Sunday, January 22, 2012

Douchebag Economics

I have no argument with the vast majority of mainstream economic theory. In fact I will quickly suggest that I understand and agree with the following items:
  • Competitive advantage: trading partners generate higher overall productivity via trade.
  • Free market efficiency: free markets are very efficient at allocating capital between profitable activities.
  • Free trade: maximizing efficiency and overall productivity between trading partners.
  • Floating currencies: work to correct imbalances between trading partners.
However, be careful, there are a lot of nuances in there! Now, let's turn our attention to an article that caught my ire:
Adding Value To Our Raw Materials Won't Make Us Rich
It’s important to keep in mind that when discussing international trade, exports are costs. The purpose of engaging in international trade is to import goods and services more cheaply than we can produce ourselves; exports are the price we pay in order to obtain those imports. Productive capacity that is devoted to making things that will be exported is productive capacity that is not available for what really matters to Canadians’ economic welfare, namely, domestic consumption.
Sounds good, right? Well, I'm sure you noticed the title to this post so it will come as no surprise that I have a few issues with such a statement. The only part I agree with is that if we allocate productive capacity to one area it will not be directly available to be employed in another area. The rest has a lot of baggage riding with it.

For example, exports are not purely costs. To be ridiculously hypothetical we could allow tankers to siphon fresh water from coastal lakes and rivers for delivery to foreign parched lands. Well, shoot, we didn't even have to lift a finger, did we. Where is this allocation of productive capacity coming from in this case?

Another less contrived example. How about some smart software programmer creates software for a local company and then sells or licenses hundreds of thousands of copies to businesses outside the country? Look, we aren't living in a purely theoretical world anymore, and it's douchebag economics to present conclusions based on assumptions that we are.

Now, let's consider what we do with all this cash sitting in Canadian coffers due to exports. Yes, we could certainly make sure we spend all of it on trinkets and crap sold at Nmart if we wanted to. However, there is a concept known as investment as well. What if we decided to buy a stake in PetroChina or more realistically an Australian coal exporter? Oh no. Now we have expected capital gains or even a revenue stream magically arriving in our country. According to douchebag economics we'll have to import more crap for sure!

Sort of a side topic but I also have issues with how douchebag economics deals with unemployment. For example, if we are sitting around with non-elective unemployment then it's strange to suggest that further optimization, so that we get rid of well paying jobs in exchange for lower valued jobs, is going to be good for Canada. A higher paid populace with high levels of employment can lighten the tax burden for all, by spreading the load across more upper income individuals, while simultaneously reducing load on social assistance programs.

Finally, I consider it douchebag economics to suggest that the buying of more crap, in total, is more important than making sure that a larger number of Canadians are participating in the economy in a way that allows them to earn a good income, buy the things they need, and raise a family. Of course, these are somewhat social issues and can't easily be measured in dollars. Douchebag economics thinks that everything that matters is expressed in total dollars and absolute efficiency. It just isn't so.

While heading out of the domain of the quoted article I'll give you another example. Let's assume Canada decides to stop producing finished wood products and ship raw lumber to the USA. If we have 20,000 people employed in that field then we'll be putting those people into other industries as the jobs are lost. Yes, all true. However, let's say we shut down all finished wood product work overnight. I'd like douchebag economics to tell me the impact that this will have on real people today in exchange for longer term efficiency tomorrow.

When you see economics being spouted in the media you really have to take it with a grain of salt. Generally, think tanks or other motivated parties are spewing crap in order to promote a political or financial viewpoint that benefits someone.


  1. You raised some thoughtful questions I'd love to talk about. Even though I agree with Gordon's general angle, I think he misses some larger points about what we can do to create or improve our competitive and comparative advantages, and why we should care to do so.

    But you lost me by repeatedly calling it all "douchebag economics," which smacks of random name-calling (why is this, in particular, douchey? And not, say, shitteralism? Or condomnomics? Or whatever?).

    And I'd follow up, but you're calling it douchebag economics from behind the online douchebag's shield of anonymity, and so I'll post these points anonymously and bugger off.

    Let me know when you're (a) less clever and (b) less anonymous and I'll be intrigued to discuss further.

  2. I'm sorry to have offended you by the term "douchebag economics" though I am not likely to become "less clever" any time soon.

    As I'm playing in the political arena and not an economic arena I've chosen to be anonymous. Frankly, some people in the political arena get very irate -- whereas I trust economists are both less demonstrative and used to a more polite discussion.

    Again, I am sorry to disappoint, but I'm afraid I must.


  3. Interesting to contrast the two following statements:

    "A higher paid populace with high levels of employment can lighten the tax burden for all, by spreading the load across more upper income individuals, while simultaneously reducing load on social assistance programs."

    "Douchebag economics thinks that everything that matters is expressed in total dollars and absolute efficiency. It just isn't so."

    Except you just illustrated why total output and efficiency are extremely important in that first paragraph I quoted!

    Total output is important because regardless of how equitably the benefits of that output are distributed, it can be redistributed through the tax system to make it as progressive as you like. You might say that's hypothetical and unlikely to happen - but hell, you brought it up in that first paragraph I quoted. Also, Nordic countries have been able to offset recent increases in pre-tax inequality through transfers - just like we could and should do if ultimately inefficient resource processing jobs are eliminated.

  4. In theory, over years of effort, you might be able to enact such programs if you lived in a political environment that would allow it.

    Economics is often used to convince the public to accept a political decision. If we do X we can increase total wealth.

    Yes, but it may not happen in our nation. Yes, but the effects may be concentrated within the ownership of a single company. Yes, but it might involve lowering the wages of an entire industry to compete with offshore producers. Yes, but there might be very large risks attached. Yes, but the transition effects will be horrendous for a number of years. Yes, but perhaps the decision is being made for the gain of corrupt officials or dictators.

    As I've said, I don't disagree with economic theory, if one is willing to accept the caveats. In the world of actual policies it is the powerless that will be bearing the weight of any caveats.

    There is a measure of responsibility attached to that.

  5. Do yourself a favour, take an ECON 1000 course and actually GO to the office hours. Try actually understanding a topic at its most basic level before dismissively rejecting its arguments at a fundamental level. (Hint: look up efficiency vs. Equity)

    This is hilariously awful.

  6. When you get past introductory courses, where things are made pretty simple (and at times dogmatic), you'll find that there are a lot of unresolved issues hidden behind the assumptions.

    While you may not agree with my views I've given specific counter examples to an argument -- highlighting areas that will need to be considered and integrated in order to continue to make decisions based on said claim.

    In short, science is strengthened by the process of peer review and criticism. Admittedly, science is often perceived to be much more polite than politics...

  7. If you ever got past the introductory courses, you'd realize that economists are the first to admit they don't have all the answers. We do however understand that it is a cost if we were to GIVE AWAY WATER! Explain to me how giving away our stuff isn't a cost?

  8. Perhaps you should try reading.

    Water in coastal lakes and rivers implies that it is soon to make it's way to the ocean. Here, one might assume environmental impact is minimal and natural uses of the fresh water are pretty much complete.

    In any case, economic articles such as the one I pointed to, are often used by politicians to justify policies which have negative consequences for citizens -- while helping some entities profit.

    With this I have two issues:

    1) Governments are supposed to be about the concerns of their citizens, not necessarily concern for the profit of corporations. There is a problem with corporate influence (graft) in today's world.

    2) Economists are "nuking" peoples lives. They are providing the ammunition that politicians and corporations need to smooth over damaging transitional effects in order to make money quickly. We need to consider our impact when we publish economic "bombs" that are unleashed to the harm of the powerless.

    Also, we need to understand that more and more there are monetary influences on those publishing articles in support of various viewpoints. Democracy functions best when citizens are informed as opposed to when facts are decided by the highest bidder.

    Come back when you've seen a little bit of the world and can apply that against what your textbook is dumbing down for you.

  9. You seem to imply that we have infinite freshwater so long as we choose to extract it at the proper point. If this is the case, why do we face a long-term freshwater problem? I will accept this point if you acknowledge we would have no long term freshwater shortage were we to give it away for free to anyone (assuming no pollution) were it extracted near an ocean.

    Regardless, your "less contrived example" is no more convincing on the exports-are-a-cost question. Programming the software is a cost, it costs the time and expertise of the programmer. In this case your theoritical programmer obviously made a better piece of software, so the cost of time and expertise was less than the total benefits accrued to his customers.

    Were the government to force a Canadian to program some software, even though he wasn't that good, and no one bought the software, then this would be a cost, right? Someone's taxes had to go to pay for this guy's time and expertise, and there were no benefits because no one bought the software.

    The point Gordon makes is that forcing refinement to be here is like paying the inferior programmer to make software nobody wants. It would make our oil exports more expensive so fewer people would buy our oil, and there would be fewer jobs in actually extracting because we would need less of it overall.

  10. First, I have a new post that should be easier to critique.

    Infinite fresh water? I have said no such thing... you are simply choosing a ridiculous stance on my behalf. There would obviously be limits on the amount of fresh water available... but it does seem to fall out of the sky fast enough to continue flowing.

    Who said programming the software wasn't a cost? I'm pointing out that the export of that software is unrelated to the cost of creating it -- even more so if the software was not created as an "export activity." Also, neither my example nor the article I critiqued were in regards to government expenditures to create exportable goods.

    In your final paragraph you get to something that might be interesting but you aren't arguing the point I was raising.

    However, you are going to have to work a bit harder anyway. In particular, after refining you probably aren't exporting oil anymore. Also, refining is more capital intensive than it is worker intensive.

    If you want to argue your point, which again is not what I was arguing, you'll need to answer some questions. Do quality issues such as you raise really apply in terms of refined oil? Do we currently have spare production capacity that could be used to create refineries? Do we have the ability to generate ongoing revenues from refined goods? Assuming the refinery bought oil at market price and sold refined goods at market prices and made a profit at what point would it make sense to allow that profit to be made externally instead of locally?

    Personally, I just poked a couple holes in a statement to demonstrate it is probably not completely accurate. That's a lot less work than what you are setting out to do.

  11. Oh... so your argument is just totally semantic then? If you don't care about the implication, and just about the "cost" label, then I think you've misunderstood the label entirely. So I will debate your false asserations:

    First investment is also a cost, the same principle of productive capacity still applies. Any money invested one place cannot therefore be invested in another place.

    Also note Gordon states in terms of "*international trade*, exports are costs." The best articulation I've seen of this principle is when you export you get paid in little pieces of paper (currency). When you import you give other countries pieces of paper and they give you stuff. The point is stuff is valuable, and paper is only as valuable as the stuff it can buy. If we didn't want to buy anything from other countries then we would have no reason to export, because all we get is useless paper.

    Again we're talking about macroeconomic international trade, there are social considerations to the implications of theory at that level, but this does not make looking at exports as macroeconomic costs a poor framework. Again, please look up efficiency vs equity, which is a central and well documented dichotomy in economics that all economists including Gordon acknowledge.

  12. Little pieces of paper? I hope you are mistaken in your representation of Gordon's argument.

    When we export and get little pieces of paper we are adding money into our economy. That little piece of paper pays a salary, buys groceries, pays mortgages, goes through the corner store. It goes back and forth to people, bank accounts and to the government via taxes.

    Not understanding how a little piece of paper is valuable to us, and how it can be spent on things of value to us personally and collectively as an economy, is about the stupidest thing I have ever heard.

    Please stop wasting my time.

  13. All the things you said the pieces of paper pay for are, in fact, domestic consumption. That's the whole point of the argument. We only want people to have jobs so they can buy things, ie. Consume.

    The pieces of paper are only as valuable as the domestic consumption they enable.

  14. Alright, I've demonstrated that not all exports have to be considered costs... though of course most export activities have some cost attribute to them -- impacted by level of employment, capacity of utilization, and how renewable their inputs are.

    I'm not arguing that there are no costs for all exports. I'm arguing that there is a continuum from effectively zero cost to infinite cost... where zero cost is an insignificant or unnoticeable cost.

    I'd also however take to task the suggestion that the only reason to export is to import other cheaper goods. In conditions of less than full employment, or excess production capacity, or somewhat freely renewable exports we achieve multiple benefits which may be more significant to the economy and consumption than the continuum of value provided by imports that the resulting pieces of paper can be traded for.

    Finally, in today's age, when we consider buying cheap trinkets from foreign lands we must realize that there are externalities that are not being measured. What is the cost of pollution in China, for example? Or, what is the risk adjusted cost with respect to CO2 output in China? Can the externalities of the actual imports exceed to value of the imports themselves?

    Of course they can.

    So, we can have free exports and we can have imports that are net negatives financed by costly exports. Go figure. If we are using these theories to make decisions about our nation's strategies then we need to think a little deeper than we are now.

  15. "According to douchebag economics we'll have to import more crap for sure"

    I don't really know where you got this. You seem to imply that all imports are cheap crap from wal mart. In fact most exports are the things you acknowledge are important: energy, food, services, computer software/hardware, machinery. You should check out some stats if you're operating on the assumption that all imports constitute novelty lampshades from wal-mart.

    And yes externalities exist, and guess what? "Douchebag economists" are the ones who came up with the concept of costs not captured by the market, your generalizations about economists can be disproved by any introductory textbook.

    In fact, the complex interplay between externalities, equity and efficiency are the main concern among economists. Mr. Gordon would be the first to admit he doesn't have the master plan to reconcile the discrepancies. Write a blog about how to do that, instead of complaining about the semantics of an argument you have a poor fundmental understanding of.

  16. I got that from the concept that the only reason to export is to import cheaper goods. Your argument below supports my contention...

    "If we didn't want to buy anything from other countries then we would have no reason to export, because all we get is useless paper."

    Or from the quoted article...

    "The purpose of engaging in international trade is to import goods and services more cheaply than we can produce ourselves; exports are the price we pay in order to obtain those imports."

    Now, you may wish to dismiss my concerns as semantics, but the idea that there are free or effectively free exports is a significant issue.

    I also would argue the contention we would only export in order to import goods. There is value in the acquisition of pieces of paper and it can be used for purposes other than imports. You agreed with me and strangely lectured me on domestic spending.

    I have not claimed to have a master plan -- I claim to have shown some counter-examples to assumptions or statements based on those assumptions that suggest some rethinking may be in order.

    What does it mean when we say that there are exports available to us that have no effective cost to produce or at least no effective cost to produce another unit? What is the impact to an economy if exports are not simply a means to acquire imports? What does it mean if there are no effective costs to some imports (e.g. open source software).

    I'll probably let the people who claim to be economists do the heavy lifting required to define a mythical master plan. When they aren't saying stupid things that cause stupid policy decisions to be made I'll have less to say.

    Maybe, if you keep pestering me with inane comments, I'll eventually end up asking more questions.

  17. Yes, I agree, stupid things are bad. If only they would stop being so stupid we'd all be OK.

    I mean c'mon, bad things keep happening in the economy, it's obviously the economists's fault, who obviously hold the same opinions and never debate amongst themselves about what policies were successful.

    It's all clear to me now, you've won. If only I had realized that the key to success is being less stupid and not a douchebag. Thank you sir, I'm off to found the Canadian Institute of Not Being Stupid, now that you've shown me the light.

    I'm glad we were able to clear this up.

  18. I have to repeat, this is a political blog.

    Economic arguments are often used by politicians and businesses to justify actions. And yes, their stupid decisions really are bad.

    The public is getting a bit riled about how politico economic decisions are impacting their lives... and yes economists are probably going to get caught in the middle.