lowly (according to the consensus scientists) Energy and Environment journal and have been mostly ignored. However, these results are different enough from the current reconstructions and his methods, while not perfect, are good enough such that at least some scientists are taking notice. I wouldn't be surprised if there are some revisions to climate theory due to Loehle's results.

In a second publication, Monckton asks:

The fact of warming tells us nothing of the cause. Yet the scientific consensus is that, though the rapid climatic warming from 1906 to 1940 was a natural recovery from the historically low temperatures of the Little Ice Age, it is we who are chiefly to blame for the equally rapid warming from 1975 to the present. Since some climatologists challenge this consensus, can we settle the debate by predicting with models and then detecting by observation a characteristic “signature” in the climate data that allows us definitively to distinguish between anthropogenic and natural warming of the Earth’s atmosphere?

The answer according to Monckton, as you may have guessed, is yes. Furthermore, the IPCC models seem to all agree on the "signature":

The UN’s fourth assessment report on climate change (IPCC, 2007) confirms that computer modeling predicts the existence of a unique and distinct signature or fingerprint of anthropogenic warming caused by our emissions of greenhouse gases. That signature is the instantly-recognizable tropical, mid-troposphere “hot spot” about 10km above the Earth’s surface. In the “hot spot”, the models predict that the rate of increase in atmospheric temperature, measured in degrees Celsius per decade, will be two or three times greater than at the Earth’s surface. In IPCC (2007), this predicted “hot-spot” signature of anthropogenic greenhouse warming is clearly visible on plots of modeled greenhouse forcing and of all forcings including the dominant greenhouse forcing, but is not visible on plots of solar, volcanic, tropospheric and stratospheric ozone, or sulphate aerosol forcings. The UN’s models accordingly distinguish clearly between greenhouse warming and other climate forcings: at least five separate general-circulation computer models of the climate all predict the existence of the “hot-spot” signature of anthropogenic greenhouse warming in the tropical mid-troposphere.

In other words, anthropogenic greenhouse warming should show different and predictable warming trends at different altitudes and latitudes. So how do the trends predicted by the models match real world data? Apparently, very poorly:

Yet in the plot from the Hadley Centre’s radiosondes, showing actual, observed temperatures in the troposphere, presented in the same altitude-vs-latitude fashion as the predictions made by the five computer models, the computer models’ repeatedly-predicted “hot-spot” signature of anthropogenic greenhouse warming is entirely absent. Indeed, very nearly all observational data on mid-tropospheric temperature trends over the past half-century show no tropical “hot-spot” at all; and, in the one record that shows it at all, the magnitude of the observed effect is insufficient to justify the UN’s choice of a very high central estimate of climate sensitivity to anthropogenic enhancement of the greenhouse effect. Our own small experiment also fails to demonstrate even the existence of the “hot-spot” fingerprint of anthropogenic warming, still less a magnitude sufficient to justify the IPCC’s high climate sensitivity. These surprising results present a very real difficulty for the conventional “global warming” theory – a difficulty that is not resolved either in CCSP (2006) or in IPCC (2007).

What Monckton is basically saying is that there is absolutely no sign of the greenhouse (or anthropogenic) component of global warming predicted by all of the models that have been used to predict catastrophic global warming.

The response of the global warmenists is that the observed data must be wrong (or very noisy) but their climate models are valid. Monckton's response:

Thorne et al. (2007) have attempted to resolve this difficulty by suggesting that the error-bars in the observational datasets are so large that they could in theory encompass the model-predicted “hot-spot”, that the datasets are not designed to identify small temperature trends, and that the outputs are exceptionally sensitive to the choice of limiting dates. However, it is on the basis of the observed data that the models are contrived, and, if the observed data are inadequate for drawing conclusions about whether the characteristic fingerprint of anthropogenic greenhouse warming exists, then a fortiori the outputs from theoretical models founded upon those data will be inadequate, and no conclusion about the magnitude of the temperature response to anthropogenic enhancement of the natural greenhouse effect can be legitimately drawn.

In other words, garbage in - garbage out: either the models are based on faulty data and they are therefore crap or they are based on good data and are therefore crap (because they don't predict the good data). In either case, the models, upon which all catastrophic global warming is based, are crap, especially since there are alternative answers:

The very close correlation between anomalies in tropical outgoing long-wave radiation and anomalies in global lower-troposphere temperatures, taken with the near-total absence of correlation between monotonic increases in CO2 concentration and chaotic temperature anomalies, suggests that it is the computer models, not real-world observations that are likely to be at fault.

Maybe the seas won't boil after all:

On this analysis, “global warming” is unlikely to be dangerous and extremely unlikely to be catastrophic.

Other new research sheds light on parts of the climate models that might be crap:

The widely accepted (albeit unproven) theory that manmade global warming will accelerate itself by creating more heat-trapping clouds is challenged this month in new research from The University of Alabama in Huntsville.

Instead of creating more clouds, individual tropical warming cycles that served as proxies for global warming saw a decrease in the coverage of heat-trapping cirrus clouds, says Dr. Roy Spencer, a principal research scientist in UAHuntsville's Earth System Science Center.

That was not what he expected to find.

"All leading climate models forecast that as the atmosphere warms there should be an increase in high altitude cirrus clouds, which would amplify any warming caused by manmade greenhouse gases," he said. "That amplification is a positive feedback. What we found in month-to-month fluctuations of the tropical climate system was a strongly negative feedback. As the tropical atmosphere warms, cirrus clouds decrease. That allows more infrared heat to escape from the atmosphere to outer space."

Well, that'll make a difference. Using just the increase in CO2 expected over the next century, the corresponding expected temperature increase would be about 1.2 C. The current models assume a significant cloud amplification increasing the estimate over the next hundred years by about a factor of three. If Spencer's observations are right, then the warming due to anthropogenic greenhouse gases will actually be substantially less than 1.2 C. In other words, the current models might be over predicting warming by an order of magnitude.

I've guessed that the feedback loops involved with greenhouse gases would be negative feedback loops. If they weren't, it seems unlikely to me that the climate would've been stable enough so far for life to have survived to this point.

But here we are.

Manufacturing Again

Howard recently had a post listing the top 5 economic myths in the United States today. I want to focus on number 4: "America is de-industrializing, and manufacturing is dying." This myth is far, far more pervasive than the rest of them. Even those who are very positive on the economy often believe it and discount it by saying something like, "yeah, but advanced economies don't manufacture."

Well, yes they do. Especially so for the United States. Our manufacturing capacity has increased over virtually all time frames for at least as long as data has been collected. As I've written previously, "U.S. manufacturing output has actually increased dramatically, more than eleven-fold from 1940 to 2000." As you can see from the chart on the right (HT: Cafe Hayek), after a brief dip starting in 2000, manufacturing output continues up, up, up and may even be accelerating with the weakening dollar. Manufacturing output has even nearly kept pace with the growth of the rest of the economy.

We still manufacture more than any other country in the world, even China, which has more than four times as many people. We manufacture very advanced products (think Boeing's aircraft) while countries like China manufacture the plastic toys for McDonalds' happy meals.

Manufacturing is alive and growing in the United States and will continue to be an important sector of our economy for a long time to come.

Giving up on Trackbacks

For someone reason our posts weren't loading for me due to waiting for Haloscan, the provider of this blog's trackback service. Since no-one has linked a trackback in years, I've disabled trackbacks for now.

Taxes and GDP

Depending on how you measure it, the United States the governments' (fed, state, and local) share of the annual Gross Domestic Product (GDP) is a bit less than 1/3. The governments' take is, therefore, around $4 trillion.

Let's quickly define what "share" and "take" mean. Consider a pie. The "share" (S) is simply a fraction of the pie. The "take" (T) is the weight of the given piece of pie. Given a pie that weighs W, the equation is T = S⋅W. Simple enough.

Clearly, for T to increase, either S or W need to increase (or both). However, in the case of the American pie called GDP, there is also a relationship between S and W. As the governments' share (S) of GDP increases, the pie makers (the private sector) make a relatively smaller pie, so W decreases. Therefore it's not clear if the governments' take will go up our down if they choose to increase their share. If GDP decreases faster than S increases, the take would decrease. If GDP (W) decreases slower than S increase, the take T would increase.

Let's say for a moment that the governments wanted to exactly maximize its take. To do so they would pick the share that maximizes the equation T = S⋅W and therefore the change in W would exactly offset the change in S if S increases or decreases. Let's say the governments have successfully done so and that the current share of 1/3 maximizes their take. If so, we would predict that for each percent increase (or decrease) of the governments' share of GDP, GDP would decrease (or increase) by approximately 3%.

Sure enough, according to a recent paper by Christina and David Romer of the University of California, Berkeley, tax revenue increases are a significant negative for the economy and the relationship between share of GDP and size of GDP happens to exactly maximize the governments' take:

Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent.

Governments exist only to exert and extend their power via a parasitic relationship with their economic host. One-third GDP maximizes our governments' take so that's what they take. No more, no less.$$

Corporate Taxes

Over at the Market Center Blog via The Center for Freedom and Prosperity they draw upon this article and link to their youtube video.

Word is that the Bush Administration will soon propose a cut in the U.S. corporate income tax, following House Democrat Charlie Rangel's proposal this fall to cut the rate to 30.5% from 35%. As a new study makes clear, such a reduction would give a lift to the U.S. economy when it really needs it.

The study, from the National Bureau of Economic Research, looked at corporate taxes in 85 countries from 1996 to 2005. Economists from the World Bank and Harvard University calculated the effective business tax rate for each country, because some nations have so many tax loopholes that the rate paid by companies can be one-half to one-third the statutory tax rate. The study found that corporate taxes have a statistically significant negative effect on economic performance.

High business taxes were found to reduce a nation's domestic capital investment, the amount of foreign investment into that country, and its overall growth in GDP. The authors conclude that "corporate taxation reduces the return on capital and thus discourages investment" and "reduces the cash flow of the firm" in such a way as to reduce the after-tax capital available for reinvestment.

The researchers also found that high corporate levies reduce entrepreneurship, which drives new industries and job growth. In many nations the corporate tax rate is paid both by large corporations and small businesses. In the U.S., small businesses are often organized under Subchapter S of the tax code and thus pay the personal income tax rate.

Did they do a good job with the video? Is it an effective form of communication?