Return of the 1950s

In putting it on Twitter, I was just rereading a recent post, in which I said, “I get the feeling that what the 1950s are to economic liberals– a supposed golden era that will surely never return– the 2000s will be to social liberals.”

The problem with that is that if Trump’s supporters get their way and high tariffs become a regular thing, the 1950s will in some limited degree return.

The 1950s were a unique time.  The world was still recovering from the destruction of World War II, leaving us the main supplier of finished goods for the world.  In other countries, the knowledge of manufacturing techniques was limited; they were not yet the competitors they now are.  But that decade was also before the effects of free trade on law.  International capital flows was one effect of globalization.  Even countries that did not, like England, try to prevent people from taking capital out of the country were not terribly friendly to international capital flows.  But law was also much more direct and ancient about trade: tariffs were much more common and better thought-of back then.  So were unions, which are in their essence a form of protectionism.

Even if anyone wanted to destroy the manufacturing capacity of the rest of the world, even if anyone could, and less still could be done to take away the rest of the world’s knowledge of manufacturing.  But free trade is very much on its heels right now.  No one has discussed restricting international flows of capital yet, since it’s too dry and Byzantine for populism, but it might happen.  If so, and if tariffs do return to their mid-century popularity, the circles of politics and economics in a Venn diagram of America will return toward the high degree of overlap they had in the 1950s.

And when that happens, the impact of votes upon economics will rise– and unions are likely to return to some degree.

The Erebor of Socialism

I was just watching The Hobbit: Battle of the Five Armies.  You know the one.  The dwarves in the Company of Thorin Oakinshield awake and provoke the dragon, and after the dragon dies, shot by a human, a mad violent scramble ensues to get the leavings of his power– the gold and other treasure in Erebor.  Hence the battle.

It’s a very good movie.  It’s perfectly cast (Billy Connolly as Dáin II Ironfoot is my favorite choice specific to this movie– “Would ye consider…JUST SODDING OFF?”), beautifully directed, shot and edited.  This wasn’t my first time watching it.

Most everyone knows, though, that the more you watch a movie, the more you notice different aspects that were obscured by the pure experience of the film that occurs the first time you watch.  Like the way one of the stormtroopers rushing into the Death Star control chamber to confront Threepio and Artoo hits his forehead on the ascending door.  Though the power dynamic in BotFA is just right, with a scramble for pickings after the fall of a major power, the economic contradictions in Tolkien’s whole story, and perhaps most fantasy fiction, are amazing.

It’s assumed– by everyone— that gold is a constant.  It’s treasure.  It’s prosperity.  It’s security.  A perfect MacGuffin.  And yet it never occurs to anyone that the only way it’s any of those things is if other people will provide food, drink, security, comfort, et cetera, in exchange for it.  No one asks, where in this movie are the crops to buy?  Who can the people of Laketown hire to help rebuild their lives?  Fields of grain, lumberyards and vineyards are nowhere in sight in these gorgeous, unspoiled, New Zealandish landscapes.  Nor does their leader Bard think, “Well, what is the use of this much gold when a vast amount more gold lies in that mountain to outcompete whatever share of the gold that we have for the available comforts?  The dwarves are going to outbid us for wine, iron and timber.”  The gold flowing into Spain’s economy from the New World in the 16th and 17th centuries did not increase the economic output– the comforts produced– in Europe.  All it did was increase the amount of gold chasing them.  Which had the predictable effect of a bubble– too much money chasing too few opportunities, as the classic definition runs– and inflation.

In that sense, then, socialism is like the treasure of Erebor, or of Montezuma.  It’s the illusion that a perceived arbitrage exists by which YOU, the voter, can get yourself someone else’s gold (whether by your own violence or the implied violence of government power), someone else’s time and work– but they can’t get yours.

That, after all, would be Unfair.  Just ask any politician of the Left.

Perpetual motion

My friend Jane the Actuary drew my attention to Sen. Elizabeth Warren’s latest fantasy.

  •  any companies with more than a billion dollars in revenue must have a Federal charter, which can be revoked by bureaucrats at the request of state attorneys general;
  • have 40% of their directors be elected by the employees, and
  • basically must act like nonprofits, with a board that must “manage or direct the business and affairs of the United States corporation in a manner that seeks to create a general public benefit; and balances the pecuniary interests of the shareholders of the United States corporation with the best interests of persons that are materially affected by the conduct of the United States corporation”, yada yada yada.

The reasoning proffered is typical of the shallow thinking endemic among socialists.  (Matt Yglesias, for example, wearing about fifteen pairs of rose-colored glasses, says that it will “redistribute trillions of dollars from rich executives and shareholders to the middle class — without costing a dime”)  It goes:

  • people will be able to vote themselves more money from companies, or sue them about it; and
  • this kind of thing already exists in Germany and the Scandinavian countries and works fine.

As is usual in these days of autohagiography and rationalization, the interesting reactions are in opposition.  Megan McArdle ripostes that 40% isn’t a majority, and that Scandinavia is poor evidence as to what’s possible in other countries, because the basis for all of its societal solutions is extremely high levels of social trust that most countries, including the United States, don’t have and can’t easily get.   Kevin D. Williamson’s piece is about the cynical political-science aspect.  “Progressive neo-feudalism” is the theme of Robert Tracinski’s piece in National Review, because the companies’ Federal charters could be revoked upon the request of state attorneys-general, turning the companies into their vassals.

The reason I see why it can’t work is a bit more basic.

First, the artificially inflated portion of wages come out of economic surplus.  There is a limited amount of economic surplus, based on a finite amount of economic activity and a finite quantity of goods and services sold, all of varying profitability.  “It is not the employer who pays wages,” wrote Henry Ford, in his classic book My Life and Work.  “He only handles the money. It is the product that pays the wages and it is the management that arranges the production so that the product may pay the wages.”  Most products are commodities, which means that there’s a race to the bottom on prices and that the businesses making them have very low profit margins to begin with.  (See, for example, this post by CoyoteBlog, whose small business runs campgrounds.)

So, who gets that surplus?  The best illustration of that situation comes from a very different Warren: Buffett.  In one of Fortune magazine’s most famous articles, he talks about the percentage of earnings taken by government taxation as if Federal, state and local taxation powers were superior classes of stock that get paid before the real shareholders, which is an excellent way of thinking about it:

“Investors in American corporations already own what might be thought of as a Class D stock. The Class A, B, and C stocks are represented by the income-tax claims of the federal, state, and municipal governments. It is true that these “investors” have no claim on the corporation’s assets; however, they get a major share of the earnings, including earnings generated by the equity buildup resulting from retention of part of the earnings owned by the Class D shareholders.  …  Whenever the Class A, B, or C “stockholders” vote themselves a larger share of the business, the portion remaining for Class D — that’s the one held by the ordinary investor — declines.

The “wages” of unionized employees (or employee “owners”) are essentially yet another class of stock, one which comes before any of the above “classes”, amounting to yet another “share of the business” which under Elizabeth Warren’s proposal they would have a significant ability to vote to increase.

Yglesias agrees that doing this– creating political owners, reducing the take for economic owners– would cause stock prices to decline.  That’s what happens when “owner earnings” go down.  Where he’s crazy here is in thinking they’d decline only 25%.  He is surely aware of the “tragedy of the commons” but appears to have turned off his brain.  Most people are greedy, stupid and shortsighted, and if this proposal were enacted and worked as intended, they would swiftly vote themselves, and consume, the seed corn.  Then they would whine.   I can only suppose that Yglesias thinks that Leftist Mandarins would have the backbone to stand in their way.  No one with a brain would own shares of a company whose remaining profits depend on the self-control and forbearance of policymakers like either group.  Vitally, neither would they lend to it, except under exorbitant conditions.

Old-time Yankee inventors were famous, in American myth, for trying to invent a perpetual-motion machine.  Their intellectual heirs are today’s Left.

The socialist mackerel

Yes, it’s yet another blogger’s post about Alexandra Ocasio-Cortez, the 20-something socialist who defeated a powerful New York City Congressman in the Democratic primary, who will therefore surely win the general election.

The strange thing is that when she won, everyone lost their minds and acted as though it’s 1.) new, though Bernie Sanders has been representing the idea of socialism in the Federal government at a much higher electoral level– the statewide office of U.S. Senator– for many years, and 2.) a recipe for a popular mandate for a national platform along those lines, though it was decided by 4,000-and-some votes out of 27,744 cast, in a safe-blue NYC district with 214,750 registered Democrats.  It would be narcissism to the nth degree to imagine that that can be assumed to be a cross-section of Democrats in that district, much less of America.

The Democrats have been floundering, policy-wise, for something like a couple decades, if not more.  What do they stand for?  More of the same.  More government, more wealth redistribution, more identity politics, more support for the cheap-moral-outrage component of their base that gets off on cracking the whip of ism-accusation.

This has actually been the case for a while.  The Democrats won the 1992 election due to Ross Perot, who got something like 20% of the vote, mostly from the Republican side, they won the 1996 election as incumbents, they won the 2008 and 2012 Presidential elections not due to a general belief in their platform, but largely due to a combination of anger at the Republicans for Iraq and the Great Recession, plus black people turning out to vote in racial self-interest (if not flat-out racism) for the first black President of the United States.  It’s true that to be young, idealistic, eloquent and black, as Obama was, was an appealing set of characteristics for a candidate right then– but again, they had nothing to do with the freshness of the ideas.  The Democrats would surely have won some of those Presidential elections even without those factors, simply because people get fed up and it’s rare, historically, for one party to hold the White House for three or more successive terms.  Irritation and boredom are not ideas, though.  Perhaps the lesson is that elections rarely turn on fresh ideas, or that in national politics, the low-hanging new-idea fruit gets picked quickly.

So they seem to be returning to “heirloom varieties” of ideas.  In a way, it’s not surprising that on the Left socialism has surged in popularity.  As has been pointed out by others, Ocasio-Cortez and most of her cohort were born around or after the fall of the Soviet Union; they barely have a memory of the 20th century and none of its awful socialist failures.  They were also born, I might add, after the “state capitalist” overlay was put in place in various ostensibly socialist countries, like Vietnam and China, which led them to prosperity while retaining the name of socialism and “prove” that socialism can work.  They came of age, too, after the rise of the technocrats at Google, Amazon, Tesla and the like made the precedents of the past seem distinguishable– if they’d just had social media they could have made it work!– and therefore no barrier any more.  And finally, their party, the Democrats, are out of power and searching for hope and renewal.  The rise to attention of base-pleasing ideas is what happens when a party parts its intellectual and policy mooring by thinking it has no need of the moderates that anchor it.

Yes, those annoying buzz-kill, anchoring moderates prevent the party from going anywhere, but they also prevent it from being blown onto the rocks in a high wind.  So let’s continue with a maritime metaphor shift and think of socialism not as a sort of ideological cultivar, but as a mackerel in the moonlight.  It glitters attractively from a distance.  But it stinks.   The Heisenberg Uncertainty Principle– the popular part, anyway– is that shining light on electrons to discover where they are makes them move, ruining the inquiry.  Socialism is like an economic version of that.  Socialism seeks to seize economic value and redistribute it to poor people– but the problem is that economic value created by free enterprise requires freedom to exist.  Seizing it usually ruins it.  Socialism today would be particularly nasty because so little of Western economies is based on natural resources.  When the economy is more like Venezuela’s, based on something that exists irrespective of human effort, or with only a relatively small effort, like oil, socialism can, like spending an inheritance, seem temporarily workable until the price of oil collapses.

As noted, Ocasio-Cortez is not even new in having parted moorings from reality (assuming she was ever so tethered).  What she is that Bernie Sanders is not, is physically attractive, young, female and Latina.  The Democrats are hoping for a renewal not of Leftist economic ideas, but of a renewal of identity-politics turnout that will hopefully translate to the national level.  That won’t work.  Identity politics has never yet emerged in generations, very weakly in gender, and even if it did among Latinos in America, which seems questionable, the places where they are concentrated include only one swing state, Florida…where Fidel Castro’s socialism is still hated.

Political IEDs

One of the things I hate most about moralists is the way they lie about the past.  I don’t mean that I hate that they lie about the past– lots and lots of people do that.  I hate the way they do it.  They apply the moral standards of today to the people of the past and hate on them for not living up to moral ideas they’d barely heard of and which would probably have gotten them lynched or ostracized from their communities.  Which today’s moralists, with 20/20 hindsight, assume they’d have blithely ignored in their thoughtless, narcissistic righteousness, had they lived back then, instead of caving in immediately, as their conformity and activist piety today suggests they would have.

The timing and success of moral movements, such as abolitionism, is to me a function of societal wealth.  How much work must one trade to get the basics of life?  That’s societal wealth.  Societal wealth, I believe, is a function of population growth plus technological advances in manufacturing, transportation and communications, with free-market ideas facilitating trade as much as possible.  It’s as though “morality” or “compassion” is one of the higher levels of Maslow’s hierarchy of needs.  The more your basic needs are taken care of, the richer you feel.  The richer you feel, the more receptive to moral arguments you are.

It must necessarily follow that economic conservatives are the true natural allies, in effect, of social liberals.

Some years back, I was at the house of a friend of mine who’s a fan of military history and a gun collector, and bullet technology at the turn of the century was what we were discussing.  Spitzer bullets (the pointed-nose kind that most rifles fire these days) had been invented and were known to be better in many ways.  But, my friend told me, they couldn’t be used in repeating rifles back then until they invented the vertical-feed magazine, in which the bullets are above or below one another, which displaced the horizontal-feed magazine, in which they’re in a line (for example, in the Spencer rifle diagram above).  “Why is that?” I asked.

“Because if you put spitzer bullets in a horizontal-feed magazine, you’ve basically built a bomb,” he explained.

What he meant was that if spitzer bullets are in a line in a gun, the pointed nose of each bullet will act as a firing pin for the cartridge in front of it.  They’ll all go off in a string and in a confined space like deadly dominoes.

So– to return to the train of thought above– what happens if Trump does put in place the tariffs he has threatened, and it increases the cost of living…and people become less receptive to moral arguments as a result, and more parochial, and they vote for more tariffs?