Sunday, September 18, 2016

Definitive proof: Obama born a Keynesian

Definitive proof: Obama born a Keynesian

https://en.wikipedia.org/wiki/Economic_policy_of_Barack_Obama

Monday, July 18, 2016

Free trade versus protecting infant industries: the Eurodrone project


The issue of whether it is preferable to produce goods at home, or instead import them from abroad, is one of the oldest topics in economics. Those who favor international trade point to the low price and high quality of certain goods imported from countries that have greater skill and better equipment for producing these items. On the other hand those who prefer domestic production often argue that when a country starts producing a certain good with which it has no prior experience, the quality of the resulting products will be poor and expensive to produce, so domestic goods of that sort will be unable to compete on an equal footing with competing goods imported from countries long specialized in their production.
However a country’s expertise and its consequent ability to produce the good in question at a suitable mix of price and quality,  can easily vary with time, and as a matter of fact it invariably does. Thus for centuries the clock and watch industry in Germany’s Black Forest[1] was based on a handicraft practiced by traditional artisans in small workshops and later medium-sized factories. However once precision mechanical clockwork was replaced by electronic devices, the Black Forest lost its competitive advantage in manufacturing clocks and watches and the industry disappeared. 

Consequently when a country envisages establishing a new industry, it faces the issue of whether the so-called “infant industry” will need temporary protection from the rough winds of foreign competition. Once such industries have been set up, their owners invariably try to prolong the protection from foreign competition as long as they can. In many cases the new domestic manufacturer class has managed to perpetuate protection and thus reap a constant extra profit at the consumer’s expense. 

Therefore if infant industries are to be granted protection, only producers should benefit who are unlikely to influence government policy making in the future. This means that the government must be independent of their political support, because the producers in question are politically powerless. 

For example, for several decades after 1949 Taiwan was ruled as a military dictatorship by a military and bureaucratic elite of mainland Chinese who had fled mainland China after their defeat at the hands of the Communists. This government was thus a quasi-colonial regime on which local manufacturers had little influence. Accordingly the government was free to reward or punish local manufacturers as it saw fit, and it imposed a strict quality control system that prevented manufacturers from exporting shoddy goods and established Taiwan as a source of high-quality manufactured goods. 

On the other hand in Argentina the coddled manufacturing class soon bribed the politicians into perpetuating their privileges and inefficiency, so Argentina was largely self-sufficient in manufactures, but their quality was mediocre so they never managed to export much. See Governing the market, by Robert Wade.     
This issue remains as crucial as ever, as revealed by these news reports translated from German. 

The German government has decided to buy an Israeli drone instead of its competitor from the US, which is cheaper and somewhat better. The following two articles from the German media strongly suggest that Germany made this decision largely because Israel has promised technical assistance toward joint development of a European drone by Germany, France, Italy and perhaps Spain, but not Britain. The Israeli technical assistance will take the form of a maintenance contract for drones to be awarded to a European firm that appears to be acting on Germany’s behalf. Strangely enough, the other prospective participants in the propective development of a Eurodrone, namely France, Italy and Spain, as well as Britain, have all bought the American competitor’s product, the Predator B from General Atomics. Accordingly it seems that Germany alone is footing the bill for the know-how transfer from Israel. Presumably Germany has already figured out how to put the bite on its chums when the time is ripe.
In any event, Germany appears to have opted for a sirt of infant industry policy in the field of drone manufacture.

A number of other important issues are involved. The German government justifies its aversion to the US prodct in part by reference to the  Predator’s sinister reputation for killing both combatants and non-combatants in sundry parts of Asia and Africa. The German left for its part fears a trend toward self-reliant fighting machines that might eventually become fully independent of human control.  
  
Bundeswehr leases drones from Israel - Outrageously expensive rent https://www.tagesschau.de/inland/drohnen-129.html
Updated June 4, 2016 04:55 a.m.
The Bundeswehr is slated to get drones that can be fitted with weapons. The Defense Ministry has decided to lease an Israeli model, although the purchase of American systems would have obviously been cheaper. By Christian Thiel, tagesschau.de [a news web site]
This week Ursula von der Leyen tours the International Aerospace Exhibition at Berlin-Schönefeld but will give a wide berth to the booths displaying armed drones. The minister’s PR consultants wish to avoid at all costs images of the Defense Minister against such a bellicose backdrop. It has already been decided that such remote-controlled unmanned aircraft, capable of being equipped with missiles and bombs, will soon appear in the Bundeswehr’s arsenals, A new European fighter drone will be developed in the next few years - most likely by the Airbus Group.
A bridge solution costing more than half a billion euros
But since the drones won’t be ready at least until 2025, a temporary solution has been proposed. In January von der Leyen announced what the solution will be. She stated that the Israeli manufacturer IA1 wishes to lease four to six Heron TP type drones. In other words, temporary leasing. And for a handsome price, too: the Federal Republic will pay EUR 580 million for a handful of Heron TP type drones. Mind you, not to buy them, but only to lease them.
Greens expert Tobias Lindner has doubts about the economic efficiency of the Heron deal. Lindner is a Green member of the Bundestag [parliament] and is on its Budget and Defense Committee. He finds the price too steep. Accordingly he has many questions for the Defense Ministry: "The ministry has not been able to explain why the Heron TP was selected," he says in an interview with tagesschau.de. He states that there is no lack of competing products on the market.
Isn’t buying cheaper than leasing?
This phrase seems to refer to the competition, namely General Atomics in the United States. This company had offered the Germans a comparable number of Predator type drones for sale for only 400 million euros. Britain recently agreed to purchase 16 Predators for the equivalent of barely 540 million euros. All this makes Lindner suspicious: "I want the Federal Ministry of Defense to tell me: is the decision that was made actually the most economical solution?"
Off the record, even top German generals concede that in some respects the cheaper US drone performs somewhat better than its Israeli counterpart. The Predator can carry a heavier weapons load, flies faster and can stay aloft longer. These were probably the reasons why not only Britain but also Spain, France, Italy and the Netherlands bought the American device.
The USA is upset about the deal
The CEO of General Atomics, Linden P. Blue, argues thus: "There is some interoperability among systems and this provides a certain logistical efficiency," The Americans are quite angry about the German decision. They are currently intensively lobbying the German politicians who influence the budget in order to persuade them - after all, millions of euros are at stake. A report marked confidential is in the possession of tagesschau.de. It is from the defense technology attaché at the German Embassy in Washington, DC. The report predicts that General Atomics will continue to make efforts "to seek contact with top officials and discuss this issue with members of the Bundestag."
In von der Leyen’s office at the Bendler Block in Berlin, top officials meanwhile point to the alleged advantages offered by the Israeli drone. The Bundeswehr already uses its unarmed predecessor model, they say. Accordingly retraining will supposedly be much easier than it would be for the American device.
[Does this reflect] political instead of military priorities?
Even deputies from the [governing] coalition [parties] suggests that the decision was not made so much on military as on political grounds: they claim that von der Leyen does not want to buy from the Americans because their Predator drones have an image problem. The United States deploys the devices for missions that are extremely controversial from the standpoint of international law, to wit for the targeted killing of alleged terrorists. This circumstance and the ensuing widespread public disapproval of such weapons systems had already been a problem for the drone plans of von der Leyen’s predecessor in office Thomas de Maiziere. On the other hand purchase [sic] from the Israelis was less problematical, at least in Parliament. For decades, very intense but extremely discreet armaments cooperation has been going on between Germany and Israel – for the sake of the “reason of state” postulated by Chancellor Angela Merkel and all her predecessors, who strongly stress Israel’s right to exist.
How Airbus benefits
And then there's Airbus, too: The deal with the Israelis includes that the giant European armaments firm will perform the servicing and maintenance of Heron drones. Airbus thus intends to accumulate know-how on the unmanned planes, as shown by the grounds -- classed confidential -- alleged for the Heron decision. They stress the smooth cooperation with Israel and "the decisive advantages offered by the Heron solution for expanding industrial skills with a view to building the planned European drone."
Tobias Lindner of the Greens considers such grounds unpersuasive: "I fear that again industrial policy is being pursued and that I will receive no answer to my question: What is the best solution for the troops?" He and his colleagues on the Budget Committee are also upset that Airbus will continue making money with the maintenance of the Heron drones, even if the Group's own Euro drone is not completed on schedule - not a completely unlikely scenario, as shown by the delays – some of them lasting years -- on other Airbus projects like the A400M transport plane, the Tiger and NH90 helicopters, and last but not least the Euro-Fighter.

Heron TP - First combat drones for the German armed forces
Berlin. The Bundeswehr [German armed forces] will be equipped with type Heron TP drones from the Israel Aerospace Industries (IAI) armaments firm. The Kölner Stadt-Anzeiger [a German newspaper] was the first to report this today Tuesday (January 12). Later in Berlin the Defense Minister Ursula von der Leyen announced to the media this decision made by Inspector General Volker Wieker. The latter had at the same time decided against the competing product Predator B from the American drone manufacturer General Atomics Aeronautical Systems. The new Israeli systems for the Bundeswehr – negotiations are taking place for procuring up to five Heron TPs, which will be leased from IAI and used principally for reconnaissance purposes.
But they can also fire missiles at ground targets and are therefore commonly known as combat drones.
Even before von der Leyen's press release, Bundestag deputy Tobias Lindner (Greens) had confirmed that "one year after the Minister’s programmatic decision to procure armament- capable drones for the Bundeswehr, an Israeli model" was selected.
The Heron TP (TP stands for “turboprop”) will be procured as a temporary solution and will later be replaced by a drone jointly developed with other European countries, which will also be designed for carrying weapons. Already in May 2014, Airbus Defence & Space, Dassault Aviation of France and Alenia Aermacchi of Italy jointly submitted detailed development proposals to political leaders.
Bridging solution expected to last until 2025
In her statement on Tuesday before the media representatives, the Defense Minister again mentioned the successful experience using the IAI Heron 1 UAV – suitable solely for reconnaissance purposes, and also on lease -- in Afghanistan (see also here).
On the subject of the Heron TP, von der Leyen said in Berlin: "We have decided, together with Parliament, that we will cooperate with France, Italy and Spain to develop a Euro-drone However it will not be ready before 2025. Accordingly there is a gap that we must bridge." As a bridge solution, she announced, the Inspector General decided to negotiate with the Israeli manufacturer IAI for leasing the Heron TP unmanned aircraft. Von der Leyen continued, "Then, when the ... contracts [are] ready for a decision, we will review this again in detail with Parliament. However the general course to be followed is now decided. We are planning on an armament-capable drone, which will be the standard for the foreseeable future. It is important in order to protect our soldiers deployed on foreign missions."
As Thorsten Jungholt, the editor of Die Welt, today wrote in his comment on the procurement decision, "according to government sources," the Bundeswehr will probably lease "three to five Heron TPs" from IAI. The UAS will be operational as of 2018. The German party to the deal, just as previously, will be Airbus Defence & Space (Airborne Solutions). The budget for the project, including guided missile weaponry, is estimated at 580 million euros, according to Jungholt in Die Welt
Leftists warn of a "trend towards weapons systems becoming autonomous."
As expected, the opposition was quick to react. For the political camp of the Greens and The Left, the topic of drones -- especially combat drones – is a red flag.
The defense policy spokesperson of the Left caucus, Christine Buchholz, waxed indignant: "Procurement of combat drones is not about filling a capability gap, it’s about the ability to murder by remote control!" The legislator fears that getting involved with combat drone technology starts a trend towards weapons systems becoming autonomous, The cabinet would thus be contributing towards an arms race that might ultimately lead to production of fully automated combat robots.
Buchholz implores: "The Bundeswehr needs no combat drones, because they do not protect our own soldiers, but instead are used for killing people thousands of miles away. Already, thousands of civilians have become the victims of drone strikes."
The Greens fear increasing "removal of the constraints restricting warfare"
Agnieszka Brugger, the spokeswoman for Alliance 90/Greens on security and disarmament matters, was likewise critical. Brugger suspects that "with this decision, Ms. von der Leyen is clearing the way for combat drones". The defense minister is blind to the risks associated with these "highly controversial weapon systems".
The member of Parliament cites the following grounds for her opinion: "Combat drones are deployed, more than almost any other technology, for uses contrary to international law and are encouraging removal of the constraints that restrict warfare. The increasing use of these supposedly precise weapons systems is responsible for a great number of civilian casualties and has contributed to the escalation of violence in many conflict areas. The cabinet committed a serious blunder by saying nothing about this to its key partners. And now it is actually joining the group of countries desirous of possessing combat drones. Moreover so far the cabinet has done scarcely anything to fulfill its pledge to promote an international ban on autonomous weapons systems."
Brugger also scolds the Social Democrats: "Instead of facing up to their responsibility, each one of them expresses a completely different viewpoint on this issue. The SPD should be loyal to its tradition as a party of peace and thwart the procurement of combat drones."
For the Christian Democrats, drones are an "indispensable additional tool for conducting operations"
Of course the Christian Democrats react very differently. Henning Otte, the defense spokesman for the CDU-CSU parliamentary caucus, described today's choice by the cabinet as follows: "Drones are an indispensable additional tool for conducting military operations, because they enable us to protect our soldiers in the field as effectively as possible, The Bundeswehr already has extensive experience in the use of Heron 1 type drones, which are being used in Afghanistan for reconnaissance. Unlike [sic] its predecessor, the Heron TP offers better performance."
Moreover he states that the German Air Force is already familiar with the Heron system. Training and supplies need not be switched to match a different system. This saves time and enables swifter deployment of the Heron TP system.
Moreover, Otte continues, choosing the Heron is a decision in favor of Europe and a future European drone, "Several European countries, including Germany, plan by 2025 to develop a European drone jointly. By means of the transition Heron TP solution, the Bundeswehr and the European manufacturing consortium can gain the valuable experience they need in order to develop a new generation of European drones."
A very special Luftwaffe unit
The first unmanned, remotely controlled aircraft (Remotely Piloted Aircraft, RPA) of the Heron TP type was put into service by the Israeli Air Force in February of 2010. It had supposedly made it maiden flight four years earlier, in July of 2006.
The armament-capable reconnaissance drone has a wingspan of 26 meters and is 14 meters long. It has a maximum take-off weight of 5,300 kilograms and can carry a payload of 1000 kg. The manufacturer specifies an operating altitude of 45,000 feet (13,716 meters) and a maximum flight time of up to 36 hours. The Heron TP is propelled by an 895 kW (around 1217 horsepower) turboprop engine.
If the deal with IAI is perfected, these Israeli drones will be assigned once more to the Luftwaffe’s 51st Immelmann[1] Tactical Squadron stationed at Jagel Air Force Base. This squadron is our air force’s only flying unit qualified to operate airborne reconnaissance missions, whether manned or unmanned, for purposes of both imaging and sensing signals.
This was the goal pursued when on January 1, 2010 the 2nd or Immelmann airborne reconnaissance squadron was restructured for operating unmanned reconnaissance systems. The Heron 1 aircraft belonging to the squadron, as mentioned before, have been deployed in Afghanistan since March of 2010 .




[1] Named after a World War I air ace, a rival of the “Red Baron”, Manfred von Richthofen. 
    
     

Saturday, May 28, 2016

Private-enterprise mumbo-jumbo


I spent parts of my childhood in Argentina and took several trips into the interior with my father to prospect for minerals.
My father was a confirmed free-market enthusiast and never ceased praising the virtues of free enterprise.
On our travels through rural parts of the country, as a matter of fact whenever we left the capital for the interior,  we usually stayed at a chain of hotels that was ubiquitous, clean and had good service and excellent food. The entire chain was owned and operated directly by a department of the Argentine federal government, I think it was called Dirección General de Turismo. The few times we had to stay in private hotels we found they were mostly pretty grungy outfits. We avoided private enterprise hostelry like the plague whenever we could, in order to indulge in the comfort of government digs.
Pity I never realized the discrepancy between my father’s theory and his practice until much later, when I studied economics.

Sometimes “Economics 101” is actually “Economics 000.”

Saturday, April 2, 2016

Friday, February 19, 2016

German Historical School’s critique of British economists

Adolf Wagner’s review of Marshall's Principles of Economics.
A commented summary
Quarterly Journal of Economics, volume 5, 1891, pp. 319-38.

Introduction
Adolf Wagner was a prominent economist of the German Historical School, a school of economic thought that flourished in Germany during the 19th century. In 1891 he published a review of Alfred Marshall’s Principles of Economics. Marshall was the top English economist of his time. He started out as a classical economist in the mold of John Stuart Mill (1806-1873) but as he grew older he adapted to the neoclassical "marginalist” fashion that still prevails today and which the German Historical School polemicized against).
Thus this review reveals the main conflicts between the two schools of thought. The German Historical School inspired the so-called “institutionalist” current in American economics, which like its parent (G.H.S.) in Europe, was not very optimistic about capitalism.  The best-known proponent of American institutionalism, Thorstein Veblen, wrote witty satires of American capitalism that can be read with profit even today.
In this review by Adolf Wagner we see three premonitions of Nazism -- which would take power in Germany some four decades later: anti-Semitism, nationalism and a predilection for state socialism.  Thus the charge made by Ludwig von Mises against the German Historical School of being chauvinists has a certain ring of truth, although it cannot be applied to all members of the School. Others like Max Weber were quite liberal. And the man generally considered the founder of the German Historical School, Friedrich List (dates?) was decidedly a progressive liberal in his day. List made no claim to originality. After a stay in the USA in the 1840s, he returned to his native Germany singing the praises of the “American School”, by which he principally meant Carey, an unabashed proponent of industrial protectionism. The current professor of economics at Cambridge Ju Jing Hao (or something like that) shares the German Historical School’s critique of classical economics. He accuses Britain and other empires of becoming powerful through protection of their home markets and then becoming free-traders once it was to their advantage.
Wagner’s polemic against David Ricardo’s excessively neat logical constructions jars loudly with Karl Marx’ unbounded admiration for Ricardo and the Ricardian method. That is because Karl Marx shared many of the attitudes of the German Historical School. Marx’ masterful (and seemingly accurate) depiction in vol. 1 of Das Kapital of “primitive accumulation” in England   between the 13th and 17th centuries, when Parliament conducted a radical land reform through the so-called enclosures in England that dispossessed the small holders and made them landless laborers ripe for recruitment into the factories sprouting up in the early 1800s,

COMMENTED SUMMARY
I [i.e. Adolf Wagner] protest against the belief that all German economists approve of the patronizing and pretentious attitude towards English authors [i.e. Adam Smith, David Ricardo, etc.] shown by some of the extreme German representatives of the historical school.
The most  uncompromising representatives of the older German historical school, Roscher and Knies, narrow opinions of the younger historical school - Schmoller                  
Most economists in Germany are in so far members of the historical school that we point to the need of induction side by side with deduction; [This criticism of Wagner’s against the English economists I warranted, since Ricardo tends to ignore many details in order to create a logical model. On the other hand the German Historical School has certain methodological preferences that cannot be justified by reference to induction vs. deduction. For example the German Historical School’s aspiration to a comprehensive theory encompassing the whole of society instead of just parts of it cannot be grounded in terms of induction/ deduction. On the other hand the German Historical School did do a good job of studying actual historical processes of economic change and development, e.g. Schmoller’s study of the cloth industry in Lorraine in the early modern age, which Schmoller pointedly entitled the “German" cloth industry of Lorraine, fewer than 20 years after the  German  Empire had snatched traditionally German Alsace and Lorraine from France in the  Franco-Prussian War of 1870.]
We warn against exclusive reasoning on the basis of economic self-interest. [This has always been a grave defect of the English school and remains so today. It presumes a non-existent rationality of economic behavior, Disproved by Daniel Kahnemann’s behavioral economics in the 1980s, and by John Maynard Keynes in the 1930s with his General Theory of Employment, Money and Interest, where he denounces the irrational herd behavior of the traders on the London financial markets. ]
but we do not want to do away with all abstract thought or abstract statements.
Such agreement among economists of different nationalities, whose thought has developed in entire independence of each other, is doubtless much more general than one would expect if attention were paid only to the extremists.
I doubt Marshall’s proposition that the main characteristic of modern industry is not free competition, but free industry and enterprise.
Marshall does not mention the fact that England enjoyed the favorable strategic position resulting from its insular location.  
Since the discovery of America, the situation of the British Islands
has been a factor of prime importance in  the economic development of Great Britain, because military expenditure absorbed a much smaller proportion of its strength than in continental Europe. Germany by contrast was sandwiched between bitter enemies like the Russians and the French. [Here a German nationalist tone surfaces, That was typical of the right wing of the German Historical School.]
To its geographical position and natural security England owes more than to Englishmen’s hard work.
[Anti-Semitism:]
I disagree with the praise bestowed [by Marshall] on the German Jew, whether in economic theory or in industry. In the intellectual field, as in others, the Jew is much more apt to be a middleman than an original producer; and in German industrial life his activity is generally harmful.
Hermann [This statement is not supported by historical fact. As a matter of fact Jews published the first newspapers in Germany. On the other hand it would be accurate to say that there were no Jews in heavy industry, e.g. Krupp steel, which enjoyed pride of place in the hearts of German nationalists of the time. ]
The younger German historical school is guilty of confused thinking upon this point also; and its extreme opposition to the abstract political economy of authors like Ricardo is in part a consequence of this confusion.
The hot-heads of the younger German school refuse to speak of "economic laws" at all, that being unscientific. [On the contrary, it is unscientific to deny the existence of something without proof. And it is generally quite difficult to prove that things don’t exist.]
Discussion of the whole subject of socialism.
Mistake in Marshall: wrong definition of the term "net income," -- a mistake which results partly from the failure to distinguish sufficiently between the industry of the people as a whole and the industry of any private individual. [Here Wagner is quite right, this lack of theoretical moorings is a hallmark of English thinking. Marx too deplored some English thinkers' “brutal obsession with the issues", at the expense of any clear theoretical consistency. Neglect of fundamental issues is characteristic of sloppy thinking that can turn a respectable theory into a  tool of ideological manipulation.]  
Marshall's third book begins at once the separate discussion of demand, production, and similar topics of detail. I find here the same gaps which exist in the writings of English economists and in those of the older authors of Germany and the continent. To my mind, a series of fundamental discussions should be inserted at this point. There should be a consideration of industry in general, of the industry of a given community, of population and industry in their mutually dependent relations, of the organization of industry, the State, and the legal foundations which underlie industrial life, slavery, freedom of person, the law of property.  In Marshall's book, as in that of most previous systematic authors, discussions of this sort are either entirely omitted or else not put in the proper place.
the laborer is regarded as a means for production, not production as a means for the laborer. [This critique by Wagner puts him very close to socialist thought.]
Human life and human development are, after all, the objects of all production. [Just replace “human” with “Germanic” and we get close to Nazi ideology.]  
Marshall says nothing of the organization of industry, or of law and the legal foundations of society.
Too little attention is paid to the historic development of industry, and to those developments, already foreshadowed for the future, beyond the system of simple free exchange and private industry, [Here Wagner seems actually almost Marxist in his belief that socialism is a natural outgrowth of capitalism. Which likewise seems to have no clear historical confirmation.]  
this is the point of view of the German State socialist [i.e. Adolf Wagner. See? I told you!],
who is used to government intervention and disposed to favor it,
the true relation between the theory of marginal or final utility, as developed by Jevons, Menger and Böhm-Bawerk
and the doctrine of cost of production
the German historical economists occasionally treat law of diminishing returns as an antiquated remnant
distinction between individual capital and property, and social capital and property ...
Recent economic changes have brought about an absolute improvement in the condition of the masses [About the same time the Marxist leaders of the German Social Democratic party like Bernstein and later Kautsky were saying the same thing, that capitalism had become more benign and that social welfare made life acceptable.]