"Democracy in Chains" versus public choice

From the Cato Institute comes this Cato Daily Podcast audio in which Michael Munger is interviewed by Caleb O. Brown about Nancy Maclean's book Democracy in Chains. The book paints Nobel Laureate and Cato Distinguished Senior Fellow James Buchanan as the scholar who would help bring down democracy using the methods of public choice. Michael Munger of Duke University comments.

Is price gouging bad?

No.

4.42 minutes stating the obvious.

Why you want to keep politicians away from business

The ever disintegrating Venezuela gives us a great illustration of why politicians should be kept out of businesses. Trying to gain political support by interfering in the running of a business doesn't improve the business.

To survive months of street protests and an economy in tailspin, Venezuelan President Nicolas Maduro is trying to turn state oil company PDVSA into a bastion of support, further degrading an already vulnerable enterprise.

Political appointees are gaining clout at the expense of veteran oil executives, while employees are under mounting pressure to attend government rallies and vote for the ruling Socialists. The increasing focus on politics over performance is contributing to a rapid deterioration of Venezuela's oil industry, home to the world's largest crude reserves, and to a brain drain at the once world-class company.

Interviews with two dozen current and former employees, foreign oil executives, and contractors point to a PDVSA coming apart at the seams.

"Everything is a disaster and yet we have to clap," said a PDVSA employee, who asked to remain anonymous because she feared retaliation.

and

Now Venezuela's oil production is on track to end 2017 at a 25-year low, but the leftist government still relies heavily on PDVSA to be its financial motor.

That leaves management in a precarious balancing act and sources say political factions are increasingly locked in power struggles within the company.

A senior management team named in January that draws heavily on political and military appointees has left PDVSA's president, the Stanford-educated engineer Eulogio Del Pino, largely powerless, according to two high-level sources in PDVSA and the government who spoke on the condition of anonymity for fear of reprisals.

Meanwhile, the infrastructure of the company is crumbling, rig counts are at historic lows and refineries are working at a fraction of capacity.

Staff at PDVSA's once gleaming headquarters complain that many elevators are out of service, the bathrooms lack toilet paper, and their cars are broken into in the parking lot. Scarce paper and ink are diverted to make political posters.

and

Prominent new executives include trading division boss Ysmel Serrano, who used to work for current Vice President Tareck El Aissami, and finance vice president Simon Zerpa, a young ally of Maduro's.

The influx of inexperienced executives and middle managers is keenly felt by foreign oil executives, who say they sometimes spend hours waiting for PDVSA representatives and complain that simple decisions are inexplicably delayed.

"Most of the time executives don't answer phone calls or emails. It's surprising how young and unprepared some managers are," said a representative of a foreign firm holding a supply contract with PDVSA.

He said that managerial and operational chaos was worsening, with waiting time to load a tanker stretching to 30-40 days compared to 2-3 days a few years ago.

In short the business of politicians is politics, not business.

George Selgin on "A Monetary Policy Primer, Part 11: Last-Resort Lending"

One of the few interesting bits of monetary policy is the central banks role as the lender of last resort.

For many, the "lender of last resort" role of central banks is an indispensable complement to their task of regulating the overall course of spending. Unless central banks play that distinct role, it is said, financial panics will occasionally play havoc with nations' monetary systems.

George Selgin's aim is to challenge this way of thinking. Its an interesting antidote to much of what you hear said about the importance of the lender of last resort role of central banks.

Worth a few minutes to read.

You know your country is in trouble when

you get these kind of things happening,

In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.

Voting with your feet is a real thing.

And

The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%.

Mike Munger interview

Dr. Mike Munger (Professor, Political Science & Economics at Duke University) is interviewed by Dave Rubin to discuss political science, the importance of state’s rights, the Republican’s problem with social issues, fact checking in mainstream media, and more.

Towards a political theory of the firm

Towards a Political Theory of the Firm is a new NBER working paper by Luigi Zingales.

Abstract:

Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a "Medici vicious circle," where money is used to get political power and political power is used to make money.

I hope when I get the chance to read the paper that there is more to it than this abstract suggests. Many, most, organisations, be they firms, trade unions, churches, not-for-profits, universities, welfare groups, environmental groups etc, will try to get governments to do their bidding. It's just the nature of things and a really good reason for keeping firms etc as far away from government as possible. It is one reason why you want a limited role for government in the economy, the smaller the role, the less government can do to help firms and thus the less firms will try to influence governments. 'Positive non-interventionism' has a lot going for it.

In the neoclassical model its not that firms have no power to influence the rules of the game, its more that there are no firms, or government for that matter, to do the influencing or to be influenced. In a world of zero transaction costs there is no need for firms since consumers can carry out production themselves. "With perfect and costless contracting, it is hard to see room for anything resembling firms (even one-person firms), since consumers could contract directly with owners of factor services and wouldn't need the services of the intermediaries known as firms" (Foss 2000: xxiv).

If you want to see what letting governments and business get together results in check out the history of guilds, they provided money to governments and governments provided protection for them for 800 years! What suffered for this time was economic efficiency, the consumer (as usual) and the economy and society in general.

Ref.:

• Foss, Nicolai J. (2000). 'The Theory of the Firm: An Introduction to Themes and Contributions'. In Nicolai Foss (ed.), The Theory of the Firm: Critical Perspectives on Business and Management (xv-lxi), London: Routledge.

Ronald Coase a socialist!

I have just come across an article by Per Bylund at the Mises Institute website on the question Was Ronald Coase an Austrian? At one point Bylund answers the question by saying,

He was hardly an Austrian economist. On the contrary, he was a self-declared socialist - at least in his youth.

Let me quote Coase himself on this,

One may ask how I reconciled my socialist sympathies with acceptance of [Arnold] Plant's [free market] approach. The short answer is that I never felt the need to reconcile them. I would only recall that a fellow student, Abba Lerner, who, in the preface to his Economics of Control, acknowledges Plant's influence in the development of his views, went to Mexico to see Trotsky to persuade him that all would be well in a communist state if only it reproduced the results of a competitive system and prices were set equal to marginal cost. In my case my socialist views fell away fairly rapidly without any obvious stage of rejection (Emphasis added).

So the description should be 'he was a self-declared socialist - ONLY in his youth'.  I'm sure that anyone who has read the older Coase will be surprised to see him call a socialist. If fact in an interview Coase tells a story about his wife going to a party while he was at the University of Virginia,

They thought the work we were doing was disreputable. They thought of us as right-wing extremists. My wife was at a cocktail party and heard me described as someone to the right of the John Birch Society. There was a great antagonism in the '50s and '60s to anyone who saw any advantage in a market system or in a nonregulated or relatively economically free system.

Perhaps being both a socialist and to the right of the John Birch Society is an accomplishment worthy of a Nobel Prize!