Friday, March 16, 2018

All about demand

"If you build it, they will come" is one of the sillier ideas around. It ignores demand.  The Economist comments on how this idea fared, when tested, in the discussion of "food deserts."  People get awful choices when they prefer awful choices. Poor people are not deprived of healthy food because it is inevitably costly or because greedy capitalists are misanthropic.  Greedy capitalists want to make money -- and will find ways to bring to market whatever it is that willing customers want.  Once again, ideology causes commentators to blunder. Demand is the most important idea in economics. Simple and true.  Supply will follow.

What else do we know?  Implementing the dreams of policy makers (often appendages to crony capitalism) causes more problems than it solves. Politicians' heavy involvement in land use controls has messed up housing in large metropolitan areas.  This has delivered the housing "affordability" mess.  Progessives manage to hurt the poor most. The simple fact has been documented many times by serious research.  Here is the latest.

But when politicians try to fix the problems they have created, they often deepen the whole they have dug.  Finally getting out of the way when builders want to build at higher densities sounds good.  But the social engineers' "solution" does not.  The California legislature now wants higher densities permitted if developed near transit stations.  But most Californians are not interested in public transit.

Stating the obvious makes no difference.  The California "bullet train" continues to waste resources with no end in sight. The folks who preen their scientific with-itness when touting climate change go totally off the rails (sorry!) when they offer their "solutions."  Better to look at demand first.   

Saturday, March 03, 2018

Left and right confusion

One wishes that good economics makes good politics but every time politicians reach for protectionist policies, it becomes clear that this is not to be. Short term advantage matters most. The long term damage of economic meddling is nobody's business.

Capitalism means different things to different people. Baumol, Litan and Schramm attempt to explain Good Capitalism, Bad Capitalism. The one we seem to be stuck with is bad crony capitalism. The cronies in politics and in business are always in play and have to be constrained. How? The hope was that with enough education, the fundamental truth that we become prosperous via comparative advantage (clear from logic and history) would matter but these profound lessons have not sunk in. Don Boudreaux at Cafe Hayek hammers at the essentials almost daily.

At the Fox Business Channel, the other day Stuart Varney carefully explained to his colleagues that Trump was for "free, fair and smart" trade. The fact that it is meaningless rhetoric in the service of nothing but crony capitalism dawned on no one in the room. Pro-business and pro-market are not the same. But the confusion goes way beyond Trump and Varney. I fear that it is widely share on the left as well as the right.