On the Impossibility of the Protectionist Calculation

I was interested in this story in the Press today.

A Christchurch student is forgoing bananas, chewing gum and impulse purchases in an attempt to buy only New Zealand-made products for a year.

Canterbury University student Sarah Marquet, who started her experiment on Waitangi Day, said she wanted to see if it was possible to live normally while buying only local products.

Let's leave aside the question whether there is any social gain from benefiting local import substituters at the expense of local exporters; and ask what does it mean to buy only local products. Defined broadly, the obejctive is impossible. Even if you buy a locally grown onion, petrol refined from imported oil has almost certainly been used to transport it to the place of purchase.

But if the definition of local product is defined more narrowly to exlcude the origin of intermediate goods, then anything purchased in New Zealand is New Zealand made. After all, when you buy foreign-made chewing gum in a New Zealand supermarket, what you are buying is actually a final product that bundles chewing gum with retail services. The actual chewing gum is an intermediate good in this production chain. The same is true of petrol purchased at a petrol station.

So let's take an intermediate position between these two extremes and say that our objective is not to buy only New Zealand made products, but is to maximise the total New Zealand value added in the goods we purchase. And for this exercise, let's pretend for now that international trade is not effectively a production process that converts locally made intermediate good called exports into other locally made goods called imports.

To do this calculation, we need to know not only the fraction (by value) of the goods we buy that was made in New Zealand, but also the fraction of all the intermediate goods that went into the production of those goods, the fraction of all the intermediate goods that went into the production of the intermediate goods, and so on.

If looking to buy New Zealand made pencils, this famous story might be a help in making that calculation.

Blaming Trudeau: Cuba edition

Back in undergrad, I thought I'd heard every plausible "Blame Trudeau" story - I hung out with a fair few Reform Party Youth folks back in the day (which, by and large, was predominantly libertarian as opposed to the more populist and social conservative parts of the party). I still remember the Referendum Night party where half the room cheered for Quebec to stay and the other half cheered for them to go. Good times.

But I'd never heard this one, from John English's bio of Trudeau.

“Trudeau’s concerns about making haste too quickly, with potentially disastrous results for the health of any society, were apparent in the mid-Nineties, when Castro’s Cuba, reeling from the impact of the abrupt end of financial support from the Soviet Union, considered opening up its rigid state socialist system. Because of its historic economic ties with Cuba, Canada became involved in discussions with the Cuban government. James Bartleman, then the chief foreign policy advisor to prime minister Jean Chrétien, later indicated that Castro abandoned his plan to loosen socialist restraints after a conversation with Trudeau, who cautioned him about its impact on the social health of his country. No record of Trudeau’s conversation is available, but Bartleman’s account rings true because of Trudeau’s friendship with Castro and his respect for the gains achieved by Cuba in the areas of health and education.”

Fidel must have been deeply grateful for Trudeau’s advice; the Cuban people, not so much.

Egads! No fan of the National Energy Program, but this is worse if true.

Status

I'd quibbled a bit with Half Sigma over here. HS argued that, even in a world with no rent seeking, value transference is unavoidable: creating a new product that increases total welfare also results in an increase in the creator's status; if status is a fixed-sum game, then the creator of value has also transferred status from other people to himself. HS recommended progressive income taxation as means of compensating folks who consequently lost status.

I suggested rather that status is properly viewed as multidimensional, with folks being able to choose in which status game they'd like to compete. Money status is only one dimension; being "#1 Dad" may be another; being able to lift heavy weights a third (see the Mandelbaums in classic Seinfeld for examples of both of those); having a maxed out World of Warcraft character yet another. There are as many status dimensions as there are activities in which folks can seek excellence. In that case, why ought we single out status transfers through value creation as being the dimension demanding transfers? Shouldn't I get a transfer whenever somebody else goes to the gym, pushing me further down on the "able to lift weights" status dimension? It all seems a nonsense.

I've seen reasonable argument that status may well wind up loading on a single dimension - basically Roissy's "alphaness" measure, your effective attractiveness to the gender of your choice. Of course, the range of corrective status taxation measures in that case would be more complicated, more comprehensive, and more ridiculous. How do we tax Brother Sharp for his fashion sense? It's not implausible that status might reduce to this single dimension, but neither is it obvious to me that it does.

HS replies, pointing to his older post arguing that World of Warcraft status isn't real status. I'd been thinking less of his post when I commented (hadn't started reading him until recently) and more of Will Wilkinson's rather nice essay of a couple years back on the multidimensionality of status; WoW is just one of the near-infinite ways folks can choose to acquire status. HS makes a false consciousness argument, clearly but forgivably not having read my prior piece with Boudreaux arguing against the notion. If folks can get happiness from upweighting the dimensions on which they do better, who are we to say that isn't real happiness?

Comments experiment

At least two of you, who aren't technological dolts, have had problems in getting comments to work on the blog. And so I'm going to try a little experiment. I'll ease back the comments restrictions. If things go well, I'll keep it open; if not, I'll switch things back.

My hope in requiring some kind of online ID for commenting was that it would cut back on comment spam and avoid the kinds of inane comments that you can get with anonymous comments.

I'll ask folks leaving comments to list some kind of name or website link to their comments; I'll delete anonymous comments somewhat capriciously.

If I get too much spam, or if things degenerate, I'll move it back to "registered users".

Palmer on CWF-RTB

I like TechDirt's Mike Masnick's take on how artists can make money in effectively a post-copyright regime.

Amanda Palmer also gets it.

One Friday night earlier this year, Palmer says she was bored, and so she accidentally started a tee-shirt project with her fans on Twitter. Just two hours of work earned her a whopping 11,000 dollars. It’s just one of the many ways Palmer has made a living by tapping into her fans’ goodwill. The key, Palmer says, is trying out lots of different ways of making money.

AMANDA PALMER: Everyone has to stop thinking there is an answer. The answer is, there’s an infinite number of answers.

RICK KARR: You've done some fairly unusual things to raise some money from your fans.

AMANDA PALMER: I've done free webcasts in which I've auctioned off props from the videos that I've shot and handwritten song lyrics and weird stuff from my apartment. People have bid hundreds and hundreds of dollars on this stuff. But a lot of it is not even really so much about the stuff itself as it is about their willingness to, to connect with me and support me.

And I've also done a lot of sort of flash mob shows using Twitter and my blog to get a bunch of people in a public space, and literally put a hat out and said, I gave you this show for free, I'm really glad you came. If you can afford to give me some money, do it. If you’re too poor, don't.

If you go to Palmer's website, you'll see her store offering all kinds of interesting bundles of products with lots of exclusive, non-replicable content: ordering the CD pre-release can get you a "pre-release only" t-shirt; you can pay more for bundles including a custom ukulele. Higher end bundles include dinner with Palmer, 11-week around-the-world trips with Palmer, and even a moon launch for the low low price of $11 billion.

Artists ought to be building their business models on an assumption of copyright not really being there. It's the non-digital, hard to reproduce complements to the music that'll be earning the money going forward: experiences with the artist, artifacts associated with the artist. The music builds the market for the artifacts and the experiences. And, of course, CWF makes folks at least feel a bit guilty about ripping off music.

Susan and I are of course greatly looking forward to tonight's Amanda Palmer show at Al's Bar in Christchurch! We hope that Ira's young sister, due to arrive end-April, also enjoys. Hope to see some of you there!

Update: Lots of other folks have covered this in more depth: here here here...

Internet filtering...no thanks [updated]

About every six months, I get a phone call from Telecom, who's been my phone company and ISP for the last 6 years, asking if I wouldn't like to sign onto a one-year plan in exchange for some headphones. I always say no, that the option value of being able to switch is worth more to me than some goofy headphones, but that I have no current intention of switching. About half the time, I then get a call from Telecom's customer satisfaction unit asking whether I'm happy with Telecom's service (maybe the term option value makes them nervous); I always tell them that I've no plans of switching unless Telstra goes ahead and buries some faster pipe to my house.

But David Farrar reports that Telecom's planning on implementing the government's new internet filter.

Telecom: the day you implement the filter is the day I switch to whichever company offers the best plan that isn't under the filter. I'll either be taking my home phone line with me or just cancelling it - our cell phones work well enough, and Skype works for international. You're currently getting about $110/mth from me for internet and telephone. I've been pretty happy with your service - especially since you put in ADSL2+ in my neighbourhood (4 MB download speed) - and I generally think that the other companies that haven't laid their own pipe are kinda leeching off your investment. But I'll take a leech over a censor that helps to break the internet.

Christchurch readers: any particular recommendations for ISPs other than Watchdog, Maxnet, Telecom, Telstra, and Vodaphone? Looks like I'm likely to need a new one come year-end. I'll ask again when the time comes.

Update: Tech Liberty's keeping the list of friendly ISPs. Farrar had said Telecom's likely to use it; TechLiberty says that they haven't yet decided. Slingshot gives the nicest quip: "We’re the pipe, not a censor."

Canadian Economics 3

I'm following up on Eric's call for macro commentary on Nick Rowe's liquidity trap comparison of Canada, New Zealand and Australia.

In brief, Nick notes that Canada started the recession with low short-term interest rates, and responded by reducing them as far as possible without hitting the zero-interest lower bound, whereas Australia and New Zealand started with much higher interest rates and were thus able to reduce rates a lot more. But while Australia fared better than Canada, New Zealand fared worse.

My central banking days are long behind me, and I try not to think about macro, but I'll give this one a go. I see two relevant facts.

The first thing to note is that manipulation of aggregate demand is a very limited government tool that can achieve two things: During stable times, small tweaks in interest rates can be a useful way of keeping the economy growing at potential without large swings in inflation or output. And after a major, real, hit to the economy, they can be a way of preventing contagion across the economy in which a downturn in one sector leads to reduced demand in another, and so on. In this case aggregate demand stimulation serves to stop a bad situation becoming worse but can't offset the intial shock.

My sense is that the recession came to New Zealand as a fall in the commodity prices that matter most here, and that while monetary policy could prevent contagion from that, it couldn't change the reality of a decline in our terms of trade. Canada, in contrast, which is much more integrated into the U.S. economy, sufferred contagion from the U.S. largely addressed by U.S. monetary and fiscal policy, with only a small contribution needed from the Bank of Canada. I don't know much about Australia, but it is important to note that the New Zealand and Australian economies are much more different than people think, in particular because Australia derives much more of its income from mineral wealth and so depends on a different set of commodity prices.

The second point to make is that the overnight interest rates that central banks control have only a very limited impact on aggregate demand. They are a very good tweaking tool for making continuous small adjustments to keep the economy stable, but even large movements in overnight rates won't have much impact on demand unless they are perceived to be long-lasting and hence are able to move medium-term rates. (To paraphase a comment about reserve asset ratios from my undergraduate lecturer, Frank Tay, trying to control aggregate demand with frequent changes in overnight interest rates is like an impotent man lifting his trousers up and down.)

By this view, a small reduction in interest rates in Canada close to what is seen as an absolute lower bound, would be viewed by the markets as likely to last for a long time (on the assumption that rates would have been lower if possible), and so even a small fall in short-term rates would be likely to lead to falls further out the yield curve. In New Zealalnd, however, starting from higher overnight rates, a similarly small fall without a credible reason for not reducing further would have generated expectations of a shorter-term policy.

It would be easy to check this theory by looking to see which country witnessed the greater falls in interest rates further along the yield curve, but I'm going back into macro retirement. I'll look forward to seeing if Nick follows up on this.