Category Archives: economics

The Robber Barons: Neither Robbers nor Barons

By David R. Henderson:

One of the most prevalent myths about economic freedom is that it inevitably leads to monopolies. Ask people why they believe that, and the odds are high that they will point to the “trusts” of the late 19th century that gained large market shares in their particular industries. These trusts are Exhibit A for most people who hold this view. Ask them for specific names of the villains who ran these trusts, and they are likely to point to such people as Cornelius Vanderbilt and John D. Rockefeller. They even have a label for Vanderbilt, Rockefeller, and others: robber barons.

But a careful reading of the economic research on the “robber barons” leads to a diametrically opposite conclusion: the so-called robber barons were neither robbers nor barons. They didn’t rob. Instead, they got their money the old-fashioned way: they earned it. Nor were they barons. The word “baron” is a title of nobility, one typically granted by a king or established by force. But Vanderbilt, Rockefeller, and many of the others referred to as robber barons started their businesses from scratch and were granted no special privileges. Moreover, not only did they earn their money and not only were they not granted privileges, but they also helped consumers and, in one famous case, destroyed a monopoly.

The rest is here.

What if President Obama were serious about jobs?

I’m sorry, but how credulous do people have to be to still believe the President when he says this:

Speaking at the House Democratic Issues Conference in Leesburg, Va., the president repeated a theme from his 2012 re-election campaign, that “our economy succeeds and our economy grows when everybody is getting a fair shot and everybody is getting a fair shake and everybody is playing by the same rules.”

“Because I believe that is a growth agenda — not just an equity agenda, not just a fairness agenda — that is a growth agenda,” he said.

“And that means that what you’ll hear from me next week, I’m going to be talking about making sure that we’re focused on job creation here in the United States of America,” Obama said.

There is no evidence he believes in a growth agenda, unless of course you are talking about growing the size of government.

DRM gives Amazon more power…

Charlie Stross thinks is it foolish for the Big Six book publishers to insist on digital rights management on ebooks because it just gives Amazon more power:

Anyway, my point is that the Big Six’s pig-headed insistence on DRM on ebooks is handing Amazon a stick with which to beat them harder.

DRM on ebooks gives Amazon a great tool for locking ebook customers into the Kindle platform. If you buy a book that you can only read on the Kindle, you’re naturally going to be reluctant to move to other ebook platforms that can’t read those locked Kindle ebooks — and even more reluctant to buy ebooks from rival stores that use incompatible DRM. Amazon acquired an early lead in the ebook field (by selling below cost in the early days, and subsidizing the Kindle hardware price to consumers), and customers are locked into the platform by their existing purchases. Which is pretty much how they gained their 80% market share.

An 80% share of a tiny market slice worth maybe 1% of the publishing sector was of no concern to the big six, back in 2008. But today, with it rising towards 40%, it’s another matter entirely.

As ebook sales mushroom, the Big Six’s insistence on DRM has proven to be a hideous mistake. Rather than reducing piracy[*], it has locked customers in Amazon’s walled garden, which in turn increases Amazon’s leverage over publishers. And unlike pirated copies (which don’t automatically represent lost sales) Amazon is a direct revenue threat because Amazon are have no qualms about squeezing their suppliers — or trying to poach authors for their “direct” publishing channel by offering initially favourable terms. (Which will doubtless get a lot less favourable once the monopoly is secured …)

If the big six began selling ebooks without DRM, readers would at least be able to buy from other retailers and read their ebooks on whatever platform they wanted, thus eroding Amazon’s monopoly position. But it’s not clear that the folks in the boardrooms are agile enough to recognize the tar pit they’ve fallen into …

[*] It doesn’t reduce piracy; if you poke around bittorrent you’ll find plenty of DRM-cracked ebooks — including all of my titles. DRM is snake oil; ultimately the reader has to be able to read whatever they bought, which means shipping a decryption key along with the encrypted file. And once they’ve got the key, someone will figure out how to use it to unlock the book.

Richard Epstein is not very happy with Obama’s American Jobs Act

Richard Epstein isn’t exactly a fan of the American Jobs Act:

What is so striking about Obama’s shopworn rhetoric is its juvenile intellectual quality. His explanation for how the AJA will create jobs is a non-starter because he does not explain how we get from here to there. As in so many other cases, the president thinks that waving a wand over a problem will make his most ardent wishes come true, even when similar earlier efforts have proved to be dismal failures. This dreadful hodgepodge of a bill will likely be dead-on-arrival in Congress, but it remains a patriotic duty to explicate some of its worst provisions.

The most evident feature of the AJA is that it is a combination of ill-conceived, disparate measures. The wandering quality of the bill makes it impossible to cover all of its silliness, but it is possible to focus on some of the core job provisions, all of which kill the very jobs that the AJA is supposed to create.

One does not have to dip very far into the bill to find trouble. Section 4 of the AJA imposes "Buy American" restrictions on the use of funds appropriated under this statute for work on public buildings. "[A]ll the iron, steel and manufactured goods" used on such projects are to be fabricated in the United States. There are obvious administrative difficulties in deciding what counts as a "manufactured good" for the purposes of the act. But don’t sweat the small stuff. The fatal problem with this form of jingoism is that, in the name of economic efficiency, it forces American taxpayers to pay more for less. That upside down logic may seem sensible to a die-hard Keynesian, but not to ordinary people who realize that deliberate overpayment for inferior goods makes no more sense in the public sector than in the private one.

No, WWII didn’t get the U.S. out of the Great Depression

Arthur Herman argues that the United States was well on its way to recovering from the Great Depress before the U.S. entry into World War II.  Herman writes:

when you take the government share out of the GNP growth numbers, a very different picture emerges. Economist Robert Higgs has shown that nongovernment GNP growth, which was moving ahead in 1940, actually slowed down in 1942 and then slowed still further in 1943. Far from getting stimulated by the frenzy of government spending, the nongovernment share of GNP recovered its earlier pace of growth only once the war was over.

In short, the war may have killed off a recovery already under way. All evidence suggests that the crucial turnaround from the Great Depression came before U.S. entry into the war: GNP jumped from $90.5 billion in 1939 to $124.5 billion just before Pearl Harbor, when government spending was still at relatively low levels. Then with mobilization, private consumption and investment slowed and headed south—while government deficit spending headed sharply north, rising from $6 billion in 1940 to $89 billion in 1944.

One program for recovery worked, and the other hasn’t…

Steve Moore compares Obamanonics vs. Reaganomics:

If you really want to light the fuse of a liberal Democrat, compare Barack Obama’s economic performance after 30 months in office with that of Ronald Reagan. It’s not at all flattering for Mr. Obama.

The two presidents have a lot in common. Both inherited an American economy in collapse. And both applied daring, expensive remedies. Mr. Reagan passed the biggest tax cut ever, combined with an agenda of deregulation, monetary restraint and spending controls. Mr. Obama, of course, has given us a $1 trillion spending stimulus.

By the end of the summer of Reagan’s third year in office, the economy was soaring. The GDP growth rate was 5% and racing toward 7%, even 8% growth. In 1983 and ’84 output was growing so fast the biggest worry was that the economy would “overheat.” In the summer of 2011 we have an economy limping along at barely 1% growth and by some indications headed toward a “double-dip” recession. By the end of Reagan’s first term, it was Morning in America. Today there is gloomy talk of America in its twilight.

My purpose here is not more Reagan idolatry, but to point out an incontrovertible truth: One program for recovery worked, and the other hasn’t.

The Reagan philosophy was to incentivize production—i.e., the “supply side” of the economy—by lowering restraints on business expansion and investment. This was done by slashing marginal income tax rates, eliminating regulatory high hurdles, and reining in inflation with a tighter monetary policy.The Keynesians in the early 1980s assured us that the Reagan expansion would not and could not happen. Rapid growth with new jobs and falling rates of inflation (to 4% in 1983 from 13% in 1980) is an impossibility in Keynesian textbooks. If you increase demand, prices go up. If you increase supply—as Reagan did—prices go down.