Thomas Sowell - "The Myth of Economic Inequality"

Video: Thomas Sowell: "Common Sense in a Senseless World"

Quote of the Week

From Sir John Cowperthwaite

... in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.

More about Sir John:

He arrived in Hong Kong in 1945 and was assigned to the Department of Supplies, Trade and Industry.[2] He was asked to find ways in which the government could boost post-war economic outlook but found the economy was recovering swiftly without any government intervention.[3] He took the lesson to heart and positive non-interventionism became the focus of his economic policy as Financial Secretary.[3] Cowperthwaite built on the economic policies of his predecessors, Arthur Clark and Geoffrey Follows, promoting free trade, low taxation, budget surpluses, limited state intervention in the economy, a distrust of industrial planning, and sound money.[2] It was a policy mix that drew more on Adam Smith and Gladstone than on Keynes and Attlee. However, Cowperthwaite was a pragmatic civil servant rather than a theoretician and he based his policies on his experience, empirical data and what he believed would work in practice.[4] He refused to compile GDP statistics arguing that such data was not useful to managing an economy and would lead to officials meddling in the economy.[5] He was once asked what the key thing that poor countries could do to improve their growth. He replied: “They should abolish the office of national statistics.”[6] According to Catherine R. Schenk, Cowperthwaite's policies helped it to develop from one of the poorest places on earth to one of the wealthiest and most prosperous: "Low taxes, lax employment laws, absence of government debt, and free trade are all pillars of the Hong Kong experience of economic development."[7] The Economic Freedom of the World 2015 Report ranks Hong Kong as both the freest economy in the world, a distinction it has held since this index began ranking countries in 1975, and among the most prosperous.

I don't usually talk politics here, but sometimes . . .

Just spent a week way up in the Virginia mountains, in a place where we get no cell phone coverage, no radio, no television, no cable, no 24 hour talking heads. Just us, about 400 acres and stream, some cows, deer, birds, and when the night sky clears of clouds, amazing star gazing. On a moonless night with no light pollution,  the Milky Way is stunning.

For some reason, while on this short vacation, I decided it was time to re-read Atlas Shrugged. While the book is a hot mess in so

many ways (especially Ms. Rand's ideas on - uh- romance), I found sufficient parallels to current events to keep plugging away even through those things that a novel published in 1957 could not possibly get right about these modern times. But more often than I thought possible, the book nails aspects of these days.

Much of the novel deals with the issues of logistics and what the failure/disruption/mismanagement of logistics systems (in her case centering on railroads) would do to the country as a whole. Many of us who have toiled in logistics appreciate the concerns. Those of us who have experienced the logistical issues wrought by COVID-19 may have a clearer grasp on how tenuous a system it is, and how efficiently it has worked for us in recent years.

I am not alone in both criticizing this book, but noting the current relevance of some of its parts. I commend to your reading this piece from the Wall Street Journal, 'Atlas Shrugged': From Fiction to Fact in 52 Years by Stephan Moore.

Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.
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For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
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The current economic strategy is right out of "Atlas Shrugged" {note: Mr. Moore wrote this during the early days of President Obama's administration} The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

Ah, "windfall profit taxes" are familiar to those of us who toiled in the oil business.

From 1980 to 1988, the WPT may have reduced domestic oil production anywhere from 1.2% to 8.0% (320 to 1,269 million barrels). Dependence on imported oil grew from between 3% and 13%. The tax was repealed in 1988 because (1) it was an administrative burden to the Internal Revenue Service (IRS), (2) it was a compliance burden to the oil industry, (3) due to low oil prices, the tax was generating little or no revenues in 1987 and 1988, and (4) it made the United States more dependent on foreign oil. The depressed state of the U.S. oil industry after 1986 also contributed to the repeal decision.

Get that? The attempt to rake in more taxes actually lowered productivity and decreased revenue. But it sure sounded good politically, and is back today. It's still nonsense.

I would note the efforts of the governors of California and New York and the mayor of New York City to somehow believe that people won't flee from higher taxes and worsening living conditions to sites of lower taxes and better conditions are a case of incredibly "magical thinking" on their parts. NYC's socialist mayor being the most magical thinker of them all for believing that people who leave his crowded overtaxed city for the suburbs will return because NYC is such a magical place. Rational humans make rational choices, and the rational ones are voting with their feet, Mr. Mayor, so you better figure out how to govern without their taxes and without the corporations that will desert your "worker's paradise" for less restrictive and less expensive venues.

"Magical thinking"is also present when the political correctness movement sees "free speech" as akin to a "one way street" - you are free to speak your mind so long as what you say agrees with them, otherwise you are "evil." It's "magic" that if we all say the same thing - whether true or not - then peace and love will break out. Ms. Rand knew better and so do you and I.

"Economic lunacy" will never disappear, especially when our more vocal "socialist" and "Marxist" politicians can proclaim nonsense without widely reported assessments of exactly how "looney" their idiotic ideas are and why they are so destructive of a free society that is driven by a market economy.

Read the book, mull over the real lessons (e.g. most politicians are in it for the power, not the benefit of all mankind. That power includes doing "favors" for their supporters as Ms. Rand sets out in the book. How do you fight the "looters" and "moochers?" By not accepting their terms, by not accepting undeserved guilt designed to force you to grant their power grabs.

Happy Birthday, Thomas Sowell!

As AEI put yesterday, Happy 89th birthday (June 30) to Thomas Sowell, one of the greatest living economists providing some great examples of his clear thinking:

Diversity. “If there is any place in the Guinness Book of World Records for words repeated the most often, over the most years, without one speck of evidence, “diversity” should be a prime candidate. Is diversity our strength? Or anybody’s strength, anywhere in the world? Does Japan’s homogeneous population cause the Japanese to suffer? Have the Balkans been blessed by their heterogeneity — or does the very word “Balkanization” remind us of centuries of strife, bloodshed and unspeakable atrocities, extending into our own times? Has Europe become a safer place after importing vast numbers of people from the Middle East, with cultures hostile to the fundamental values of Western civilization?

“When in Rome do as the Romans do” was once a common saying. Today, after generations in the West have been indoctrinated with the rhetoric of multiculturalism, the borders of Western nations on both sides of the Atlantic have been thrown open to people who think it is their prerogative to come as refugees and tell the Romans what to do — and to assault those who don’t knuckle under to foreign religious standards.

It has not been our diversity, but our ability to overcome the problems inherent in diversity, and to act together as Americans, that has been our strength.” (emphasis added)

More from other sources:

"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong."

“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

“Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed.”

“Socialism is a wonderful idea. It is only as a reality that it has been disastrous. Among people of every race, color, and creed, all around the world, socialism has led to hunger in countries that used to have surplus food to export.... Nevertheless, for many of those who deal primarily in ideas, socialism remains an attractive idea -- in fact, seductive. Its every failure is explained away as due to the inadequacies of particular leaders. ”

And my favorite:

“Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.”

Breaking Chinese Blackmail Chips : "Japan team maps 'semi-infinite' trove of rare earth elements" and the world is better off

Reported by the Japan Times , a very big story for the future of technology - Japan team maps 'semi-infinite' trove of rare earth elements

Japanese researchers have mapped vast reserves of rare earth elements in deep-sea mud, enough to feed global demand on a “semi-infinite basis,” according to a new study.

The deposit, found within Japan’s exclusive economic zone waters, contains more than 16 million tons of the elements needed to build high-tech products ranging from mobile phones to electric vehicles, according to the study, released Tuesday in the journal Scientific Reports.

The team, comprised of several universities, businesses and government institutions,

U.S. Navy photo

surveyed the western Pacific Ocean near Minamitori Island.

In a sample area of the mineral-rich region, the team’s survey estimated 1.2 million tons of “rare earth oxide” is deposited there, said the study, conducted jointly by Waseda University’s Yutaro Takaya and the University of Tokyo’s Yasuhiro Kato, among others.

The finding extrapolates that a 2,500-sq. km region off the southern Japanese island should contain 16 million tons of the valuable elements, and “has the potential to supply these metals on a semi-infinite basis to the world,” the study said.

The area reserves offer “great potential as ore deposits for some of the most critically important elements in modern society,” it said.

This discovery seems to free Japan and other countries from being blackmailed by China, which has, it is alleged, threatened to or actually cut off the export of rare earth elements to countries in order to force them to alter policies or engage in Chinese approved actions. Here's a report from 2010:

Beijing denied reports it had prevented shipments of the rare minerals that many of Japan's top exporters, such as the world's biggest automaker Toyota, rely on to make cutting-edge products ranging from car batteries to computers.

But traders in Tokyo said China had blocked exports to Japan of key minerals by slowing down administrative procedures in ports in Shanghai and Guangzhou to prevent materials being loaded on ships.

"We heard from our officials in China that the shipping of rare earths (to Japan) was suspended on September 21," a spokesman for Japanese trading house Sojitz in Tokyo told AFP.

Japan on Friday said it would release a Chinese fishing boat captain arrested earlier this month after a collision between his trawler and two Japanese coastguard vessels in a disputed area of the East China Sea.

In addition, China has "adjusted" export quotas on occasion - thus increasing the price of these elements, as reported by the Wall Street Journal in China Cuts Export Quota on Rare-Earth Metals (also in 2010):

China cut its quotas on first-half exports of rare-earth metals around 35%, a move likely to feed trade tensions and concerns among global buyers after an even deeper cut late this year.

China supplies around 95% of the world's rare-earth metals, which are used in high-tech batteries, television sets, mobile phones and defense products. Beijing's decision to cut export quotas by 72% for this year's second half sparked criticism that China was taking undue advantage of its position to raise prices.
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China's export quotas are stoking trade tensions less than a month before Chinese President Hu Jintao visits with U.S. President Barack Obama. "We are very concerned about China's export restraints on rare-earth materials," a spokeswoman from the U.S. Trade Representative's office said Tuesday. "We have raised our concerns with China and we are continuing to work closely on the issue."

In trade talks this month, U.S. trade officials were unable to persuade China to ease restrictions on rare-earth metals, according to a USTR report to Congress released last week. The report said the U.S. will continue to press Beijing on the issue and would consider bringing the matter to the World Trade Organization.

Some 2013 analysis from Amy King and Shiro Armstrong here:

China has managed to dominate the global rare earth metal market because it can produce rare earths at low cost due to distorted factor markets that suppress prices. In the case of rare earths, cheap land, energy and labour (unregulated against workplace dangers) minimise costs, and severe environmental damage are not factored into the cost of production. Chinese policy-makers have been risking WTO action by gradually reducing the production of rare earth metals instead of addressing the underlying failures in labour and environmental standards. In August 2010, at a meeting with Japanese business leaders at a Japan-China economic forum, Chinese Minister of Commerce Chen Deming cited Chinese concerns about environmental protection and national security as the reason for this decision.

China now has to demonstrate to the WTO that the restrictions on production and exports were in fact directed at cleaning up the industry and addressing its serious environmental impact, not some misguided attempt to restrict global supply.

Given what we know of China's level of concern over enviornmental matters, I would think such proof might prove hard to come by. Further, it is difficult to say it is a "misguided attempt to restrict glogal supply" when such a level of control comports very well with the types of power levers China's leadership loves to pull and their general "bully boy" approach to things. Reminds on of OPEC in the days before the U.S. fracking business broke their oil supply scam.

Thus the Japanese discovery seems to break the risk of that blackmail and breaks that lever. Nice!

Labor Day Films: "How to Keep a Job" (1949), PA AFL's "A Brief History of Unions" and A Debate About Labor Unions

The U.S. Department of Labor offers up a "History of Labor Day":

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

Labor leaders have had U.S. Navy ships named after them, USS Samuel Gompers and USNS Cesar Chavez.

Have a nice Labor Day Weekend, whether you are a worker or management or even a business owner.

By the way the AFL CIO has a large amount of money invested in stocks of corporations, making it a "business owner" of sorts. See here:

Sponsored by the AFL-CIO, the AFL-CIO Equity Index Fund is a collective investment fund available to qualified pension plans.

The objective of the fund is to track the returns of the broad U.S. large cap equity market, as represented by the S&P 500 Index. Stocks in the Fund’s portfolio are not actively traded, resulting in low fees and expenses.

America!