Subsidies distort prices

Here is a  news report that the Quebec government is giving a $58 million subsidy to an asbestos mine in that province.

I am opposed to this subsidy because I believe subsidies should be given to consumers rather than producers.

Subsidies given to producers distort prices and encourage us to make poor purchasing decisions.

The article says there are “predictions that worldwide demand for asbestos would increase — especially in India — while the supply would drop.”  If this is correct then prices would go up and the mine would be able to reopen without subsidies.

Subsidies should be given to consumers in the form of a guaranteed income scheme or a negative income tax,

 

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The wisdom of a declining European fertility rate

The current issue of The Economist reports with some alarm that the European fertility rate is declining with the economic crisis.  It may be that young people have more wisdom than those who want the population to continue increasing.

Back in October of 2010 the World Wildlife Fund issued its Living Planet Report.

This report claims our ecological footprint exceeds the earths biocapacity by 50 percent and that by 2030 we will need two earths to support sustainable life on the planet.

Even if this report is exaggerated over population has to be a serious concern.  The more we increase the population the more resources will be consumed and the sooner there will be a major ecological and economic collapse.

The challenge is to rearrange our economic activity so that everyone can have comfortable life without the need for continued economic growth.

Population is a difficult and sensitive issue.  An interesting discussion of population limits is found in Raymond Firth’s book We the Tikopia.  Some excerpts from the chapter on population are on this  weblog.

 

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Banking union and rearranging the deck chairs

One of the ways being proposed to deal with the European part of the economic crisis is  centralized banking supervision.  More on that in this article in this week’s Economist.

The question here is would a banking union solve the problem.

Back when Russia was trying central planning and having problems, some people figured the solution was decentralized central planning.  Banking union  sounds like the reverse thinking. It also sounds like rearranging the deck chairs.

If the basic problems is the people or institutions or governments to whom the banks have loaned money are unable to repay those debts then centralization will not work because it will do nothing to reduce or repay the debt.

I think the financial side of the current economic crisis is rooted in the way we create money.  For more on this please see the essay on this  weblog titled “LETS go to market: Dealing with the economic crisis.”

 

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The deceptive wealth of nations

This weeks Economist has an article about a report from the United Nations on calculating the wealth of nations.

At least this report recognizes that natural resources are as important as  infrastructure and human capital  but are they all of equal importance?

The article says “A country can lose $100 billion-worth of pastureland, gain $100 billion-worth of skills and be no worse off than before.”

The problem with this statement is that if a country loses $ 100-billion worth of pastureland it probably will not be able produce as much food as before and some of its people may starve regardless of how many skills they have acquired.  The same applies to energy and mineral resources.

Another concern is that the value of natural resources is based on current prices which are based on current supply and demand.  Current prices may not take into account stocks and future shortages.

I have a problem with the idea that economic activity produces wealth.  What economic activity really does is to use up our resource base and is actually decreasing out wealth.  Infrastructure and skills allow us to use up resources more quickly.

While this report is valuable in that it focuses attention on the components of wealth it may be deceptive.  If natural resources are more important than infrastructure and human capital, it is telling us we are doing well when we are not.

 

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The cooperative solution

Another proposal for solving  the economic crisis is to organize the world into cooperatives.

I have a small soft spot for cooperatives in that once upon a time I worked as a journalist for credit unions on the Canadian prairies and I have on a shelf in my study a “Certificate of merit” awarded to my grandfather by one of those credit unions.

My difficulty with cooperatives as a solution to the economic crisis is that we are all in the same ship.  The type of organization – private ownership, government ownership or cooperative – may make a difference in relationships but the overall prosperity is more dependent upon the resources available.

As a journalist I met a number of old timers who told stories about running their affairs from somebody’s kitchen table.  Some of them were agonizing over having to merge into larger units and thus become more like banks.

Theirs was quite a different attitude from a local credit union teller who told me they would lock the doors at quitting time no matter how many members/customers were lined up at the door.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Agricultural pollution

This week’s Economist has an article on agricultural nutrient pollution in the Mississippi River.

The economics way to deal with agricultural pollution presents us with a dilemma.   The changes required are so radical the screaming from those affected would generate enough hot air to destroy the world from global warming.

I believe the price of any item should include the full costs of producing the item.  This way we can make purchasing decisions according to our own values.  This applies to food as well as everything else.

Therefore the costs of agricultural pollution should be paid by the producers and passed on to consumers.

In some cases it may be difficult to calculate the costs of pollution but we could start by eliminating all subsidies which would probably reduce a lot of pollution.  In any case subsidies should be given to consumers rather than producers.

If we had to pay the full costs of producing food, there would probably be some major changes in our eating habits to healthier foods and more home gardens.

Creating money (quantitative easing) to solve the 1930s problem

It appears that some policy makers are determined to relive the 1930s but this time to get it right.

In the early 1930s the U.S. fed was restricting the amount of money in the economy.  In hindsight we can see that this was the wrong policy.  What was needed was to expand the money supply so people could get on with using the resources which at that time were so abundant. Once more money was created the people went on to fight a major war and then followed up with an unprecedented period of prosperity.

With this in mind central bankers today are trying to create more money with quantitative easing and we are hearing calls to prepare for an alien invasion.

But circumstances are different this time.  We have used up the most easily available of our energy and mineral resources.  Those that are left require a lot of work to extract and this is probably behind our current economic problems.

Rather than trying to create more money and return to economic growth we should be trying to rearrange our economy so that we can cope with negative growth with a minimum of human suffering.

 

 

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