Тег: Economics

Who do dictators benefit?

I promised to respond to Sperry’s longread On the Utility of Dictators, and I have finally gotten around to it.

Sperry’s objective was to show, using the example of Asian tigers such as Japan and Korea, that the reason for the rise of their capital-intensive industries was direct, prolonged, and brazen state intervention in the economy, rather than the free market. Compared to monstrous corporations merged with states, the free market is a poor market, and it is left with industries that are not as capital-demanding. I believe he fully achieved his goal.

Indeed, the state is an institution that is very good at concentrating effort, and as for which specific sphere the state will concentrate those efforts in—that is a matter of politics. Thanks to this concentration of effort, a mega-army, a mega-fleet, or a mega-corporation can be created; pyramids in the desert and in the jungle; mega-statues of gods and leaders; bridges with mega-traffic and bridges to nowhere; people can fly into space or burn in gas chambers—there is no end to the applications of state effort.

And yet, Sperry’s article is titled “On the Utility of Dictators,” not, for example, on their greatness. So who do they benefit—those dictators he examined in his review of the Asian electronics market? The answer is obvious: they benefit the consumer. The Korean, Japanese, Taiwanese, or American state takes money from its citizens, borrows from gullible investors, simply prints money—and pours it into building an industry that will provide the average consumer from god-forsaken Montenegro or Costa Rica (where dictators are too pathetic and unable to concentrate such frantic resources) with cheap and high-quality gadgets.

Thus, dictators can be considered conditionally useful if they spend looted funds on the production of consumer goods, conditionally useless if they spend looted funds on the production of cultural mega-monuments, and conditionally harmful if they spend looted funds on the extermination of neighbors. How did it happen that “useful dictators” appeared as a class at all? What forced the proud descendants of plunderers and religious fanatics to switch to trade wars in the spirit of “open your market to our goods, or we will close our market to yours”? There is a simple and boring answer to this: the Industrial Revolution. The previous revolution, the agricultural one, allowed for the concentration of resources to create giant armies, using those armies to seize new lands and concentrate even more resources. The Industrial Revolution, however, ensured global dominance for a country with a very modest army through manufacturing and a merchant fleet. It was the Industrial Revolution that led to the emergence of a new type of war: for the opening of markets. Not for the right to plunder a particular colony, but for the right to trade and invest. The Opium Wars, Commodore Perry, all of that.

It remains to understand: are these useful dictators, who lead national markets toward prosperity with an iron fist, necessary or optional? Fortunately, we have an example of an Asian tiger that managed without useful dictators—Hong Kong. The number one country in economic freedom achieved significant prosperity. This means that even in Asia, one can get by without developmental dictatorships. On the other hand, Hong Kong is not particularly famous for microelectronics. It turns out that the free market in Asia somehow bypassed this sphere, preferring the organic growth of many small companies over the super-concentration of resources in a few chaebols. Had there been no dictators, the global economy today would be different. We can only guess which industries would have flourished if they hadn’t been crushed in the pursuit of primacy in the chip race. But it seems that without dictators, there would be no AI bubble, thanks to which I easily draw beautiful pictures for my posts and do other cool things that I hope to tell you about soon.

Numismatics, Planned Economy, and Trump

Sperry UNIVAC

According to Trump, communism suddenly emerged in the form of his idea of his OGAS, with neural networks and tariffs:

The Pentagon plans to use an AI system to establish benchmark prices for critical minerals… The program developed by DARPA is designed to calculate fair prices taking into account production costs and excluding market distortions, especially those caused by China. It is assumed that AI-based pricing will be combined with tariffs to stabilize markets and support Western manufacturers.

The Pentagon plans to use an AI system to establish benchmark prices for critical minerals… The program developed by DARPA is designed to calculate fair prices taking into account production costs and excluding market distortions, especially those caused by China. It is assumed that AI-based pricing will be combined with tariffs to stabilize markets and support Western manufacturers.

Such fat cannot be commented on without sin. Especially pleasing was the talk of “fair” prices intended to correct the market. Leaving aside the посыл itself (each can laugh at it independently), one wants to give an example of how I encounter, probably, the most perfect market imaginable in my practice. We’re talking about such a little-known thing for the broad masses – numismatics, specifically – and how prices are set for all sorts of coins. From the point of view of fairness (and generally any external criteria), this is an unsolvable problem. How to understand objectively what should cost more: some worn-out Republican bronze from Rome, known, let’s say, in 5-6 examples (of which 4 are in the British Museum) or a typical Morgans dollar, a rare variety of which there are hundreds, with historical value having evaporated?

People invented a simple thing for this purpose – a classic auction where the price is determined solely by the ratio of those wanting to buy and the number of lots. In numismatics there’s a clear pattern: 99% of numismatists collect their own country, others are not very interested. Chinese people collect China (and Korea and Vietnam, considering them historical China), Americans – the USA (rarely Mexico or Canada), Russians – Russia. To assess how much a lot will sell for, you need to estimate two things: how many people want it and how rich they are?

And here we encounter that very “market distortion” that Trump is fighting against. Few people on earth are as rich as Yankees – only there can the average numismatist afford to liquidate hobbies for $2-5k a month, and a serious one can afford it by orders of magnitude more, moreover, given the population size, there are far more numismatists there than in the world’s average. As a result, two or three rare madmen claim the unfortunate Roman bronze somewhere at Heritage, while for a regular dollar, but a rare variety – hundreds and thousands exist, and everyone has some cash. From this emerges the picture: in any ratings of “the most expensive coins/banknotes in the world,” the top positions are always occupied by lots from the USA, such as “10 cents, Philadelphia Mint, 1904,” which go into a brawl for hundreds of thousands, while really interesting positions with important cultural value and rarer ones – gain $20-30k. What will happen upon attempting to “correct” such blatant injustice? Coin trading will collapse, and a black market will emerge, like the one that existed in the USSR, when people exchanged interesting lots semi-undergroundly, printed them out with a copier and distributed among their friends approximate prices, and generally built their parallel economy, doing exactly what legal auctions do. The difference is that at an auction, both the auctioneer (and quite substantially – a typical commission makes up 20-25% of the winning price of the lot) and the state profit, as they take tax from the auctioneer. But in a clandestine market, only its underground participants win. Some things simply don’t work, whether we like it or not. Let’s wait for a black market for germanium and lithium?

How to make a good economy without taxes so that the whole economy is from the market?

Zxcutehikka

This is an interesting question. I suspect the author of the question wants a statist answer: how to build a good economy from scratch, having come to power in some state. There are several quite decent examples in recent history, such as Kakha Bendukidze’s reform of the Georgian economy or Argentina’s economy – under Javier Milei. What unites these cases, and more classical examples of economic miracles – Western German, Japanese, South Korean, Singaporean and so on?

Primarily, it’s that the economies in these countries were completely wrecked before the reforms began. Only when the horse was dead would the bureaucratic horde graciously agree to dismount and say, “Well, alright, reform us, don’t interfere with me, but only weakly, and as soon as the horse gallops again, of course, my time will come, and I’ll push you aside.” And then the reformer more or less carefully dismantled regulatory blockages, allowing the economy to breathe.

Perhaps the only example of an economic miracle that didn’t involve any reforms comes to mind: Hong Kong. There, according to reports, the governor simply sabotaged metropolitan policy and didn’t interfere much with what was happening in the local economy for a long time. And then the metropolis simply handed over Hong Kong to the Chinese socialists.

The path of Hong Kong is just what anyone can use, not only the chosen or unchosen politicians. The business is simple – you just need to ignore government directives and deal with your private affairs. If no one will pay taxes, we’ll get a tax-free economy, which, incidentally, is what the questioner is interested in. Of course, the modern state knows how to cope without taxes. For example, it could simply print money and finance its needs from this source. So it would be good to ignore government funds too.

The problem, however, is that mass ignoring of official wishes doesn’t begin until people realize that the state has botched things. And therefore, at the start of the economy, we have ruins. Worse than that, the level of economic literacy among people at the start is probably shockingly low – otherwise how did our economy end up in ruins? Why “presumably”? Because there’s a more favorable alternative: people are generally more or less literate, and the economy is ruined, for example, by war and economic sanctions. And this is why Russia has a better chance of achieving economic prosperity after forcibly displacing the current government than Cuba or Venezuela.

And the fact is, even if the Venezuelan government is now crushed by the US Army, there’s probably not much good that will come of it – because the local socialists will be convinced they were right all along, it was just a force majeure situation, and now let’s fix our wonderful Bolivarian socialism. Where do I get this certainty? Well, there’s the precedent of Iraq: an external overthrow of a socialist government doesn’t allow the people to become smarter; instead, the people become enraged.

The answer came out sprawling – more like rambling thoughts than a coherent lecture – and political studies isn’t really my forte. But somehow I managed to look at the topic from several angles, and that’s enough bread.

Translation of an article about tulip mania

There is a new commissioned translation on the site, the article “Tulipmania: The classic story of the Dutch financial bubble is largely false“. It is 2018, the Bitcoin bear cycle, and there are once again talks that all this crypto of yours is just a new version of tulipmania; so, the article, without mentioning Bitcoin a single word, instead explains that everything with the tulips was not at all like it is in popular economic anecdotes.

New translation. Gustave de Molinari. Evenings on Rue Saint-Lazare. Chapter 11.

At the request of @mysery_tg, I have produced a translation of one of the chapters of “Evenings on the Rue Saint-Lazare” by Gustave de Molinari (1849). In the mid-19th century, the author conceived and popularized the idea that we now know as ancap; in the text presented here, he lays out the arguments for this system of social organization in a theoretical dialogue with a conservative and a socialist.

The translation was made from David Hart’s English translation of 2009. I did not cross-reference it with the French original, but I hope that the “telephone game” factor is negligible.

The economic price of violence

Voluntarist, Bitarch

In 2017, the Institute for Economics and Peace released a report that provided a comprehensive assessment of global economic losses from activities aimed at “containing, preventing, and eliminating the consequences of violence.” As it turned out, violence costs us 13.6 trillion dollars per year, or 13.3% of global GDP (estimate given for 2015). To put this in perspective, a 10% reduction in the economic impact of violence would free up more funds than the total value of global food exports or the total volume of global foreign direct investment in 2014. These are gigantic figures.

Military spending plays the primary role in this matter, reaching 6.16 trillion dollars, or 45% of all economic losses from violence. Internal security expenditures, such as spending on police, the judicial system, prisons, and private security, account for 3.5 trillion dollars, or 26% of all losses. It is also worth highlighting homicides and violent crime, which directly lead to medical expenses and loss of income for victims, and indirectly to their loss of productivity, as well as the productivity of their families and friends due to psychological consequences. This accounts for 1.79 trillion dollars, or 8% of all losses. Of course, violence leads to many other losses, for example, those related to internal and external conflicts, as well as the refugees that follow them.

Naturally, it is impossible to add certain less obvious losses to this assessment, especially those related to systemic violence and missed opportunities. Of course, we have already accounted for spending on military and security sectors, as well as losses from private violent crime. But how much benefit could these funds have brought if they had been invested in productive activity, rather than being taken by states to sponsor security structures, as well as other bureaucratized, corrupt, and inefficient state structures? How much potential was lost due to the harm caused by perpetrators, whether by the state—for example, in the persecution of people and wars—or by private individuals? Obviously, the real economic losses from violence will be much higher than 13.3% of global GDP per year; this estimate is merely the absolute minimum from which to start.

We could lose far less if we invested funds into solving the problem of violence rather than into its containment and the elimination of its consequences. The Institute for Economics and Peace article states that a dollar invested in education will bring more benefit and contribute more strongly to maintaining peace than a dollar invested in prisons. But we must also remember that the source of all serious violence is a minority of pathological individuals with a dysfunction of the violence inhibitor, who feel nothing wrong with causing harm to other people. A dollar invested in the development of an effective therapy that restores inhibitory control over aggression in those who lack it would eliminate losses from violence that are orders of magnitude greater than such an investment. A great deal of funds, time, and human lives could be saved and directed toward productive activity that increases the well-being of everyone.

How will the problem of a “federal fleet” be solved under minarchism and even more so under full ancap?

This problem is clearly visible in the US Civil War, where the Southerners had a larger army, a more powerful economy, and more money, but they lacked one thing: naval supremacy.

In other words, the essence of the problem is simple: maintaining ships is hellishly expensive, more so than any other weaponry, and there are great doubts that a single firm could maintain a nuclear aircraft carrier. If it were maintained by several firms, there is a high chance it would turn into a “federal” aircraft carrier.

Without a fleet, self-defense is impossible. With a fleet, controlling counter-revolution is impossible.

How is it proposed to deal with such a problem?

P.S. This is, of course, referring to minarchism or ancap in a specific country.

Anonymous question

In many ways, this question resembles the problem of cities being buried under layers of horse manure as the population grew in the late 19th century. In other words, the problem belongs to one technological era, while the circumstances for which a solution is being sought already belong to another.

Proto-ancap existed in Iceland for three hundred years and then surrendered to the state. Proto-minarchism existed in the USA, conventionally speaking, until that very Civil War—meaning less than a hundred years—and was then crushed with great bloodshed by the federal center. So, of course, the problem of power centralization itself is not imagined, but at its core lies a pronounced positive effect of scale when increasing armament. If this effect disappears, the problem of power centralization also disappears.

Today, naval supremacy is a thing of questionable effectiveness. Let’s say there is some mega-bandit who has robbed his subjects of such an astronomical sum that he can afford a mega-fleet superior in strength to all other fleets. What is the profit from this? The ability to ensure an effective naval blockade of any chosen coastal territory? The ability to control the sky over any territory within the reach of carrier-based aviation? And how do these capabilities convert into money? For the mega-bandit as some unified entity—almost not at all. These expenses will never pay off, and naval muscles serve the bandit almost exclusively as decoration.

On the other hand, the mega-bandit is a conceptual entity; in fact, decisions are made by specific people, and for them, what matters is not what income the mega-bandit receives, but what income they personally receive—by reducing the overall efficiency of the mega-bandit. Again, if instead of increasing one’s own efficiency, one reduces the efficiency of others, then this is also a quite effective strategy for remaining the coolest, even at the cost of reducing one’s capabilities in absolute terms; and the mega-bandit can indeed act quite rationally based on this extremely “smart” strategy of “you die today, and I tomorrow.”

How could a conditional ancap community prevent such moronic attacks from these atavistic predators? First, as the episode with the cruiser Moskva showed us, anti-ship missiles are quite effective against a fleet at a significantly lower price. Second, the elimination of individual regime functionaries is usually even cheaper than the destruction of thousand-ton tubs. Third, the idea of the nation-state is becoming less popular, and with it, the popularity of patriotism falls, which is expressed, in particular, in the unwillingness to serve in the army. As a result, today even countries with huge military budgets have serious manpower shortages. It is already difficult to man a fleet, and when the situation develops to the point where the first significant territorial ancap communities appear on Earth, the situation will become even more depressing for etatists.

Yes, horses will not give way to cars overnight, but cities will no longer be buried under manure; the trend has changed. Conflicts will become increasingly market-justified, which means minimum costs for maximum efficiency. Not the time for aircraft carriers.

Morazanograd and Montelibero

I recently read an interesting article by Spencer McCallum on the friendly site panarchy.ru with the tedious title The Community Enterprise: Market Competition, Land and the Environment. Alexey Korshunov, who posted this article, claims that one of the three private contractual jurisdictions in Honduras, Ciudad Morazán—which he refers to in a Russian style as Morazanograd—operates on the principles described in it, and in which he, as it happened, became the first resident. (By the way, not long ago he crowdfunded a ticket to the most famous Honduran ZEDE called Prospera, traveled there, and subsequently posted a report on the state of affairs in this flagship project)

Briefly, McCallum’s article contains the following ideas. The value of a piece of land can be defined as the sum of external effects directed toward that plot from all other property objects. If the landowner is separated from its immediate use and rents it out to several tenants, they are usually extremely interested in maximizing the rental income, and therefore have market incentives to create the most favorable environment possible for the tenants. For this reason, the author argues, where land is occupied by individual houses or, worse, apartment buildings where the apartments are owned by the residents, each owner maximizes their own living convenience; however, where significant areas are rented out to numerous tenants, a lush variety of ways to use these spaces begins to flourish, from cafes and shops to coworking spaces and laboratories. The task of the administrator of a particular business center essentially boils down to providing utilities to tenants and minimizing friction between tenants and the state. A kind of “protection racket” for the healthy person.

Morazanograd is designed to provide its residents with the maximum possible security for Honduras, acceptable living conditions, and a place to earn money. In creating the Montelibero settlement, we are not entirely following the recommendations laid out in the article: instead of leaving all the land under the ownership of the foundation, developing it centrally, and renting it only to residents, we sliced approximately two-thirds into small private pieces for independent development, while the rest was indeed left for rent. Thus, we should end up with a field experiment to see which concept works better. In any case, we are still at the stage of laying the centralized infrastructure, much like Morazanograd, except that we are not building a fence around the settlement, as Montenegro is not a place where one should fear the neighbors.

Dear-to-the-heart Morazanograd construction hassles, we still have all this ahead of us

Routinization of the nightmare

The war in Ukraine has entered a protracted stage and is beginning to slowly slip from the current agenda. The most unpleasant outcome this could lead to is:

  • The front stabilizes, the sides dig in, and losses decrease;
  • The Russian economy slowly degrades under sanctions, but the political structure proves resilient enough, and the state does not collapse;
  • The Ukrainian economy slowly degrades under shelling, and effectively only those fighting and those servicing the war remain in the country; the majority of those left either scatter far from the front line or leave the country, and once gone, gradually get used to their new place of residence;
  • Russians, who failed to flee the RF in the early stages of the war, gradually lose the ability to do so: they are welcome nowhere, they run out of money for tickets, and international flights will cease to exist. Wittingly or unwittingly, they tighten their belts and begin to survive;
  • By the way, regarding the replenishment of the RF army with cannon fodder, there is no need to worry in this scenario: it is enough to give the conscript’s family army rations and immediately deprive them of them as soon as the conscript deserts or surrenders. Son in the army—parents are fed. Many would be willing to accept such a deal.
  • And this continues for years.

To some extent, this scenario could be hindered by the opening of new hotspots of tension around the RF: the remnants of Russian troops will begin to be pushed out of Transnistria and the Caucasus; the RF will try to act on all fronts and will ultimately break down relatively quickly. However, one should not rely solely on the help of Azerbaijan, Moldova, and Georgia. It is better to continue pushing the RF toward a rapid military defeat and political collapse, primarily through the efforts of Russians.

Initially, I proposed exclusively “herbivore” measures, such as burning down military recruitment offices. This creates chaos in the troop mobilization system, entails no collateral casualties, looks effective, and has an inspiring effect on any supporter of freedom. Now, however, I see that in many places they have gone further: there are reports of sabotage on the railways. Again, without human casualties. Relay cabinets, which as I understand it, serve for cargo dispatching, are being destroyed. That is, the throughput capacity of the road is sharply reduced, but trains do not derail. A mass of other sabotage proposals of varying degrees of ingenuity is circulating online, but for the most part, it boils down to provoking failures in the troop supply system.

What interests us much more is the collapse of the country. And here, it is very difficult for me to think of any political activity in the RF that would allow a libertarian to keep their “white coat” on. Propose simplifying business operations and lowering taxes? Advocate for simplifying the circulation of civilian weapons? Call for a complete transition to a highly professional contract army? Are you serious? Now? In Russia? Honestly, now, on the contrary, it would make sense to support the communists in everything. Give them full nationalization of industry! Price controls! Export restrictions on goods outside their production region! Replace Nabiullina with Glazyev! IT specialists to the machine shops! What else do they want? Let them have it. Otherwise, they will just blame capitalism again for bringing the country to its knees. No, let it collapse under Glazyev.

So, honest to God, I cannot think of a more worthy goal for Russian libertarians today than to leave the RF as quickly as possible and leave the country to be torn apart by leftists. As Ayn Rand enjoined. As Navalny suggested to libertarians. Square your shoulders.

Sorry for the choice of illustration from the popular anime Attack on Titan…

Differences between the Chicago and Austrian schools

Today I came across a translation of an article by Zolotorev regarding the differences between the approaches of the Chicago and Austrian schools of economics. The author refers to a certain discussion about these differences that he conducted via correspondence. I suspect that this discussion was largely triggered by an article by David Friedman, in which he discusses this very difference in approaches in detail. He linked to it on his Facebook, and later returned to this topic several more times there. And this (I don’t rule it out) started with my question about what exactly he finds unsatisfactory about the ASE – in an online interview that he gave to Russian-speaking readers to mark the release of the Russian translations of The Machinery of Freedom.

In short, if there is public interest, I can translate Friedman’s article, as well as individual more or less substantive reactions from the Austrians. I will, of course, measure this interest by the number of donations received in the near future. There is also an interest for me here, because I am very interested in Friedman’s economic analysis of law, on which I plan to base much of the second part of my book about ancap, and I want to have a clearer idea of how compatible all these considerations are with the ASE.