Barrel Strength

The socialist economist John Galbraith, in his 1967 book “The New Industrial State“, argued that large American corporation, such as General Motors, are essentially immune from market forces because they can use advertising to create additional demand. Nobody should ever confuse leftist economics with reality, as we have seen GM’s market share drop precipitiously, but that hasn’t stopped platitudes raining down on him.

Similar events could be unfolding in the political arena, where Obama is poised to raise $500 million. Since this fund raising projection was published on June 19, 2008, the events have unfolded which seem to indicated that Democrats are playing with Galbraith’s playbook. Eleanour Clift describes this 50-state strategy as follows:

Let’s do the math. If Obama holds all the Kerry states, he’s at 252. Add Iowa for 259. Add a win in Virginia or North Carolina, “and it’s game, set, match,” says Plouffe. Or add Colorado and New Mexico, Republican states where Obama now leads, to reach 270. The campaign last week put up a biographical ad in 18 states, including Alaska and Montana, historically Republican states. It looked like Obama was just trying to taunt McCain, lure him into spending money in states where he shouldn’t. But Plouffe insists “there’s not a head fake in the bunch.” Alaska’s octogenarian Sen. Ted Stephens, under investigation for corruption and the sponsor of the infamous “bridge to nowhere,” is in a tight race for reelection. Montana, which Bill Clinton won in ‘92, has a Democratic governor and senator.

And Plouffe is just getting started. There’s Georgia, a state that hasn’t gone Democratic since 1976, but the presence of former Georgia Rep. Bob Barr, who’s running for a third party—Libertarian—could drain 2 to 4 percent from McCain and put the state within reach for Obama. “Indiana is another place where I would ask you to reorder your thinking,” Plouffe said with clinical certainty, adding it to his list of states “behaving” more Democratic. “Our goal is to adjust the electorate more to our liking,” he said, explaining how registering a record number of African-Americans and young people under 40 could swell Democratic turnout and swing Republican-leaning states to Obama.

It looks as if Clift is expecting Obama to win 50 states in the upcoming Presidential election with the help of advertising strategy as described by Galbraith. Your correspondent is certainly glad that this will leave 7 states for McCain and the election won’t be a disaster for him, like 1984 was for Mondale, who only carried one state and the District of Columbia.

When I find the National Post getting soft I turn to the Financial Post for the really conservative market-oriented view. Its castigations of the global warming con job have been a source of amusement and great comfort. By contrast, its views on telecommunications have been economically illiterate.

The Financial Post’s  (or its lead editorialist Terence Corcoran’s) view of telecommunications has been: we have enough competition now to deregulate. Two competitors in the general area, cable and telephone, are enough, and three is a sufficient cause to leave the market alone. No attention needs to be paid to the market conditions in a particular place; it is sufficient that competitors exist in the same urban area, regardless of whether your building is served by one or two carriers. Mandated sharing of facilities, where the big incumbents must share facilities with ISPs, is just “telecom trotskyism”, in the glorious invective of Terrence Corcoran.

Thus it was with interest I read “Abolish the Canadian rail monopoly” by François Tougas in today’s Financial Post. Tougas is a senior lawyer at Lang Michener and an adjunct professor of competition policy at the UBC Faculty of Law - not a likely candidate for Trotskyism.

Tougas says:
“The best way to regulate a natural monopoly is to introduce competition by allowing others (a “guest” railway, in this case) to access the track infrastructure of the incumbent (the “host” railway) to vie for the business. Modern economies already do this with other network industries like telecom, cable and electricity and gas distribution.”

But where barriers to entry are “tremendously high”, says Tougas, railways are able to carry on free from competition. Where you cannot build a rival rail-line, the existing regulatory remedies available to captive shippers are insufficient. There is no market. Tougas recommends “running rights” - the right to pass your traffic over the lines of another railroad, using someone else’s railcars, and paying them a regulated rate for the privilege. Otherwise there occurs an unjust transfer of wealth from industries to carriers.

There is no difference in principle between “running rights” in the railway case and “access to underlying facilities” in telecommunications. Why then does the Financial Post rail at Professor Michael Geist (and by extension, all the companies which benefit from sharing of underlying facilities, such as MTS-Allstream) as Trotskyites, and Professor Tougas gets a free pass?

Are ideas made acceptable by their content, or by their provenance? Is what is good for natural resource producers in Flin Flon bad for businesses in Markham and Pierrefonds? Should the telephone companies and other carriers take a part of the profits of all electronic transactions, because they can? But railroads should not? One is tempted to think that the reason why different positions are taken by the Financial Post on the identical issue is that we can visualize railroads; we do not really have a precise mental image of networks.

For a further treatment of Terence Corcoran’s sadly mistaken views on intellectual property, see the comment by the economist Joseph Potvin on digital rights management.

A 2.5 acre island of Forvik, which is formally known as Forewick Holm and is part of the Shetland Islands in the North Sea, has declared independence on June 21st, 2008. Mr. Stuart Hill, the sole-resident of the island, has posted the declaration on his website and states that he wants the territory to be a crown dependency like the Channel Islands, with an economy in which “There will be no income tax, VAT (value added tax), council tax, corporation tax, or any of the other taxes instituted by the British government”.

The basis of the independence is the historical fact noted in the aforementioned declaration, viz. “the only powers granted to King James III of Scotland in 1469, when he accepted these islands as security in the matter of payment of a marriage dowry, were those of trustee. His Majesty was holding them in trust until they were redeemed by King Christian of Denmark and Norway or his successors. Part of his obligation was to preserve the existing language and laws.”

Those interested in obtaining citizenship to the islands can find more information here.

One of the primary factors inhibiting McCain’s campaign is the issue of age. The betting markets are actively reflecting this concern. On intrade.com the “Barack Obama to win 2008 Presidential Election” contract is trading for 61.3 and “John McCain to win 2008 Presidential Election” contract is trading for 34.8. These contracts will go to 0 in case of a loss and 100 in case of a win.

Given that the Obama contract is trading at 61.3, the corresponding McCain contract should be trading at 38.7, i.e 100-61.3, if contracts are fairly priced. The fact that the McCain contract is trading under the defined “fair price”, and has done so consistently since Obama essentially clinched the nomination, is a reflection of health concerns in the election betting market. The market is pricing in 3.9pts, i.e. 38.7-34.8, as the McCain health risk premium or it might be a case of Obama benefiting from the “Audacity of Vacuity“. It will be interesting to watch how this risk premium varies and if it diminishes completely.

The search for a Third Way to address the failures of socialism and perceived inequity of capitalism is a constant phenomenon. Despite the failure of this policy in Far East during the 1990s, where it was implemented by a honest, educated and intelligent civil service, the philosophy is once again advocated by the book Nudged.

The reviews describe this book as “gem of a book”, “utterly brilliant book”, “book is terrific” and so on and so forth. The book advocates “Libertarian Paternalism” or “Soft Paternalism”. This philosophy believes the state can “help you make the choices you would make for yourself—if only you had the strength of will and the sharpness of mind.” Ah yes, the sharpness of mind. Before one signs up an Obama-wannabe, complete with an attitude and sidekick with a chip on her shoulder, for advice let us see how the state has done historically.

If a picture is worth a thousand words, then this one is better than a thousand socialist slogans. Sovereign default seems to be a constant theme through the history. It seems all those who want to watch and hover over us, themselves need watching.

The financial earthquake that has been rumbling on Wall St. since last year, finally made its presence felt amongst the non-financial chattering classes this year, as zeros disappeared from their trust fund cheques.  It is hard to believe that they are willing to help the uber-rich on Wall St. by providing recourse to public funds and are even willing to buy them a Dalwhinnie to ease their pain.  Is this madness the end of the Conservative period that began with Reagan and Thatcher?

Read the rest…

From time to time the Internet directs me to interesting people with whom I am not on all fours, but who seem to be in the domain of the real. Terry Glavin seems to be one of them, at least on the subject of leftist anti-semitism. Andrew Potter is another. Both seem to be judging the effectiveness of left-wing causes by real-world criteria.

Read the rest…

Peter Foster asks in today’s Financial Post:

“To put it in a nutshell, why is valid economic theory so counter-intuitive to the human mind? Also, why do liberals feel the need to get on such a moral high horse in their condemnation of economic truths?”

Answer to the first question: Envy. And a wise concern for not being cheated.
Answer to the second question: Moral superiority is its own reward.

My point is that liberal market societies have emerged from certain historical processes, late in time, and could be lost for millennia if certain conditions are not satisfied.

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The continuing difficulties in the housing sector in US has led circumstances where homeowners are unable to meet their mortgage obligations.  You would be forgiven if you thought that this problem only centered on the poor neighbourhoods.  A developer in South Florida corrects us.

 Nonetheless, as I have followed several of the homes that my wife and I were interested in a few years back, they are all on the market now. What is shocking, that in each and every case, I have been told by brokers and banks that the owners, have ceased paying their mortgages in some cases for nearly 2 years and have continued to occupy these homes. Now, these are homes in excess of $2,000,000 in the very best neighborhoods in South Florida. Brokers have added that these buyers further complicated things by putting huge home equity lines on top of their mortgages and now have no possibility of selling their homes for amounts needed to cover their accumulated debt.

A polarizing power-hungry president, soon to leave office, is exerting all the levers at his disposal to exploit the energy market potential of a small state, with the aim of tipping global influence his way. Oh, and his name is Vladimir Putin. A good analysis of byzantine Russian diplomatic thuggery and the necessity of following the money.