Canadian Liberals don’t Like Wal-Mart Either

Posted by PITHOCRATES - February 15th, 2014

Week in Review

People just don’t hate Wal-Mart in the United States.  The Canadians don’t like them either.  Or, at least, some Canadians (see Developer backs away from plan to put Walmart in Kensington Market by BRUCE LAREGINA AND TARA PERKINS posted 2/13/2014 on The Globe and Mail).

Kensington Market appears to have won the war against Walmart.

The latest pitch to the city from RioCan, the real-estate company developing a site near Bathurst and Nassau streets, no longer includes a big-box Walmart and would shrink the project’s retail area…

“We pushed back hard on this,” said Mr. Layton, who has advocated against Walmart for nearly two and a half years. “The pressure put on Walmart and RioCan from our community backed them off from putting it in our area…”

“As a resident of Kensington Market for my entire life, it looks like a wonderful compromise,” she said. “They were potentially a threat for the businesses in not only Kensington, but in Little Italy and Chinatown as well.

Social democracies everywhere decry capitalism.  And businesses.  Because all they care about are profits.  Which they amass by gouging people with high prices.  This is unfair. And cruel.  People deserve low prices.  Enter government to fetter unfettered capitalism.  To make it fair.  And in the case here that means making sure the local businesses can continue to sell at higher prices.

A business making a profit with high prices is a bad thing.  Unless a Wal-Mart threatens to come in and offer a greater variety of goods at lower prices.  Which will benefit the people.  By proving jobs with better benefits than most Mom and Pop shops can provide.  And allowing people’s paychecks to go farther thanks to those low prices.  But they can’t have that in Kensington Market.  Or any big Democrat U.S. city.  Because Wal-Mart does these wonderful things with a nonunion workforce.  And that’s something liberals just can’t have.  Even if it means higher prices for the people.

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The UK Economy lingers in Recession thanks to Inflation caused by High Tuition Costs and High Utility Bills

Posted by PITHOCRATES - December 23rd, 2012

Week in Review

The Democrats have attacked health insurers with a vengeance for the high prices of health care.  They blame them for these soaring prices.  As well as greedy doctors, hospitals and pharmaceutical companies.  The Left is always ready to attack some greedy business for their ‘excessive’ profits driving up their prices.  And all businesses are guilty of being greedy profit whores.  With a couple of exceptions (see No Happy New Year for UK as Gloom Worsens by Holly Ellyatt posted 12/21/2012 on CNBC).

With gloomy economic forecasts, falling consumer confidence and poor retail figures adding to concerns over talk of the U.K. leaving the European Union, 2013 is set to be a tough year for the country, analysts say…

“There’s been a lot of discounting in the high streets because the shops are trying to shift stock and it’s not working,” Jane Foley, senior currency strategist at Rabobank, told CNBC…

Foley told CNBC that growth had been disappointing mainly due to inflation and low wage growth.

“[Inflation] took money out of our pockets and made our real wages negative. Many economists were anticipating that by now we would have positive wage growth but no, again we have sticky inflation and inflation at high levels because of university fees and utility bills going up.”

Funny how universities and the utilities are never labeled as greedy profit whores.  No, they never get attacked like those in business do.  Instead they attack greedy taxpayers who don’t volunteer to pay more in taxes to help subsidize the high cost of education and utilities.  They’re the greedy profit whores.  Who oppose those in education and the utilities from living a better life than they do.  How selfish.

University professors brainwash their students into being good liberal voters.  The utilities are unionized.  Both do a lot to elect liberals to office.  And keep them in office.  Therefore those who attack health insurers, doctors, hospitals and pharmaceutical companies never attack those in education and the utilities.  Even though they are gouging consumers far more than health insurers, doctors, hospitals and pharmaceutical companies.

For all the talk about leveling the playing field and looking out for the little guy the Left sure likes taking care of their own.  In a country where there is no nobility there is an aristocracy.  Government workers.  And those who help the government gain and maintain power.  These people live the good life.  While the rest are attacked for being greedy.  Pay high tuition costs.  And pay high utility bills.  The aristocracy has to pay these things, too.  But with the generous pay and benefits package they give themselves they can easily afford these things.  Thanks to the power they have to make us pay high tuition costs and high utility bills.  As well as high taxes.

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Big Government in Europe is worried about Glencore cornering the Zinc Market

Posted by PITHOCRATES - November 24th, 2012

Week in Review

With the price of natural gas falling some providers are capping their wells until prices go up.  During the Eighties the price of oil soared, pulling oil producers into the oil business left and right.  Resulting with the oil glut of the Eighties as supply greatly outpaced demand.  OPEC tried to set the price of oil by limiting production.  But they sometimes fail as member states often cheat, selling a little more than their quota to profit from those high prices.  In America, when John D. Rockefeller was selling refined oil products cheaper than any of his competitors it was his competitors who urged the government to bring antitrust actions against him.  Not the people buying his products at low prices.  President Obama has shut down most drilling on federal lands.  But because of demand drilling on private lands is soaring.

Trying to maintain monopoly control is difficult.  And rarely can be done without the help of government (even with the help of government it’s not that easy).  Or by selling at a price below your competition.  Which rarely hurts consumers.  No, low prices hurt those who can’t sell at low prices.  Those who want consumers to pay their higher prices.  This is the power of market forces.  And greed.  For when prices go up greed lures others into the market place to cash in on those high prices.  Which brings prices down.  Supply and demand.  It’s how we have pretty much whatever we want in a complex economy.  Even just the right amount of zinc (see EU steelmakers unhappy with EU conditions on Glenstrata deal by Silvia Antonioli posted 11/22/2012 on Reuters).

EU steelmakers said Europe’s antitrust conditions for Glencore (GLEN.L) to go ahead with its $33 billion takeover of Xstrata (XTA.L) are not sufficient to prevent the dominant influence of one zinc supplier…

“The European steel industry, which uses the lion’s share of zinc metal traded in Europe, will still have to face a leading provider effectively controlling the zinc supply chain from mining to warehousing operations,” Eurofer said in a statement.

Post-merger, the parties will still have a share of around 35 per cent of the European zinc market and the vertical integration of the new entity, which includes mining, smelting, trading, logistics and warehousing, is also concerning according to Eurofer.

What’s really of concern here?  Economies of scale.  The bigger Glencore gets the lower its production costs per unit become.  And the lower their selling price can be.   This is what economies of scales get you.  Not monopoly power.  And who is hurt by lower selling prices?  Glencore’s competition.  And those supplying the other 65% of the European zinc market.

Of course, the argument always goes once someone corners the market (by driving their competition out of business with low prices) they’ll then start raising their prices.  A lot.  Oh my.  Imagine what would happen if zinc prices soared.  It would pull zinc suppliers into the European zinc market left and right to cash in on those high prices.  Can anyone name a supplier who cornered the market with low prices and now is selling at high prices that isn’t propped up by the government?

No.  Because it doesn’t happen.  Because it can’t happen.  Not with free markets.  Because of greed.  For if prices go up more people enter the market out of greed.  And the greater this greed the greater the supply brought onto market.  And the greater prices fall.

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Britain’s High Cost of Government raises the Cost of Living despite having the NHS

Posted by PITHOCRATES - November 3rd, 2012

Week in Review

One of the arguments for national health care is to relieve employers from paying the high cost of health insurance.  Allowing them to pay their employees more.  Also, without the need to find a job that offers good health care people could do whatever they wanted for a living.  It would allow them to make employment decisions less on what they have to do to pay their bills but more on what they want to do.  Because the great fear of losing or not having health insurance is no longer there.

During the Obamacare debate Nancy Pelosi (then Speaker of the House) said just think about how many could chose a career as an artist now that they didn’t have to worry about health insurance.  Wouldn’t that be wonderful?  Instead of working for corporate America they could do something more meaningful.  Well, the UK has national health care.  Provided by the National Health Service (NHS).  And yet both employers and employees are still having the same problems (see Five million paid less than Living Wage, says KPMG posted 10/29/2012 on BBC News Business).

One in five workers in the UK is paid less than required for a basic standard of living, a report has said…

The rate stands at £8.30 [$13.30] an hour in London and £7.21 [$11.56] in the rest of the UK.

This rate is voluntary, unlike the National Minimum Wage – the amount that employers must pay by law, which is set at £6.19 [$9.92] an hour for those aged 21 and over.

The higher the minimum wage the higher the costs for business.  In wages and salaries.  And all the taxes and insurances that are calculated based on those wages and salaries each payroll.  So the higher the minimum wage the greater the cost of doing business.  And the less money left for a business to invest into the business to expand and hire additional workers.  The fewer people working the fewer people pay taxes to fund government.  Requiring higher tax rates on those who do work.  In part to pay the unemployment compensation for those who can’t find a job.  Which increases payroll tax rates.  Further discouraging employers from hiring new workers.  Further reducing the tax base.  And so on.

“Times are difficult for many people, but of course those on the lowest pay are suffering the most,” said Marianne Fallon, head of corporate affairs at KPMG, which has itself signed up to pay the living wage…

“The living wage is not a luxury, and means that low-paid workers do not have to make tough choices over whether they can afford the everyday things that most of us take for granted, such as their fuel bill or a winter coat for their children.

But Mike Cherry, policy chairman for the Federation of Small Businesses, said: “Every employer would want to be as reasonable as they possibly can, but in the current economic climate it is not going to be possible for those sectors that have traditionally been unable to pay the national minimum wage.”

He said rent and rates were becoming more expensive, and so were energy costs, so the living wage was an aspiration but not affordable for some employers…

However, one 23-year-old care worker told the BBC News website that life was tough financially – even when on the living wage.

She said that the cost of petrol, when driving between the homes of the people she cared for, took a big chunk out of her pay which totals £7.21 an hour.

Could it be that it’s not that these people aren’t earning a living wage?  That it is the high taxes and high regulatory compliance costs that are pushing the cost of living beyond people’s incomes?  I mean, why is it that gasoline costs so much more in Europe than it does in the United States?  Gasoline in Britain is currently selling for approximately £1.35 per liter.  Converting liters to gallons and pounds to dollars that comes to about $8.20 per gallon.  Why is it so much more in Britain than in the US?  When it comes from the same oil?  Taxes.  And regulatory compliance costs.  This is the cost of European social democracy.  And green energy.  The only reason they need a living wage is because government makes it so costly to live.

Employees want the highest pay they can get.  While employers want to pay the absolute minimum it takes to get good workers.  When times are good people can leave and find a higher paying job.  When times are bad the business owner struggles to pay their bills.  They pay their vendors slower.  They cut back on investments into the company.  Spend money repairing equipment instead of replacing equipment.  They do everything they can to conserve their cash so they can pay their bills.  Which is why they don’t like being too generous with the employee pay and benefits.  Because once you give it you can never really take it back.  Unless you want to make a lot of surly employees.  So when the economy goes south they don’t cut pay and benefits so much as lay off people.  So they can pay their bills based on their reduced revenue.  And keep the remaining employees less surly.

These are the realities of business.  And national health won’t change any of this.  For national health care isn’t free health care.  National health care is taxpayer-financed health care.  So it will give us higher taxes.  Raising the cost of business.  Forcing people to struggle in their lives.  Such as in Britain.  Where costs are high.  For if they’re paying $8.20 for a gallon of gasoline just imagine how much everything else costs.  Especially groceries.  They deliver food with trucks.  Trucks that use those expensive petroleum products.  Which raises the cost of food.  This is the future of Obamacare.  High taxes.  High gasoline prices.  High food prices.  Just high prices.  Because the cost of Obamacare will raise taxes like we haven’t seen yet.  Taxes that every price will include.  Which will make it just so costly to live.

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Keynesian Multiplier

Posted by PITHOCRATES - September 3rd, 2012

Economics 101

At the Heart of Keynesian Stimulus Spending is the Keynesian Multiplier

Key to Keynesian economics is spending.  That’s the reason why governments everywhere embrace it.  Because Keynesian economics say government MUST spend money.  And that’s the kind of economics politicians like.  “I must spend?  Well, okay.  If you say so.  Forgive me, my constituents, for spending money I don’t have.  But it’s not me.  It’s our Keynesian economists saying we must spend.  And they’re smart.  Real smart.  They even have Ivy League degrees.  So who are we to question them?”

And it’s not just any kind of spending.  Well, actually, it is.  There’s nothing special about it.  You could pass a trillion dollar stimulus bill to pay people to dig holes with a shovel.  Fill them back in with the dirt they just shoveled out.  And then repeat.  Again and again.  Accomplishing nothing beneficial with these efforts.  But a Keynesian economist will approve of this spending and call it a good thing.  Why?  Because of trickle-down economics.  But of the Keynesian kind.

At the heart of Keynesian stimulus spending is the Keynesian multiplier.  That’s the ‘trickle down’ part.  But before we get to that we must discuss one other thing.  Savings.  Keynesians hate it.  They call money that leaks out of the economy into savings accounts wasted money.  Just as if you flushed it down the toilet.  This brings up another Keynesian concept.  The marginal propensity to consume (MPC).  Note the word ‘consume’.  This is what all that government spending is about.  Consumption.  Consumer spending.  Which is why Keynesians hate savings.  Because if people save their money they’re not spending it.  And not creating economic activity.

Politicians prefer Government Spending over Tax Cuts because People may Save Part of a Tax Cut

Now back to the multiplier.  When people receive money they do two things.  They save some of it.  And spend what they don’t save.  This is where the MPC comes in.  An MPC 0f 80% means that people will spend 80% of an amount of money they receive (paycheck, government benefit, etc.) and save 20% of it.  So they use 80% of that money to generate economic activity.  By spending it.  But it doesn’t end there.  Because what they spend other people receive as money.  And these people then save some of it.  And spend what they don’t save.  And so on.  At a MPC of 80% if a person receives $100 they will spend $80 and save $20.  Those who receive that $80 will spend $64 and save $16.  Those who receive $64 will spend $51.20 and save $12.80.  And on and on until people are only spending pennies.  In the end that original $100 will create a total of $500 in new economic activity.  Or five times the original amount.  So the Keynesian multiplier is five.  Or, mathematically, 1/(1-MPC) where MPC = 0.80.

Think of the multiplier as a pyramid of champagne glasses at a wedding.  As you pour champagne in the top glass it overflows into the next layer of glasses down.  When these glasses fill they overflow into the next layer of glasses below them.  The multiplier is kind of like that.  Starting by pouring into one glass.  By the time the champagne bottle is empty champagne fills many glasses.  And spilt champagne represents savings.  Or leakage.  That’s how the multiplier works.  Trickle down.  And the less champagne spilled the more champagne fills glasses.  As shown by the multiplier formula.  The larger the MPC is (as in the more people spend) the larger the multiplier.  In fact if they spent all of their money (an MPC = 1) the formula reduces to 1/0.  And what happens when you divide by zero?  You get infinity.  That’s right, according to the Keynesian multiplier equation if everybody spent all of their money and saved none there would be an infinite amount of economic activity.

In the Keynesian world it doesn’t matter what the money is spent on as long as it’s spent.  Even digging worthless holes is good enough to make this miracle of economic activity out of nothing work.  That’s why their advice is always for the government to tax, borrow or print money to spend.  Because spending is good.  And they prefer government spending over tax cuts to stimulate private spending.  Why?  When the government spends money that top champagne glass will have an MPC of 1.  The government will spend it all.  Less the administrative costs, of course.  Whereas an equivalent amount of money given to the people via a tax cut (letting them keep more of their earnings to spend) will not have an MPC of 1.  Because these people may do something foolish like save their money.  Or pay down debt.  Which is leakage.  Leakage reduces the multiplier.  And a lower multiplier reduces economic activity.

Governments Embrace Keynesian economics because it tells them to Always Spend More Money

It all seems too good to be true.  And there’s a reason for that.  Because it IS too good to be true.  And the proof is in the pudding.  The Seventies was the decade of unrestrained Keynesian economics.  And it didn’t work.  They spent like there was no tomorrow in the Seventies.  But all that Keynesian spending failed to pull the economy out of recession.  All it did was create high inflation.  So there was high unemployment AND high inflation.  Something that was impossible in the Keynesian universe.  But it happened.  Why?  Because they make a lot of assumptions to make their formulas work.  Like that MPC.  And their war on savings.  Their thinking is flawed.  Because savings ARE spending.  Someone’s savings is someone else’s investment.  And investments are spending.  Ever see It’s a Wonderful Life when the people were asking for their deposits back?  The savings and loans had some money.  But they didn’t have everyone’s money.  Then George Bailey (Jimmy Stewart) told his depositors where their money was.  And he ran down a list of all the new houses their savings built.  Thanks to their loans to those new homeowners.  Building those houses generated a lot of economic activity.  So savings are good.  They’re not leakage.  They cause real economic activity.

Let’s return to that pyramid of champagne glasses.  Let’s say it takes 3 bottles of champagne to fill all the glasses in the pyramid.  If you pour the champagne back from the glasses into the bottles you will not have three full bottles of champagne.  Because of all that spillage.  Or leakage.  This is the same with Keynesian stimulus spending.  Stimulus money has to come from somewhere.  Whether government raises it with taxes, borrows it or prints it.  And like that champagne it just moves from one place in the economy to another.  With no net change in economic activity.  Higher taxes mean we have less money to spend.  If they borrow money they reduce private investment.  Because investors are buying government bonds instead if investing in businesses or entrepreneurs.  If they print money they cause inflation.  Which makes our money worth less and prices higher.  Which buys us less after the inflation than before it.  So whatever government spends there is a corresponding reduction in economic activity elsewhere in the economy.  Worse, when the government redistributes this money there is leakage.  Like the spillage of champagne.  For administrative costs.  Because politicians and government bureaucrats don’t work for free.

Printing money is especially harmful to the economy.  For it can cause a short-term boom in economic activity.  But by the time that new money works its way through the economy prices begin to rise.  Raising the cost of businesses.  Who have to raise their prices.  As they do their sales fall.  And they have to lay people off.  So the Keynesian stimulus spending to end a recession results in a new recession.  Which tends to be more painful than the first one.  So eventually a recessionary bust follows the artificial boom in economic activity.  Which brings those artificially high prices back down to normal market prices.  The greater the stimulus spending the higher those prices go.  The farther they have to fall.  And the more painful the recession.  Making the multiplier nothing but smoke and mirrors.  But governments still embrace Keynesian economics.  Because it is the only economic system that tells them to spend more money.  And they are always looking for something to justify more spending.

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Australia subsidizes a University Education to generate Tax Revenue and Volunteerism

Posted by PITHOCRATES - August 11th, 2012

Week in Review

Australian university graduates are not volunteering enough after receiving their subsidized education according to a new study.  Which is one of the reasons they subsidize the high price of a university degree.  Instead of trying to bring those high prices down (see Student subsidy too high: report by Benjamin Preiss posted 8/6/2012 on The Sidney Morning Herald).

THE government should spend less on subsidising university students until graduates can provide a better return for society on the public investment, according to a new study.

Existing fee subsidies were merely redistributing income to students and graduates who would have attended university anyway, according to the report, Graduate Winners, by the independent think tank the Grattan Institute. It suggests the $6 billion the government spends on fee support could be better spent.

The report compares the personal gains for university graduates with their broader contributions to society in areas such as volunteering and paying taxes. Graduates, in most cases, benefit financially from a university degree by getting higher-paid jobs than people with no higher education. But the report found graduates were only slightly more likely to volunteer regularly than people with low-level TAFE qualifications…

If a goal of university subsidies is volunteerism and they’re not seeing a return on that investment why continue the subsidies?  They have the same problem in America.  Liberal college graduates’ idea of volunteerism is raising taxes and donating other people’s money to their favorite causes.  Some leading American liberal politicians even have a sad record of charitable donations.  Because they are never generous with their own money.  They want a larger more caring government to provide for the poor and impoverished masses but they want other people to pay for it.  Yet those who do donate and contribute their time are often conservatives.  Who do this through their churches.  Who work hard and pay their taxes.  And donate their time and money to charitable causes.  A lot of them without a university degree to boot.  Apparently some things transcend international borders.

Mr Norton said the government should cut back its funding and allow universities to increase the price of their degrees. He said the earning capacity for university graduates in most cases outweighed the cost of more expensive degrees.

But Tertiary Education Minister Chris Evans said the government would not increase fees for university students.

He said the students would carry an additional $3 billion a year in debt if the government accepted the report’s recommendations. ”The evidence is that dramatic increases in fees lead to decreased participation and higher debt,” Mr Evans said. ”We don’t want a situation where students leave university, join the workforce and have debts that shadow them for many years…”

Here’s something else they share with the Americans.  The high price of a university degree.  Which the answer is the same everywhere in the world apparently.  Subsidize education.  But they never try to reduce the high prices of education.  In fact, higher education is the one area that they never criticize for its high prices.  Unlike health care.  Prescription drugs.  Gasoline.  You name it.  When it’s the private sector pursuing profits liberals everywhere demonize these seekers of profit.  But when it’s liberal universities pursuing profits so they can provide higher pay and benefit packages to their professors, administrators and campus workers what do you hear from liberals about these seekers of profits?  Just a whole lot of quiet interrupted by the sounds of crickets chirping.  Then the attacks on ‘greedy’ taxpayers who oppose higher taxes to subsidize the generous pay and benefit packages of said university employees.  Which is what gives those students “debts that shadow them for many years.”

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Argentine Truckers go on Strike, Demand a 30% Pay Raise to offset 25% Inflation

Posted by PITHOCRATES - June 23rd, 2012

Week in Review

If you want to understand what’s happening in Argentina listen to Andrew Lloyd Webber’s Evita.  It’ll give you a little bit of the flavor of the current political picture there.  A populist president.  High inflation.  High taxes.  Strong unions.  Class warfare.  And there are some who even compare Cristina Elisabet Fernández de Kirchner, Argentine president, to Eva Perón herself.  A comparison she’s not overly pleased with.  But she doesn’t mind when people compare her to the strong defiant side of Eva Perón. 

But there are reasons for these comparisons.  For her political party, the Justicialist Party, was founded by Juan and Eva Perón.  And her policies are not that far away from their policies.  Which is basically a welfare state that taxes the rich to pay for it.  And prints a lot of money.  Hence the high inflation.  Which causes a bit of a problem.  To survive during high inflation means wages have to rise just as fast.  So they can pay those high taxes.  And afford the high prices that result from inflation.  Which isn’t apparently happening for the truckers (see Argentina deploys military police in fuel strike by Hilary Burke and Jorge Otaola posted 6/20/2012 on Reuters).

Argentina’s government sent military police to take control of fuel plants and get trucks back on the road on Wednesday, the first day of a truckers’ pay strike that could cause widespread shortages in Latin America’s third-biggest economy…

Labor disputes are common in Argentina due to double-digit inflation, but the Labor Ministry normally intervenes to avoid major disruption to the economy. In this case, the truckers flouted the ministry’s order for compulsory conciliation…

Pablo Moyano’s [head of the truckers’ union] father, Hugo, used to be a close ally of the president’s but their strategic alliance has all but collapsed, increasing the threat of labor unrest as inflation seen at roughly 25 percent fuels wage demands while economic growth slows sharply…

The truckers, who have threatened to stage a series of protests, want a 30-percent pay rise as well as lower taxes.

This is the same problem all welfare states have.  High public spending requires high taxes.  High taxes reduce economic activity.  With less economic activity to tax there is less tax revenue.  So states turn to borrowing (often giving themselves excessive debt that leads to debt crises like currently in Europe).  And printing money which unleashes inflation.  Increasing prices.  Making it harder and harder for the people to make ends meet.  Which is why these truckers are on strike.

They’re asking for a 30% pay raise.  Which sounds outrageous.  But when inflation is at 25% they are only asking for a net 5% raise.  Which isn’t all that unreasonable.  But their pay raise won’t fix the economy.  Higher wages will only increase prices further.  Requiring further demands for higher wages.  Which is the viscous cycle of high inflation.  Wages chase prices.  And higher wages increase prices.

Unless they enact a little austerity things aren’t likely to improve.  Perhaps this is the reason President Kirchner is bringing up the issue of sovereignty of the Falkland Islands.  To distract from her poor economy.  Much like the ruling junta did when they invaded the Falkland Islands in 1982 to distract their people away from an even worse economy.  But there’s another thing in play today.  The possibility of oil in the waters around the Falklands.  Which is something else they could nationalize.  And pour that oil revenue into their government coffers.  Give more stuff to the people.  And be even more popular.  As long as the oil lasts.  If there is oil.  And if there isn’t, nothing changes.  Except things will probably be worse on the Falklands once they start living under that Argentine inflation.

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Canadians living Near the Border Escape their High Taxes by Shopping in the United States

Posted by PITHOCRATES - May 26th, 2012

Week in Review

High prices in Vancouver getting you down?  No problem.  Just hop into the car and head to the U.S. border.  Everyone else is (see Cross-border shopping: price trumps moral suasion in the fight for consumers by Craig McInnes posted 5/22/2012 on The Vancouver Sun).

I always feel a little guilty when I shop in the U.S. I would much rather support local merchants. I get the whole notion that local merchants employ my neighbours and that the money they earn stays in the community and creates more jobs.

But as the report from the Bank of Montreal pointed out last week, the price gap between Canada and the U.S. is too great to be ignored. The report predicts that gap, combined with new rules about how much Canadians can bring back duty free, is going to increase the already powerful pull of cross-border bargain hunting.

We learn early on that a penny saved is worth two pennies earned, thanks to the effect of income and consumption taxes. So mining lower prices is both a thrill and sound financial management.

The gap between sample retail prices in the U.S. and Canada documented in the Bank of Montreal study is compelling. Running shoes were 37-per-cent more on this side of the border. A Canon camera was five-per-cent more, a Gap Kids T-shirt cost $5 more here…

And it’s not just price. The bigger market in the U.S. offers more choice as well…

But is this short-sightedness on my part? Am I undermining my community, my country and ultimately myself in my drive to save money by passing over the merchants in my neighbourhood and town?

No.  It’s not short-sightedness.  It’s you getting the most value out of your money.  For why should you pay higher prices to subsidize uncompetitive businesses?  However, if you want all of those government benefits you pay for with those high income and consumption taxes then, yes, you should pay the higher prices.  Which pay for all of those government benefits.  Including that national health care everyone in America is so envious about.

It makes it tough on a government to put high taxes on gasoline and other goods & services in cities close to the U.S. border.  For those living in the interior of Canada can’t escape this social democracy as easy as those living near the border can.  And this is the greatest threat of any social utopia.  Better stuff across the border.  Because if people can escape the high taxes of their utopia so they can better afford to live it will only put pressure on the government to raise taxes further.  To make up for that lost tax revenue on those purchases across the border.

Of course to have this problem can only mean one thing.  Canadians are taxed too much.  Those consumption taxes really inflate prices in the supply chain.  Adding a tax whenever someone adds value.  It adds up.  And given the opportunity people will avoid it.  A lesson as old as time.  People are smart shoppers.  They spend their money wisely.  And they will go where they will get more value.  And typically that will be where there is more capitalism.  And less socialism.  Even if you live in a country that has just a little socialism.  For in the social democracies of the West there are varying degrees of socialism in these countries.  But one thing is always certain.  This kind of cross-border shopping traffic is always towards the country with less socialism.

This even holds true for health care.  For people who want the best in health care will travel from a country that has more socialism to a country that has less socialism.  Even in Canada.  Where they pay high income and consumption taxes in part to pay for that free national health care.  Of course Obamacare will put a stop to that.  For when Obamacare is just like the Canadian system there will be no reason for Canadians to cross the border.  For the amount of socialism in our health care systems will be the same as in the Canadian system.  And the American system will no longer be better than the Canadian system.

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Increasing oil supplies won’t lower gas prices only reducing U.S. demand can according to Obama and the AP

Posted by PITHOCRATES - March 24th, 2012

Week in Review

On the one hand gas prices aren’t high (see Rising gas prices aren’t as bad as you think).  On the other hand they are.  But there’s nothing the president can do about it so quit your bitching (see FACT CHECK: More US Drilling Didn’t Drop Gas Price [Higher fuel economy won’t lower gas prices according to AP] by JACK GILLUM and SETH BORENSTEIN, Associated Press, posted 3/21/2012 on ABC News).

U.S. oil production is back to the same level it was in March 2003, when gas cost $2.10 per gallon when adjusted for inflation. But that’s not what prices are now.

That’s because oil is a global commodity and U.S. production has only a tiny influence on supply. Factors far beyond the control of a nation or a president dictate the price of gasoline.

Funny.  When the stimulus failed it was the stimulus wasn’t big enough.  But when we only increase oil supplies a little and it doesn’t influence the world price of oil they don’t say the increase in supply wasn’t big enough.

The late 1980s and 1990s show exactly how domestic drilling is not related to gas prices.

Seasonally adjusted U.S. oil production dropped steadily from February 1986 until three years ago. But starting in March 1986, inflation-adjusted gas prices fell below the $2-a-gallon mark and stayed there for most of the rest of the 1980s and 1990s. Production between 1986 and 1999 dropped by nearly one-third. If the drill-now theory were correct, prices should have soared. Instead they went down by nearly a dollar.

Figures don’t lie but liars figure.  Talk about twisting the facts to support your Democrat president.  For what they say the data doesn’t support the data DOES support during the previous decade.  Following the 1973 Oil Crisis.  When OPEC placed an embargo on oil shipments to the U.S. and other Western nations that helped Israel in the Yom Kippur War.  Oil prices soared.  Bringing a lot of non-OPEC producers into the market.  To cash in on those high prices.  And while they were increasing oil production from the mid-Seventies to the mid-Eighties they flooded the market with oil.  Which also coincided with a reduction in demand in the U.S.  Who switched from gas-guzzlers to little cars with ‘sewing machine’ engines.  Tiny four cylinder engines.  This explosion in supply and reduction in demand caused the 1980s oil glut.  Causing oil prices to plummet.  Which kept gas prices low throughout the 1980s oil glut.

So when oil supply goes up gas prices come down.  In the 1980s that increase in oil supply came from outside of the U.S.  But it lowered gas prices nonetheless.  If an increase in U.S. production can match the increase of the non-OPEC producers during the Eighties then gas prices will come down, too.  But NOT increasing oil production will only increase gas prices in the face of increasing oil demand.

Unlike natural gas or electricity, the United States alone does not have the power to change the supply-and-demand equation in the world oil market, said Christopher Knittel, a professor of energy economics at MIT. American oil production is about 11 percent of the world’s output, so even if the U.S. were to increase its oil production by 50 percent — that is more than drilling in the Arctic, increased public-lands and offshore drilling, and the Canadian pipeline would provide — it would at most cut gas prices by 10 percent.

By this logic then there’s no point in trying to improve fuel economy.  Yet we do.  For when it comes to gasoline everything on the demand side of the equation can lower gas prices.  But nothing on the supply side can.  President Obama says we can inflate our tires.  Get a tune up.  Increase CAFE standards (force auto makers to increase the miles per gallon their cars can get).  Move into electric cars and hybrids.  If we do any of these we can bring down the price of gasoline.  But if we flood the market with new domestic oil it won’t do jack squat.  Go figure.

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Monetarism, Laissez-Faire Capitalism, Augusto Pinochet, Chile, Hyperinflation, El Ladrillo, Chicago Boys, Milton Friedman and Miracle of Chile

Posted by PITHOCRATES - March 6th, 2012

History 101

During the 19th Century Mercantilism gave way to Laissez-Faire Capitalism and Free Trade

Portugal and Spain were superpowers around the 16th and 17th centuries.  Great monarchies with mercantilist economic policies.  Which was all about trade.  Maximize exports.  Minimize imports.  Settle colonies to mine/harvest raw material.  To ship back to the mother country.  Where they manufactured goods from the raw materials.  And exported them to other countries.  Selling them for gold and silver.  Which was key.  Maximizing the trade surplus in the balance of trade.  Finished goods going out.  Gold and silver coming in.  For the nation that gathered the most gold and silver won in the zero-sum game of mercantilism.  Where the monarchy works with business.  Picking winners and losers.  And rewarding the winners who help enrich the monarchy.

Of course, these policies force a kingdom’s subjects to pay higher prices.  By keeping out lower-priced imports.  And with special deals favoring some domestic industries so they can sell at monopoly prices.  They nationalized their Industries.  Creating an aristocratic class.  Composed of government officials.  And their partners in the nationalized industries.  Living the good life on the backs of the poor.  Who paid high taxes.  And high prices.  To support those mercantilist policies.  And it was these policies that settled South America.  Taking all of their gold and silver (bullion).  Shipping it back to the mother country.  The surge in bullion in Europe made it less scarce.  And less valuable.  Meaning it took more of it to buy the same things it once did before this surge.  Resulting in higher prices.  And inflation.  Hurting the consumer more.  And leading to the development of the quantity theory of money.  And monetarism.  Which held that the amount of money in circulation had a direct impact on prices.  The more money the higher the prices.

With the rise of Parliament in Britain power shifted from the king to the people.  Via their representatives in Parliament.  Instead of rule by dictate there was rule by consent.  Which made the business of choosing winners and losers more difficult.  Parliament had the power.  But Parliament was more than one person.  It was full of special interests.  Which made it more and more difficult to choose any one special interest over another.  Unable to curry favor for one’s own interest one didn’t support another’s interest.  At least not when that support came at the expense of your interests.  So there was another power shift in addition from the king to parliament.  There was also one from the king to the markets.  So during the 19th century mercantilism gave way to laissez-faire capitalism.  And free trade.  An economic system that let the British Empire dominate the world during the 19th century.  Making it rich.  And powerful.  Thanks to that vigorous economic activity that could build the world’s most powerful navy.  And pay for an army to garrison an empire.  Meanwhile the old school mercantilist empires fell from superpower status.  And became shadows of their former selves.  Soon the Spanish and Portuguese colonies would gain their independence from these dying empires.

Milton Friedman’s Monetarism turned the Chilean Economy Around

The South American nations may have hated their European masters but they liked one thing about them.  Their mercantilist policies.  Which survived into the 20th century.  Where government partnered with business.  In the worst of crony capitalism.  Where special interests that favored the ruling powers received government favors in return.  Usually protected markets.  And favorable legislation.  That allowed them monopoly prices.  Giving them great profits.  Generous union wages and benefits.  And generous health care and pensions.  At least, for those politically connected.  So the government rigged the game for them.  And they made it worth the government’s while to rig the game.  All of this paid for on the backs of the poor.  Who paid high taxes.  As well as high prices.  And suffered abject poverty.  Which made for an unhappy people.  And a large amount of government turnover through revolution as dictatorships and military juntas overthrew other dictatorships and military juntas.

In 1973 it was Augusto Pinochet’s turn in Chile.  Who came to power in a military coup.  At the time the country wasn’t doing so well.  And in full mercantilism.  The economy was in the toilet.  There was abject poverty.  And hyperinflation (peaking at 1000% or so) as the government printed money to pay for its out of control spending.  To try and bribe the angry mob and keep them from overthrowing the latest dictatorship.  Pinochet was the guy to fix that.  Like everybody that came before him.  And after his military junta failed as the previous military juntas failed, he tried something new.  Thanks to something called El Ladrillo.  And economic plan so thick and heavy they called it ‘the brick’.  A plan prepared by the Chicago Boys.  Chilean economists schooled in the Chicago school of economics.  Pinochet even met with Milton Friedman.  Prominent economist of the Chicago school.  And monetarist.  Who came down to give a speech.  (Interestingly, for the American left roundly criticized Friedman for giving a speech in a right-wing dictatorship.  Though he received no such criticism for giving the same speech in a left-wing dictatorship – communist China.  Showing that the political left was okay with human rights violations as long as they were committed in the left-wing dictatorships they so admired). 

Pinochet asked for some economic advice.  Friedman gave it.  And Pinochet followed it.  He ditched the mercantilist policies.  Embraced laissez-faire capitalism.  Privatized the state industries.  Established free trade.  Cut government spending.  And stopped printing money.  Ending the hyperinflation.  Replacing it with a strict monetary policy.  This didn’t please the politically connected as they lost their privilege.  But Friedman’s monetarism turned the Chilean economy around.  Creating a prosperous market economy.  With a growing middle class.  The strong economic growth led to some healthy tax revenue.  Which in later years funded antipoverty programs.  The Miracle of Chile even replaced the military junta with a democratic government.  Chile now has one of the healthiest and freest economies in the world.  An economy better and stronger than their former colonial master.  Spain.  Who maintained enough of their mercantilist policies to pull them into the Eurozone debt crisis.  And probably could learn a thing or two from their one-time colony.  Who is doing very well these days.  Thanks to the Miracle of Chile.  Milton Friedman.  And the Chicago Boys.  Those great Chilean economists given a chance by of all people a military dictator.

Everyone does Better under Free Market Capitalism, not just the Politically Connected

In 2010 a 7.0 earthquake hit Haiti.  A country rife with political corruption.  With little, if any, free market capitalism.  And even less rule of law.  Where most people live in abject poverty.  In ramshackle housing.  This earthquake claimed 230,000 lives.  A heart-wrenching loss of life.  Especially sad because the impoverished masses suffered the most.  As is often the case in countries with poor economic and political institutions. 

Later that same year, an 8.8 earthquake hit Chile.  Thanks to the economic reforms that rebuilt Chile into a healthy and prosperous democracy, Chileans did not live in ramshackle housing.  The higher standard of living created by the Chicago Boys’ economic reforms created better housing.  And safer cities.  Because of this the far stronger earthquake in Chile killed far fewer people than the lesser earthquake in Haiti.  The death toll in Chile was less than 1,000.  Which is impressive considering that was one of the most powerful earthquakes in recorded history.

Economics matter.  Say what you want about free market capitalism.  Malign it all you will.  But you can’t change some facts.  In particular, everyone does better under free market capitalism.  Including the poor.  For if this wasn’t the case Chile would have seen the loss of life Haiti saw.  But they didn’t.  Because there were no impoverished masses living in ramshackle housing in Chile.  Because those economic reforms improved the standard of living for all Chileans.  Not just the politically connected. 

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