Michael Eriksson's Blog

A Swede in Germany

Posts Tagged ‘Economics

Only fools and budgets…

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I considered writing something longer on the Sunak/Hunt “Autumn Statement”, but will, with some delay, restrict myself to: (a) expressing my strong disapproval of the massive tax raises and other Labour-style policy decisions, including throwing even more money into the NHS money pit, and my puzzlement over the almost absurd change of direction, from historical tax cuts to historically high taxes;* (b) discussing a general problem with the attitude of many governments/politicians/budgets/policies/whatnot (cf. below); and (c) discussing some unfairness around the Truss/Kwarteng “mini-budget” (cf. below).

*Might this be how the zombie apocalypse really happens? That Thatcher finds herself turning in her grave, over this U-turn, recalls that she is not for turning, and actually rises in wrath, taking the entire graveyard with her?

To (b) or not to (b):

Overlapping with my recent text on servants in charge, a major problem is that government budgets and whatnots are often given priority over everything else—as long as the government has enough money, as long as the government can meet payments, as long as government programs can be financed, …, everything is well. What happens to individual citizens and individual businesses is not considered sufficiently, e.g. in that a higher tax that saves the government budget can strain or over-strain someone else’s budget—many some else’s budgets. (Of course, this will often backfire in the long run, as a reduced growth, more bankruptcies, more citizens in need of government support, whatnot, can have strongly negative effects on future government budgets.)

This attitude is despicable and destructive, as the government* is not a business with a purpose of making money. Its actual purpose is to serve the people—and this purpose is perverted when the people takes second place to the government or the government is turned into its own purpose.

*Be it in the more U.K or the more U.S. sense. The U.S. sense might fit better in this paragraph, however.

This is the worse in the current case, as it was incompetent government actions (mostly relating to COVID, energy, and the Ukraine–Russia conflict) that artificially brought about the poor situation. Indeed, many seem to have used justifications like “we have to fill the hole in the budget; there is a hole in the budget because it was necessary to support the people; it was necessary to support the people because of COVID”, while utterly ignoring that COVID did very little harm and that the problems were caused almost exclusively by the countermeasures, which were not only highly disputable to begin with but have since been proven utterly idiotic. The same, m.m., with the energy situation, the NHS, the whatnot. (More generally, it is often government actions, including sabotaged markets and incentives, too high taxes, too large redistributions, etc., that hamper the economy.)

To (c):

The old Truss/Kwarteng “mini-budget” has often been described in a highly unfair manner, e.g. that it was a “failure” or “damaged” this-and-that. It might have been a failure in the sense that it failed to gain approval (etc.), but that is not the impression created by such formulations (which sound, rather, as if it had been implemented and left the U.K. sinking) and does not appear to be what is intended. However, the simple fact is that it never was implemented, and that negative reactions from various outsiders did some (likely temporary) damage—and not usually justified negative reactions at that. The main permanent damage of this “failure” is likely the replacement of Truss and her tax decreases with Sunak and his tax increases.

(We will never be able to see a head to head comparison of the result of these two approaches in these specific conditions. However, I very strongly suspect that Truss had the better ideas and that Sunak’s approach would have proven worse, had such a comparison been possible. Indeed, fairer judges have pointed to Truss’s failure as one of communication rather than of policy. More: I am convinced that if Truss did go too far, the correct road would have involved moderation—not going to the other extreme.)

A particular danger involved is that the opinions of third parties are given too much weight over having a sound policy. Here, there might have been a legitimate debate on whether high taxes or an unbalanced budget (or inflation, or something else yet) was the greater threat and what should be given what priority. Instead, there seems to have been a panic reaction of “Third parties dislike our budget deficit! I turn! U-turn! We all turn!”, which is not a good way to do politics and might well have done further harm through a hither-and-dither. Moreover, it raises the question what is next: if the opinions of foreign markets, foreign politicians, or, even, the foreign public opinion is allowed to influence domestic politics to a too high degree, the consequences can be devastating, e.g. in that politicians who are opposed to DIE still implement it to keep outsiders happy. (Writing this, I cannot shake the suspicion that something very similar has already happened, notably with the worldwide COVID countermeasures, maybe with the worldwide climate hysteria. If nothing else, there is a near certainty that “Overton windows” are present internationally as well as nationally—maybe, even, an Overton window of “welfare state, good; low taxes, bad”.)

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November 25, 2022 at 12:35 am

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What does and should a politician know?

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Earlier today, I wrote:

In particular, how much own knowledge must be required of Trump when he has specialists to advise him? Can we require that non-physician, non-virologist, non-epidemiologist Trump, at so early a stage, answers a team of renowned specialists with “But Diamond Princess?”, after being told that “science”, “models”, whatnot show that several percent of the U.S. population might die? (Fauci, Birx, et al., in contrast, have no excuse.) And what if he did give this answer and was met with a plausible sounding explanation as to why the data from the ship were not representative? And how is Trump different from dozens of other world leaders, including Angela Merkel (an actual former scientist, albeit not in medicine).

This leads to two much bigger questions:

What does the typical politician, head of government, whatnot actually know?

What should he know?

Both questions are tricky, and I will not attempt an even remotely exhaustive answer (for now, at least). In fact, the risk of politicians believing one thing and publicly claiming another makes the first question near impossible to answer.

However, looking briefly at the “does”, while taking claims at face value,* it seems that the typical specimen is well short of where he should be, including lacking basic knowledge of history, economics, business principles, and relevant science. Consider e.g. the wholesale COVID fiasco, the common skepticism to nuclear power, ignorance of IQ and biology, belief in that long-debunked “tabula rasa” nonsense, a horrifyingly naive take on various environmental issues (e.g. EVs**), …

*Not that I necessarily do in real life.

**Electric vehicles undeniably have many advantages, but the whole “debate” seems to begin and end with “No more exhausts! Yay!”, unless some minor concern is given to practical complications around charging stations and the like. Questions like the environmental impact of construction (e.g. through rare-earth mining), eventual scrapping, and production of electricity to actually charge the vehicles seem to be outside the intellectual scope of most politicians. In this, EVs illustrate the overall problem well.

Indeed, there is much that I would consider “general knowledge”* that is simply lacking. Maybe my bar is higher than most others’, but I do find it absurd when a politician, for instance, speaks of nuclear power as if modern Western plants were comparable to that of Chernobyl or fails to understand that fossil fuels cause much more death and damage every year than Chernobyl and Fukushima put together. (Or, e.g., fails to understand that “Chernobyl and Fukushima put together” is approximately the same as just “Chernobyl”.)

*More correctly, what my fellow Swedes call “Allmänbildning” and the Germans “Allgemeinbildung”, for which “general knowledge” is only an approximate translation.

(And if politicians tend to lack general knowledge, why should we expect Trump to be able to argue with medical specialists on a specialized medical topic?)

The “should” will depend much on the circumstances at hand, and having a good brain, being willing to constantly learn, understanding that it is important to draw on multiple sources, and striving for understanding over mere knowledge might be more important. However, an older text contains an excursion on education for politicians, which provides a partial answer. (Certainly, the minimum reading suggested for voters is the more urgent for politicians, but it falls far, far short of what e.g. a POTUS should have read and understood.)

An interesting idea is that the amount of knowledge should be enough to question the advisors in two senses: (a) To know what questions should be asked in a given situation. (b) To put the advisors and their advice in question, as they might not only be suboptimally knowledgable, themselves, but also often have hidden or not-so-hidden agendas that might make them dishonest or manipulative.

Written by michaeleriksson

November 1, 2022 at 4:01 pm

Brownstone drops the ball II / An odd attack piece on Trump

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Some two weeks ago, I encountered another article where Brownstone dropped the ball, with a weird unwarranted attack on Donald Trump (intermingled with likely* sensible claims on the economic damage of the COVID countermeasures). This reeks of Leftist propaganda, in that Trump (the Republicans, the Right, the whatnot) is blamed for damage mostly caused by the Left. (Ideas like “The economy is in shambles after almost two years of a Democrat President, House, and Senate—and it is all the Republicans’ fault!” are somewhat common on the Left.)

*Due to the attack-piece aspect, I skimmed and skipped, and left the last parts entirely unread.

Before I look at some examples, I stress that I do believe that Trump dropped the ball, but (a) not to the degree that many other political leaders did, (b) his fault was listening to his advisors,* (c) the brunt of the overall (U.S.) damage falls on Biden (POTUS-wise) and the likes of Fauci and Birx**, (d) chances are that Trump would have followed a more DeSantis-like COVID policy, had he been reelected. I further stress that I would have had no problem with a general discussion of U.S. government failures around COVID, where Trump was given his fair share—and the likes of Biden and Andrew Coumo their fair share. (The reader is invited to count how many times these three persons are referenced in the article.)

*This is the guy that the Left has otherwise repeatedly accused of ignoring wise advisors who could have made everything right, and instead doing his own ignorant thing. The truth might rather be the opposite, that things went bad when he did listen to advisors and worked well when he did his own thing. They should have let Trump be Trump, as they let Reagan be Reagan.

**Cf. her autobiography/self-incrimination, which describes deliberate manipulation and subversion attempts. This, maybe, to the point that an (e) applies: The policies under Trump were a distorted version of what Trump had actually ordered. (I say “maybe” as I have read several reviews of the book, but not the actual book.)

Prolonged fiscal and monetary excesses prior to February 2020 were already destined to generate an era of reckoning, even before Washington jumped the shark* after the Covid panic was ignited by Donald Trump in March 2020.

*What the author intends here is unclear. I suspect that the expression is simply misused.

COVID panic was igniting world-wide from multiple sources, Trump is likely better viewed as a victim than as the igniter, and the likes of Biden, Hillary, and Obama would almost certainly have gone down the same path. Trump was the messenger; not the sender of the message. His main error was failing to reject the message—but the same applies to most other world leaders.* From another point of view, it is puzzling why the author goes to the trouble of mentioning Trump by name (or it would have been, had this not been an obvious attack piece). Why not speak of e.g. “Fauci”?

*A general issue, which I will not always mention, is that what happened in other countries, what mistakes were made by more experienced politicians, how much more damage Biden has done in the post-Trump era, etc. is left out. Trump, going by the discussed text, was a single, unique world-leader who screwed up where others did not or, in his place, would not have. The truth is radically different.

The history books will surely record, therefore, that it was Trump who foolishly ignited the above depicted ticking financial timebomb. Based on the facts known now and the evidence available then, the prolonged Lockdowns ordered by Trump on March 16, 2020 were one of the most capriciously destructive acts of the state in modern history.

Firstly, there is no need to ignite a time bomb. The defining characteristic of a time bomb is that it goes off on its own, when the literal or metaphorical dial hits the right time. Any premature ignition will only change the timing of the bomb. (It might even be argued that some bombs, including financial ones, are better detonated as soon as possible, because they are hard to disarm and tend to do more damage the later they go off.) Blame the guy who built the bomb, not the one who accidentally set it off prematurely. (Whether Trump is the latter, I leave unstated. He certainly is not the former.)

Secondly, again, Biden did (and will likely continue to do) worse and so did many others—and at least Biden did so with much more information and more deliberately. Trump in contrast, going by e.g. claims by Birx, might have truly gone for “two weeks to flatten the curve”, or something similar, only to be manipulated into prolonged lockdowns as events unfolded.

Looking at choice of words, the use of “foolishly” and “capriciously” seem to serve no other purpose than rhetoric.

Indeed, the IFR (infection fatality rate) for the under 70-years population has turned out to be so low as to make the brutal economic shutdowns ordered by the Donald and his Fauci-led Virus Patrol tantamount to crimes against the American people.

The lockdowns (in a great number of countries) might well be argued to be such crimes, but Biden did worse, the degree to which Trump was the driving factor is highly disputable, and the “Virus Patrol” was not his outside a very formal sense. On the contrary, it acted as an independent force, subverted his will (cf. Birx), and manipulated him. There is also some room to dispute what shutdowns and other countermeasures were ultimately ordered by Trump, Congress, federal this-and-that and what by their state level equivalents.*

*Here, I have not paid much attention and would need additional research, but I note that there were and are large differences between the situations in e.g. Florida and New York (state), often with Republican-governed states being more sensible and successful than the Democrat-governed ones. (I did throw a casual eye on some Wikipedia pages, but they are still, absurdly and contrary to the collected evidence of more than two-and-a-half years, written on the premise that the earlier, the longer, and the harsher the lockdowns the better, which makes them fairly useless for this type of evaluation.)

Here and elsewhere—why the inconsistent and arguably disrespectful “Donald” or even “the Donald”? (A “Hillary”, often used by me, at least serves disambiguation, as “Clinton” has so strong associations to husband Bill. Ditto some few other exceptions like “Dubya” and “Teddy”.)

Nor does the Donald and Fauci’s Virus Patrol get off the hook on the grounds that these dispositive facts about the Covid were not fully known in early March 2020. But to the contrary, the results of a live fire case study involving the 3,711 passengers and crew members of the famously stricken and stranded cruise ship, the Diamond Princess, were fully known at the time, and they were more than enough to quash the Lockdown hysteria.

If this paragraph had focused on Fauci, leaving Trump unmentioned, it might have been in order. As is, no. In particular, how much own knowledge must be required of Trump when he has specialists to advise him? Can we require that non-physician, non-virologist, non-epidemiologist Trump, at so early a stage, answers a team of renowned specialists with “But Diamond Princess?”, after being told that “science”, “models”, whatnot show that several percent of the U.S. population might die? (Fauci, Birx, et al., in contrast, have no excuse.) And what if he did give this answer and was met with a plausible sounding explanation as to why the data from the ship were not representative? And how is Trump different from dozens of other world leaders, including Angela Merkel (an actual former scientist, albeit not in medicine).

That’s right. Donald Trump and his way-in-over-his-head son-in-law, Jared Kushner, knew or should have known that the survival rate of the under 70-years population on the Diamond Princess was 100%, and that there was no dire public emergency in any way, shape or form.

Beg to differ. See above.

Under those conditions, anyone with a passing familiarity with the tenets of constitutional liberty and the requisites of free markets would have sent Dr. Fauci, Dr. Birx and the rest of the public health power-grabbers packing.

That the Donald and Jared did not do. Instead, they got led by the nose for month after month by Fauci’s awful crew because basically Trump and Kushner were power-seekers and egomaniacs, not Republicans and certainly not conservatives.

Most of this is true, but not all (and how many did better?). Trump certainly has a greater right to call himself a Republican or Conservative than the likes of Mitch McConnell and Liz Cheney. (Former Democrat? Yes, but so was Reagan.) There is not much to indicate that Trump sought election because he was more of a power-seeker than, say, Hillary, Biden, Obama, Bush Jr. If anything, he seemed more set on doing what was right, once elected, than they (non-POTUS Hillary excepted) were. The “egomaniac” part might be fair, but neither of these four attributes are in obvious connection with “got led by the nose”. Political naiveté or undue optimism about experts* are more likely factors. Moreover, here the author implicitly admits that Trump was not the villain—merely manipulated by the villain(s).

*Also see my own recent text on disillusionment with experts.

Donald Trump literally decimated the production side of the US economy because he did not have the gumption, knowledge and policy principles necessary to blow off Fauci’s statist attack on America’s market economy.

Highly speculative, both regarding Trump and Fauci. (As much as I despise and loathe Fauci, it is not clear that this was a “statist attack”, rather than attention seeking, search for personal influence, sheer incompetence, or whatnot.) A better formulation would have spoken of e.g. “The lockdowns literally […]”. The Trump-era lockdowns were bad, but something that the economy could have largely bounced back from in a reasonable time—the artificial prolongation by Biden is another matter. (Ditto the inflation driving, energy-sector destroying, whatnot policies of Biden.) Step on a flower and chances are that it will bounce back with a few lost petals and an unfortunate bend—grind it under your foot and it can rarely be rescued.

The Donald did not care a wit about fiscal rectitude and the surging public debt that was already in place; and actually had demanded time and again even more egregious money-printing than the ship of fools in the Eccles Building were already foisting upon the American economy.

Again, highly speculative. I note that, pre-COVID, the U.S. economy was doing better than in decades. If Trump demanded money printing, it was a drop in the sea compared to Biden, and a short-term, one-off help package (or whatnot) to compensate for the lockdowns was not an obviously bad* idea (unlike the massive and prolonged efforts under Biden). Note that flower again.

*Which is not necessarily to say that I would have supported one.

Looking at his overall, pre-COVID, approach, it did not seem to be a matter of “not care” but of different priorities, namely to stimulate the economy, lower taxes, whatnot—note the similarity with Reagan in this regard. Of course, the key to “fiscal rectitude” and “public debt” is to keep expenses down—not taxes up. We might discuss how lowering taxes, keeping the budget balanced, and (by now) bringing inflation down should be prioritized,* but (a) prioritizing the X does not imply a disregard for Y, (b) the true blame should be put on those who brought taxes and spending up to ridiculous levels—which was not Trump. Similarly, we might discuss whether someone morbidly obese should have gastric surgery, go on a diet, take up swimming, and/or whatever other approach might be relevant—but the surgeon who performs the gastric surgery is not the problem. The morbid obesity is, the surgeon should not be blamed for trying to solve the issue, and the blame truly resides with too much food, too poor food, too little exercise, whatnot.

*Note the recent juxtapositions in the U.K., with Truss vs. Sunak, Thatcher vs. Reagan, Truss vs. Thatcher, etc.

Excursion on Biden:
For simplicity, I formulated this text based on the assumption that Biden is actually in charge of the Presidency (and himself). To the degree that this does not match reality, modifications might be needed in detail, but not in the big picture.

Written by michaeleriksson

November 1, 2022 at 12:11 pm

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Some preliminary thoughts on Reagan biographies

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Some months ago, I read a few Reagan biographies. While I intend to include one or more of these, notably the autobiography “An American Life”, in my reading tips, it will be a good while before I get around to it. (Enormous backlog, remember?)

There are a few points that are worthy of brief mention in advance, however, with an eye at the world as it is and at the recent Thatcher–Truss contrasts:

There are great similarities between the world at the time that Reagan and Thatcher gained power and the world of the “now”, including years of Leftist mismanagement, growing government, an energy crisis, high inflation, and a general economic crisis. What the two did back then worked. What the current governments do, does not work. Conclusion?

In particular, Reagan speaks of a widespread mentality of gloom and doom, that many thought that the world would have to settle for a lowered standard of living compared to the past—just like many do today. He took a contrarian attitude of optimism, that he could get the economy going again and that things would be fine once he did. The result, in the U.S. and in countries following similar policies, was an era of increasing living standards, which might have lasted* until the 2008–2009 recession and, in the U.S., the far-Left takeover. So, a predicted era of lowered standards turned into a, maybe, 25-year era of increasing living standards. Has something so fundamentally changed that similar policies would fail today? That the Leftist approach of big government, high taxes, poor incentives, etc., would work better? (Be it better than a modern version of Reaganomics or better than they have in the past.)

*Of course, with some minor downs. However, averaged over a longer time frame, these are of little consequence before 2008–2009.

An interesting other, but reversed, parallel is how Reagan tried to block a Soviet pipeline—and met hard resistance from his allies, both within the U.S. and within NATO. Back then, the Soviet Union was a truly major threat, both in terms of power and of evil. Today’s Russia looks like a black bear next to the grizzly of the Soviet Union—and Biden’s allies are throwing themselves into a block-all-pipelines frenzy! More generally, Reagan (and Thatcher) was an exception in that he dared to take a hard stance against the Soviets, to stop the destructive Cold-War detente, and to follow a policy of “we win; they lose”*. He did win and the Soviets did lose—despite Reagan’s great troubles with convincing his allies to go along. With today’s Russia, the black bear, the attitudes among the allies are much more negative and the willingness to interfere much greater than once with the Soviet grizzly.

*To approximately quote a phrase used by him. I do not have the book at hand to check the exact words.

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October 21, 2022 at 4:22 am

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How starvation could happen (not Malthus)

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There are three different takes on Malthus that I have seen again and again over the years. To paraphrase the respective gist:

  1. Population grows exponentially, while food* supply grows linearly (or otherwise short of exponentially), which will lead to problems in the future. (I think of this as the “school version”; however, note that the names are just my personal short-hands.)
  2. Land* has a certain carrying capacity. If there is a surplus of carrying capacity, e.g. through better technology or a low original population, population will grow until the surplus capacity is used up. (I.e. the “scientific version”.)
  3. Population will grow and grow and grow—and then we will all starve to death!!!!!!!!!!!! (I.e. the “Leftist panic-monger version”.)

*I will mostly focus on land and food, following the typical line; however, I stress that similar issues can apply elsewhere, e.g. relating to water, energy, or even money. Throwing a wider net, we might even have to include e.g. computers—death from not owning a computer is rare, but a deficit in computers can affect productivity and production of various items negatively, leading to problems for the overall economy, the food sector included. Often, a comparison between the population size and the overall economy will, today, be a better measure than e.g. population size and overall food production. Also note that the “Leftist panic-monger version” has parallels in other areas, e.g. energy use.

Now, I have never read Malthus in the original, so I cannot speak for which of these takes, or combinations thereof, most closely matches his claims. (I do suspect that his thoughts were more far more subtle and extensive than either of the takes.) However, the “scientific version” is the most interesting and insightful, especially when combined with the parallel idea that a deficit of carrying capacity, resp. a surplus of population relative the carrying capacity, will lead to a shrinking population.

The “school version” has never convinced me, not even when I was in school. Firstly, population growth is only exponential when there is enough food and whatnot (cf. the “scientific version”).* Secondly, the “linear” part is potentially misleading, as the production is more likely to be proportional to the population size.** Thirdly, it does not consider breakthroughs in productivity sufficiently. (And these breakthroughs have been quite large since Malthus’s days.) Fourthly, the point where arable and could-be-made-arable-with-some-effort land becomes a limit to food production was too far into the future to be truly relevant to Malthus’s era—indeed, I doubt that it is a short-term concern even today. (With similar statements potentially applying to other sources of food than agriculture.) There is a potential problem of a time delay, however, in that making land arable can take time and in that a growing new generation will want food from day one but will only work at an adult productivity 15-or-so years later. Such a delay can, of course, be problematic in any era.

*Generally, exponential models are usually only true (if at all!) for sufficiently small increases and/or time spans, after which constraints make growth sub-exponential and the models flawed—often severely flawed, as seen with COVID. A particularly interesting idea with regard to population growth is that lack of space can have a constraining effect, independent of food supply, which is reflected in the reputation of cities as low-reproduction areas.

**Assuming a sufficiently short time span and no other constraints, like lack of arable land. Indeed, under sufficiently “kind” assumptions, an exponential population growth would lead to an exponential production growth, making the whole linear-vs.-exponential contrast misleading.

The “Leftist panic-monger version” is Leftist panic mongering, which, as usual, falls flat on its face when we think matters through. Barring an extreme population explosion, much faster than e.g. the current African one, feedback mechanisms will step in (as per the “scientific version”): Families that can barely feed the current set of children are unlikely to have more children; and, if they still do, localized issues will intervene before society as a whole collapses, e.g. in that the mortality in these specific families is increased. (Similar ups and downs are well-known in nature.)

However, there are scenarios where something akin to the “Leftist panic-monger version” can happen, just for different reasons—and some of them might actually be current or future threats. These mostly relate to the risk that previous carrying capacity is reduced in a drastic manner. (Indeed, looking at the past, did the population starve when it grew fast or when crops failed?) Interestingly, most are caused, not prevented, by direct or indirect Leftist influences.

Consider a few scenarios:

  1. A country is at carrying capacity using modern advances and is suddenly forced to abandon some or all of them, causing a rapid drop in productivity and, thus, carrying capacity. We might now well have a severe food deficit, possibly to the point of starvation in portions of the population.* (Consider the current situation in Sri Lanka or the potentially coming situation in Europe.)

    *But even here, of course, it would not be the end, outside a far-Left equality-of-outcome society, as the risk of starvation is not even throughout the population. Some might starve, but others would not, and a second chance comes once the crisis is past. (Unless some more indirect force intervenes, e.g. riots or government interference, that reduces what is left even further.)

  2. Internal costs, e.g. for energy, increase severely and the profitability of farming is reduced to the point that land use is decreased, causing a deficit in production.

    (See excursion on increasing food prices.)

  3. A country lives on imported food, which is paid for by exports.* The exchange rate changes for the worse, production costs skyrocket, or something else reduces the income from exports relative the costs for imports—and sufficient imports are now impossible.

    *As seen, the carrying capacity of society is not necessarily equal to that of arable land.

  4. A country keeps food (or other) production up through foreign technology (that it cannot produce internally), foreign aid, or similar. For one reason or another, foreign inflow is stopped and production crashes.
  5. Age demographics become so unfortunate that the outnumbered younger generations cannot produce enough to keep everyone in food. (Note that this is most likely caused by a too low reproductive rate. Many pension schemes, including the Swedish, were based on the assumption of continued population growth—and fell into severe troubles when population numbers stagnated or fell.)
  6. Leftist politics, dysgenic pressure, and/or an overlarge inflow of immigrants with a lower productivity lead to a situation where too few must carry the burden of providing for too many through productive work, tax payments, and whatnot. (In e.g. today’s Sweden and Germany, the proportion of the population that is a net drain on the budget and/or society is quite large. Imagine what would happen if e.g. a “universal income” was established, unrestricted immigration from Africa was allowed, or some other particularly destructive Leftist suggestion implemented.)
  7. Quality of education drops to the point that the younger generations cannot reach the productivity of the older generations, be it through less competence in the work, per se, or because tools and technology cannot be adequately replaced at a sensible cost.

    (With variations, including that too few of the highly intelligent choose to go to college, because it has become too expensive, because good science is derided as “White Supremacy”, because the educational effect per effort is too low, or similar.)

  8. A pandemic causes politicians to pay large swaths of the workforce not to work, forbid others to work, shift work to less productive but believed to be safer forms, etc.

    No, that is just silly. It would never happen in real life. Better stop here, before I imagine pink elephants swooping down on our wheat fields like locusts.

Excursion on increasing food prices:
Would not a rise in internal costs, as above, be resolved by increasing food prices as supply drops relative demand?

Ideally, yes; however, new or already present government interventions are likely to prevent this, e.g. through a price cap “to ensure that everyone can afford food” or “because social justice”. (Leading to the question whether we are better off buying existing food at a higher price or looking at empty shelves marked with a lower price. Ask someone from the old Soviet Union about that.) Moreover, there are complications like a time delay to propagate price changes through all middle-men, which can have a similar effect. Then there is the drop in other consumption, risk of inflation, whatnot, which can cause other damage than starvation. (Yes, here a food shortage would be averted, but the country would still be worse or much worse off than before.) And what about limits on how much prices can rise before a further increase would have a negative effect on the bottom line, because some consumers shift to cheaper* foods or, in an extreme situation, cannot afford food?

*Which often implies nutritionally poor foods. In a current German grocery store, e.g., it is very possible to buy potato chips, chocolate, candy, cookies, whatnot to fill the daily energy need for a fraction of what it would cost to do so with “proper” food. For instance, I am currently looking at a 600g package of “Gewürzspekulatius” (a gingerbread relative), which cost around EUR 1.20 and has an energy content of 2004 kJ per 100 g. Gewürzspekulatius would, then, cover the typical energy demands of an adult for around 1 Euro per day—food bill for a year: 365 Euro. Ensuing medical bills? Could be quite large… (As a note on underestimating inflation: last year, if (!) I remember correctly, the price was around half of 1.20, which would give us an increase of 100 percent on this product.)

Excursion on flawed support:
Some situations that really should not occur might still occur through flawed support, especially within a single society. Say that a family (as in an above example) barely makes ends meet and would normally forego having more children—but that the government promises so extensive child support that having one or two children more will not negatively affect the family budget. The incentives to breed responsibly are gone, population growth might be too large, and some third parties are stuck with bigger tax bills, which will negatively affect the growth of the economy.

Written by michaeleriksson

October 3, 2022 at 9:51 pm

U.S. inflation hitting harder than it officially should

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In a recent text, I gave some examples of how German food prices seemed to have risen considerably above the, already high, nominal inflation rate.

Today, I encountered a U.S. article making a similar analysis based on a mixture of personal observation and official statistics, comparing the prices around the respective mid-terms* of Trump and Biden.

*The author counts the “now” as part of Biden’s mid-term. I am uncertain whether this is correct, as the actual elections presumably are in November. (The article was published on September 23rd, 2022; my time of writing is the 25th.)

Examples given include a roughly 70 percent increase on the price of milk (over roughly four years), which annualizes naively* to more than 14 percent. In a less naive calculation, we would almost certainly see lower or considerably lower annualized values for the remainder of Trump’s term, correspondingly higher values for Biden up-til-now, and a higher value for Biden in 2022 than for Biden in 2021.** My text also included a milk comparison, with a (very roughly) estimated 50 percent in 2022 alone.

*Just go with four equally contributing years and take the fourth root of 1.7 for the geometric mean. This is naive, as the years are not equally contributing. Depending on the exact definition of “mid-term” (cf. above), we might also have less than four years to explain the 1.7.

**Giving even a rough approximation of the correct values would require much more research. However, some feel for the principle can be had by simply taking the tenth root of 1.7 for year one, this squared for year two, to the third power for year three, and to the fourth power for year four, which accumulates to 1.7 over four years. This would give inflation rates of respectively 5, 11, 17 and 24 percent for years one through four. (Note that this still likely makes Biden look too good relative Trump—it is just a demonstration of principle.)

Written by michaeleriksson

September 25, 2022 at 1:57 pm

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Inflation hitting harder than it officially should

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During the days of comparatively low inflation, before the COVID-countermeasure and Russia-boycott era[s] took over, I repeatedly saw claims that inflation numbers were highly misleading and that the “true” inflation rate was higher than officially indicated.* While I never looked into this in detail, it does seem to hold in the current world, where price hikes on at least food** have often been far larger than the alleged, already high, inflation rate.

*Including some interesting side-claims, e.g. that governmental dietary recommendations were less aimed at improving health and more at shifting consumption to cheaper foodstuffs, e.g. from meat to bread. (I make no statement about the correctness of this claim, but I note that the recommendations that I remember from school were quite heavy in carbohydrates, which are often viewed less positively today, and easy on proteins, in general, and non-dairy animal products, in particular.)

**My consumption of other things than food and energy tends to be small and irregular, making changes hard to judge. (There are books and the like, but I buy a book once, and a difference in price between two different books tells me little about inflation.) Moreover, I do not pay attention to my own energy prices unless my supplier sends me a letter; and the price increases on energy are complicated through government interventions, and correspondingly hard to judge relative inflation when we look at the direct consumption. (But it is a major driver of inflation through indirect consumption, as electricity goes into virtually everything else that we buy.)

Some examples that have particularly annoyed me,* typically** with a price change taking place in 2022 alone:

*Especially in light of their being unnecessary, being largely caused by flawed government interventions of various types, notably regarding COVID and energy.

**As I have not kept actual notes, I cannot be more specific than that.

Milk: Used to be 60-something cents for a liter.* Is now at 99 cents, for an increase of around 50 (!) percent.**

*Here and elsewhere, I go by the brands that I usually buy. Note that I tend to buy cheaper brands, including store brands. (Germans might recognize “Ja!” as a good example.)

**I will use rough approximations throughout, as I do not usually know the exact old and/or the exact new price. Here, as a lower limit based on an original price of 69 cents, we have 43 percent. With lower original prices, the percentage increases.

Meals for frying: The local Aldi has a range of ready meals that just need a few minutes in a frying pan.* The one that I bought most often, a great personal favorite, was at 1.80-something. A few months ago, it was raised to 2.20-something, and then, again, to 2.60-something—40 percent or more.

*There is almost certainly a good English word for such, but I have no idea what it might be.

(Various other frozen meals? In a very rough guesstimate, the average price increase has been in excess of 20 percent on e.g. frozen pizzas, frozen lasagnas, and whatnots, with a variation from product to product.)

Sausages: The type and package of sausage that I have bought most frequently over the last few years, used to be at (likely) 1.99 Euro. The last time around, it was at 2.39 (?), for around 20 percent.

Coffee: I used to be able to buy the “good” brands for around 2.50 Euro per 500g package at ever recurring* sales, with a regular price of around 5 Euro. Today, the rebated price tends to be above 5 Euro and the regular price at 7-something Euro. Moreover, there are fewer sales. From my point of view, the prices have roughly doubled. (However, coffee often underlies price fluctuations based on e.g. how successful harvests have been. The overall change might reflect more than just inflation.)

*For a long stretch, the brands took turns with sales in a near continuous manner.

Rote Grütze:* Aldi used to sell this in 1kg buckets (handle and all). By now, the buckets are gone and 0.5kg containers have come instead. The buckets used to sell for around 2.50 Euro; the cones are at around 1.50 Euro, for a price/kg of around 3 Euro and, again, an increase of roughly 20 percent.

*There appears to be no good English name, but compote seems to be something slightly similar.

An interesting “maybe” is a great deterioration in the quality of my (previously) favorite brand* of muesli: For a period of maybe six months, every new package that I bought contained less and less nuts and more and more raisins. While I have nothing against raisins, this has shifted both the taste- and the health-profiles in a negative direction: The taste is by now over-powered by the raisins, the benefits of the nuts are gone, and the fast sugars of the raisins are likely to screw with how the body reacts.** The last time around, I actually found myself manually picking out as many raisins as I (with a reasonable effort) could. This was a few months ago and I have no intention of revisiting the brand.

*One of the two versions of the Rewe store-brand to be specific.

**Indeed, one of the reasons that I preferred this brand was that is was, originally, lower in fast sugars than many others. Notably, as great as good muesli is, it is very energy rich. Combine this energy richness with fast sugars and the associated ups-and-downs in blood sugar level, and I suspect bad things to be the result.

Excursion on shrinkflation:
With some reservations for rote Grütze above, I am not aware of any case of shrinkflation, but as the intent of shrinkflation is typically subterfuge, there might well be such cases that I simply have missed.

Excursion on low-end products being hit harder:
I would speculate that low-end products are more sensitive to the current problems, which might make me more affected by price increases, as the margins are lower. Higher-end products tend to have higher margins, which could mean that the seller and/or producer are willing to swallow more of a cost increase and/or to delay the price increase for some time—especially, when a portion of the cost increase is believed to be temporary. (Then again, maybe it is the other way around, as they might consider their customers less price sensitive.) An interesting potential example of this is coffee (cf. above): not only have the rebated prices taken a proportionally worse hit than the “full” prices, but capsules for Dolce Gusto* have taken a smaller hit still, at maybe 20 percent. A regular carton of 16 capsules used to be almost as expensive as a 0.5kg package of plain ground coffee, but, obviously, only gives 16 cups, which is far less than the 0.5kg package used for drip brews,** and the margins were correspondingly much larger. (I would not be surprised if most of the price was markup.) Correspondingly, the sellers might prefer to reduce the margin a bit and keep the customers, over keeping the margin and potentially losing customers.

*I buy these once in a blue moon, as the speed and convenience can be pleasant, but I taste-wise (and price-wise…) prefer regular drip brews.

**I have never kept tabs on the number of cups, especially as I make smaller cups when brewing; however, going by weight, my recently purchased “Grande” appears to have “16 x 8g = 128g” according to the carton. This is marginally more than a quarter of the regular coffee; most other types of “black coffee” Dolce Gusto use less or considerably less coffee; and the various cappuccinos, lattes, and whatnot only have 8 doses of coffee (and 8 doses of e.g. milk), making their coffee content correspondingly smaller. (However, they sell at the same price, regardless of coffee content.)

Excursion on inflation vs. deflation vs. fix value:
Even in the glorious days of 2-percent inflation, I was highly skeptical to the approach taken by various governments, central banks, and whatnots. I am not convinced that even this level of inflation was justified by sound Economics, but suspect that it was a matter of governmental convenience at the cost of the people.* Would not a zero inflation be fairer and better for everyone? Alternatively, like in some stretches of “yore”, that prices may have risen one year, sunk the next, and averaged out to near constancy over a longer stretch of time.**

*This might include aspects like a lower debt burden, exchange rates that do not grow too high (by some standard), an implicit shifting of tax brackets to put more and more of the people in higher brackets, and similar. For Leftist governments, we have the added “advantage” of existing fortunes being undermined; and, maybe even for non-Leftist governments, that there is a greater incentive to work, as saving up for the future and living on money already earned is harder.

**Notably, for countries on a gold or silver standard when the amount of available gold resp. silver was approximately constant or grew approximately in proportion to the overall economy.

Take it one step further: Would not deflation (i.e. “negative inflation”) be the way to go to increase the wealth of the people? Keep your salary and your bank account at the same level—and ten years down the line you will still earn more and be wealthier (in real terms). Let better production methods and other developments drive prices down, even if slowly, and everyone might be better off. Ditto if product quantity and/or quality improves at a fix price.

There are claims that a little inflation would be a good thing, and that deflation would be bad; however, these claims have so far left me unconvinced as their are too many conditions applied and/or too much speculation.* For instance, with a deflation of 2 percent a year (compare the longstanding inflation goals of 2 percent a year), why would anyone be deterred from consumption? A similar** effect has not prevented e.g. the computer industry from flourishing and leaving products like food for next year, when they will be cheaper, is either silly or suicidal. Inflation allows (real) wages to go down? Only very temporarily, as the unions will factor in the inflation in the next round of increases. There might be less incentives to borrow money, but I do not see that as a bad thing. Etc.

*Including assumptions about an otherwise fixed economy, without productivity improvements; use of severe deflation (e.g. 20 percent a year) instead of mild (e.g. 2 percent a year); and application of short-term thinking on the agents within the economy in that deflation is a rare abnormality that causes unusual concerns and behaviors. (The latter does match the current situation, but not the situation suggested by me.) Indeed, I suspect that the point of various claims is less to give a fair analysis and more to “prove” that “deflation is bad; ergo, we must have inflation”.

**Here we have a deflationary effect specific to the product group, as opposed to an economy-wide one.

Excursion on “mis-yearing” price increases:
A confounding factor is that businesses do not necessarily increase prices immediately in reaction to various events. The reasons for this can be manifold, including e.g. a wish to wait until the competition raises prices, a wish to avoid unnecessary up-and-down fluctuations, a fear that raising too many prices at once (in e.g. a grocery store) can put off too many customers. Then there is the wish to keep those annoying “x.99” prices. For instance, if a certain product sells at 0.99* and a 10-percent increase is called for (according to some set of criteria), then this would result in a price of 1.09. If the margins are large enough and the fear present that the leading “1” will be a greater deterrent than the leading “0”, it might make sense to wait. A year later, another 10-percent increase is called for, or a “real” price of 1.19**. Foregoing 10 cent is one thing, 20 another, and now the price is raised by the full amount. The impression of the customers might then be misleading, because they are not aware that they had been given an implicit 10-cent rebate in the past. It is certainly possible that the strong price increases in 2022 go back partially to such delays in the increases.

*Here and below, I will leave out the currency units. They would add nothing to the illustration. Note, however, that I implicitly assume an x.yz system in both currency units and notation, which does not apply to all currencies.

**Strictly speaking, 1.20, but that would violate the prices-must-always-end-with-a-9 rule.

Excursion on multiplicative rates and underestimating inflation:
One reason that many underestimate inflation is that they fail to consider its multiplicative nature. For instance, to repeat and extend the above calculations with a more sensible 1 as a basis:

Iteration/Year True value* Naive value**
0 1.00 1.00
1 1.10 1.10
2 1.21 1.20
3 1.33 1.30
4 1.46 1.40
10 2.59 2.00
20 6.73 3.00

*Value achieved by multiplying with a factor of 1.1 for each iteration. Rounded and/or padded to fit the normal price format.

**Value achieved by just adding 10 percent of the original price per iteration. Padded to fit the normal price format.

As we can see, the difference between the true and the naive value is small for the first few years, although a difference is notable already in iteration/year 3 and certainly 4.* However, as time passes, it explodes upwards.

*The naivety of the naive estimate might be increased, should typical pricing be used, as we might then have e.g. 1.29 instead of 1.33 for the third iteration/year—but we might see an apparent explosion to 1.49 for the fourth. (The same phenomenon as discussed in the previous excursion.)

Excursion on other attempts to mislead customers:
Attempts at e.g. “shrinkflation” are not the only problems. For instance, I have recently bought quite a few semi-ready meals from Knorr, where a ready-made mix of pasta, cheese, and various other ingredients are heated in water for a few minutes—convenient, tastes well, and very filling if enough water is used to create something closer to soup than a “dry” meal. (Healthy? More dubious.) However, the misleading claims about energy are definitely problematic. For instance, the package that I am looking at right now makes three claims about energy content: (a) 397 kJ per 100 g of cooked (“zubereitet”) product. A careless customer will now look at the 100 g and the overall raw weight of 153 g and assume roughly an overall of 600 kJ—which borders on diet food. The true value is 2598 kJ, or well above four times as much. The more pleasant value is an illusion created by counting the water. (b) 1294 kJ per alleged serving* (“Portion”). The careless customer would now naturally assume that this is the result of cooking the overall, but he is still off by a factor of two—allegedly, two servings result from a single package. To this, I note that cooking just half the contents while keeping an even distribution of various ingredients would be tricky, that the dish is not suitable for a keep-and-reheat scenario, and that only half would be too little for a full meal for one person. (Half might or might not do as a snack or as a part of a multi-course meal.) (c) 15 % of the energy needed per day.* This, again, per alleged serving and with the same misunderstanding likely to arise. (But, oddly, the value is kept high by using a reference person at 8400 kJ per day, which, I suspect, is on the low side for men and growing teenagers of either sex.)

*Both servings and energy-per-day measures are next to useless, as they vary much too much from person to person. The former does more harm-than-good and should be banned, as they are often outright abused. (I recall seeing bags of potato chips that used servings of 20 g, or well below an ounce. Does not sound like a typical serving to me.) The latter likely do more harm-than-good, and it would be better for the individuals to learn what fits them on an individual basis.

The two values that would have made the most sense, energy per uncooked weight (kJ/100g) and energy per entire package, are very, very absent.

Written by michaeleriksson

September 19, 2022 at 5:57 pm

Soup from a nail

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There is a family of stories based on the following general idea:

Someone* puts water and an iron nail in a kettle, telling others** that he is making soup. Nail soup is both delicious and nourishing, and all are invited to share it—but, of course, it would be even better if he had some X, some Y, some Z, and various other ingredients.*** The bystanders bring such ingredients, and in the end there is indeed a delicious and nourishing soup.

*Some versions might have more than one “chef”.

**Vice versa, the “others” might be a single person, as in the version I first encountered in Sweden; however, the below discussion will require multiple victims. Of course, the fraud aspect is more obvious with one victim, who then single-handedly contributes everything, while the soup is divided equally between the victim and the fraudster.

***Alternatively, that everyone who contributes will receive a fair share, or some similar variation.

A sensible reader will realize that this is a form of trickery to get a free meal at the cost of others, that the “chef” did not actually contribute anything more than firewood and water—both of which could be gathered for free by anyone. Any and all real contribution came from the “guests”, who are short-changed in return, as the soup is shared between “chef” and “guests”. (I am strongly reminded of a typical politician/government/whatnot, who scopes in tax money, doles it out again minus a loss, and expects the people to be grateful for the “gift”.)

Some time ago, I encountered an almost absurd interpretation of this type of story:* The “chef” had been a catalyst to create a soup that the others would not otherwise have had—and was therefore their benefactor! (I am strongly reminded of some Leftist and/or Big-Government proponents with no clue about Economics.)

*I did not keep a link, as I did not intend to write anything at the time. Much later musings over this story brought a correspondingly later wish.

Let us consider this for a moment. To my recollection, the setting in the version told was a poor village, where there was little to eat. The idea was that the one might have had some meal,* the other some beans, the third a small piece of meat, etc.—and together they had soup.

*I do not recall the exact ingredients used, but they are beside the point.

First, in the short-term, each of the villagers might have had some gain of the “balanced diet” type, as eating a soup made of X, Y, and Z is likely to be more balanced than just eating X. (Maybe, also an improvement in taste, but this is a secondary concern among the hungry.) However, at the same time, there is a loss of quantity, as the share of the “chef” must be subtracted—instead of having, say, a pound of meal, someone might now have a share of soup corresponding to 0.8 pounds of meal. Is that really a good exchange? Then we have complications like uneven contributions, the risk of a tragedy of the commons, whatnot. (Indeed, the presence of secondary cheaters cannot be ruled out, e.g. in that someone contributes half a pound of meal and still expects a full pound’s worth of soup. Especially when different ingredients are compared, there is a great risk of both cheating and genuine differences of opinion—is that quantity of salt worth more or less than that piece of sausage?)

Second, in the mid-term, the no-free-lunch principle comes into play: Yes, there is soup today, but what about tomorrow? That pound of meal might have been intended to bake a loaf of bread to eat tomorrow. Now, when tomorrow comes, there is no pound of meal, there is no loaf of bread, and the day will be hungry indeed. Not only has hunger just been differently distributed, not removed, but there is a fair chance that the situation for the villagers has been worsened, as the self-rationing to get by until the next payday (or whatever might apply) with a fixed store of supplies has been disturbed. (And, again, the store has been implicitly diminished by giving the “chef” a share—not just redistributed in time.)

Third, if there actually was a benefit to this type of soup, the villagers might* well have developed the idea on their own. That they did not (or did, tried it once, and never repeated the attempt) might* be a sign that it was not a good idea, and that they were tricked into a poor decision by the belief that the “chef” made a true contribution that, in turn, would have made their respective investments worthwhile. Moreover, if the soup was not a good idea just between the villagers, then it is a worse idea when they have to gift the “chef” his undeserved share.

*Depending on how bright they were, how much experience they had gained in similar matters, how the relationships within the village worked, etc. When the analogy is moved to nationwide politics and the nationwide economy, chances are that they would be smart enough.

Indeed, this version of the story, the implications of this-and-that, and the original interpreter’s weak reasoning form very interesting parallels to modern politics.

As an interesting contrast, look at a hypothetical free-market version of this story (the above being Socialist): Someone comes to the villagers and says that he is willing to make soup for them. Anyone can get a quantity of soup in exchange for a payment in ingredients; the quantity will be determined by the value of the ingredients.* If this makes sense to the villagers, they will come; if it does not, they will not—but it is all their informed** choice. Notably, if they consider the share taken as profit, in exchange for the convenience of coordination and whatnot, small enough, they will continue to come—if not, they will arrange to cut out the middleman and make the soup cooperatively; alternatively, someone else will propose the same deal at a lower price (i.e. ingredient-to-soup ratio).

*In reality, there might be quite a few more details to resolve, say, a minimum of buyers before the soup can realistically be made and exactly how to value various ingredients vs. each other and the completed product.

**Above, they did have a choice, as anyone could have declined, but that choice was outright disinformed—anyone agreeing would have done so under faulty assumptions and chances are that most of those who did agree would have declined, had they been correctly informed.

Of course, once the government gets wind of this situation, chances are that it will involve it self in the soup production, be it commercial or cooperative, including by measures such as forcing everyone to join, even when they do not consider the soup a good idea, instituting a “from everyone according to ability; to everyone according to need” principle, etc. (And note the side-effects that might follow, e.g. that some reduce the work they put in to gain their meager food stores, because they know that what they do gain will be confiscated and the amount of soup they receive will remain unchanged.)

As an exercise for the reader, please consider what parts of the above would or would not have worked better with money.

Written by michaeleriksson

August 27, 2022 at 12:27 am

Inflation and pay raises / Government intervention

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For some time, various governments have attempted to curb inflation, especially energy-related inflation, by demanding that this-or-that business not raise prices—even in the face of increasing costs, problems with the supply of various inputs, and, at least in the U.S., a lack of willing workers. (Issues largely caused by poor government decisions, notably through poorly chosen and exaggerated COVID-countermeasures, a failed energy policy, and/or anti-Russia sanctions.)

These demands, if followed, would be counterproductive, as they will screw even more with market forces, reduce the number of businesses willing to produce goods and provide services (at now artificially low or even negative profits), whatnot. Indeed, this seems to be part of a consistent pattern: Something happens in the market, e.g. an increase in gas* prices. Normally, this would lead to adaptions in the behavior of actors (e.g. in that households reduce gas use, while gas producers increase production), and the famous “invisible hand” would find some acceptable state for the involved parties. Instead, the government intervenes to defeat the market forces, the adaptions do not happen, and the situation remains unbalanced/problematic/whatnot (e.g. in that there is not enough gas supplied to fulfill demand). It then proceeds to paradoxically and disingenuously blame matters on a “market failure” or on “greedy capitalists”—instead of “government failure” resp. “incompetent politicians”.**

*Example written with an eye on methane and whatnot, but it works well for gasoline too.

**Market failures do happen, but government failures are far more common. Indeed, I am working on a few more book tips, including one with the telling title “Why Government Doesn’t Work”.

There is, however, one area where keeping demands back might be vital to keeping inflation down—salaries and wages. If they increase in lockstep with or in excess of inflation, as e.g. some unions currently demand, a vicious circle is created, even when the original cause for inflation was temporary.* This through at least two effects: Firstly, the increase will raise costs for businesses further. As the cost of work affects businesses not just through own employees, but also through the employees of various other businesses, ranging from makers of needed parts to producers of energy to accounting firms to whatnots, the effect can be quite large. The businesses will then be forced to either increase prices further to compensate, or to take other** measures. Secondly, once the employees have more money, the consumption-adjusting*** effect of higher prices will be diminished or disappear, which will give businesses incentives to raise prices again.

*Price hikes for gas and oil—temporary, likely even reversible. (Barring further government screw-ups, of course—here and elsewhere.) COVID subventions—temporary. Extreme expansion of money supply—temporary. (Or, to be specific, the expansion will remain, but once prices have risen accordingly, it will not further drive inflation.)

**The range can be very wide, but none of them tend to be good. Consider e.g. a whole or partial withdrawal from the markets, layoffs to compensate for the cost, reductions in product quality, …

***Again, the range can be very wide, but the main cases are likely consumers reducing consumption, even foregoing certain types of product entirely, and switching to cheaper replacement products.

We might then have scenarios like in (at least) Sweden in the 1980s, where double-digit inflation causes double-digit pay-raises, which causes another year of double-digit inflation, etc., etc.

If, on the other hand, employees and unions show restraint, say, by taking a 5% raise in a year with 10% inflation, high inflation will not become permanent. (Barring the possibility of further destructive government intervention and other independent factors.) And, no, this would not bring the broad masses to ruin. A small minority would be in trouble, but most would just see a return to the same living standard that they had a few years back—and one much higher than averaged by their respective parents at the same age. Another few years down the line, real wages will have caught up again.

Excursion on unions and market forces:
But why would it be wrong for employees to demand higher wages? Is that not also a part of the market forces? Well, the hitch is that unions are a disturbance in the market forces to begin with, as they create an artificial near-monopoly or oligopoly on labor in at least some areas. If individual workers make up their minds individually as to whether they will individually continue to work for X Euro/hour, or demand 1.1X Euro/hour,* or demand some other number, or go to the competition, or switch fields, or take a sabbatical, or whatnot, then we have working market forces. If a union decides to raise hell for all workers unless they all get 1.1X Euro/hour, that is a different matter. (Especially, if combined with unethical methods, e.g picketing to prevent non-strikers from working.) Now the market forces are disabled or too coarse, while the strikes and whatnots cause additional costs, production losses, and similar in their own right. This applies doubly when the government involves it self, as the Swedish Social-Democrat governments were prone to do, e.g. to put pressure on employers to be “fair” to the employees (or else).

*With the option for the employer to accept or reject this, depending on how valued the individual employee is, how many others are willing and able to the same work for a lower payment, etc.

(Which is not to say that collective bargaining need always be a problem. It does require, however, responsible unions, including unions that work neither for the unions, themselves, nor for their leaders, but for their members, and unions that do not try to e.g. gain advantages for those who have a job on the backs of those currently unemployed. Few unions seem to live up to such criteria.)

Excursion on steady inflation/the government and inflation:
It is sometimes claimed that inflation is not a big problem, provided that it is reasonably stable—and provided that corresponding pay raises do follow more-or-less in lockstep. The idea is that purchasing power is preserved and everything remains the same when we look at real values, instead of nominal values. There are several issues with this, including that it is tricky to keep inflation constant at, hypothetically, 12%—and if one can, one might equally keep it constant at some lower value, to avoid the risks, to preserve existing savings, to make it easier to have a feel for the value of money,* to make comparisons over time easier to understand, etc.

*Would you rather need to keep a feel for what price is low resp. high, proportionate resp. disproportionate to the actual value, etc. at an inflation of 2% per year or at 12% per year? And this not just for a single year, but for five, ten, or twenty years; and not just for everyday products like milk, but for once-every-few-years products like computers.

The main obstacle, if this is to have any chance of working, is that everything needs to be adapted to the same inflation rate, including e.g. interest rates, lest existing money dwindle in real value and lest returns on investments fall short of the inflation rate. (Indeed, in Sweden in the 1980s, interest rates were also in the double digits.) This is not happening today. On the contrary, last year my bank gave me the choice between negative (!) interest rates and withdrawing all money above a certain threshold from my accounts… Notably, governments have a great aversion to high interest rates, as they make keeping up with the (typically gigantic) national debts that much harder. (And governments will likely do their darnedest to keep interest rates well below the inflation rate to avoid this.) Moreover, inflation is popular with at least some governments, especially those with a high national debt in the national currency (real value of the debt shrinks) and those of a Leftist persuasion (All those evil capitalists see their money melt away! Ha! Ha! Ha!). To boot, those like I,* who have worked hard in the past to take some free time in the now, might now be forced to return to regular work prematurely, because inflation kills the long-term budget—and a larger workforce means more taxes to the government.

*Yes, I am pissed: First, the German government steals most of what I earn while I am in the workforce, then it destroys my savings when I leave the workforce.

Written by michaeleriksson

August 22, 2022 at 8:06 pm

Reading tips for the prospective voter

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I have done a fair amount of complaining about human ignorance, including among voters and politicians. It might be time to light a candle instead of cursing the darkness.

Below, I will give a short list of books that I see as a suitable minimum reading for a voter (“required reading”, in a manner of speaking). Someone who has not read and understood these or equivalent books, or otherwise gained equivalent insight, should not be voting. To this, I stress: (a) I do not ask that the reader/voter agree with these books. (Indeed, while I am, myself, mostly in agreement with my own recommendations, I do not necessarily agree with them on any given individual point.) The important part is to think and to think hard, to understand the books, and to gain new or more nuanced insights, even should these insights not match what the author and/or I might have intended. (b) This is by no means a complete list of books that the ideal voter should have read, be it within the areas of the list or areas outside it. Indeed, even the same authors often have more advanced works on offer.

To expand on (b), it is my intention* to give books sufficiently short and sufficiently easy to read that they can be considered conscionable in terms of effort even for weaker readers and thinkers,** but simultaneously sufficiently interesting and informative as to bring value even to the stronger. Moreover, I have deliberately avoided books that are too specific in their contents. For instance, I considered the inclusion of The Black Book of Communism, but pointing out the evils of Communism in so direct a manner feels too specific and might miss my commonly repeated point that it is actions and not opinions that matter—evil is as evil does.*** Certainly, there are other evils than Communism, let alone evil aspects of other groups. Some of the works below (Orwell, Hayek) cover somewhat similar ground, but they do so in a far more general manner, which can match, e.g., a totalitarian society of any ideology. (Except in as far as totalitarianism is a part of resp. contrary to the ideology.) Moreover yet, there are areas of importance where there might not be a suitable alternative. For instance, I have written about how important I consider history, but history is such an immense topic that just reading one single book is unlikely to do much for the overall understanding,**** as this single book will either cover many events/developments/times/persons/whatnot shallowly, leaving little room for a developed understanding, or few in depth, restricting the understanding to a small area. (See an excursion for some other areas left out.)

*I have not been entirely successful, but I am not aware of any better choices. Suggestions are, of course, welcome.

**Yes, these might require considerably more time, but since they are likely to begin from a weaker position in terms of previous understanding and whatnot, the effort is the better invested.

***Also note that it is not my intention to tell the reader e.g. “Stay away from Communism!”. I sincerely hope that he does, but the point of this text is something different, namely to give the reader better tools to make his own decision. (Proofreading, I see that I repeatedly fall well short of neutrality of formulation, but as it is the recommended books, not this text, that are important, I will leave things as they are.)

****Which should not be interpreted as “so read no book at all”. On the contrary, I recommend reading (and thinking on!) as many history books as possible—or to dig into the many and deep articles on Wikipedia. (Indeed, Wikipedia has been my own main source on history.) Non-history works from “yore” can also be a very valuable source of historical information, in addition to their originally intended value, as with e.g. the “Federalist Papers”.

One contributing criterion to my choices have been the dominating, and usually poorly founded, opinions among naive voters on important topics. With a different set of opinions dominating, or another set of topics being more important, other choices might have been made. To this a more general reading recommendation: prefer books and other sources that go outside your personal “echo chamber” at least until you have seen a wide range of other perspectives on different issues—and have actually understood these.

The actual list:

  1. The Road to Serfdom is a great work on the dangers of totalitarian societies, collectivism, disregard for the individual, etc. My own last reading was a long time ago, so I cannot go into details of argumentation and content, but I do recall that he warned strongly against developments back then (WWII Britain) that were not only a recurring theme throughout the 20th century, but have continued into the 21st. Indeed, the various COVID-countermeasures were more-or-less the opposite of what Hayek might have recommended. Ditto e.g. the behavior of the current U.S. Democrats. I might go as far as to say that this book has been more relevant to the world in the last few years than it had been since the fall of the Soviet Union, more than thirty years ago—just maybe, even since the end of WWII, shortly after the writing, and closing in on eighty years.

    On the downside, the style of writing might be a little challenging for the weaker readers.

    As an important caveat, Hayek uses “Liberalism” (with variations) in an older sense, incompatible with the use of e.g. the current U.S. Democrats—who are, in fact, often outright anti-Liberal by this older meaning. When he proposes e.g. Liberalism, he would be more closely in agreement with a typical U.S. Republican than with a typical Democrat, and certainly more so with Rand Paul than with Bernie Sanders.

  2. Economics in One Lesson is a very insightful and very easy to understand overview of some basic Economics, with an emphasis on common fallacies that typically affect even (particularly?) government action. Interestingly, the first edition was published in 1946 (!),* “my” second edition from 1979 complains that these fallacies are even more influential in 1979 than they were in 1946, and my own observations show their power even in 2022!** Generally, with one exception, the books recommended are 20th century, mostly from the first half, describing problems that are still present and providing insights that are still ignored—well into the 21st century.

    *While the book is a little dated, even with the 1979 updates, the contents are sufficiently, and deliberately, general that they are still valuable. For a first and quick introduction to the field, they are certainly enough.

    **1979 was shortly before Reagan (1981) came into power, and there was a major change during his years. However, post-Reagan, this change has increasingly been reversed, and Biden seems determined to out-LBJ LBJ. (And even Reagan was not perfect.)

    Examples of such fallacies include destruction bringing a net benefit to society through the work created (failing* to consider the effect of the opportunity cost), that various price, wage, and rent controls bring a benefit (failing to see that the gain of the one is the loss of the other and that market mechanisms are disturbed), and that corporate profits are uniformly gigantic and somehow evil (failing to consider how many businesses go bankrupt and how profits motivate e.g. job creation).

    *These “failing” are not a complete analysis, just a first rough indication off the top of my head. Do read the book.

    A particular “summary lesson”, which well reflects some of my own complaints about what the Left fails to do:

    The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

    Disclaimer: The books on Economics that I have previously read have been at least one of: unsuitable to the target audience of this list; unsuitable to any pre-“101” student; full “101” texts (which are too long, entail too much busy work, and often bring too little actual understanding to be included here*). Correspondingly, I searched out this book for the specific purposes of this list, and it is the only book on the list that I have not read deeply and/or repeatedly. That said, I was extremely pleased by the first, slightly shallow, reading.

    *Example: Last year, I revisited a hard-copy of David Begg’s “Economics” (presumably, originally bought during my long-ago business studies). Trying to study it was an endless frustration, beginning with the fact that he long pretended that the goal of a business was to maximize revenue, whereby he minimized his own credibility. Any attempt to explain something was done with minimal math and endless and over-complicated discussions of graphs, intersections, and tangents, where a little math would have given a better understanding in a fraction of the space. At some point, he basically reinvented an inferior type of derivative, while failing to actually introduce derivatives, which should be high-school material and already known to the college-goer. Instead, the preface brags about the book not even using (presumably: high-school) algebra, which is absurd in an alleged college text.

  3. Nineteen Eighty-Four and Animal Farm, while fictional, are extremely interesting to those who want to see the dangers of thought control, abuse of language, violations of privacy, etc.—especially, but not exclusively, in a Leftist* world. They also give a good run-down of many of the methods used by the Left, many with disturbing parallels in today’s world.** Two particularly important insights is that (a) even the members of a movement/group/whatnot (e.g. O’Brien) can become slaves to that movement, (b) the same type tends to rise to the top regardless of whether pig or farmer—and the difference in species resp. ideology is then often nominal.

    *Orwell, himself, was a convinced idealist Socialist, but also one of the harshest critics of Socialism and Communism as practiced. This largely based on his experiences with British proponents, the practices in the Soviet Union, and what he saw while fighting on the Leftist side in the Spanish Civil War. (Other sources of inspiration for “Nineteen Eighty-Four” might include his experiences working for the British Empire or living in WWII Britain.)

    **A key aspect here is that Orwell did not invent a dystopia out of thin air, but integrated and extrapolated what he had actually seen in real life. Humans, governments, and the Left have not changed that much in the seventy-something years since his time of writing.

    I name both books, because they are overlapping, not identical, in content and complement each other very well. If forced to choose, “Nineteen Eighty-Four” is the more important to read, but the extra effort for “Animal Farm” is small, as it is more of a novella.

    Do not be fooled by the apparent “for children” nature of “Animal Farm”, however, as its main benefits come from allegory that few children can understand. Indeed, I remember being disappointed by the lack of a happy ending after my own first reading, as a child—why did not Snowball come back and right all wrongs? (As an adult, I see how a happy ending would have ruined the point of the book; and I realize that, while Napoleon was a proven bad guy, Snowball had never truly proven himself to be a good guy, implying that the effects of his hypothetical comeback were uncertain.)

    As an aside, going from the year of completion of “Nineteen Eighty-Four”, 1948, to the year 1984,* we have an interval of 36 years. We are now in 2022, or another 38 years down the line—and closer to the fictional 1984 than we were in the actual 1984.

    *The official claim, in-universe, is not trustworthy, but the claimed 1984 of the book and the actual 1984 of the real world were and are a natural point of comparison—especially, in 1984.

  4. The Bell-Curve is, first of all, not racist, White Supremacist, or anything similar. That I have to lead with this is sad, but necessary. The reason for this defamation is likely that its implications, but not necessarily intentions, amount to a discrediting of much what the Left (in general) and/or the U.S. Democrats (in particular) push. (Generally, such books tend to be given a label like “racist” in a near blanket manner, often by those who have not read them, followed by a guilt-by-association attack on anyone who does not similarly condemn them, let alone supports them. Even more detailed Leftist critique tends to be based on misrepresentation and distortion of the actual contents.)

    What “The Bell-Curve” is is a highly important work with extensive policy implications centered on the effects of g, IQ, or, in the authors preferred phrasing, cognitive ability.

    Most notably, the conclusion must be that most differences in group outcomes are to be viewed in the light of IQ first and whatever else secondarily. This includes e.g. a staple of the current “Old Left”, that working-class children get nowhere in life because they are “disadvantaged” or “underprivileged” from birth—and we must institute social justice!!!! However, once an investigation takes the IQ of the children into consideration, the influence of parental SES is drastically reduced—own IQ matters significantly more than our childhood homes.* And, no, IQ is not largely determined by parental SES either (at least not in e.g. the U.S. or my native Sweden).

    *I am, myself, a good individual example of a successful move from a “disadvantaged” up-bringing to a materially pleasant and high-SES life.

    Yes, this applies to race too, but there is nothing racist about it. The facts are what they are, namely, that e.g. U.S. Blacks (as a group) have a lower average IQ than e.g. U.S. Whites (who, in turn, have a lower average IQ than e.g. Ashkenazim) and that the disparities in outcome look very, very different after own IQ has been factored in. If Blacks, on average and for instance, do worse in college than Whites, this is not a matter of “systemic racism”, “discrimination”, or whatnot—it is a matter, mostly, of IQ. The massive pro-Black interventions that take place are not fighting an unfair disadvantage against Blacks, they are creating one in favor of Blacks.

    On the downside, this book is quite long, and a shorter version might have been preferable for my current purposes. A good idea for the slow reader might be to first read the various summaries and whatnots to get a general idea, and then to dig deeper over time.

    A good complement is Blueprint, which foregoes “The Bell-Curves” big-picture discussions of the potential effects and policy implications of this-and-that, but goes more into the genetic side of human diversity, allows more influence of non-IQ factors on behavior and behavioral differences, and is more up-to-date*. A particular benefit is that it addresses extensively one of my own main complaints about many Environmentalist arguments, namely that the effects of inherited characteristics on the environment are not considered.** However, unlike “The Bell-Curve”, it is not a seminal work with little competition, and substituting some other book on HBD, genetics and psychology, or evolutionary psychology might give a similar value. (My choice was partially because it is the only book in the extended field that I have read in 2022, and my memory of others is a little vague and/or might require a re-read before a recommendation.)

    *Published in 2018 and by far the youngest book on the list.

    **Most notably in that the effect of parental IQ on parental SES is not considered; however, there are very many other examples.

Excursion on left-out fields:
Apart from history, there are at least two obvious seeming fields that are not included (be it pro or contra):

Firstly, global warming/climate change. This is simply because I am not well-read in the area and have not yet formed a firm own opinion. I do note that the Left tends to engage in severe misrepresentation in these areas, however, and point to e.g. a recent text on science denialism with a brief climate discussion and a link to an older text on “Unsettled”. (A book that I found helpful and interesting, but which I do not endorse in the manner of the above.)

Secondly, COVID and COVID-countermeasures. Here I do have strong opinions (cf. many earlier texts), but I am faced with the problem that my readings have all been Internet based and that I have no books to recommend. (On the Internet, I recommend in particular Brownstone.) Moreover, (a) the problems with the countermeasures are to some degree covered more generally by the other texts, (b) further countermeasures seem (knock on wood!) less likely than in the past, which makes the topic less urgent. (Otherwise, I might well have searched for a book.)

Written by michaeleriksson

August 1, 2022 at 7:20 am