The High Cost Of Cheap Labor

From time to time, the claim is made that we need to import indentured servants from Asia, because the STEM fields are short of labor. This is a variation of the old line about crops rotting in the fields for the lack of stoop labor. The fact that no human living in America has ever experienced a food shortage due to crops rotting in the fields underscores the fact that these claims are nonsense. Indentured servants from Asia are cheap and more important, the threat of them depresses wages for American workers in the STEM jobs.

That’s the cost of cheap labor that is easy to see. There are other costs that are not so obvious. In the case of the tech fields, indentured servants from Asia have had the perverse effect of discouraging young Americans from going into these fields. When tech firms started filling entry level jobs with foreign labor, they made the field unattractive to young people, who correctly saw that jobs were scarce and the ones available paid low wages. Young Americans were advised to not go into technology, as a result.

Put another way, cheap foreign labor drove out domestic labor from these entry level jobs, thus institutionalizing the use of indentured servants in the low level tech jobs. Slavery had the same effect where it was practiced. In the case of tech, there is a social element involved. You go to college in order to get  a good job. That’s a social definition that goes beyond earnings. If your field requires you to work with smelly South Asians for five years until you can be the supervisor of smelly South Asians, that’s viewed as a low-status field.

There’s been another consequence to the use of indentured servants. People think of tech as coding shops in Silicon Valley, but the vast majority of American business relies on small local firms that bring a combination of technical and business skills to the their role as technology consultants. The usual pattern is someone works as a programmer for a developer and then goes out on his own as a consultant, supporting clients that use the software that he worked on as a developer. He becomes their part-time CTO.

The result of flooding the entry level jobs with middle-aged Asians on H1-B visas has been a shortage of people in these higher end consulting and development jobs. In many parts of the country, the shortage of people with a mix of business and technology skills that can be used to solve real world problems is acute. You can find plenty of pajeets, who can write code but are useless at solving problems. Locating someone with business and programming skills that can solve real problems is becoming close to impossible.

At the other end of the labor market, the hidden cost of cheap labor has created another problem. The landscaper hiring Mam-speaking tribesman from Guatemala is no longer hiring teenagers on summer break. Retail operators in vacation areas game the system and import Eastern Europeans for service jobs. The availability of cheap foreign labor has made the summer job a thing of the past. It used to be a part of growing up in America, but now it is a rarity. Instead, seasonal work is done by foreigners.

In general, the part-time job and summer job was when a young person started to learn how to be an adult. They had to show up on time and learn how to get along with strangers. They had to learn how to put up with a crappy boss and perform tasks that seemed stupid and pointless, in order to get paid. They also learned the value of money and its connection to labor. That first check, with the taxes taken out of it, was the great eye opener for every young American. Today, they don’t experience that until adulthood.

There’s another aspect to this. The summer job for boys was often manual labor, like operating a rake or lawnmower for that landscaper. Maybe it was as a laborer on a job site for a roofer or painter. It was there that a young man got his first taste of being a man, because he was around adult males in their natural habitat. A young man learned that men are not as forgiving as mom and that you had to be earn their respect. Young males today don’t experience this. Instead they live like girls through college and come out soft.

This is probably why millennials have such a terrible reputation among employers. The girls are spoiled brats, making crazy demands, while the boys are hysterical sissies. One of the things employers will tell you on the side is that they are very careful about hiring millennials. They would prefer to overpay for a semi-retired boomer than hire a petulant man-child from the millennial generation. When a millennial takes over a family business from a retiring parent, it is a good bet the company will go through a rough transition.

Public policy is about trade-offs. The cost of cheap labor is not limited to the direct cost to labor markets. There are hidden, long term social costs. The generations of young people warped by the consequences of not working will show up in the culture long after pajeet is back in Bombay wrangling cobras. What foreign labor does is it monetizes future social capital and pulls it forward. It is a form of debt creation, not a lot different than eating the seed corn. Future social harmony is consumed today, with no way to replace it.

Techno-Socialism

Something I noticed, when I started posting podcasts to YouTube, is that copyright strikes come up automatically. Put in just a few seconds of any song, no matter how obscure, and YouTube will say the copyright owner made a claim. This is nonsense, of course, as no one could be policing this stuff and filing claims. The software scans the uploads for patterns matching something in their database. If the pattern is close enough to anything, then YouTube issues a copyright strike and puts the onus on you to dispute it.

I tested this by using some music I found on an old CD. It was from a cover band a million years ago. I took some clips and uploaded them with some talking by me. Sure enough, the clip got flagged for a copyright claim. The ridiculous part was the alleged claimant was another cover band. I tried a few more clips and no hits, but then a few more were flagged, with different claimants. The last batch of hits were completely wrong. It appears close enough is enough for them to make you go through the hassle of disputing it.

The game that YouTube is playing is both defensive and underhanded. By defaulting some copyright claim on everything, even vaguely similar to what they have in their database, they avoid being sued by legitimate copyright holders. That makes sense, given the nature of copyright laws. Of course, they’re also using this as an excuse to avoid paying creators for their work. YouTube loses money, so anything they can do to avoid paying creators drops right to their bottom line. They know most people will not dispute the claims.

That came to mind when I saw this on Drudge the other day.

Ed Sheeran is on the receiving end of a monster $100 million lawsuit by a company claiming the singer ripped off a Marvin Gaye classic.

A company called Structured Asset Sales filed the lawsuit, claiming Ed’s song, “Thinking Out Loud,” is a carbon copy of Gaye’s “Let’s Get it On.”

According to the lawsuit, Sheeran’s song has the same melody, rhythms, harmonies, drums, bassline, backing chorus, tempo, syncopation and looping as “Let’s Get it On.”

Gaye’s song was written by a guy named Edward Townsend and Gaye in 1973. Townsend died in 2003, and Structured Asset Sales bought one third of the copyright. So, take that in … the claim is that just 1/3 of the song is worth $100 MIL!.

Sheeran’s song was a huge hit … nominated for a Grammy for Best Record, Best Performance and Song of the Year in 2016.

And, according to the docs, Ed’s single and the album it’s on — “X” — sold more than 15 million copies and the song has been played on YouTube more than a billion times.

Sheeran has already been sued by Townsend’s heirs. He called BS on that suit. No word if the Gaye family might also sue.

Now, I clicked on the story, because I was puzzled by why the estate of a long dead singer would be suing some goofy looking white kid. It turns out that the goofy looking white kid is a pop star of some note and he is accused of ripping off Marvin Gaye. It is another reminder that I am now completely disconnected from modern pop culture. Not in a million years would I have guessed that guy was a pop star. He looks like a dork you would see working in a cubicle. I did not find his music enjoyable, but what do I know?

Of course, the idea of making a copyright claim on something you give away, by posting on the internet, is a mockery of the law. It’s perfectly reasonable for a performer to complain about people ripping off their music and posting it on-line, but when the performer gives the content away, they should have no complaint. Not only that, a quick search of YouTube finds every Marvin Gaye song ever recorded, is posted multiple times. There’s even live stuff from the old days. Exactly no one is paying for Marvin Gaye music.

Listen to the songs in question and it is hard to see the similarities, at least not enough to support the claim. That’s not going to be an issue, because if it goes to court, both sides will have digital experts claiming the songs are digitally the same or different, according to each side. There are only so many possible song ditties, so by now every conceivable riff has been used in a song. Using software to compare songs, it’s possible to claim everything is derivative, if not a straight copy, of something else.

None of that matters. A battle of experts in front of a jury means a coin toss, so the case will be settled. It does not cost a lot to file the initial claim, but it does cost money to litigate these claims. Plus, the goofy white guy has his reputation being tarnished, so both sides have an incentive to settle. The estate of Marvin Gaye just wants money, so they will be happy to take a quiet payoff off, without the goofy white guy admitting to anything. That’s the whole point of these lawsuits. The whole thing is a form of greenmail.

Copyright abuse is a becoming a racket. The Digital Millennium Copyright Act (DMCA) was intended to protect owners of digital content, but grifters have figured out how to game the system for all sorts of reasons. Video game companies will file DCMA notices against YouTubers, who post bad reviews. Hosting platforms slip language into their terms of service, to claim ownership of your content. Restaurants are suing reviewers for bad reviews. Of course, everyone can claim ownership of just about any digital content.

It is a good example of another negative outcome from the technological revolution. The ability to copy and distribute content digitally means it is easy to steal. That means people steal it. The normal way an owner protects his property is by locking it up, but in the case of digital content, that’s not possible, so the state has tried to create a magical solution, which just encourages grifters and racketeers. My guess is the legal fees for copyright issues are one of the biggest cost of producing pop songs now.

The unexpected result of the technological revolution is that large swaths of intellectual property have been inadvertently swept into the public domain. In an effort to return the profits to the private owners of the content, laws have been passed, but the result is all of the costs have been swept into the public domain. The definition of the technological revolution is the socializing of costs, with the privatization of profit. Technology makes it possible to shift costs a million small ways, onto an unsuspecting public.

Venezuela’s Future — and Ours

There are a lot of ways to describe the new political divide that has emerged over the last decade. We have nationalists versus internationalists, globalists versus populists and identitarians versus the multiculturalists. All of those are true, but another way of thinking about it is that the debate is now moving upstream. For a long time, public debate was focused on economics or maybe politics. Those are downstream from institutions, culture and biology. Now, the debate has moved upstream, to the the stuff that really matters.

Not everyone has figured out that the debate has changed. The Bernie Bros, for example, are like the Japanese soldiers, who were cut off in the war and lived in the jungle for years, still fighting the war. The Bernie Bros still think the Democrats are the party of the working man, as if anyone in Washington cares about the working man. The legacy conservatives are similarly trapped in a bygone era. You see that in this post, by our old friend Sloppy Williamson, on the ravages of socialism on Venezuela.

he United States has resigned in protest from the UN Human Rights Council, which has a long and ignominious record of protecting the world’s worst abusers of human rights. The proximate cause of the U.S. resignation was the council’s unwillingness to act on the matter of Venezuela, where the socialist government of Nicolas Maduro is engaged in political massacres and the use of Soviet-style hunger-terror against its political enemies. Venezuela remains, incredibly enough, not only protected by the Human Rights Council but an active member of it, an honor shared Vladimir Putin’s Russia and its political assassins, the People’s Republic of China and its organ harvesters, and the Castro dictatorship in Cuba with its torturers and al paredón justice.

Venezuela and North Korea could not be more dissimilar in terms of their respective cultures, peoples, and histories. And yet they have arrived in approximately the same place: at the terminus of F. A. Hayek’s “Road to Serfdom.”

For generations, it has been an article of faith, among conservatives, that everything depends upon economics. It’s not just that if you get the economics right, then the miracle of the marketplace will usher in the the age of bliss. It’s that their preferred economic models are intrinsically moral. That means the wrong economics must always result in terrible outcomes. Bad tax policy not only makes people poor, it makes them corrupt, violent and cheat on their wives. Like Marxists, they think the system makes the man.

Well, what about Venezuela? What’s really going on? Here’s the per capita GDP.

 

 

 

 

 

 

 

That’s in constant dollars and it shows a remarkable thing. After the turmoil that brought Hugo Chavez to power, the Venezuelan economy started a nice run. Per capita GDP is a benchmark number that economists love to use to measure the health of a country. Here’s what wages look like in the country:


source: tradingeconomics.com

Now, wages and economic growth don’t tell the whole story. Venezuela suffers from the curse of natural resources, which in her case is oil. What dumb people call socialism is really just the way things have always operated in countries with low levels of human capital. The elites monopolize the natural resources and the profits that come from selling them on the international market. They spread enough money around to prevent a revolt, but otherwise it a system not all that different from what existed in colonial times.

In other words, what ails Venezuela is not ideology. It is biology. It is the way it is because of its people. What determines the nature and character of a country is not the tax code or the regulatory regime. The nature of a country comes from the people. Venezuela lacks the human capital to operate a modern economy. It has and always will suffer from the smart fraction problem. That is, it lacks a large enough smart population to carry the rest of the population into a modern economy. It remains stuck in a model suited for its people.

Put another way, it is people, not pots. Replace the Venezuelan population with Finns and they will figure out how to make a mild form of Nordic socialism work just fine. Fill the place up with Japaneses and the country will look like an Asian tiger. At the same time, begin to fill up the United States with Latin Americans and it is going to start to look like Latin America. That’s why your newly imported replacements are running on platforms familiar to anyone getting ready to vote in the upcoming Mexican elections.

Of course, the reason that raging cucks like Sloppy Williamson avoid the obvious is that it is much safer to focus on trivialities. Lefty mobs are not going to swarm his Rascal scooter if he avoids taboo subjects. That and these guys have been playing the role of useful idiot for so long, they are unable to notice that the world has changed. They operate like a cargo cult, convinced they can pretend it remains the 1980’s and it will magically be so. National Review is like a weird living museum to the Reagan era.

The world has changed, though, and the debate has shifted upstream. People are noticing that when you elect a new people, you don’t actually end up with a new people. You end up with a culture that reflects the biology of the people you imported. Whites in America are now coming to terms with the choices in front of them. Keep their head down and play make believe while they are replaced, or risk moral condemnation for defending their heritage and their culture. It’s a future with you or without you. That’s the debate.

The Cost Shifting Economy

When most people think of business, they think of people buying and selling, making something and selling it or maybe selling a service. The old adage of buy low and sell high is still the basic idea of business. Rich people, however, like the people who currently rule over us, don’t think about any of that stuff when they hatch a business scheme. Instead, they think about how they can shift the cost of doing business onto the public or some unsuspecting suckers, like the American taxpayer. It’s how rich people do business.

This is not a new idea. Cost shifting was an integral part of the Industrial Revolution. The factory owner was not covering the full cost of his labor, for example, because he did not have to cover the cost of workplace health a safety. Building a bridge was a lot cheaper, because the cost of worker deaths was not the responsibility of the builder. No one thought about the costs of environmental degradation in the 19th century, so companies were free to dump poison into rivers and pump pollutants into the atmosphere.

It is not unreasonable to argue that the great fortunes made during the Industrial Revolution, at least in America, were made in large part from cost shifting. After all, it was not just the direct costs like labor, that were shifted onto the public. Once a man got rich, he could afford to buy politicians, who would pass laws giving the rich business owners leverage over their smaller competitors. It’s not an accident that those great fortunes were created early in the industrial age and none were created in later stages.

The political class in the early 20th century was still strong enough to push back against the industrial barons. It became politically popular to push through trust busting to weaken the industrialist. Then it became popular to push through reforms and allow unions to organize labor. Conservative proselytizing against these policies over the decades has obscured the fact that much of it was an effort to push those private costs back into private hands. The end of the industrial age corresponded with the end of cost shifting.

Today, cost shifting is everywhere in the economy. Tech companies have exploited pubic utilities, like the internet, to provide media services, without having to pay distribution costs. Amazon built its business, in part, on not having to collect sales taxes like every other retailer in America. Currently, their shipping costs are subsidized by the US Postal Service which loses billions every year. Then there are the many rackets that rely on government subsidies. Higher education is just one big upper middle-class subsidy.

The biggest cost shifting racket today is the use of imported labor. Recruiting, hiring and training Americans is expensive, because America is a first world society.Citizens expect first world working conditions. That makes it hard to shift labor costs onto the public, so companies prefer foreign labor. That way, they can pay lower wages and they avoid having to deal with employees who know their rights or have ideas about forming a union. Plus, foreign workers don’t sue for things like discrimination or poor safety conditions.

There’s a cost to this sort of predatory labor system, but those costs are shifted to the public in the form of depressed wages and high social costs. The migrants in every hospital emergency room are not having their bills picked up by their employer. When Pablo decides to get drunk and drive over an American, his employer is not paying the victim’s family or covering the cost of Pablo’s incarceration. The fact is, there is nothing more expensive to a society than cheap labor, it’s just hidden from public view.

The question though is if it is possible to get rich in a mature economy without massive cost shifting. No great fortunes were amassed from the end of World War Two until the technological revolution. That was a period when business costs were shifted back onto business. The tech revolution made it possible to get around the regulations and laws, because government never anticipated a digital economy. That’s starting to change just as the technological revolution is winding down and the public is pushing back.

Take a look at the newspaper business. Prior to the digital age newspapers could be run profitably, but they had high labor and capital costs. In theory, the digital age offered the chance to slash those costs. The internet does not require printing presses and delivery trucks. But, the internet also slashed their revenue stream. All those ad dollars are now at eBay, Monster and so forth. Newspapers, without monopoly power and with no ability to shift their costs to the public, are all losing money and headed for extinction.

That does not mean it is impossible to turn a profit without cost shifting, but it does suggest it is impossible get rich without it. At least not billionaire rich. That would certainly explain the fanatical commitment to migrant labor by American business. It also explains the increasingly opaque financial system. It’s not so much about reducing costs as hiding them in the costs of other goods and services, like taxes and health care. It’s a lot easier and profitable than trying to make a better product or become more efficient.

The Cheap Credit Era

The current age is one of extreme short term thinking. Americans have always been known for taking the short view, but today our culture is built around a “live for the moment” attitude. Sit in a business meeting and exactly no one talks about downstream possibilities. It is all about this month, this quarter or, for the sprinkling of long term planners, the remainder of the year. You see this in our politics, where everyone reacts to the latest polls or latest news event. We are a high time preference society now.

This is why immigration reform is proving to be a non-starter. The Left side of the political class sees nothing but opportunities to rig the next election with foreign ringers, so anything that interferes with that is blocked. The Right side is wholly owned by the cheap labor lobbies, who like the idea of disposable labor. It’s not that the people in charge think their grandchildren will be exempt from the ravages of mass migration. It’s that they are unable to think past the moment. For our rulers, tomorrow never comes.

Just because the people in charge have no interest in the future does not mean the future is equally disinterested in us. That’s what will make the coming years interesting, with regards to the economy. The Fed has finally begun the process of tightening the money supply, after a decade of an extremely loose policy.That means rising interest rates in the US and a strengthening dollar, relative to other currencies. This is not going to happen overnight, but the Fed is going to move quickly now that there are signs of real inflation.

The trouble is s big chunk of the economy have become addicted to cheap money. Take a look at the car business. Every car maker has setup special lending facilities so they can entice buyers. Instead of figuring out how to make cheaper cars, they offer near zero interest and extended terms. You can get from most makers a seven year term on a new car, along with a super-low interest rate. They may even offer cash back you can use for the down payment. There’s even sub-prime lending at the lower end of the market.

Now, the Feds are not bringing back 1970’s interest rates and they are going to move slow. Still, it has been a long time since interest rates have been close to historic averages and that means most people making decisions don’t know what it is like to live in that world. It has been 18 years since mortgage rates were above seven percent. It’s been 27 years since we saw eight percent rates. It’s been a decade since rates were above five percent. In other words, the world has become used to historically low rates.

It’s not just the retail end that will have to come to terms with a world of rising interest rates. Most business runs on credit these days. The bigger the business, the bigger the debt burdens. US corporation have $4 trillion in debt that will roll over in the next five years, according to industry analysts. What this means is their debt service will increase as they refinance old debt with new, more expensive debt. That’s how corporate debt works. Most of it is fueled by bonds, so new debt pays maturing debt plus interest.

Of course, business is not the only institutions relying on cheap credit. Governments around the world have come to depend on the endless appetite for sovereign debt to keep borrowing rates low. When central banks take money off the street, it means there is less money to chase after sovereign debt. Healthy debtors like the US government will not feel the pinch, but the struggling countries in Europe and South America are going to find it more difficult to sell debt. It may not take much to topple a country like Argentina.

Again, the Fed is not bringing us back to the 1970’s. Baring some inconceivable catastrophe, no one reading this will ever see double-digit interest rates again. It’s just that since the end of the Cold War, America has been living with historically low interest rates and it has changed the nature of our economy. Cheap credit makes short term deals more viable and more common. It also increases risk taking. The result of all this cheap money is an economy that lives for the moment. Everyone is in it for the quick buck.

In theory, the slow gradual return of interest rates to something close to historic norms should not have a big impact. Almost thirty years of super-low rates, means most of the institutional knowledge about working in a normal rate environment is gone or heading for retirement. That means a lot of people are going to have learn the hard way about how business and finance works in a less than free money era. Therefore, no one can really be sure what is going to happen as the Feds slowly raise rates over the next years.

Celebrity Experts

A few years ago Greg Cochran pointed out that western economists had been very wrong about the economic condition of the Soviet block countries. Paul Krugman had claimed that the East German economy was 80% of the West German economy. When the wall fell, what was revealed was a backward economy with environmental devastation and low quality consumer goods. All of this was obvious from the outside. All you had to do was take a look at the cars, which were a joke compared to the cheapest western cars.

The reason western economists were so laughably wrong about the Soviet economy is that it was worth their while to be wrong. The Left side of the ruling class wanted to believe the commies were doing well. They owned the media and the academy, so it is not hard to figure out the rest. That, of course, calls into the question the integrity of the field, but in reality they just believed what was convenient. Even PhD’s can delude themselves if it has social value. You see that in this post by celebrity economist Tyler Cowen.

Will Ethiopia become “the China of Africa”? The question often comes up in an economic context: Ethiopia’s growth rate is expected to be 8.5 percent this year, topping China’s projected 6.5 percent. Over the past decade, Ethiopia has averaged about 10 percent growth. Behind those flashy numbers, however, is an undervalued common feature: Both countries feel secure about their pasts and have a definite vision for their futures. Both countries believe that they are destined to be great.

Consider China first. The nation-state, as we know it today, has existed for several thousand years with some form of basic continuity. Most Chinese identify with the historical kingdoms and dynasties they study in school, and the tomb of Confucius in Qufu is a leading tourist attraction. Visitors go there to pay homage to a founder of the China they know.

This early history meant China was well-positioned to quickly build a modern and effective nation-state, once the introduction of post-Mao reforms boosted gross domestic product. That led to rapid gains in infrastructure and education, and paved the way for China to become one of the world’s two biggest economies. Along the way, the Chinese held to a strong vision that it deserved to be a great nation once again.

My visit to Ethiopia keeps reminding me of this basic picture. Ethiopia also had a relatively mature nation-state quite early, with the Aksumite Kingdom dating from the first century A.D. Subsequent regimes, through medieval times and beyond, exercised a fair amount of power. Most important, today’s Ethiopians see their country as a direct extension of these earlier political units. Some influential Ethiopians will claim to trace their lineage all the way to King Solomon of biblical times.

Cowen is either trying hard to please the Ethiopian economic and cultural ministers or he has spent too much time in the sun. The reason Ethiopia has seen growth rates tick up is the Chinese, and to a lesser degree India, have been investing. The reason they are investing is both are competing for control of the the Indian Ocean. In fact, the Chinese have invested in other East African countries, including a naval base in Djibouti. That’s why China and Indian are investing in East Africa. It’s a modern form of colonialism.

Further, comparing China and Ethiopia, at the civilization level, is a bit ridiculous. China is basically one people, the Han, with minority populations around the fringes. This has been true for a very long time. Ethiopia is a combination of pastoral and settled people, who see one another as rivals. The country is experiencing civil unrest, bordering on civil war, in response to the ruling Oromo minority. China has never had this issue. China also has an average IQ over 100, while Ethiopia is one of the lowest on earth, estimated below 70.

Now, economists are easy targets, because the profession has evolved into something similar to the celebrity chef racket. There’s not a lot of money in making good food and running a quality restaurant. There’s big money in being an entertaining chef with a TV show on cable television. Something similar has happened to economics. You don’t actually have to be very good at economics to get a spot in the commentariat. You just have to sing the praises of the managerial class and play the professorial role well.

Even so, it takes special talent to be this wrong about observable reality. Cowen’s trick, like most celebrity experts, is to couch his obsequiousness and nutty ideas in the form of a question. “Is Ethiopia the next China?” This way, when called on it, he can pretend it was just an intellectual exercise, a thought experiment. Meanwhile, he appears to be lending his authority to the rather ridiculous notion that Ethiopia is poised to be the next boom town. It is no wonder that so many in the managerial class are so vapid and silly.

It is tempting to dismiss this, but the proliferation of celebrity experts says something about the nature of managerialism. It has evolved a class of people that are luxury goods. They have no utility, other than to make the people inside feel special. The TED Talk is a great example. Cloud People pay to be told by a celebrity expert that their lives have purpose and they are on the side of angels. It’s not explicit, but the point of the expert is always to confirm the beliefs of the audience, rather than broaden their understanding.

If the celebrity expert was just the current version of the court jester, it would probably be harmless, but that’s not the case. The people making public policy have risen through the system, never having been told a discouraging word. They end up having opinions about the world that border on lunacy. The people running the Bush foreign policy really believed they could democratize the Middle East. They still believe this and they probably think East Africa is the next economic boom town. That’s what the experts tell them.

There is an argument that the proliferation of lawyers is responsible for the proliferation of laws. The extra lawyers, looking for a way to make a living, inevitably started to pervert the law to create opportunities for themselves. This results in more cases in court, that means more courts, more judges and then more laws to address the crazy outcomes. It is a bit of chicken and egg theory, but there is no question that having a lawyer for ever conceivable case has changed the nature of the law, as well as the volume of laws.

Something similar seems to be happening in the other parts of the managerial class. The excess of middling strivers, means an excess of mediocre men pitching themselves as experts. Since being an expert is hard, the more fruitful course is to tell the audience what they want to hear. As a result, in the public policy arena, the people charged with actually knowing stuff are surrounded by an amen chorus that cheers their every move. Instead of rule by expert, as some imagine, we have rule by people who never faced adversity.

Markets Are Not Gods

One of the many reason libertarians had no choice but to evolve into the pep squad for the managerial state is they could never finish their own sentences without sounding like loons. For example, their reification of free markets, often has them sounding like primitive shaman. Their deification of personal liberty would lead them to defending morally abhorrent things like the poor selling their organs to the rich. In order to avoid this, they developed the habit of stopping short of fully stating the inevitable ends of their ideology.

One of the errors of libertarianism, as well as the various tribes of the New Right, is the mistaken belief that markets are a Platonic good. Therefore, the free market is the end, rather than a means to some end. A popular trope among those in the post-war New Right was the claim that an undesirable end, arrived at through principled means, was superior to a desirable end, arrived at through unprincipled means. It is has always been a ridiculous statement that can only have utility in the world of forms, not on earth.

The marketplace is never perfect and it can often lead to undesirable ends. This is why it has to be viewed as a tool, one of the many tools a society has to better itself and insulate itself against its own internal division. A fair and open marketplace for housing, for example, will result in the maximum amount of affordable housing. Open borders and unfettered trade will lead to the corruption of the people’s laws. An unfettered recreational drug market will end up with large portions of the population exploited by a small part.

A less emotional example of this is the market for concert tickets. It used to be that states protected the primary market by suppressing the secondary market. The internet and the unwillingness of the people in charge to enforce the laws has changed that. The primary market has now been captured by the secondary market. The bulk purchase of tickets by brokers now makes them the primary player in the market. In fact, they can control the market, by manipulating availability. That’s what’s happening with concert tickets.

With the curtain rising on her “Reputation” tour, Taylor Swift blinked.

She buckled by having Ticketmaster turn off resale ticket listings on its interactive venue charts for the first leg of her North American tour, according to music-industry veterans.

The tour, which begins on Tuesday in Glendale, Ariz., shows plenty of primary tickets still available for the first nine shows.

But the delisting of secondary, or resale, tickets — a move experts called unusual if not unprecedented — makes the inventory of available seats seem much smaller.

On July 20, for example, Swift is scheduled to appear at MetLife Stadium as part of her tour’s third leg.

About half the seats still available for that show are represented by red dots on Ticketmaster’s venue chart, meaning they are up for resale.

The other half, represented by blue dots, signify primary sales. Those are the only dots currently visible to visitors trying to score tickets for a show on the first leg of “Reputation.”

Ticketmaster’s shutting down ticket resales for Swift’s early shows perplexed many in the industry because it handed secondary sales to competing resellers like StubHub.

On blockbuster tours, Ticketmaster admittedly makes more revenue on ticket resales than primary sales.

It also left some wondering if Ticketmaster was taking orders from its parent company, Live Nation, which as the tour’s overseas promoter, has much riding on “Reputation” being perceived as a success.

Now, the libertarian argument is that the venue should simply auction off the tickets for their show and not worry about the secondary market, because the bidding process would no doubt undermine the secondary market. The trouble is, there are no pure markets, so the sophisticated players in the market, would game the auction just as they game the direct sales market now. In other words, there can never be a free market, as long as there informational asymmetry and there is always a player with an information advantage.

If we stop pretending that a free market is an end in itself, we can think about the desirable ends would like to see in something like the concert business. Obviously, one end is for the performer and the venue owner to make a profit. Without them, there is no market for concert tickets. Secondarily, you want the fans to have access to tickets at a price that they see as reasonable. The libertarian idea of an initial auction solves one problem, but the other problems require shutting down the secondary market, like we used to do.

This is a trivial issue, as the world is not going to stop spinning if Taylor Swift can no longer make a living doing concerts. In fact, if all of our mass market entertainments dried up tomorrow, people would find new ways to entertain themselves. The point I’m trying to make is economics, particularly the market place, is always an means to an end. When thinking about what’s happening to us, the question is not how best to get people cheap stuff. It is about the kind of society we want the type of people we want in it.

Reality Returns

All of the usual suspects are freaking out over Trump’s decision to impose tariffs on steel and aluminum. Most of it is by hysterics masquerading as analysts. Some of it is simply the innumerate throwing yet another tantrum about the bad man who vexes them. Some of the hysteria is due to the fact that people in the chattering classes were sure they had talked this bit of reality into going away for good. Reality, however, is that thing that does not go away when you stop believing in it. The reality of trade is now back.

The amusing thing about trade debates among the chattering classes is that they never bother to mention the trade-offs that come with trade policy. Trade is, after all, like any other public policy. There is no policy option that does not come with a set of pluses and minuses. Our rulers, however, were sure they had sacralized their preferred set of trade-offs a long time ago. It turns out that the only people on whom this worked are the innumerate numskulls in the press. The rest of us remain skeptical about “free trade.”

In theory, which means not in reality, trade between countries is a net benefit to both countries. Open trade with Canada means they can sell more beaver hats and hockey sticks to Americans, thus making the typical Canadian richer. Similarly, it means Americans can sell more apple pies and boomsticks to Canadians, thus making the typical American richer. In reality, there will be Canadians who suffer from free trade with America and Americans who also suffer in the exchange. That’s how the world works.

While the hockey playing folks of northern Virginia will benefit from cheap hockey sticks from Canada, the suddenly unemployed hockey stick makers in Minnesota are the ones paying the price for it. Similarly, the apple growers of Canada get stuck with the bill for the suddenly cheap apply products in Toronto. The hidden cost of free trade is a lot of people you don’t know losing their jobs or seeing their wages cut. When you’re the guy getting the pink slip, the cost is not hidden and that has a social cost, as well.

Now, trade can be beneficial to both countries in that it promotes efficiency. The lazy and unscrupulous hockey stick makers in Maine, suddenly have to compete with the crafty canucks. This means better hockey sticks, but also less waste. Protectionism, like all public polices, comes with a cost too. That cost is more often than not carried by the consumer. Worse yet, it often promotes the sorts of corruption of public officials that erodes public trust in institutions. Again, there is no free lunch. Life is about trade-offs.

That is why the ruling class is in a panic over the Trump trade policies. It’s not about the cost of steel and aluminum. It is not about the possibility of retaliation. The real fear is that decades of hard work to de-legitimize open debate about trade policy is being undone. It means all of these trade-offs that come with trade between nations will have to be discussed. The billionaire class that has benefited from the current set of polices, is in no mood to defend their fiefs from the rabble. So, in waddles the clown army.

The fact is, the current trade regime ushered in after the Cold War, has proven to be the boondoggle critics like Pat Buchanan warned about 30 years ago. Open trade with Canada, an English-speaking first world country, is mostly beneficial. Trade with Mexico, a third world narco-state that now operates as a pirate’s cove for Chinese and American business, has been a disaster. NAFTA has made Mexico a massive loophole in American labor, tax, environmental and trade policy. A loophole ruthlessly exploited by China.

The current trade regime is also at the heart of the cosmopolitan globalism that seeks to reduce nations to a fiction and people to economic inputs. This neoliberal orthodoxy has eroded social capital to the point where the white middle class is nearing collapse. It’s not just America. The collapsing fertility rates in the Occident are part of the overall cultural collapse going in the West. Slapping tariffs on Chinese steel are not going to arrest this trend, but it does open the door for cultural critiques of the prevailing orthodoxy.

That’s the reality our betters would just as soon not allow back into the conversation. The fact is, a nation is its people. What defines France is the shared character and shared heritage of the people we call French. What defines a people is not the cost of goods or the price of labor. What defines a people is what they love together and what they hate together. It is the collection of tastes and inclinations, no different than family traditions, that have been cultivated and passed down from one generation to the next.

Even putting the cultural arguments aside, global capitalism erodes the civic institutions that hold society together. Instead of companies respecting the laws of host nations and working to support the welfare of the people of that nation, business is encouraged to cruise the world looking for convenient ports. There’s a word for this form of capitalism. It’s called piracy. Global firms flit from port to port, with no interest other than the short term gain to be made at that stop. Globalism is rule by pirates.

That’s the reason for the panic by the public relations firms hired by our globalist, billionaire masters. To question “free trade” is question the arrangement that keeps the current regime in place. It may seem like a small thing, tariffs on steel, but it is the sort of thing that can unravel the entire project, because it legitimizes the sorts of questions that can never be answered honestly by globalist. To his credit, Trump seems to get this, which is why he has pressed ahead with this. He’s flipping over an important table in this fight.

The New Zeroes

In the coming decades, Western nations are going to be faced with a number of problems stemming from the technological revolution. Some are already with us. We are now post-scarcity societies, where we have more than enough food, medicine and housing for our citizens and even some non-citizens. The pruning force of scarcity is no longer doing its magic to keep the population fit or even sensible. The next big problem is what to do with the tens of millions of extra humans, no longer needed to contribute to society.

The hardest part of the automation wave coming in the next decades will simply be language. What do you call people who no longer have any purpose, in terms of producing goods and services through their labor? For as long as anyone has been alive, the very small slice of the population that has fit this definition could simply be dismissed on moral terms. The underclass is assumed to be lazy or anti-social. Trying to fix this has been a good way to keep the useless off-spring of the middle classes busy is social work.

When the numbers swell as automation eliminates the need for human labor in wide swaths of the economy, it will be impossible to dismiss the idle. When many of the idle are people who formerly occupied office jobs or semi-skilled laboring positions, blaming their condition on a lack of ambition is not going to be possible. The current labor participation rate is about 63% right now. This is about where it was in the Carter years. In the coming decades, that number will fall below 50% due to automation and demographics.

The other challenge is how to support the swelling ranks of the useless in a way that keeps them from causing trouble. The hot idea currently is the universal basic income, which is being experimented with in Finland. In the US, some states are talking about how to replace their welfare programs with something more simple like the UBI. Libertarian economists like the idea of the UBI, because it theoretically allows the under classes to participate in the market economy, unencumbered by the state.

The trouble with this idea, one that they can never overcome, is math. If all citizens have a floor, in terms of their basic income, whatever that floor is, will be the new zero. The only possible way to have a negative income, in real terms, is if someone is paying their employer for the right to work. There may be some bizarre situations where that exists, but in the main, zero is the smallest number that can appear in box #1 of your W2. If that number is bumped up by the UBI, that becomes the new zero, the lowest possible.

Think of it this way. Imagine the government decides to help BMW sell more cars, so they offer every citizen $5000 if they spend it on a BMW, rather than some other car. BMW is now facing a wave of people coming into American dealerships toting a $5,000 check payable to BMW. The logical thing for BMW to do is raise the price of their low end models by $5000. That way, they don’t increase production costs, but they increase the profit per car. In effect, the floor for entry level buyers was just raised by $5000 by the government.

There’s a pretty good real world example of this. The government decided to do something to help working class people get into college. Since many need remedial help, before taking on college work, the scheme was to offer a subsidy to be used for community colleges. The students would use the money to prep for college then head off to a four year university, presumably using loans and aid at that level. The result, however, was the community colleges just raised their tuition by about 65% of the subsidy.

The Universal Basic Income would most likely follow the same pattern. By guaranteeing that no one would earn less than some amount, in lieu of traditional welfare payments, the absolute floor becomes the subsidy level. In effect, the new zero becomes the subsidy so all other wages would be based off that, as the price of goods and services would correspondingly adjust. It is really no different than printing up money and dropping it from helicopters into the ghetto. The UBI would be as inflationary as debasing the currency.

The truth is, the zeroes that our rulers will be forced to address are zero population growth and zero TFR among the surplus populations. For example, you could fix Baltimore in a generation with mandatory Norplant for the underclass. A generation of childless females means the last generation of 80 IQ residents with a propensity for violence. The reason Baltimore is a violent city is not an excess of hard working, college educated STEM workers. The reason the city is a violent mess is the surplus of violent stupid people.

It also means zero immigration. When 80% of today’s immigrants end up on public assistance, the immigrants of tomorrow will be nothing more than useless people to police, feed and house. Japan is the model to follow. They have no immigration and their population levels are about to drop in the coming decades. They are the only nation on earth that is truly ready for the automated future, as they have the demographics to meet a shrinking demand for labor. They also have the cultural confidence to pull it off.

There’s one other zero the West will have to tackle and that is zero participation. The fact is, free-market consumerism and mass democracy work when the right answer is not obvious. As automation takes over more and more tasks, the number of issues that need to be hashed out collectively will diminish. Rule by robot means exactly that, which means voting and popular government will have to be reconsidered. What’s the point of being mayor when there are no more patronage jobs to dole out to friends and family?

The River’s Edge

Reorganizing a book shelf the other day, I found a book that I was sure I had read a few years ago, but I had no memory of it. Looking it over, I realized I never did read it, so I put it in the queue. For some reason, I read a lot more in the winter than the summer, so I can knock out a book every few days. The book in question is Why Nations Fail, by economists Daron Acemoglu and James Robinson. It was a big seller back in 2012 when it came out. That’s probably why I bought it, but for some reason I never read it.

The book starts out describing the city of Nogales, which straddles the border between Mexico and the United States. The authors point out that the part of the city on the US side is fairly safe, well organized and reasonably prosperous, for that part of the country. The part of the city on the Mexico side is riddled with corruption, rocket high crime rates and grinding poverty. They quickly point out that the demographics of both halves are about the same, so the only possible explanation for the difference is the institutions.

What they don’t mention is that the Mexican half of Nogales is attached to Mexico, a land full of Mexicans. The American side is attached to a country not full of Mexicans, at least not yet. Nogales is an hour south of Tuscon, which is more than 50% white. Arizona is now 60% non-Hispanic white and only about 4% black. Further, the Hispanic population is mostly the El Norte variety. In other words, it is good demographics that results in those good institutions. They don’t go there. In fact, they never go there.

The book runs through a bunch of examples of how institutions can make or break a society. They even travel back in time to examine how events like revolutions or wars broke old bad institutions, allowing for new good institutions to flourish. The English Civil War comes up multiple times, to explain how the Industrial Revolution started there first. They spend a considerable amount of time talking about colonialism, to explain how the bad institutions created by he West, forever crippled their former colonies.

Again and again, the authors work backwards from present economics, through politics and history to arrive at institutions as the first cause. As a survey of world history, it is very interesting. The authors even accidentally make the point that serendipity has a huge role in history. They call this “critical junctures” and use a bunch of examples where a country’s elite chose poorly. But, they can never ask the question, why did they choose poorly? Instead, they just treat that as the river’s edge, never bothering to go further.

In fact, that’s the reason for the title of this post. The image that kept coming to mind while reading this book is of a group of explorers trying to find their way out of a valley. They keep ending up at the edge of a river. Instead of wading over to the other side, they wander around, sure that there must be some other way out. In this case, the river is culture. The authors stop at culture, never wondering what is beyond it, not because they fear what’s on the other side, but because they don’t seem to think there is another side.

That’s what is so weird about this book. Usually, there is at least one section where the author goes to great pains to acknowledge the arguments from biological realism, but vigorously dismiss them as bad-think. That never happens here. Instead, it’s as if the authors have never considered the possibility that Africa is the way it is because it is full of Africans. Instead, they just repeatedly make the point that poor countries have corrupt institutions, while rich countries have more open public institutions.

For instance, the authors write stuff like “World inequality exists because during the 19th and 20th century some nations were able to take advantage of the Industrial Revolution and the technologies and methods of organization that it brought, while others were unable to do so.” The implication of this is that the Industrial Revolution just happened by magic in England, instead of Botswana. The best they can muster is to point out that the English Civil War accelerated the end of feudalism in England, compared to the Continent.

One of the more comical bits is how they try to explain why Western nations did not fall back into despotism, like European colonies after independence. The answer is what they describe as a virtuous cycle, which is a special brand of magic that makes sure only white countries maintain open institutions.The serendipitous magic creates the inclusive institutions and then the magic of virtuous cycles keeps the magic flowing. Of course, there are the vicious cycles that work the opposite, but only on non-white countries.

It is tempting to think that the people on the blank slate side of the river know the truth, but they just prefer to carry on with the blank slate fantasy. In individual cases, that may be true, but a lot of people truly believe that all people are the same everywhere, despite the mountain of evidence to contrary. Instead of reality causing doubts in their beliefs, they do like Acemoglu and Robinson. They invest all of their time and energy looking for the magic cause that explains reality, without contradicting the blank slate.

The result is we have this great divide in the West. I use the image of a river separating two groups of people. On the blank slate side of the river, they will come to water’s edge, but they never look across it, much less contemplate crossing it. On the other side, the biological realism side, the people wait patiently for the others to cross over, shouting words of encouragement to them. Every once in a while, a ferryman reaches the blank slate side and picks up some people and brings them across the river.

We could use more ferrymen.