- The rise of the administrative state — a move that aided populist revolt.
- What Ayn Rand really meant by “selfishness”
- Great podcast on creativity (and how to protect it from “the system”)
- “Know with the Flow” shows how to use tech to teach people about water
- Ride-share drivers make about $15 per hour, but they want more
- An update on Italian wines… and politics
- China’s social credit system might improve public behavior and interactions in the commons, but it also isolates and punishes. I predict that it will cause groups of excluded individuals to revolt.
- How futurists get it wrong (too much tech bros)
- Where will the next financial crisis come from? Views from me and 25 others
- CIty and utility bonds are getting downgraded as climate change risk grows.
H/T to MM
Some industry blogs and magazines look for “thought bites” — short opinions on a topic. I wrote two recently that might interest you. (No sense in waiting for publication somewhere obscure 😉
Question from Source Magazine: Facing diminishing health, access, and supply-side options, how can water professionals ensure that markets become increasingly attractive, effective, and equitable?
My answer: Water markets, like markets for houses, cars, phones, etc., depend on clear property rights and low transactions costs to move water to its highest and best use. Water’s bulk, low value per unit, and dependency on green/gray infrastructure for storage and movement means that markets will only work at the wholesale level, i.e., among farmers and/or water/wastewater utilities. This structure can work as well for retail customers as the current structure for distributing oil works for consumers of gasoline. Equity in water markets is more tricky due to a past negligence for quantifying rights, missing information on the quantity of water available in time and place, and a failure to set aside environmental flows that should be owned in common (Public Trust). In cases where right remain with the State (and thus the people), some water should be reserved for the commons while the rest is sold to the highest bidder and revenues are distributed among citizens (the real owners of a nation’s water). In cases where rights are private property, some rights should be taken back from current owners and restored to the commons they should never have left.
Question from FE Insights blog: It’s been said that there’s a financial crisis about every 10 years. Currently, it’s been about a decade since the last one and with many analysts forecasting the global economy to begin slowing in the near future, we were wondering if you’d care to comment on when you think the next financial crisis will hit and what the catalyst(s) will be.
My answer: The next crisis has already begun, but we do not yet see the signs. The most likely sources of stress are opaque accounting and questionable governance at Chinese firms, Donald Trump’s fiscally irresponsible tax cuts for the rich and corporations, and the rise of various other populist leaders (besides Trump) who prefer mercantilist trade policies. Other factors of interest are over-compliant central banks that value economic growth over economic stability and the rising costs of climate disruption. In terms of a global recession, I think that corporate debt markets might be the first to run into trouble either due to fraud or regulatory interventions that reduce liquidity or the perceptions of risk. Although the international trading system is fairly robust relative to the situation in the 1930s, I could see a Trumpian-style war of all-against-all as a likely first casualty of any sizable macro disruption, in the same way that rising tariffs in the US (Smoot-Hawley) and elsewhere were erected in the years after 1929’s Black Friday. Although companies with large domestic revenues might appear as beneficiaries in an isolationist world, I think that their share prices will fall after a brief increase as they experience disruptions and other collateral damage from populist policies.
What would you answer to either of these questions?
- 250 things an architect should know… after a lifetime as a dilettante (fun)
- Bankers being bankers (ripping off citizens via legal fraud in Europe)
- The story of Ubernomics
- The World Bank launches a much-needed “human capital index” that should help clarify educational and health priorities in nearly 200 countries. How is yours doing?
- A few ideas on reshaping cities for people (rather than cars)
- My colleague Paul explains why carbon capture is more hope than solution
- A well-meaning, but counterproductive climate regulation on roofs
- Florida’s “tire reef” is now an environmental disaster
- The revelations of a first time (and not last time) hitchhiker
- Carl Bauer reviews Water Policy in Chile.
H/T to CD
I grew up in the 1980s at the height of Reagan’s arms race with the Soviets, wars in Central America, Iran-Iraq and Afghanistan, and propaganda campaigns that portrayed “the other” as greedy capitalists or colorless apparatchiks (depending on what side of the Wall you were looking at).
1989 marked the beginning of the end of that Cold War, with the 1991 dissolution of the USSR as a definitive end point in the rivalry between capitalism and command-and-control economies. Capitalism dominated the 1990s nearly everywhere (Cuba, Ethiopia and North Korea were a few exceptions) as the Chinese, Russians and many other “Marxist-Leninist” political systems gave more space to free markets while withdrawing from state capitalism.
Improvements in living standards helped many people (and especially the poor) who had suffered the consequences of dogma, but these results did not last very long or accelerate everywhere, as new problems emerged. To understand why, I need to introduce a framework.
In 2006, Douglass C North, John Joseph Wallis, and Barry R. Weingast published “A Conceptual Framework for Interpreting Recorded Human History” [pdf], one of my favorite papers (later expanded into a book) on political economy. In it, North et al. explain two different political-economic equilibria. In a “natural state” a “limited access order” persists in which political power is used to create economic (monopoly) power and thus rents (super profits) to those lucky enough to control such economic entities. Citizens, workers and entrepreneurs suffer in these circumstances from shoddy goods, low wages, and a lack of opportunities, respectively. (This system is also known as one of crony capitalism.)
In the other equilibrium is an “open access order” in which political and economic power are separated, meaning that someone with economic power cannot use it to gain political power (and vice-versa) due to a robust set of institutions that promote competition rather than cronyism. Open access orders are responsible for strong economic growth and legitimate political rule because those with good ideas are able to prosper while idiots with famous last names cannot get ahead. Only a handful of countries have strong systems of open access because it’s very tricky to break the “iron grip” of politicians on commerce and businesspeople on politics. (North et al. hypothesize that a transition might occur when rulers decide that rules are a good way to protect their wealth from their greedy successors.)
This paper has helped me think about governance and markets for several years. It explains why Trump — a fraud and cheat — is so dangerous as a leader: He uses his political power to enrich himself and his cronies. The paper also explains the “interesting” struggles in Russia and China between those newly rich who want to keep their wealth and those with political power who want to take it. Putin has returned to its natural state after the failed liberalizations of the 1990s. Xi has welcomed the rich into political cooperation but also strengthened State-Owned Enterprises (SOEs) against domestic and foreign competition.
So these ideas lead to my point of this post, i.e., that we’ve begun a new Cold War between populists who favor limited-access capitalism (state-led cronyism) and liberals who favor competitive, open access capitalism. On the populist side we have the corrupt governments of Hungary, Turkey, Iran, Egypt, China, Brazil and most of the world. On the liberal side are Scandinavian countries, Singapore, and Canada where markets are (mostly) free and fair. In the middle are countries that are advancing (the Baltics, South Korea, Germany), falling (the US), or struggling (Mexico, southern Europe, et al.).
My one-handed opinion is that populists will continue to tell citizens that they are “the best” and foreigners (and their “unfair trade”) are dirty while those same “leaders” enrich their cronies and destroy national wealth while liberals struggle with citizens mislead by get-rich fantasies promulgated by insta-celebrities and populist propaganda. Although I am sure that populists will impoverish citizens, I am not so sure what will happen when citizens see past the lies. Will they revolt as the French did in 1789 and the Romanians in 1989? Will they attack foreign scapegoats? Will they just get poorer? No matter their action, I know from North et al.’s framework that populism will ultimately lead to economic stagnation and a further separation between the haves and have-nots. Sad.
- How selfies are changing gym workouts
- “When CEO Pay Exploded“
- Amazing video showing Amsterdam’s mix of music, culture, technology and sustainability.
- End cyclist injuries by re-learning how to open your car door
- The origin of modern computers: “Second World War, a conflict — unparalleled in history in the degree to which it yoked entire peoples, body and mind, to the chariot of war — permanently transformed the relationship between states on the one hand, and science and technology on the other, and brought forth a vast array of new devices.”
- Global ecological disasters: “How to Write About a Vanishing World“
- “The Water Point Data Exchange is the global platform for sharing water point data” (an example of what I was trying to do with my water data hub)
- Desire paths: People vs planners
- Time to fight back against Russian spies?
- The guy who fought back against fake reviews
FC mentioned that Werner Troesken, who died recently and unexpectedly, had worked in the same area as me (water services). I went to his Google Scholar to see what he had written and found — amazing! — that I had used his most cited paper (“Population growth in US counties, 1840–1990”) in my PhD dissertation (p84):
A literature review uncovered only one article that discusses the influence of water on urban growth. Beeson et al. (2001) find that precipitation has a significant positive effect on population density in the United States of 1840. By 1990, this significance disappears. In fact, precipitation has a negative correlation with population growth in the 150 years after 1840. These results correspond to what we know about water in the western US: As infrastructure has brought water to arid regions, people have moved from wet, colder areas to dry, warmer areas.
In fact, I just mentioned this result to someone last week.
As I browsed through Troesken’s other papers, I found two with interesting results. In “Municipalizing American Waterworks, 1897–1915” [pdf], Troesken and Geddes (2003) describe how private water companies, fearing seizures by municipalities, would underinvest in infrastructure and thus give municipalities an excuse (under-investment) to take them over! This damned-if-you-do, damned-if-you-don’t result makes sense in the contexts of “bilateral monopoly” (a single seller facing a single buyer) and “stranded assets” (an asset that, once built, cannot be moved or re-used in any way), since in those situations it’s hard to get one side to spend on an investment that the other side might use (or benefit from) without needing to pay. In our paper on the history of the Dutch drinking water sector [pdf], we ran into this situation with English companies underinvesting (or not investing) in Dutch cities that ended up building their own water and wastewater systems.
In a second paper, Ferrie and Troesken (2008) describe “Water and Chicago’s mortality transition, 1850–1925” via the direct reduction in typhoid fever due to access to clean water and a much larger indirect impact of lower mortality among those who survived typhoid but died of another disease. This paper is interesting because the indirect drop in deaths is triple the direct drop. In our drinking water paper, we did not get into the details on the benefits of clean water, but we surely would have cited this paper in support of wide, diffuse benefits.
It’s a pity that Professor Troesken’s life ended prematurely. We need more economic historians like him.
Addendum (1 Nov): I forgot that I had downloaded another paper (“Regime change and corruption: A history of public utility regulation” [pdf]), which I just read. This chapter is interesting for two reason. First, Troesken argues that ownership changes (from public to private ownership of utilities — and vice-versa) is driven by the need for regime change because the existing structure (either private or public) has been compromised by regulatory capture. Second, this paper — and its thesis — fits into my existing idea that the public-private cycle is driven by public underinvestment (to keep prices low) that lead to privatization, which leads to re-municipalization once those investments are made (and prices rise).
- Lebanon’s electricity mafia is hindering its development
- Saudi Arabia’s authoritarian pivot into modernity
- China’s Hayekian (market-innovative) communism
- How Twitch (vlog) streamers make $20k/month (or more)
- The foundations of Eastern Europe’s populism? “…many eastern and central Europeans want… to rid themselves of the humiliation of having been imitators, followers of the West rather than founders.”
- What’s Financial Independence really about?
- The illness (and cure?) for American journalism
- “It’s a miracle that peer review works as well as it does. And its function is to produce quality-controlled academic output, not to spot fakes.“
- “Risk management comes down to serially avoiding decisions that can’t easily be reversed, whose downsides will demolish you and prevent recovery.“
- “How have the farm animals of today been shaped by centuries of domestication and selective breeding?“
For-profits make more than they spend for the private benefit of owners and customers.
B-Corps (or social enterprises) often make less and spend more because they are targeting a sub group of customers and/or spend more on their “inputs” of materials and labor because they are trying to combine social value with a sustainable business model.
Non-profits spend what they make to minimize costs to customers for providing the best service possible at that cost. (That’s the nice way to see them. Those that are abusive or corrupt can overcharge for shoddy service while overpaying their incompetent staff.)
Charities don’t earn revenue but “depend on the kindness of strangers” for support of their charitable works. Charities are more vulnerable to collapse due to a shift in donor attention, but that means that the arrival of an enthusiastic patron can produce a lot of action in a short time.
Is this figure helpful? Any other thoughts?
Addendum (18 Oct via DC):
- A really great essay on the bourgeois roots of privilege.
- A software engineer calls for less bloat more smart.
- Blame consumers or manufacturers when tons of new clothes are burned?
- How to become great at anything? Deliberate practice
- Maybe Japan’s economy has been doing better than we think?
- How Jane Jacobs turned from pro-planner to pro-neighborhood
- All of life is suffering — the evolutionary edition
- USAID is running a comparison to see if cash helps people more than “programs,” but there’s a lot of resistance from its bureaucrats 🙁
- The “people’s canteens” at the center of China’s mass starvation.
- The President of the World Bank is pretty impressive.