Governomics101:Decreaseddemandmeans…higherprices?

Governomics 101: Decreased demand means … higher prices?

posted at 10:01 am on August 4, 2014 by Ed Morrissey

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Over the last couple of decades, Americans have had to replace plumbing in their homes to conserve water as environmental awareness rose about the costs of fresh water. Traditional high-volume fixtures like toilets and shower heads gave way to low-flow devices that often didn’t quite seem to, er, do the trick. Activists badgered regulators into eliminating the traditional fixtures, and then badgered consumers into reducing their use of water even more. Even in areas without any drought concerns, odd-even lawn watering days are in effect — in my neighborhood, for instance, where floods are more of a worry than drought. All of this came with the promise not just of better resource management, but also lower water bills reflecting the conservation these changes would provide.

Well, the conservation has certainly occurred. Water use has been flat for the last two decades despite population and construction expansion. That means lower prices, right? Er … wrong. In fact, water prices will shortly go up in order to cover the revenue shortfall that conservation created. Consider this Governomics 101:

Federally mandated low-flow toilets, shower heads and faucets are taking a financial toll on the nation’s water utilities, leaving customers to make up the shortfall with higher water rates and new fees that have left many paying more for less.

Utility officials say they understand that charging more for water because demand has dropped might seem to violate a basic premise of Economics 101. But utilities that generally charge by the number of gallons used are beginning to feel the financial pinch of 20 years of environmentally friendly fixtures and appliances, as older bathrooms and kitchens have been remodeled, utility experts say. …

Adding to the problem, Washington-area utilities say, is the fact that consumption is falling as costs are mounting to upgrade sewer systems and repair and replace aging water pipes, some more than a century old, that are bursting after decades of decay and neglect. Meanwhile, utilities’ costs — electricity, chemicals and labor — have continued to rise.

Why raise rates, though, for infrastructure work? The utilities have other options, such as bond issues, or an infrastructure surcharge. The latter would be applied as a flat fee per property, or perhaps per household in multi-resident structures, which would have the effect of negating the idea that this is a penalty for conservation. The Washington Suburban Sanitation Commission plans to apply the surcharge – and the higher rates.

And guess who gets hardest hit? The people who use the least amount of water, of course:

Bills for households that use the least amount of water, such as people living alone, would feel the biggest impact, WSSC officials said.

The fees would come on top of annual rate increases, which have reached as high as 9 percent in recent years. Since 2002, WSSC customers have seen their rates almost double, jumping by 95 percent.

While WSSC’s rate increases have far outpaced inflation, they haven’t been as large as those of many other major U.S. water agencies, a consultant found.

In normal market-based economics, decreased demand would mean decreased prices. Government regulation forcing conservation should have produced lower prices, especially from a resource that for the most of the country can be found in abundance. The people who pay the most would be the ones who make the most utilization of the resource. And private-sector providers in a competitive market would have maintained and improved their own delivery infrastructure as a matter of course, rather than wait twenty years and then hope that price hikes wouldn’t hand an advantage to competitors.

Perhaps water cannot be managed by the private sector in a multi-provider market. But this does give us a very interesting lesson in why government (or government-protected monopolies) shouldn’t manage anything except what it absolutely must.

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Tags: economics, monopolies, supply and demand, utilities, water

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It’scometothis:Venezuelanstryingtomanage

It’s come to this: Venezuelans trying to manage a shortage of… coffins

posted at 8:41 pm on June 16, 2014 by Erika Johnsen

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Cross a mass shortage of basic goods and materials (induced by heavy central planning) with the world’s second-highest murder rate (induced by poverty and the weaksauce rule of law), and what do you get?

Horror. Via Reuters:

Venezuelan funeral homes are struggling to find coffins, with production crimped by a shortage of brass, varnish and satin, complicating the process of burying the dead in one of the world’s most murderous countries.

Undertakers are borrowing coffins from each other or traveling to Colombia to get hold of them. …

Coffin production has dropped some 50 percent in recent months, said Ricardo Guedez, member and until recently president of the National Chamber for Funeral Companies.

That’s partly because manufacturers have been unable to import materials, struggling to obtain dollars because of the government’s strict currency controls.

There is also a shortage of brass because of slumping output at state steel mill Sidor, which late President Hugo Chavez nationalized in 2008.

Demand for funerals is driven by one of the world’s highest murder rates, which has long been Venezuelans’ main gripe with the socialist government. Castro said 70 percent of the corpses her company receives are murder victims.

Coffins are only the latest item to join the long and growing list of scarce things Venezuelans are currently going without, from flour to bottled water to electricity; as one head of a funeral home in Reuters‘ story put it, “Like anything in this country, we can’t get hold of them.” President Nicolas Maduro persists in blaming greedy business owners, underhanded political foes, and foreign conspirators for the country’s overwhelming economic problems, but when you actually have a government agency called the “Superior Organ of the Economy” whose job it is to tell businesses to cut prices, because the government says so, how can he honestly expect different results?

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Tags: crime, death, economics, murder, Nicolas Maduro, socialism, Venezuela

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Huzzah:Obamatopivottotheeconomytomorrow,

Huzzah: Obama to pivot to the economy tomorrow, again

posted at 4:01 pm on June 16, 2014 by Erika Johnsen

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I can hardly wait. Via Pittburgh’s WTAE:

President Barack Obama will visit Bakery Square in Larimer to deliver a speech on the economy Tuesday afternoon.

The White House says Obama will visit TechShop, a fabrication and prototyping studio open to the public via paid memberships.

“The most important thing about TechShop and what it symbolizes is that this really is the future. It’s the intersection of technology, machines and people making things, and that really is the collision that’s right around us,” said Audrey Russo, President and CEO of the Pittsburgh Technology Council. “The exciting thing is that Pittsburgh has a lot of core competencies in this arena.”

Who even knows anymore whether this counts as a full-on “pivot,” but I suppose we’ll just have to wait with bated breath to see if the White House is going to take this particular sojourn as another opportunity to drop some new and glorious executive order on us — which will almost inevitably lie somewhere between “pointless” and “outright damaging” on the effectiveness spectrum — or if this is merely going to be yet another chance for His Eloquence to deliver an overly affected progressive soliloquy to which not even the people present will pay attention. Either way, despite the administration’s insistence on the foremost importance of the economy, they do seem unusually eager to talk about it when they want to especially avoid talking about something else. The Obama economy just contracted, after all, as Noah aptly reminded us this morning, and Democrats’ excuse about the extraordinarily cold winter being such an insuperable barrier to economic growth — as if no harsh winter in all of American history has ever witnessed a period of economic growth, and there are no other major factors to blame — is the lamest of the lame. Still, better for Obama to talk about why those spiteful Republicans are refusing to work with him on job creation than address a little ol’ foreign-policy flareup like Iraq falling apart, eh?

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Tags: Barack Obama, economics, economy, jobs, Obama administration

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VenezuelanprostitutesarerunningafoulofMaduro’sregime

Venezuelan prostitutes are running afoul of Maduro’s regime — but not for the reason you might think

posted at 8:31 pm on June 10, 2014 by Erika Johnsen

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It’s come to this, I suppose, in a country in which residents wake up in the morning not knowing whether they’ll have access to flour, rice, toilet paper, electricity, or even drinking water.

While prostitution is completely legal in Venezuela, the socialist government running the whole farcical show has worked strenuously to try and prevent the sort of relatively lucrative black-market exchanges to which the country’s prostitutes are privy. The government has been jailing traders and shutting down brokerages in an effort to staunch the rise of the runaway unofficial exchange rate since Chavez began controlling the bolivar’s price over a decade ago — but to no avail. Read on for a horribly disheartening article on the brand of economics currently governing many Venezuelans’ desperate, survival-mode behavior from Bloomberg:

The arrival of a Liberian-flagged freighter with Ukrainian, Arab and Filipino sailors spells one thing for Elena — dollars. And greenbacks are king in Venezuela, the 32-year-old prostitute says.

Within hours of hearing of the ship’s imminent arrival, she has packed her bags and is heading to the crumbling city of Puerto Cabello. It is a 450-kilometer (280-mile) journey from her home in the Western state of Zulia that Elena finds herself doing more often now as Venezuela’s economy contracts, the bolivar slumps and prices soar.

Prostitutes more than double their earnings by moonlighting as currency traders in Puerto Cabello. They are the foreign exchange counter for sailors in a country where buying and selling dollars in the streets is a crime — and prostitution isn’t. Greenbacks in the black market are worth 11 times more than the official rate as dollars become more scarce in an economy that imports 70 percent of the goods it consumes. …

The dollar shortage is turning Venezuela into a two-tier society similar to the Soviet Union and Cuba, said Steve Hanke, professor of applied economics at Johns Hopkins University in Baltimore. Those with access to dollars such as prostitutes, tour agents, airport taxi drivers and expatriates are able to shield themselves from inflation by trading their greenbacks at ever higher rates. Those who can’t are seeing their living standards decline.

In a country where prostitution is legal, it is the black market in dollars that Maduro has called “perverse,” saying it was designed by the bourgeoisie to destroy his Socialist government.

Ah, yes — the “perverse” economic war being waged against the ever-victimized President Maduro by his political opposition, greedy conniving businessmen, and nefarious foreign powers all in cahoots with one another and out to get him… which mysteriously just keeps getting worse the more control Maduro tries to exert over it. Funny how that happens, eh?

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Tags: black market, currency, economics, exchange, inflation, prostitution, Venezuela

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Mexico’soilindustryisfinally,mercifullyreadyto

Mexico’s oil industry is finally, mercifully ready to open for business

posted at 6:31 pm on June 8, 2014 by Erika Johnsen

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While the United States’ oil and gas industry has lately been going absolutely gangbusters, Mexico’s oil production has been declining over the past decade — and it isn’t very difficult to figure out why. The state-owned oil company Petroleos Mexicanos, a.k.a. Pemex, was founded in the 1930s and has precluded foreign as well as private investment into the development of Mexico’s considerable oil and gas reserves throughout most of its history. The prevailing populist/socialist-ish sentiment that tends to look on said foreign and private investment as little better than plunderage of The People’s natural resources has kept the industry from following in the United States’ footsteps, but as President Peña Nieto put it when signing the legislation removing these self-imposed economic shackles last December, “we’ve decided to overcome the myths and taboos to take a great leap into the future” — and that time is almost nigh. Via the Washington Post:

Pemex has always functioned as an arm of the state. It’s the biggest Mexican company and the country’s biggest taxpayer. In the final quarter of 2013, Pemex paid 50 percent of its revenue — $16 billion — in taxes to the federal government, which uses the state-owned company to fund a third of its budget. Pemex posted a loss of $5.8 billion for the quarter, bringing its total loss for 2013 to $13 billion. It lost $2.74 billion in the first quarter of 2014. …

Edgar Rangel of Mexico’s National Hydrocarbons Commission, which oversees and regulates oil exploration, predicts that the opening of the country’s energy industry will bring in up to $30 billion of foreign investment annually and create as many as 2 million jobs.

The law’s approval prompted Moody’s Investors Service in February to raise Mexico’s credit rating one level to A3 from Baa1, saying it will help add about one percentage point to the country’s annual gross domestic product growth by 2018. …

For foreign oil giants such as Chevron, Exxon Mobil and Royal Dutch Shell, it means gaining access to untapped oil reserves that Pemex says could total 113 billion barrels, including 26.6 billion in the deep waters of the Gulf of Mexico. The reserves are worth $11 trillion.

And the Energy Information Administration estimates that Mexico has at least the sixth-largest shale gas reserves in the world, which — with a little innovative technological/financial help — could help fuel a shale boom of their own.

Mexico’s Congress still needs to pass the secondary legislation that will officially open up the country’s industry, and Pemex and its powerful union are still acting a little cagey on just how much freedom they want these new investors and companies to have, but once everything gets sorted out, the industry should be ready for business sometime later this year — and this is exactly the kind of introduction to more economic and business freedom that Mexico sorely needs.

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Tags: economics, free trade, investment, jobs, Mexico, Oil and Gas Industry, Pena Nieto, wealth

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WaPo:Canwepleasecutitoutwith

WaPo: Can we please cut it out with all of this anti-GMO asininity?

posted at 2:41 pm on June 3, 2014 by Erika Johnsen

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Human beings have been using various agricultural techniques to genetically modify (i.e., breed for preferred traits in) their food for thousands of years, and the more recent and more rapidly innovative advent of genetically modified foods via laboratory has helped scientists and farmers to develop hardier, more nutritious, pest-and-weather-resistant crops that have the ability to feed more people while using up less space and fewer resources (which, I might mention, is a pretty great environmental development to boot).

Despite their boundless potential for feeding the hungry and alleviate poverty the world over, genetically modified organisms have inspired a small but vociferous and well-marketed opposition campaign among many of the same types of people who would probably dismiss you as a knuckle-dragging, anti-science flat-earther for questioning the absolute and catastrophic imminence of climate-change disasters. If rising global temperatures are indeed the all-consuming environmental problem that The Party of Science portends, then GMOs are going to be an essential part of any adaptation strategy — but let that not deter the voters of Jackson County, Oregon, who last month joined several other counties spread across California, Hawaii, and Washington to ban the cultivation of genetically modified crops:

Residents in a southwest Oregon county voted emphatically to ban genetically engineered crops following a campaign that attracted a bushel of out-of-state money.

With most of the ballots counted in Tuesday’s all-mail election, Jackson County voters approved the measure by a 2-to-1 margin. ..

Though genetically engineered crops are common and no mainstream science has shown they are unsafe, opponents contend GMOs are still experimental and promote the use of pesticides. They say more testing is needed. …

“Regrettably ideology defeated sound science and common sense in Jackson County,” Barry Bushue, president of the Oregon Farm Bureau, said in a statement. “We respect the voice of the voters, but remain convinced Measure 15-119 is bad public policy. While this election is over, this debate is not. We will continue to fight to protect the rights of all farmers to choose for themselves how they farm.”

The editors of the Washington Post would agree with that sensible assessment, as they outlined in a piece this week criticizing the anti-”Frankenfood” “fundamentalism” of these anti-science and trend-chasing yuppies:

There is no mainstream scientific evidence showing that foods containing GMOs are any more or less harmful for people to consume than anything else in the supermarket, despite decades of development and use. If that doesn’t convince some people, they have the option of simply buying food bearing the “organic” label. There is no need for the government to stigmatize products with a label that suggests the potential for harm. Outright bans, meanwhile, are even worse than gratuitous labeling.

The issue is not just one of agribusiness profits, though some companies certainly stand to make money by creating and selling GMOs. The application of current biotechnological tools to agriculture offers a wide array of benefits , benefits that are only beginning to be seen. There is the potential to create crops that are easier to grow, better for the environment and more nutrient-rich. Smart genetic modification is one important tool available to sustain the world’s growing multitudes. Making good on that promise will require both an openness to the technology and serious investment in GMOs within wealthy countries. The prospect of helping to feed the starving and improve the lives of people across the planet should not be nipped because of the self-indulgent fretting of first-world activists.

Amen to that.

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Tags: agriculture, economics, food, genetically modified crops, health, hunger, poverty, science

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Venezuela’slatesteconomicshortage—drinkingwater

Venezuela’s latest economic shortage — drinking water

posted at 6:01 pm on June 2, 2014 by Erika Johnsen

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In order to combat what we are meant to believe is the work of malicious Venezuelan businesses owners hoarding-and-speculating with basic goods and services in order to wage an “economic war” against the regime of Nicolas Maduro — not to mention the murky yet ever-present conspiratorial capitalist forces interfering from abroad — the Venezuelan government announced last month that they would begin rationing water and electricity in order to cope with what they assured residents was merely a temporary problem.

It’s gone about as well as you think it has. Via Bloomberg:

Residents of the Venezuelan capital of Caracas, who already struggle to find toilet paper and deodorant, are facing a new shortage — drinking water.

The rationing of tap water amid a drought and a shortage of bottles because of currency controls are forcing people to form long lines at grocery stores and bottle shops as soon as deliveries are made. Truck drivers spend much of their day outside water dispatch centers as they try to meet demand.

“I used to have to wait an hour to refill the truck, but now I have to wait six,” said Carlos Miliani from his truck outside the Alpina dispatch center in eastern Caracas. “More trucks are lining up here because of the shortage of plastic containers and the fact that plants that bottle mineral water have shut down.” …

Regulated prices for bottled water have not been raised since November 2011, industry association Anber said in a May 19 statement. Since then, consumer prices have risen 110 percent, according to central bank data, while the bolivar has lost 87 percent of its value on the black market, according to dolartoday.com, a website that tracks the value on the Colombian border.

Some areas of Caracas are only receiving water service three days a week, and when water does flow, the stuff is so contaminated that few residents dare to drink it anyway. Winning.

And while Maduro was most put out last week by yet another alleged shadow plot to assassinate him designed by the right-wing fascists of his political opposition (backed by the United States, of course), he was full of praise for the Obama administration’s for speaking out against the Venezuelan sanctions recently passed by the House:

Venezuelan President Nicolas Maduro said passage of legislation to impose sanctions on officials could cause his country to shut down its diplomatic missions in the United States, but he praised the Obama administration’s opposition to the bill and said it has led him to name a new top diplomat in Washington. …

Maduro spoke in response to comments by Assistant Secretary of State Roberta Jacobson, who once again urged the U.S. Senate to vote against the measure. The bill calls for freezing any U.S. assets and denying visas to Venezuelan officials accused of violating human rights during a wave of protests that started in February.

Maduro said that he had read the remarks “with great attention” and said the “leap toward good sense” had led him to name a new top diplomat in Washington.

Even lukewarm praise from Venezuela’s government is remarkable following an avalanche of denunciations. Maduro and his backers, following the path of former President Hugo Chavez, have repeatedly accused Washington of trying to topple him and have blamed the U.S. for stirring up the protests in which at least 42 people have died.

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Tags: economics, Nicolas Maduro, shortages, socialism, Venezuela, water

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ThePerilsofPiketty postedat9:31

The Perils of Piketty

posted at 9:31 am on May 25, 2014 by Ed Morrissey

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In order to get an expert look into the controversy over Thomas Piketty’s work and the Financial Times’ exposé of the errors and “constructs,” I asked Ricochet writer and my good friend King Banaian to break it down for us. King also has a Saturday morning show on KYCR in the Twin Cities on economics and business policy, and is a professor of economics at St. Cloud State University. King is also a senior fellow at the Center for the American Experiment.

A small bombshell exploded Friday with the publication by the Financial Times of an article by Chris Giles and Ferdinando Giugliano detailing data errors in Prof. Thomas Piketty’s unlikely bestseller Capital in the 21st Century. As noted there, most every reader of the book, fans and critics alike, had praised the detailed data Prof. Piketty has provided. The argument heretofore has been entirely over his theory that, because the return on capital inexorably rises above that of GDP, wealth increasingly concentrates in fewer and fewer hands.

Like many people who have bought the bestseller, I haven’t been able yet to wade through all 577 pages.  I expect many copies are sitting on coffee tables next to unopened books of art or architecture that help us make statements in our homes.  (Mine is on my iPad like so many others these days.)  So I will refrain from discussing the theory and only focus on the issues Giles and Giugliano (hereinafter GG) raise.

GG show some examples, first, that there were transcription and “fat-finger” errors in the datasets that Piketty put out in an online annex. This kind of error is every scientist’s nightmare. I produce many datasets for local and regional policy makers and scholars, and even on a third or fourth read you sometimes find gremlins in the data. The errors of this nature are of a kind that were made in the criticism made of Ken Rogoff and Carmen Reinhart’s book This Time is Different. Another book with centuries of data, at one point Rogoff and Reinhart had improperly filtered their Excel spreadsheet. The result, it turns out, wasn’t greatly changed by the properly-filtered data. If this was the total of what GG found, there’d be little to report here, and I’d be inclined to give him the benefit of the doubt:  ”Happens to the best of us, Thomas.”

(Steve Hayward wonders why Harvard University Press didn’t find these errors. The simple answer, from my own 30 years of publishing experience, is that there is almost no review process in academic book publishing, and not much more in the vaunted “peer-review” process. It’s worth noting that Harvard U.P. doesn’t keep the dataset on its website; Piketty does that himself. For that he should be praised: science is only science when your results are transparent and replicable.)

There is a second similarity between Piketty and Rogoff/Reinhart. GG say that Piketty didn’t weight the observations of Europe properly, saying “when averaging different countries to estimate wealth in Europe, Prof Piketty gives the same weight to Sweden as to France and the UK – even though it only has one-seventh of the population.” Well, that’s probably something I might change, but that doesn’t make what Piketty did an error or dishonest. He just picked a different averaging method that you did. The critics of Rogoff and Reinhart made the same claims, and found that the averaging method made a difference in the claims those authors make about the impact of government debt on economic growth. It isn’t obvious to me or anyone else that one way is right and the other wrong. They are just different, and it will not surpise you to find people cheering the averaging method that comes up with their preferred result.  Fun for econo-bloggers but not many others.

This criticism, however, is more serious and troubling. Let me quote GG once more:

A second class of problems relates to unexplained alterations of the original source data. Prof Piketty adjusts his own French data on wealth inequality at death to obtain inequality among the living. However, he used a larger adjustment scale for 1910 than for all the other years, without explaining why.

In the UK data, instead of using his source for the wealth of the top 10 per cent population during the 19th century, Prof Piketty inexplicably adds 26 percentage points to the wealth share of the top 1 per cent for 1870 and 28 percentage points for 1810.

It turns out the differences are huge. In a companion blog that details what they found, Giles shows that the data Piketty cited for wealth of the top 10% in the UK was different from the official source … by 71% for Piketty versus the official number of 44%. In some places Piketty’s spreadsheets had had random digits added that seemed to make the data smoother, fit better than it would have otherwise. Some data appaered to be cherry-picked and other data simply “constructed” (what the non-economist probably calls “made up.”) It’s one thing to interpolate or average over two data points when the middle one is not available, but what Piketty has done appears to be more aggresive in constructing data than that.

Piketty responded to the FT with an explanation that is not altogether satisfying:

For the time being, we have to do with what we have, that is, a very diverse and heterogeneous set of data sources on wealth: historical inheritance declarations and estate tax statistics, scarce property and wealth tax data, and household surveys with self-reported data on wealth (with typically a lot of under-reporting at the top). As I make clear in the book, in the on-line appendix, and in the many technical papers I have published on this topic, one needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries. I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments. I have no doubt that my historical data series can be improved and will be improved in the future (this is why I put everything on line). [Emphasis mine.]

But how do you do that without doing things that could be construed as biased towards your outcome? It is a basis of scientific analysis that we agree what the data are, but it seems in some cases Piketty is saying “this is my data, there isn’t a perfect dataset out there, if you think you can do better go ahead.” Well, that is hardly a defense for your own data being definitive, Professor.

No single graph or statistical analysis will ever convince someone that the theory he didn’t think was true in fact is true. Scientists value results that are robust, meaning the results are the same across different times and places. This last error appears to make Piketty’s results less robust and so less likely to change anyone’s mind about what they already thought of inequality, and more likely to make Capital in the 21st Century an expensive, unread table book.

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Tags: economics, fraud, inequality, Thomas Piketty

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Study:“FairTrade”coffeecanactuallybethe

Study: “Fair Trade” coffee can actually be the opposite

posted at 8:01 pm on May 21, 2014 by Erika Johnsen

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Given the way the word is bandied about by bureaucrats and progressive types claiming that the singular and unquestionably noble goal of their reliably top-down social prescriptions is to look out for the little guy being meanly exploited by the big, bad one percenters of the world, I’ve become pretty wary of the term “fair.” The word is used to cover all manner of ills from the self-congratulatory Robin Hoods of the world, who do not strive to create wealth as much as they do to redistribute it, and unfortunately, even the people who do start out with the sincerest of intentions can end up falling prey to that end result via the law of unintended consequences. In that vein, the “Fair Trade” label that permeates so many of our daily coffee purchases in the West might not deserve the designation.

This is how Fair Trade USA describes its mission when it comes to aiding coffee farmers in the developing world:

Your rich cup of Fair Trade coffee can help farmers escape poverty. Most small-scale family farmers live in remote locations and lack access to credit, so they are vulnerable to middlemen who offer cash for their coffee at a fraction of its value. Fair Trade guarantees farmers a minimum price, and links farmers directly with importers, creating long-term sustainability. Through Fair Trade, farmers earn better incomes, allowing them to hold on to their land and invest in quality.

(Sidebar: “Sustainability” is another deliberately vague and seemingly innocuous word of which I’m highly wary, but that’s a blog post for another day.)

Again, I’d wager that the people who started the “Fair Trade” designation did it with the very best of intentions to try and ease what are some seriously unjust problems with Third World economies, but as so often happens with trying to apply solutions from the top down rather than fixing systemic and fundamental problems from the bottom up, Fair Trade labeling is like a price-fixing scheme fraught with the attendant inefficiencies and unintended consequences. This isn’t by any means a new debate, but The Economist reports on just the latest research from the School of Oriental and African Studies (SOAS) in London comparing living standards in Fair Trade-certified producing areas in Ethiopia and Uganda with similar non-Fair Trade regions — and the economists concluded that Fair Trade agricultural workers often earned lower incomes than their non-Fair Trade counterparts:

After four years of fieldwork in the coffee, tea and flower sectors in Ethiopia and Uganda, where they gathered 1,700 survey responses and conducted more than 100 interviews, the SOAS researchers found people living in ordinary rural communities enjoyed a higher standard of living than seasonal and casual agricultural workers who received an apparently subsidised wage for producing Fair Trade exports. Women’s wages were especially low among producers selling into Fair Trade markets, according to the researchers.

Comparing areas where the same crops were produced by similar, though not Fair Trade-certified employers, they found that workers received higher wages and benefited from better conditions. This was not because the Fair Trade cooperatives were based in areas with higher or particular disadvantages. The rationale of Fair Trade is that producers of commodities subject to price volatility should be protected through payment of a minimum price to cover living and production costs, a price which adjusts whenever the market shifts above the minimum threshold. In addition to this, traders should pay workers a “social premium” of around 5-10% for development and technical assistance.

The SOAS research suggests that Fair Trade has failed to make a positive difference.

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Tags: Africa, agriculture, central planning, coffee, economics, poverty, regulations

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PopeFrancis:Zacchaeusand“legitimateredistribution” posted

Pope Francis: Zacchaeus and “legitimate redistribution”

posted at 10:01 am on May 9, 2014 by Ed Morrissey

The latest speech from Pope Francis is leading Drudge and the Twittersphere, and for good reason. Any time a world leader talks about “legitimate redistribution” in regard to economic policy, it raises eyebrows, if not hackles. In the case of this pontiff, the highlight of that phrase provokes heightened scrutiny. However, the longer context of Francis’ remarks this morning to UN leadership provides a much more nuanced picture of Francis’ view of economic policy — although probably not nuanced enough for libertarian ears:

With this in mind, I would like to remind you, as representatives of the chief agencies of global cooperation, of an incident which took place two thousand years ago and is recounted in the Gospel of Saint Luke (19:1-10). It is the encounter between Jesus Christ and the rich tax collector Zacchaeus, as a result of which Zacchaeus made a radical decision of sharing and justice, because his conscience had been awakened by the gaze of Jesus. This same spirit should be at the beginning and end of all political and economic activity. The gaze, often silent, of that part of the human family which is cast off, left behind, ought to awaken the conscience of political and economic agents and lead them to generous and courageous decisions with immediate results, like the decision of Zacchaeus. Does this spirit of solidarity and sharing guide all our thoughts and actions, I ask myself?

Today, in concrete terms, an awareness of the dignity of each of our brothers and sisters whose life is sacred and inviolable from conception to natural death must lead us to share with complete freedom the goods which God’s providence has placed in our hands, material goods but also intellectual and spiritual ones, and to give back generously and lavishly whatever we may have earlier unjustly refused to others.

The account of Jesus and Zacchaeus teaches us that above and beyond economic and social systems and theories, there will always be a need to promote generous, effective and practical openness to the needs of others. Jesus does not ask Zacchaeus to change jobs nor does he condemn his financial activity; he simply inspires him to put everything, freely yet immediately and indisputably, at the service of others. Consequently, I do not hesitate to state, as did my predecessors (cf. JOHN PAUL II,Sollicitudo Rei Socialis, 42-43; Centesimus Annus, 43; BENEDICT XVI, Caritas in Veritate, 6; 24-40), that equitable economic and social progress can only be attained by joining scientific and technical abilities with an unfailing commitment to solidarity accompanied by a generous and disinterested spirit of gratuitousness at every level. A contribution to this equitable development will also be made both by international activity aimed at the integral human development of all the world’s peoples and by the legitimate redistribution of economic benefits by the State, as well as indispensable cooperation between the private sector and civil society.

Consequently, while encouraging you in your continuing efforts to coordinate the activity of the international agencies, which represents a service to all humanity, I urge you to work together in promoting a true, worldwide ethical mobilization which, beyond all differences of religious or political convictions, will spread and put into practice a shared ideal of fraternity and solidarity, especially with regard to the poorest and those most excluded.

In this case, the term “legitimate” is a limiting factor when redistribution is placed in the context of the Gospel story of Zacchaeus. Who was Zaccheaus? He was a tax collector — an agent of the government — who overtaxed and profited from his cheating. In Luke 19, Jesus’ visit to Jericho inspires this sinner and cheater to repent when Jesus extends an invitation to join him. What does Zacchaeus do in response? He proclaims his intent to redistribute his ill-gotten gains back to those whom he defrauded, and to willingly and privately share his wealth with the poor. ”And Zacchae’us stood and said to the Lord, “Behold, Lord, the half of my goods I give to the poor; and if I have defrauded any one of anything, I restore it fourfold.”

In this exhortation, Francis links legitimate redistribution — ie, social benefits that almost every nation distributes in some form or another — with the larger efforts in the private sphere. Francis calls more for the conversion of the heart in private transactions in this exhortation more than any change in public policy. Much like conservatives like to profess in other contexts, Francis argues here that culture is upstream of politics. If we change hearts to be more generous and less attached to the hoarding of wealth as Jesus did with Zacchaeus, then there will be less need for governments to redistribute by force.

This may not be the most conservative or libertarian expression of economic policies, but it’s basic Catholic teaching on economics for decades, if not centuries. The lesson of Zacchaeus isn’t that government should seize more private property, but that private citizens should convert to a greater love of God and therefore have more solidarity with the poor. Those who oppose social-benefit programs will still find fault with Francis on this point, and there’s plenty of room for debate as to what constitutes “legitimate” efforts in that sphere. It’s clear, though, that he wasn’t calling for widespread and massive confiscation of wealth by governments. In fact, the story of Zacchaeus points out the dangers and injustice that result from that kind of policy.

Just remember — when the media provides only small soundbites of Pope Francis, it pays to read the entirety of his remarks, and to know and understand the teachings behind them.

Tags: Catholic Church, economics, Pope Francis, redistribution

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Venezuelamovesontowaterandelectricityrationing

Venezuela moves on to water and electricity rationing as Rubio pushes economic sanctions

posted at 1:21 pm on May 8, 2014 by Erika Johnsen

The widespread protests that broke out in Venezuela in February have been slowly tapering off — not because the runaway inflation rate, crime rate, and basic goods shortages that sparked the unrest have at all improved, but because of the spreading resignation that a government coup isn’t quite imminent — and this morning, the government moved to crack down on the remaining protests by fabricating claims of drugs, explosives, and weapons abounding in the protesters’ camps and rounding up the supposed offenders, via Reuters:

Venezuelan security forces on Thursday rounded up hundreds of youth activists camped in public spaces as part of protests against President Nicolas Maduro, an effort to snuff out the waning demonstration movement.

Troops staged pre-dawn raids to break up four improvised tent camps decorated with Venezuelan flags and signs bearing protest slogans, one of which had for weeks been blocking traffic along a main avenue of the capital.

Interior Minister Miguel Rodriguez said soldiers arrested 243 people, accusing the students of using the camps as a base of operations to stage violent protests in other parts of the city.

As I said, nothing about Venezuela’s economic situation has improved as Maduro has continued to blame the shortages on greedy businessmen and foreign conspirators waging an “economic war” against his regime — and indeed, things are about to get a whole lot worse. Via Bloomberg:

Venezuela’s government announced the start of electricity rationing in western Zulia state as well as water rationing in Caracas to reduce demand on the power grid, a day after Ford Motor Co. halted production in Latin America’s largest oil exporter.

The second-largest U.S. automaker joins competitor Toyota Motor Corp. and Dutch truck-maker CNH Industrial NV in suspending assembly in the South American country because of the difficulty of obtaining dollars to import parts from the government.

Shortages of everything from water to car parts and flour to pregnancy tests come after three months of protests against the government of President Nicolas Maduro that have left at least 41 people dead. The government yesterday said it will start rationing electricity and water as drought drains hydroelectric reservoirs and water tanks.

“This is another acknowledgment that the country is not working,” Michael Shifter, president of Inter-American Dialogue in Washington, said in a phone interview yesterday. “If this spreads to the rest of the country and becomes a nationwide rationing of electricity, it will significantly cut into Maduro’s support.”

And this is just the latest bad economic news on top of a report from Human Rights Watch out this week reporting on cases of military and paramilitary pro-government forces have been beating and shooting unarmed protesters, as well as making completely undue arrests and torturing detainees. The social, political, and economic situation for Venezuelans just keeps devolving, and Sen. Marco Rubio is again pushing hard for sanctions that he hopes will show the world that the United States is “firmly on the side of the democratic aspirations of the Venezuelan people”:

State Department officials will brief a Senate committee Thursday on violent street protests that have rocked the country for weeks, and a House panel will finalize its version of a sanctions bill Friday.

The legislation in both chambers is relatively modest. It centers on $15 million in new funds to promote democracy and rule of law in the South American country. It bans visas for Venezuelan officials who crushed anti-government protests by students, opposition leaders and others and freezes their assets. …

“This is happening in our very own hemisphere,” Rubio said in a telephone interview with the Associated Press. He said sanctions should target anyone responsible for human rights violations, refusing to rule out Venezuelan President Nicolás Maduro as a potential target.

Tags: central planning, economics, Nicolas Maduro, poverty, protests, rationing, socialism, Venezuela

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