Wednesday, April 26, 2017

Milk Duds Up a Tree

American dairy farmers are complaining about steep cuts in the price of Canadian ultra-filtered milk (mostly used in cheese production). UFM isn’t defined as milk under NAFTA, so while Canada keeps the cost of drinking milk very high, they’ve slashed the cost of ultra-filtered milk. Lowering this price umbrella to world market levels has hurt American dairymen.

If Canada can drastically reduce the cost of an industrial milk product it could also cut the cost of drinking milk for Canadians. I wouldn’t hold my breath, though, because it’s Canadian government that keeps that cost high. In effect, Canada subsidizes UFM by heavily overpricing drinking milk, which it protects with high tariffs.

Canada is a country that doesn’t even have internal free trade. The Canadian Constitution Act of 1867 prohibits internal trade barriers, but Provinces have nonetheless spent nearly 150 years erecting trade barriers against each other and preserving picayune local regulatory prerogatives.

Nowhere is this better illustrated than in provincial “supply management boards” dealing with milk, cheese, eggs and poultry. Canadian milk is subject to the precision wisdom of centralized planners - a maze of quotas, price floors, subsidies and entry barriers intended to protect incumbent Canadian dairy farmers from competition at the expense of consumers.

It should come as no surprise, then, that Canada’s barriers to international trade in those markets are even worse. This has attracted the attention of our President, who - visiting the dairy state of Wisconsin - complained about it in almost the same breath as he emphasized his “Buy American-Hire American” policy.

We’ll skip over the question of why Canadians aren’t allowed to have a “Buy Canadian - Hire Canadian” policy for the moment, because many Canadians agree with President Trump about Canadian milk policy; or at least resent the high prices they have to pay for milk.

It’s not as if the American treatment of milk is free of mercantilist shenanigans, but when President Trump says Canada’s milk policy is unfair, he has a point, even though he’s not thinking about how unfair it is to Canadians:

Canada’s dairy quota system has been Canada’s shame since it was introduced in 1970. The quota system makes milk prohibitively expensive for poor families, it denies Canadian consumers the right to purchase diverse cheeses from around the world and it destroyed Canada’s once-great cheese industry, whose many small producers capitalized on milk surpluses to make world-famous cheddars — Ontario alone once supplied England with half of its cheddar cheese imports…

Canada remains one of the West’s great bastions of protectionism, barring foreign ownership of banking and other major sectors and unable to achieve even internal free trade among our provinces, despite 150 years of trying. The provinces themselves don’t accept the provisions of NAFTA, cannot be bound by them and haven’t honoured them.
And he is certainly not bemoaning the restrictions on Canadian diary farmers:
The fact that each individual Canadian dairy producer is told exactly how much milk he may produce, and exactly to whom he may sell it (Hint: There’s only one legal customer and it happens to be a provincial marketing board) is evidence of just how transparently anti-free trade we are in this realm. And a recent agreement struck by Canadian dairy farmers and producers which effectively slapped a new import tariff on ultra-filtered milk (a product used to make cheese and yogurt, among other things), has drawn the ire of Australians, Mexicans, New Zealanders and members of the European Union.

Meanwhile, Canadian consumers pay the price. The Montreal Economic Institute estimates that the country’s supply management system costs each of us [Canadians] $258 a year. Which is not especially surprising, when you think about it. We have official, explicit collusion and price-fixing going, after all. It’s how we’ve chosen to conduct business.
Or, the barriers to entry in the Canadian market:
That governments have been so unwilling to set aside a policy that is responsible for Canadian families paying two and three times the world price for basic food items, all to benefit a dwindling number of wealthy and aging, farmers (young farmers face a formidable barrier to entry, in the form of the cost of quota: more than $25,000 per cow) is one of the great dilemmas of public policy. If we have to enlist Trump to save us from ourselves, so be it.
So, just as our tariffs on Brazilian sugar, Chinese steel and Canadian softwood lumber hurt American consumers and eliminate jobs with manufacturers using those products, milk quotas and tariffs hurt Canadian consumers and Canadian cheese and yogurt making employment.

Not to be outdone by Canada, President Trump has decided to impose higher costs on American consumers by placing an additional 20% tariff on Canadian softwood lumber. The average new house built in the United States will increase in price by around $1,000 and eliminate many thousands of American jobs in the construction, furniture and paper industries.

This is the fifth time since 1982 that softwood lumber has precipitated a dispute with Canada. Every time arbitration upheld the Canadian position, including refund of tariffs collected.

Thursday, April 20, 2017

Art of the Steal

Worth a read: The Art of the (Trade) Deal, according to the Trump administration

A nice exploration of the practical effects of TrumpTrade. The concluding paragraph:
In sum, the art of the trade deal according to the Trump administration teaches us that Americans win when the dollars in our pockets buy less in global markets; when we pay higher prices for the goods and services we use every day; when U.S. producers face higher costs of production than their foreign competitors; and when the taxes we pay buy less infrastructure and national defense.
The author neglected to add to the summary, “…when there are fewer American jobs; and when regulatory capture, financed by political contributions, becomes a standard method of excluding small competitors from markets."

Sunday, April 16, 2017

Privacy

I've noticed a recurring theme, prompted by the GOP's recent decision to let your ISP sell your browsing history without your permission, that Google/Facebook/Twitter already sell your information so letting your Internet Service Provider do the same is no big deal.

First of all, if you have a Facebook account, you probably don't care about privacy and can skip the rest of this post. There is a difference, however, between Google/Facebook et. al. selling your info and letting your ISP do it. More here.

The difference is that you can choose not to use Google or Bing. You can use Duck-Duck-Go for search. You can choose not to be on Facebook or Twitter. If you want to trade information for “free” stuff you can decide to do that, though most people still have no clue what that means.

With your ISP you are captive, and you are paying them. If they want to use your info they should have to get permission. And then they should pay you.

Nice thing about a Virtual Private Network (VPN), it can encrypt the data your ISP sees – making it unsaleable – while obscuring your IP address from the likes of Google. If you go this route make sure the VPN supplier doesn't sell your data.

Possibly useful analogy (using islands and bridges/boats) about how VPNs work here.

See also:
The Best Browser Extensions that Protect Your Privacy

Slightly dated, but informative.

Tuesday, April 11, 2017

Experiments in suppressing the volatility of crypto currencies

I have to read this again, but I found it interesting. I’m not sure volatility is something crypto-currency advocates should be overly concerned about at this stage in crypto-currency evolution. Most of the volatility in Bitcoin, for example, has to be attributed to novelty and skepticism.

It's true that one part of a definition of money is "a store of value." High volatility does run counter to that requirement. But, isn't Bitcoin a symptom of skepticism about the long term value (erosion through inflation and potential for catastrophic volatility) of fiat currencies? Suppressing volatility by tying a crypto-currency to fiat currency seems counter-intuitive.

These experiments are attempts to smooth out the value of crypto-currency “X” compared to US$. The right question for a successful crypto-currency would be what’s a US$ worth in crypto-currency “X”. Pegging a crypto-currency to a fiat currency means accepting the risk a crypto-currency is designed to avoid.

As the author points out, these experiments can be seen as a market-based attempt to answer the question, “How should a mechanism for pegging a crypto-currency to a fiat currency work?" Whether we should care is subject to debate about what a crypto-currency is and is expected to accomplish, and in what time-frame.

Everything You Need to Know about Dollar-Denominated Cryptocurrencies