When Is a Market Failure Not a Market Failure?

It’s good to be reminded every so often that there are only two known ways of allocating scarce goods:

  1. A market system
  2. A command system

Any enthusiasm for market systems is not because they’re so great but because command systems are so bad. As my Econ 101 prof said all those years ago, “We don’t know how to promote prosperity but we do know how to create shortages”. Every command system always runs into something called “the knowledge problem”. The central planners simply don’t know enough. Command systems always have deadweight loss, a reduction in total production due to overproduction of some goods and underproduction of others.

John Cochrane has a lengthy diatribe on two articles blaming, of all things, our pandemic response and slowness in adopting new technologies as market failures. Here’s the strongest part of his critique:

More deeply, even I, devoted free-marketer; even at the late night beer sessions at the CATO institute, nobody puts mask distribution in a pandemic as the first job of free markets. There is supposed to be a public health function of government; infectuous diseases are something of an externality; safety protocols in government labs doing government funded research are not a free-market function. As we look at the covid catastrophe, do we not see failures of government all over the place, not failures of some hypothetical free market? California even had mobile hospitals after H1N1. Governor Brown shut them down to save money for his high speed train. We might as well blame free markets for the lines at the DMV.

Our response to the pandemic had high points and low ones. I think the CDC’s bellyflop on a test for COVID-19 early on was a low point; Operation Warp Speed was a high point. I think we could use a high level commission to review the federal government’s response. My understanding is that partisanship has prevented the proposed commission from getting started. That itself speaks volumes.

4 comments

Whose Job Is It?

Here’s an issue I’ve called out several times. At Federal Times Jordan Cohen calls attention to an Department of Defense Office of the Inspector General report that has found, well, that no one is minding the store:

On June 12, 2023, the Department of Defense’s Office of Inspector General released a report evaluating the quality of the accountability controls for U.S. weapons sent to Ukraine through Poland.

The report’s findings suggest the lack of accountability is even worse than skeptics imagined.

Instead of losing the ability to monitor weapons once they arrive in Ukraine, as many assume, the accountability problems begin before they leave the United States. The lack of accountability can lead not only to weapons dispersion to criminal organizations but also reduces the ability for DoD to track the financial value of weapons sent – all of which potentially risks the security and prosperity of Americans.

The OIG report finds that the lack of accountability occurs for two reasons. First, the agencies responsible for transferring equipment were working at such a high speed they did not provide required information to the recipients in Poland, who are then supposed to send them in transit to Ukraine.

Second, the DoD personnel whose responsibility it was to ensure that transfers meet the accountability thresholds were given no “guidance to training” even when they “lacked logistics subject matter expertise.” As a result, DoD has incomplete documents and an inability to accurately count the number of small arms and light weapons that are being sent to Poland, making accounting for them upon their arrival impossible.

The speed argument is reasonable to some degree. The “nobody showed us how” argument to my eye reflects an astonishing lack of preparedness.

We should able to identify by serial number, type, and description every weapon we’ve sent to Ukraine. Why can’t we?

We have been sending Ukraine weapons since February 2022. That’s nearly a year and a half. By this point we should have some idea of what’s going on.

Failing to keep track comes with risks. They include no ability to determine whether the weapons arrived where they were supposed to, no ability to determine where they did arrive, and even the possibility of those weapons being used against us.

0 comments

Prediction Is Hard Especially About the Future

I wanted to pass along this post by George Friedman that deals with some of his fifteen year old predictions. IMO he’s right about them but almost entirely for the wrong reasons. The first prediction he discusses was that there would be no repeat of 9/11. The second is about the Chinese economy. Here’s his discussion:

China had started growing rapidly, and how long it would grow depended on the global economy and internal stability. I couldn’t predict this. However, given the early excitement about China’s growth, I felt it worthwhile to point out that China, as an exporting country, could not grow fast enough or long enough to match the United States.

The method I used to reach this conclusion was to model the emergence and decline of other export-dependent economies under pressure to grow.

The first was the United States, which, after the Civil War, found its economy shattered and domestic demand limited. Existing manufacturers shifted to exporting around 1890. By 1910, the U.S. was producing and exporting about 50 percent of the world’s industrial goods. World War I shattered Europe’s economies, crippled U.S. exports and led to the Great Depression around 1929-30, 40 years after the U.S. had begun to grow.

Something similar happened to Japan. Shattered by the end of World War II, it turned to the export market, particularly the U.S., with great success in the 1950s. By the late 1970s, the U.S. started an economic downturn that eventually slashed Japanese exports and, by the 1980s, created what was called the Lost Decade. By 1990, Japanese banks were reeling and its economic miracle was over. This occurred 40 years after the start of the Japanese exporting miracle.

China was another example of an export-dependent economy, hostage to the ability and willingness of other countries to import. I avoided assuming it would follow the 40-year cycle, as I had only two prior examples, did not understand the time cycle and wrote it off as coincidence. Now with a third example, I still don’t understand it but can’t deny it. China’s economic rise began in the 1980s, and now 40 years later in the 2020s, it is facing a similar economic slowdown to Japan.

After the Great Depression and World War II, the United States went on to great economic success, as did Japan following its economic failure. The failure of the Chinese economic model means a great deal of pain but in no way ends Chinese history. This of course depends on how the Chinese public responds to economic malfunction. That is a forecast to come.

WRT Al Qaeda, it is my opinion that any religion with the following characteristics will have a recurring problem with religiously inspired violence:

  • Universal
  • Sola scriptura
  • Its holy book can be interpreted as sanctioning violence against non-believers
  • Lack of a magisterium

I have run that past experts on Islam and its history. They tend to agree with me.

In short we may not be attacked by Al Qaeda again but we will be attacked by violent radical Muslims again.

WRT to the Chinese economy although I find his point about a 40 year cycle interesting I think his interpretation of China’s growth is flawed. He’s greatly overestimating the role of exports in China’s economy. Much of China’s growth is due to urbanization. I suspect that’s run its course. Check the real estate market.

2 comments

Outcomes

At RealClearDefense Robert Umholtz sees two possible outcomes for the war in Ukraine:

If the war continues, there are two likely outcomes. One is the Russian body count of lost soldiers will continue to climb, the mobilization will resume, and the people will react by forcing an end of the war through protest or regime change as they did during World War I. The other possible outcome, and certainly even worse than the first, is that Ukraine begins to take Crimea back and Putin feels the only way to avoid defeat is a scorched earth policy. In this case, he is likely to use a tactical nuclear weapon, thus preventing Ukrainian victory and destroying Crimea in the process. Diplomacy has not worked yet in this conflict. I hope I am wrong and there is a third option. I recommend we all pray that the third option materializes, but if history is to be a guide the outcome is likely listed above.

That follows a lengthy exposition of the history between the two countries. He draws the correct conclusion from that history: the Russians and the Ukrainians are actually quite similar which does not bode particularly well. As he notes: “nobody out-sucks the Russians”.

However, I do have some quibbles with his exposition. For example, he characterizes Russia’s taking Crimea as “symbolic”:

Russia achieved a symbolic victory when it invaded and captured Crimea with little resistance from the international community, but Ukraine is likely to continue fighting at this point until Crimea is back under Ukrainian control. The history discussed above proves each nation is willing to suffer unimaginable loss before relinquishing the land they believe is rightfully theirs.

He’s wrong about that for several reasons including the peninsula’s substantial Russian population and its strategic importance.

I also think he leaves out an important third option: Ukraine loses enough people that it can’t continue with organized resistance.

1 comment

What If It Were a Leak?

I’ve meant to post on this subject for some time. I first saw it in the Times of London. Then in a variety of blog posts from various sources. Now it’s beginmning to leach into major U. S. media outlets. The evidence that COVID-19 was the result of a lab leak is actually growing. At the New York Post Marty Makary presents ten reasons to believe that COVID-19 was the result of a lab leak.

The one big reason to believe it wasn’t remains that most viruses have been found to have been zoonotic—to have started in another species before spreading to humans.

That isn’t actually what this post is about, however. I have two questions:

  1. Is its source important?
  2. What should be done if it did turn out to have been the result of a lab leak?

I think it’s important and have already presented my opinion of what should be done.

6 comments

Welcome to Illinois

I found this portion of an analysis of a recent Harvard CAPS/Harris poll from PRNewsWire via Yahoo/Finance illuminating:

  • 64% of voters say they would want to live in a state that cuts taxes, encourages public charter schools, does not allow gender surgery for minors, and restricts most abortions after six weeks.
  • By contrast 66% of voters – including a majority of all parties – say they would not want to live in a state that has increasing taxes, restricts legal gun ownership more strictly, allows abortion up to 9 months, allows minors to get gender surgery without parental permission, encourages undocumented immigrants, and allows felons to vote.

All of the items listed in that second bullet point are measures either presently the case in Illinois or favored by our governor and state legislations.

Welcome to Illinois!

I really wish I could see the results broken down by state. I suspect that for all the braying of our political leaders about democracy the majority of Illinoisans fall into that 66%.

2 comments

What Would Be “Adequate”?

I disagree with quite a bit in Walter Russell Mead’s latest Wall Street Journal column which focuses on Secretary of State Blinken’s trip to China. For example:

Meantime, Secretary of State Antony Blinken’s visit to Beijing was a solid though limited success.

Unless you consider the very fact of Blinken’s visit and the fact that he actually met with President Xi a solid success, I don’t see how you can look at the body language and expressions of the various parties in the published photographs and arrive at that conclusion. They look like nine year olds being told they must clean up their rooms. Few smiles, not much eye contact, stiff posture.

But I had the most problem with a single word:

American military spending remains woefully inadequate, and the Biden administration has no serious trade strategy.

which I have emphasized above. What would be adequate? I don’t know how you can separate adequate military spending from objectives. If our objective in the Indo-Pacific is hegemony, will any amount of spending be adequate? I don’t see how when you consider that China’s GDP approximates our own.

And the war games about which I posted several months ago arrived at a somewhat different conclusion. What they revealed was that Taiwanese, Japanese, South Korean, and Philippine military capability was inadequate at present in the event of actual warfare there. The U. S. can’t bear the burden alone. Is that the objective?

0 comments

Pardon Trump?

In his Washington Post column Mark Thiemann and Danielle Pietka argue that President Biden should pardon Donald Trump:

In his 2020 victory speech, Joe Biden declared that “to everything there is a season — a time to build, a time to reap, a time to sow. And a time to heal. This is the time to heal in America.” If he wants to deliver on his promise to heal the country, he could do so with one action:

Pardon Donald Trump.

On the merits, the case against Trump is damning. And it doesn’t take a close reading of the federal indictment to understand that the former president’s problems are of his own making. He allegedly showed a writer classified material about Iran, saying, “This is secret information. Look, look at this.” And he obstructed the FBI’s efforts to recover classified material in his possession, even allegedly telling his lawyer, “Wouldn’t it be better if we just told them we don’t have anything here?” Had he simply returned the documents, as Mike Pence did when it became clear he had classified papers, Trump almost certainly would not have been charged, as Pence has not been. His misconduct was egregious, irresponsible and probably criminal. Anyone else would be seeking a plea bargain.

But his indictment has also put our nation into uncharted territory. The threshold for the sitting president’s administration to indict the leading candidate of the opposing party should be extraordinarily high. High enough to mitigate the suspicion held by 80 percent of Republicans and almost half the nation, per ABC News-Ipsos polling, that these charges are politically motivated. Indeed, millions of Americans believe that our legal system is being weaponized against Trump — and, by extension, against them.

Most Americans don’t look at this indictment in a vacuum. They see it in the context of the decisions not to prosecute Hillary Clinton for her mishandling of classified information; the Trump-Russia collusion investigation, which paralyzed our country for two years over a conspiracy theory; two impeachments and Trump’s politicized indictment by Manhattan District Attorney Alvin Bragg; and the suppression of the Hunter Biden laptop story that could have damaged Joe Biden and aided Trump’s 2020 campaign. They see a troubling pattern, and they are not wrong.

and this is the editors of the Washington Post’s response:

If Mr. Trump loses in court, on appeal and at the ballot box, it would prove no one is above the law in the American system. Whoever is president might then consider offering clemency to spare the republic the indignity of incarcerating its former commander in chief. Letting Mr. Trump off the hook before that happens would inevitably lead him to falsely claim vindication, even exoneration. A pardon might become warranted if it coincides with the end of Mr. Trump’s political career. But the country is still a long way from that moment.

In all likelihood the trials (there will be more than one) will still be going on in November 2024. When President Gerald Ford pardoned Richard Nixon it marked the effective end of both of their political careers. I cannot imagine President Biden doing so whether it marks the end of Donald Trump’s political career or not. I cannot imagine a newly-elected President Christie or DeSantis wanting to.

8 comments

Juneteenth, 2023

My question for today: is a Juneteenth national holiday serving its purpose? That’s actually a two-part question. You’ve got to decide what you think its purpose is and then decide whether it’s serving that purpose.

IMO you’ve got to be pretty cynical or pretty hopeful to think it’s serving its purpose.

9 comments

Blinken in Beijing (Updated)

U. S. Secretary of State Anthony Blinken has arrived in Beijing to conduct talks with Chinese Foreign Minister Qin Gang. Much of the coverage is on what’s at stake but what has struck me is how subdued his reception has been there. Pay less attention to the analysis than to the atmospherics.

Update

I welcome the meeting between Secretary of State Blinken and Chinese President Xi:

Chinese President Xi Jinping welcomed “progress” after shaking hands with Blinken at the Great Hall of the People, a grand venue usually reserved for greeting heads of state.

The top U.S. diplomat and Xi both stressed the importance of having a more stable relationship, as any conflict between the world’s two largest economies would create global disruption.

We should not lose sight of Chinese thought respecting the difference between barbarous and civilized countries.

Also, take note of the body language of Secretary Blinken and President Xi. How do you interpret that?

5 comments