The market process picks unusual winners

What World Bank consultant would risk his fee and return business on advising Egypt to specialise in the export of toilets to Italy? But Egypt’s largest single manufacturing export is toilets to Italy where it captured 93% of the market.

Kenya has a booming export business in cut flowers for men to buy for their wives. Kenya has 40% of the European markets for cut flowers. Nigeria has 84% of the Norwegian market for floating docks. The Philippines has 71% of the global market for electronic integrated circuits.

What development expert would have picked these winners? They’re far too far away from the conventional wisdom and the safe bets that are behind picking winners in government circles.

Picking winners by governments requires heroic assumptions not only about the information politicians and bureaucrats have about the present and their ability to predict the future, but also about their motivations and their ability to resist capture by special interests. The Economist explains:

None of these studies addresses a deeper problem with the way industrial policy tends to develop over time.

Earlier efforts have tended to degenerate into rent-seeking, lobbying and cosy deals between incumbent firms and bureaucrats, stifling innovation and the process of creative destruction.

The problem, of course, is that … industrial policy requires disinterested, benevolent policymakers who can do it well. Unfortunately, they do not yet have a recipe for how such policymakers can be created.

Policy is made by real people with political and personal motivations. What they come up with is unlikely to be as well designed as the ones in the models.

Gender and education: Have American boys been left behind? – Christina Hoff Sommers

via Gender and education: Have American boys been left behind? – YouTube.

What if the Prime Minister insists we help them?

The main cast of Yes (Prime) Minister

Sir Humphrey Appleby: Then we follow the four-stage strategy.

Bernard Woolley: What’s that?

Sir Richard Wharton: Standard Foreign Office response in a time of crisis.

Sir Richard Wharton: In stage one we say nothing is going to happen.

Sir Humphrey Appleby: Stage two, we say something may be about to happen, but we should do nothing about it.

Sir Richard Wharton: In stage three, we say that maybe we should do something about it, but there’s nothing we *can* do.

Sir Humphrey Appleby: Stage four, we say maybe there was something we could have done, but it’s too late now.

Paul Ehrlich in 1970 predicted a USA decimated by hunger in the year 2000: just 23 million inhabitants living on less calories than the average African gets today

HT: Cool It

Because they ignore monetary policy RBC theorists think it´s always due to a supply shock


Someone linked to this 2009 VoxEu piece by Lee Ohanian on Herbert Hoover and the start of the Great Depression:

What started the Great Depression? This column says that the industrial decline began before monetary contraction or banking panics – the conventional culprits – took hold. It attributes the massive drop in manufacturing hours to President Hoover’s labour policies, which kept nominal and real wages high.

Economists cite monetary contraction (Friedman and Schwartz, 1963) and banking panics (Bernanke, 1983) as important determinants of the Depression, but industry was significantly depressed before either of these factors was quantitatively important. The attached figure shows per-capita industrial hours worked between January 1929 and September 1930, and two measures of the money stock from Friedman and Schwartz that roughly correspond to M1 and M2. Hours decline substantially, but these two measures of the money supply fall only about 4%, and 1%, respectively. Moreover…

View original post 320 more words

Good monopolies and bad price cuts

A surprising number of well-meaning people want to protect consumers from the scourge of lower prices. These abominations come from imports, new entry or cost reductions.

Richard Epstein talked about how progressives think they can tell the difference between a good monopoly and a bad monopoly.


There is one instance in which monopoly could arise in the free market – exclusive ownership of an essential input (Kirzner 1973):

Monopoly … in a market free of government obstacles to entry, means for us the position of a producer whose exclusive control over necessary inputs blocks competitive entry into the production of his product.

Monopoly thus does not refer to the position of a producer who, without any control over resources, happens to be the only producer of a particular product. This producer is fully subject to the competitive market process, since other entrepreneurs are entirely free to compete with him.

In all other cases, monopoly is the grant by government of an exclusive privilege to produce or sell a product (Rothbard 1962). This definition is from the common law as per Lord Coke:

A monopoly is an institution or allowance by the king, by his grant, commission, or otherwise . . . to any person or persons, bodies politic or corporate, for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or cor­porate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade.

The Greens want to ban… | Kiwiblog

I cannot stand political correctness. It serves no purpose other than to restrict freedom of speech. Yes, some language can offend someone, but we all have the right to offend. It doesn’t mean we should, but we can. 
Without the freedom to offend, we do not have the freedom of expression. When we restrict the use of language, we risk entering the George Orwell 1984 dystopia - “ungood”, “goodest”, “plusgood”, “doubleplusgood” - that’s where we’re heading every time someone starts sobbing like a child because they were offended. 
You taking offence doesn’t make you special. You don’t get some new right when you’re offended. No one’s going to run over and kiss your feet. You will be offended by many people, many times, throughout the rest of your life and you pointing and screaming to tell them not to use “those words” or “that language” is just so unbelievably childish. 
Of course people can take things too far, but we can take anything too far. We can take violence too far by starting meaningless wars, we can take rights movements too far by not stopping at equality and desiring dominance. What words people use, really is the last of your concerns. 

  1. Ban fizzy drinks from schools
  2. Ban fuel inefficient vehicles
  3. Ban all gaming machines in pubs
  4. Ban the GCSB
  5. Ban violent TV programmes until after 10 pm
  6. Ban feeding of antibiotics to animals that are not sick
  7. Ban companies that do not comply with a Code of Corporate Responsibility
  8. Ban ACC from investing in enterprises that provide products or services that significantly increase rates of injury or illness or otherwise have significant adverse social or environmental effects
  9. Ban commercial Genetic Engineering trials
  10. Ban field testing on production of GE food
  11. Ban import of GE food
  12. Ban Urban Sprawl
  13. Ban non citizens/residents from owning land
  14. Ban further corporate farming
  15. Ban sale of high country farms to NZers who do not live in NZ at least 185 days a year
  16. Ban the transport by sea of farm animals, for more than 24 hours
  17. Ban crates for sows
  18. Ban battery cages for hens
  19. Ban factory farming of animals
  20. Ban the use of mechanically recovered meat in the food chain
  21. Ban the use of the ground-up remains of sheep and cows as stock feed
  22. Ban animal testing where animals suffer, even if of benefit to humans
  23. Ban cloning of animals
  24. Ban use of animals in GE
  25. Ban GE animal food
  26. Ban docking of dogs tails
  27. Ban intrusive animal experimentation as a teaching method in all educational institutions
  28. Ban smacking
  29. Ban advertising during children’s programmes
  30. Ban alcohol advertising on TV and radio
  31. Ban coal mining
  32. Ban the export of indigenous logs and chips
  33. Ban the use of bio-accumulative and persistent poisons
  34. Ban the establishment of mustelid farms
  35. Ban new exploration, prospecting and mining on conservation land and reserves
  36. Ban mining activities when rare and endemic species are found to present on the mining site
  37. Ban the trading conservation land for other land to facilitate extractive activities on.
  38. Ban the further holding of marine mammals in captivity except as part of an approved threatened species recovery strategy
  39. Ban the direct to consumer advertising of pharmaceuticals
  40. Ban sale of chips and lollies on school property
  41. Ban any additional use of coal for energy
  42. Ban fixed electricity charges
  43. Ban further large hydro plants
  44. Ban nuclear power
  45. Ban further thermal generation
  46. Ban private water management
  47. Ban imported vehicles over seven years old
  48. Ban the disposal of recyclable materials at landfills
  49. Ban the export of hazardous waste to non OECD countries
  50. Ban funding of health services by companies that sell unhealthy food (so McDonalds could not fund services for young cancer sufferers)
  51. Ban healthcare organizations from selling unhealthy food or drink
  52. Ban advertising of unhealthy food until after 8.30 pm
  53. Ban all food and drink advertisements on TV if they do not meet criteria for nutritious food
  54. Ban the use of antibiotics as sprays on crops
  55. Ban food irradiation within NZ
  56. Ban irradiated food imports
  57. Ban growth hormones for animals
  58. Ban crown agency investments in any entity that denies climate change!!
  59. Ban crown agency investments in any entity that is involved in tobacco
  60. Ban crown agency investments in any entity that is involved in environmentally damaging oil extraction or gold mining
  61. Ban non UN sanctioned military involvement (so China and Russia gets to veto all NZ engagements)
  62. Ban NZ from military treaties which are based on the right to self defence
  63. Ban NZers from serving as mercenaries
  64. Ban new casinos
  65. Allow existing casinos to be banned
  66. Ban promotion of Internet gambling
  67. Ban advertising of unhealthy food to children
  68. Ban cellphone towers within 300 metres of homes
  69. Ban new buildings that do not confirm to sustainable building principles
  70. Ban migrants who do not undertake Treaty of Waitangi education programmes
  71. Ban new prisons
  72. Ban semi-automatic weapons
  73. Ban genetic mixing between species
  74. Ban ocean mineral extractions within the EEZ
  75. Ban limited liability companies by making owners responsible for liability of products
  76. Ban funding of PTEs that compete with public tertiary institutes
  77. Ban the importation of goods and services that do not meet quality and environmental certification standards in production, lifecycle analysis, and eco-labelling
  78. Ban goods that do not meet quality and sustainability standards for goods which are produced and/or sold in Aotearoa/New Zealand
  79. Ban new urban highways or motorways
  80. Ban private toll roads
  81. Ban import of vehicles more than seven years old unless they meet emission standards
  82. Ban imported goods that do not meet standards for durability and ease of recycling
  83. Ban landfills
  84. Ban new houses without water saving measures
  85. Ban programmes on TVNZ with gratuitous violence

Political correctness is the natural continuum from the party line. What we are seeing once again is a self-appointed group of vigilantes imposing their views on others. It is a heritage of communism, but they don't seem to see this.  - Doris Lessing

via Kiwiblog

The Social Possibilities of Economic Chivalry (1907)

Alfred Marshall.jpg

A Government could print a good edition of Shakespeare’s works, but it could not get them written…

I am not urging that municipalities should avoid all such undertakings without exception. For, indeed, when a large use of rights of way, especially in public streets, is necessary, it is doubtless generally best to retain the ownership, if not also the management, of the inevitable monopoly in public hands.

I am only urging that every new extension of Governmental work in branches of production which need ceaseless creation and initiative is to be regarded as prima facie anti-social, because it retards the growth of that knowledge and those ideas which are incomparably the most important form of collective wealth.

How does a free press emerge through the market process?

For much of the 19th century U.S. newspapers were public relations tools funded by politicians. Information hostile to a paper’s political views were ignored or dismissed as sophistry. Newspaper independence was rare. Fraud and corruption in 19th century America approached today’s more corrupt developing nations.

The newspaper industry underwent fundamental changes between 1870 and 1920 as the press became more informative and less partisan.
– 11 per cent of urban dailies were independent in 1870,
– 62 per cent were in 1920.

The rise of the informative press was the result of increased scale and competitiveness in the newspaper industry caused by technological progress in the newsprint and newspaper industries.
• From 1870 to 1920, when corruption appears to have declined significantly within the United States, the press became more informative, less partisan, and expanded circulation considerably.
• By the 1920s, the partisan papers no longer coupled allegations of the corruption of their party members with condemnation of the character of the person making the charge.

A reasonable hypothesis is rise of the informative press was one of the reasons why the corruption of the Gilded Age was sharply reduced during the Progressive Era.

A supply-side model suggesting that newspapers weigh the rewards of bias—politicians’ bribes or personal pleasure—against the cost of bias—lost circulation from providing faulty news.

The key predictions of the model are that, as the size of the market for newspapers rises, and as the marginal cost of producing a paper falls, newspapers will become less biased and invest more in gathering information.

Corruption declined because media proprietors discovered that they could maintain and boost circulation by exposing it. An independent press which kept a watchful eye over government and business was a spontaneous order that was a by-product of rising incomes and literacy of readers.

Politicians did not help the process along. Technological innovations and increased city populations caused a huge increase in scale.

Newspapers become big businesses; they increased readership and revenue by presenting factual and informative news. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, it is from their high regard to their own interest.

Following these incentives, newspapers changed from political tools to impartial reporting. Those newspapers that did not did not survive in competition.

HT: The Rise of the Fourth Estate: How Newspapers Became Informative and Why It Mattered by Matthew Gentzkow, Edward L. Glaeser, and Claudia Goldin in Corruption and Reform: Lessons from America’s Economic History (2006).

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