Law of Comparative Advantage

The Law of Comparative Advantage

Long name that basically says that even if you have the ability to do something, it's to your advantage to let someone else do it if you can be more efficient at something else.

http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/ABS_Comp_Adv.htm

This is nothing new, but it helped me understand why, in a truly free economy, you wouldn't have megalithic corporations that do end-to-end vertical production as well as having a huge breadth of products. In our current setup, government tax schemes have created an environment where it is to the advantage of the corporation to provide everything "in-house". This means that because of taxes that Dell would pay to buy network cards from some manufacturer, it would be cheaper for Dell to manufacture their own network cards for themselves. Soon it becomes nearly impossible for an upstart to get into the market because in order to be able to compete at Dell's prices, you have to start with a massive manufacturing infrastructure to avoid the same tax penalties. 

Even in situations where one person/group is better at everything they do than anyone else, it's still going to be to their benefit to cooperate:

http://mises.org/story/3015

You want increased competition and smaller megalithic corporations? Lower the barriers of entry into the market (i.e. regulations, taxes, permits, etc) and don't incentivize monolithic practices while claiming to despise them. Through a combination of comparative advantage and increased competition, you'll see that companies find it beneficial and more profitable to do one thing, and do it very well. In the end, it's the customers, we consumers that benefit.

Booms and Busts

Excellent economic video contrasting two key economists of the 20th century. While one is the prominent basis of all economic theory and taught in economic classes, the other is hardly known.

http://www.youtube.com/watch?v=d0nERTFo-Sk

This describes the crisis we're in. The housing bubble and Wall Street are all blamed, but Hayek describes how the Fed has played the key role in creating the boom and bust cycles.  We need to learn from history.

Why don't we go nuclear?

I read an article titled There is No Perfect Fuel published on Acton blog.  However, while the article itself is good, it was a comment that I found that really impressed me with how powerful it was. Now, I haven't double checked all his numbers, but I do know from my own reading that the concepts he's talking about are accurate. This really makes one wonder why we aren't really pushing nuclear more beyond just promises and rhetoric.

Yes, there is a perfect fuel: uranium and thorium. I have worked in nuclear energy for more than 30 years. I have been on a submarine that could traverse the ocean depths, surfacing only for food and toilet paper, all thanks to a 158 MWth nuclear reactor. I have worked in 1000 MWe nuclear power plants that emit zero CO2 and zero particulates, and whose spent fuel of some 30 years of operation fits inside five or six dry storage casks, completely sequestered from the environment and ready for reprocessing to be used in the next generation fast neutron burner.

With nuclear energy we can make our own liquid fuels or produce hydrogen to replace imported oil. With nuclear energy we can obviate the need for coal fired power plants whose emissions kill 30000 annually from lung disease in the US alone. With fast neutron burners we can consume all the long lived actinides in spent nuclear fuel, making Yucca Mountain or any other long term geologic repository a moot point. By using fast breeder reactors, we have enough uranium and thorium in Earth's crust to fuel nine billion people with a level of energy consumption equal to that of the average American for one million years.

Consider this: The energy in one uranium fuel pellet—the size of the tip of your little finger—is the equivalent of 17,000 cubic feet of natural gas, 1,780 pounds of coal, or 149 gallons of oil. If you used only uranium or thorium for energy and added up all the energy you use in a lifetime, it would be the size of a 12 ounce can of soda. But if you did the same with coal or oil or gas, it would hundreds of tons of refuse dumped willy-nilly into the air and water and ground.

BTW, did you know that coal fired power plants that supply 50% of US electricity emit more radioactivity in the form of uranium, thorium and radium occurring naturally in coal than any nuke plant releases? Indeed, Con Ed in the 1960s wanted to build a coal fired power plant next to its Indian Point nuclear facility but couldn't because the radioactive emissions of the coal plant would swamp the radiation detectors in the nuke plant. I know - I worked at Indian Point for 18 years and I was the radiation monitoring system engineer for unit 3, and the two 1000 MW pressurized water reactors (units 2 and 3, 1 is decommissioned) produce almost as much electricity as the US portion of Niagara Falls!

Take a look at emission numbers below:

Coal Plant Emmissions: Pounds of Refuse per 1 MWe of Generation
 Carbon Dioxide 2249
 Sulfur Dioxide 13
 Nitrogen Oxides 6

Oil Plant Emmissions: Pounds of Refuse per 1 MWe of Generation
 Carbon Dioxide 1672
 Sulfur Dioxide 12
 Nitrogen Oxides 4

Natural Gas Plant Emmissions: Pounds of Refuse per 1 MWe of Generation
 Carbon Dioxide 1135
 Sulfur Dioxide 0.1
 Nitrogen Oxides 1.7

Nuclear Plant Emmissions: Pounds of Refuse per 1 MWe of Generation
 Carbon Dioxide 0
 Sulfur Dioxide 0
 Nitrogen Oxides 0

So what's safer for the lungs?

BTW, solar and wind are a joke: no wind - no electricity. No sunlight - no electricity. If wind were so darn great, then why are not commercial ships still propelled by sails? Capacity factor of wind and solar never exceeds 30%, but the current capacity factor for an American nuke is more than 92% and its environmental footprint is miniscule compared to the dozens of square miles of landscape that have to be torn up for wind or solar.

Yes, there is the perfect fuel - two of them in fact: Thorium from which we can breed U-233, and uranium from which we get get U-235 or with which we can breed Pu-239.

I have worked 30+ years in the nuclear industry. It's the safest and best industry in the world, and that is exactly why it is opposed by all the right (er, I mean left) thinking people.

More nukes, less kooks is what I say. I shall have more to say about safety, Chernobyl, TMI, etc., in later posts. Suffice it to point out that not ONE member of the public has been injured or killed as the result of the operation of ANY Western light water reactor. A Chernobyl event cannot happen at a US plant because Chernobyl was an RBMK - a plutonium weapons breeder. It was graphite moderated and light water cooled. It had a positive tmeperature and void co-efficient of reactivity. No US reactor is like that. The laws of physics prevent a Chernobyl event at any light water cooled, light water moderated reactor. As for TMI - when the worst happens to a US reactor, the radioactivity is contained in containment and the public unaffected. Just look at the gas fired power plant explosion in Conneticut earlier this week. Can't happen at a nuke. Not possible.

...

By the way, I want to make something perfectly clear here. Obamolech is NOT pro-nuke. Yes, he proposed 57 billion in loan promises to the US nuke industry, but he appointed anti-nuke Jackzo as head of the US NRC.

Remember back in Bush's days John Roberts was selected for SCOTUS? Harry Reid had a fit about that and said no. But Harry Reid (who opposes the Yucca Mtn repository and is anti-nuke) had as his science advisor Gregory Jackzo. he proposed to Bush that he'd let John Roberts go to SCOTUS is Jackzo became a commissioner in the NRC. Bush agreed, but NEI (Nuclear Energy Institute) wanted balance in the NRC, so they contacted Pete Domenici (a pro-nuke senator) whose science advisor was Peter Lyons, a pro-nuke himself. Domenici offered Lyons as the balance to Jackzo. Then the Obamination of Desolation got elected. The terms of Jackzo and Lyons both ended early in Obamolech's presidency. Obamolech renewed Jackzo's term but dismissed Lyons, leaving an open vacancy. Additionally, Obamolech demoted pro-nuke Dale Klien as NRC Chairman and appointed anti-nuke Jackzo.

Guys, this ain't rocket science. The Obamination of Desolation opposes nuke power no matter what he says. Why? I can only assume that coal and oil suppliers have him in their back pocket. What's the biggest threat to coal and oil and gas suppliers? Nukes!

Oh, here's a bit of trivia: pick up an ordinary piece of bitumous coal. There's more energy in the uranium and thorium of the piece of coal then there is in burning the coal. Think about that. Think about how we could cut down on our consumption of coal if we used that as a resource for uranium and thorium instead of burning it by the megaton. And did you know that a nuke operates for 2 years before refueling, and only 1/3 of the core gets refueled at any time? Coal and oil and gas suppliers hate nukes.

Article Response #6

Article:
http://www.idsnews.com/news/story.aspx?id=73117

Response:

I think the thing that gets me is the lack of desire to understand the CAUSE of whatever income gap might exist. There appears to be an assumption that this is the natural order of things in an open, free market and since there is a lack of rules about such things, it continues to propagate. Thus, the conclusion reached from such an assumption is that rules are needed. And this is exactly where Ashley goes, ignoring the cause and jumping straight to 'there ought to be a law', "The point of the story is not to get hung up on the past, rather, it's to look forward to the types of legislation that could prevent another economic collapse..."

Consider the possibility that another regulatory law won't fix the problem and that perhaps the cause of the income gap is primarily corporatism. That some, with connections, are able to gain by influencing laws, rules, regulations, and mandates toward their benefit. Those of us with a philosophy of smaller, limited government view this as a tragic abuse of government to reach beyond its defined limit.  We believe that more often than not, the expansion of government into regulation of areas of personal and economic liberty lead to MORE problems, not less.

So again, consider that possibly, just maybe, the best, the best way to fix the inequity is to eliminate government favors for some at the expense of others. Eliminate subsidies, eliminate bailouts, eliminate tax breaks, credits, incentives, loopholes, and exemptions, eliminate excessive regulations required to enter the market, allow businesses that are poorly managed or that come under difficult times, or that are faced with a changing environment to deal with those problems on their own merits, and yes, allow them to fail if need be. It's better to let the phoenix to die and be reborn than to toss first twigs, then branches, then logs and entire trees to attempt to rekindle the flame. Eventually you'll find that while you've kept it from extinguishing, it's cost you the forest.

The core problem of this type of life support is that the two people that are benefiting are the poor being sustained by the hand of others, or the wealthy being given advantages. So who are being hurt the most by this setup? Those in the middle. Those who work day to day, spend time with their families and simply look to make each day slightly better than the last. Too well off to get handouts, still expected to pay taxes, but not wealthy enough to have excess. No wonder we have such an income gap.

Article Response #5

Article:
http://www.idsnews.com/news/story.aspx?id=72835

Response:

I'm no fan of Bush. I'm basically a libertarian. I have MANY issues with his policies, but at the same time, this article uses cherry picked items to indict Bush while skipping things that . By picking a 2000 DJIA point and then comparing it to now is extremely misleading and omits the fact that the 14K+ record was set during Bush's time. Same with the median income. 1998 was during the height of the boom economy. It's again misleading to compare incomes then with incomes during a recession while leaving out that there were higher incomes in 2006 & 2007. There are many things to complain about with regard to Bush, we need not cherry pick things to do so.

There are a several comments on that article. A couple of those sparked my response. I'm reposting them here for less confusing chronology and better readability using names submitted to the public forum.

By POR Economy:

The Pelosi-Obama-Reid (POR) economy kicked in during the latter part of June 2007, when its Congressional architects — Nancy Pelosi, Barack Obama, and Harry Reid — decided that starving the economy of energy by refusing to allow more offshore drilling in the face of $4 gas prices was a winning political position. Pelosi claimed that because we couldn't totally "drill our way out of this," we shouldn't increase drilling at all. Reid put an exclamation point on Pelosi's stubbornness by insisting that fossil fuels are "making us sick." Well, they only thing sickened by their policies was the US Economy. FDR tried massive public works programs during the Depression. All he did is prolong it for seven years. Japan tried government stimulus for 10 years running in the 1990s. It only resulted in "the lost decade." What Pelosi, Obama, and Reid should do is expand the tax cut element of the stimulus plan to include all incomes, ditch almost all of the alleged "investments," open up oil and gas exploration, and, eventually, watch the royalty money pour in. I know; that's way too much to "hope" for. 

Response to POR Economy:

I personally believe that while the internal energy embargo definitely put a cap on the economy's ability to grow, it was the increase in the minimum wage that lit the fuse of our current issues. In an economy beginning to struggle for real growth, already in a bubble, shifting the entire wage scale (which is what we should really call a minimum wage increase), was the tipping point that halted any growth and began to exacerbate the tearing where it was already stretched thin.

By Jared:

Ashley: Great editorial, but I think its time we stop talking about how bad Bush was as President. But essentially, the 00's basically proved that neoconservative and inherently conservative policies do not work. When you essentially tell regulatory agencies to stop regulating, financial giants are free to break the law and prey upon their customers. When you spend more than all past presidents combined while enacting exceedingly high tax cuts, you drive up the deficit to dangerous levels. When you go to war against one country based on an ideology while the real war is denied resources, terrorism spreads. I honestly think that the world is experiencing a global transition where the focus of power lies between China and the US, rather than just the US. The road may be tough, and lower class Americans may be left behind as China's middle class grows. Bob--you are an exception to the rule. Thrift is not a trendy word these days. Between the cars people own, the clothes they wear, to the college they go to, its more of a competition than what is practical. Being financially secure should be the equivalent of having that big-screen plasma HD TV, however it is not. 

My Response:

What free market ideas were actually tried that didn't work? When did we have limited government? Bush cut taxes in 2001 and the recession bottomed out (even with 9/11). Outside of that and working to increase trade with foreign countries (though even this was more protectionism than it was free trade), I'm hard pressed to really think of anything significant that Bush did that was free market, limited government oriented. No Child Left Behind - Nope, bigger govt spending and regulation. Prescription Drug Benefit - Nope, bigger govt spending and regulation. The Bailouts - Nope, bigger govt spending and regulation. Sarbanes-Oxley - Nope, massive increase in regulation. Even things like his proposed social security reform was nothing more than moving from tax&spend to a forced savings account (he even suggested lifting the FICA tax cap to pay for it). Please show me where government spending was reduced (even minus the wars), government programs were cut (and a "cut" of an 8% increase to a 3% increase doesn't count), or the pages of government regulations were reduced. The whole "compassionate conservatism" was, I feel, a ploy to get conservatives to THINK he was for free markets and limited government while it was basically just slightly slower government growth than what liberal Democrats would have done. The 00's didn't prove free market, limited government policies to not work. We didn't HAVE a free market and limited government. However, if you don't believe that the 00's show that expansive spending and strict control by government do not create prosperity, if we continue along the path we're traveling, the 10's may prove it beyond a reasonable doubt.

Jared:

I wonder how many of you have actually gone to IU in some academic capacity, especially POR? Copying Fox News articles does not mean you know what you are talking about. In fact, it means the opposite. If you can show me objective, peer-reviewed analytical proof that FDR's policies protracted the Great Depression I might actually read the rest of your BS. Ever hear of a Hooverville? For now, put down the glue and put your nose in a book.

My response:

I don't like worshiping at the alter of "peer-reviewed" primarily because I'm aware of the flaws in the peer-review process. However, if you are going to be condescending and refuse to open your mind unless you get what you want, I will try to satisfy you. If you don't like the hundreds of historical descriptions of the cause and effect relationship of FDR's policies and the lengthening of the Great Depression (also read what Milton Friedman says about it), here's a paper that analyzes exactly what you apparently consider to be hallucination induced fantasies: http://www.journals.uchicago.edu/doi/pdf/10.1086/421169 As for a Hooverville, I hope you're not suggesting that Hoover was the sole cause of the Depression. He certainly shares in part of the blame due to his massive spending attempts to "stimulate" the economy (sound familiar?). In fact, Hoover spent so much in an effort to right the ship that FDR actually ran his campaign against him on a platform of fiscal responsibility, though obviously his actions did not match his promises.

Jared:

Your comment that you don't "worship the alter of 'peer-reviewed'" says all I or anyone else needs to know in how you gather and analyze the information you use to form your opinions. Granted, some articles may have poor analytical methodologies, but when you form opinions about complex topics, I suggest you have facts to back them up while also taking into account the inadequacies in your own arguments. I've learned at least in introductory US History classes that Hoover thought that the severe downturn in the economic was simply part of a larger "economic cycle." As a result, he earned the nickname "Do Nothing Hoover." He thought that the market would simply correct itself over time. Although he did rack up the largest peace-time federal deficit in history at the time, it was not enough.

My Response:

You're exactly wrong on two accounts. Firstly, the reason I don't worship at the alter of peer-reviewed is NOT because I think they're all wrong or have "poor analytical methodologies". But many times, errors in peer-reviewed papers DO slip through, despite reviewers. Beyond that, peer-reviewed papers can be completely wrong and still get published simply because of things like the reviewers agreeing with the premise of the paper or the technology or understanding of the time doesn't provide for good criticism. You have to admit, the peer-review process itself has problems: http://tinyurl.com/y9e64s8 or http://tinyurl.com/n5dbdz But my point was that I don't think 'peer-reviewed'='absolutely true' any more than 'found on the internet'='absolutely false' and that it is close-minded for you to demand peer-reviewed material to even consider that you may be misinformed. And regarding how I gather the information on which I base my opinions, I find your assumptions based on "poor analytical methodologies." Secondly, maybe you need to do some reading beyond what you learned in your Intro US History before you get condescending with people. The name "Do-Nothing Hoover" was started by opponents of Hoover! But looking at the facts, nothing could be further from the truth http://tinyurl.com/dbdbq5 He spent large amounts of money and used the government as the mechanism to try to bolster the economy: http://tinyurl.com/ye38el9 or http://tinyurl.com/lr2g56 And in the end, Hoover himself indicated that he had ignored those who recommended "do-nothing" and that it was he who initiated the interventionism: http://tinyurl.com/ydhbp3x Actually, I'm curious how you explain the contradiction in your own last sentence. If his plan was "do nothing", how and why did he rack up such massive deficits?

The Core Problem with Collectivism

"Concentration of money and authority in any single entity NECESSARILY attracts those who would abuse that power for their own selfish interest."

- Ryan Roland

I say this to those who believe that centralized planning can work; that government control is not only necessary in some instances, but better and preferred in many; that the free market and decentralization just doesn't work. Beyond the fact that such management is necessarily a direct and intolerable restriction on freedom, here's my core problem with the theory.

Let us assume that Barack Obama (or someone) were to create a more centrally planned America. And even more surprisingly, let us assume that it works. That somehow, everything is balanced, everything runs, everything is regulated, everything is allocated, those that can, produce, and those that need, receive. And in this instance, despite all the real world evidence and all the logic and common sense, the collectivists' dreams are realized. Let us say that it came about through genuine compassion and thoughtful prudence and planning. These planners were genuine in their desire to better mankind and designed a system that provides for all. For a decade after their ideas were initially put into action, they gave their system careful tending, feeding and nurturing and it all went smoothly.

Now what?

Well it is my belief that things would eventually turn sour (and relatively quickly). The reason for this is that even if the creators of such a Utopian dream had the very best and genuine of intentions, eventually those who created and nurtured the system would be replaced.  They might die or retire or simply be replaced by someone else. This is where things get hairy.

The economy is a complicated system. Therefore, the system put in place to organize, plan and coordinate it would not only be large, but would necessarily be even more complicated and intricate. By creating such an almighty redistributive machine, they have created massive channels of money and it requires oversight and regulatory agencies with phenomenal powers of authority. This type of power is like honey to flies for those that seek power. And unfortunately, many of those that seek power, wish to use that power to "help" themselves and those around them. And I don't even need to go into detail to describe (since we see it happen all the time) the means by which a corrupt person placed in a position of power, can cause problems.  And as we see with most politicians, even if things start to go wrong because of their interference, they would only blame someone else.

Even innocent incompetence can wreak havoc. Central planning leads to "central" points of failure. A mis-allocation of money, an error in quota requirements, a mistake in regulatory restrictions can cause a chain reaction that negatively affects the huge swaths of the economy.

In the end, no matter how well you plan an economy, it will fail with central management because of the attraction that power would have on those who would abuse it. To me, argue all you want about central economic planning, about incentives, subsidies and credits or penalties, fees and taxes. It just doesn't make sense to restrict freedom to that degree and to create that type of temptation in order to create an economy that requires perfect planning to avoid potentially massive negative outcomes.


PS: For those that think that some combination of capitalism and socialism is the way to go, same argument applies. There will always be the debate of what should be free and what should be planned.  And in that situation, you're creating the temptation for people to come in and advocate for more and more to be controlled. Something fails in the free market: requires government oversight. Something fails in the controlled economy: requires MORE government oversight. I believe that is how we have found ourselves with the chimera of an economy we currently have.