Tag: economics

In defense of Ricardo

Clark responds to my critique of his endorsement of David Ricardo and Comparative Advantage. I will respond to it in detail soon, although the chief defects of his defense should be readily apparent to those with the eyes to see it.

Vox and I got in a disagreement on twitter about economics when I told someone “Read David Ricardo”. Vox replied that Ricardo was wrong on many things, and wrong about comparative advantage – at least when we take into account flows of population and capital.

Vox lays out his objections here

It’s true that I literally wrote the words “read Ricardo”, but the context makes it clear that I was using “Ricardo” as a metonym for the theory of comparative advantage.  Vox objected to several aspects of Ricardo’s writings, so let me take a quick detour and address some of Vox’s points.

Let’s set out the areas where Vox and I agree (or, at least, where I think we agree):

I do not back the labor theory of value.

I’ve considered labor theory of value a horrific joke since I first read Das Kapital decades ago. I disagree with Vox that Ricardo endorsed such a thing; I suggest that Ricardo merely said that a commodity will never be sold for less than its cost of production, which is absolutely true (if we talk only of steady states of markets in equilibrium, like corn being grown in England, and not weird cases like warehouses full of remaindered Apple Newtons).  Is there really anything objectionable in Ricardo’s sentence fragment “But suppose corn to rise in price because more labour is necessary to produce it”? I suggest not.  Additionally, it’s unfair to paint Ricardo, by lack of context, as some proto-Marxist, when in fact he was actually writing after Adam Smith, and in the same vein, helping to move us from a state of ignorance of the laws that govern the market to one of better understanding.  Do we criticize Newton for getting the rules of force and momentum mostly right, but failing to include a relativistic component in his equations?

I do not assert that unlimited immigration is a good idea.

Unlike the conservative stereotype of libertarians and free market economics as pie-in-the-sky dreamers who ignore cultural issues, I most certainly do NOT ignore such issues, and often debate such people, asking them “what do you think an America of 900 million people, 600 million of them being new immigrants, would be like?  How would it vote?”.

On what do Vox and I disagree?  I assert merely that comparative advantage is a real phenomena, and persists in being a real phenomena even in a world of mobile capital and mobile labor.  I’m not even 100% sure that Vox disagrees with this, because his post seems to conflate knock on effects of immigration with the core point of comparative advantage.

But assuming that we do disagree on the thesis “comparative advantage is a real phenomena, and persists in being a real phenomena even in a world of mobile capital and mobile labor”, I proceed.

Let us define our terms.  The law of comparative advantage is this:

1) various producers are variously capable of producing different outputs at different costs.

2) therefore, in pure economic terms, it is to each producer’s advantage to concentrate his effort in what he’s best at and trade for much else…even, in many cases, if the producer of X is better at Y in absolute terms than the person that they choose to engage to do that task for them.

Examples often include lawn mowing, for whatever reason.  E.g.:

Take a model who makes $10,000 a day modeling but who is also very efficient at mowing her large yard around her mansion. If she cuts her grass herself, she can do it in one day. Or she can hire a lawn service that takes 2 days to mow the lawn and charges $400. Thus, the model has an absolute advantage in both working as a model and mowing her own lawn, but, she would, nonetheless, still hire the lawn service, because if she mowed her own lawn, she would have to give up a day of modeling, which means her earnings would be $10,000 less. By hiring the lawn service, she earns $10,000 a day as a model and pays the lawn service $400, for a net gain of $9,600.

Let us look at Ricardo’s original quote in context. First he defines the sorts of things that influence the productivity of a given population: natural resources and distribution of skills:

    But in different stages of society, the proportions of the whole
    produce of the earth which will be allotted… depend[s] mainly on the
    actual fertility of the soil, on the accumulation of capital and
    population, and on the skill, ingenuity, and instruments employed in
    agriculture.

Note that Ricardo is speaking here of the case within a given nation: imagine a world without trade between nations.  Given a high-IQ, high-conscientiousness, high-technology Japan, we would expect that a relatively small proportion of its population would be devoted to fishing.  The “skill, ingenuity, and instruments” and the Japanese people ensure that: there is no need for a million Japanese to stand in bamboo junks and throw lines into the water.  Instead, we’d expect a few thousand clever Japanese engineers to build massive ships, nets, etc.

On the other hand, in this theoretical world without foreign trade, we’d expect that a larger percentage of the population of Kenya, would be devoted to fishing, because the “skill, ingenuity, and instruments” of the Kenyan nation would require more labor to achieve a similar result.

Ricardo also notes that the natural resources of a country play into the calculation: a country blessed with relevant abundant resources is ahead of the game, and can generate more outputs with the same labor:

The same remark may be made respecting two or more countries. In America and Poland, on the land last taken into cultivation, a year’s labour of any given number of men, will produce much more corn than on land similarly circumstanced in England.

I see nothing objectionable here: Spain, with its sunny climate, is naturally better suited to making wine than is England.  North America is better suited to making beef than is Japan.  Etc.

Ricardo takes these two points and derives the concept of specialization:

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by regarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically

As we look around the actual world, this is largely what we see. Japan, blessed with an intelligent population and hampered by a lack of oil, specializes in exporting electronics and buys oil with the proceeds.  Saudi Arabia, blessed with oil, and not much else, exports oil and purchases electronics.

So, this, then, is Ricardo’s concept of comparative advantage.

Vox raises two objections: mobile capital and mobile labor.

Let us inject mobile capital into our model first. Picture Saudi Arabia in 1950.  It is oil-rich, but technology- and dollar-poor.  It learns that there is oil underneath its sands, but has neither the technology nor the wealth to build the infrastructure to get it out.

Who has the comparative advantage in both lending money and in building oil refineries?  The West.  And we see that it is the West that, indeed, lent the capital and the technology to get the oil out.

(By the way, there’s a line of attack on this argument that I sadly predict: “yeah, well, how did making Saudi Arabia an exporter of oil work out for us? Remember 9/11 !”.  And perhaps my hypothetical interlocutor is correct – perhaps we’d be better off in a world of less available oil and also a poorer Saudi Arabia – but that debate has absolutely nothing to do with comparative advantage.  In fact, I chose Saudi Arabia as the example here specifically to trigger and
then discard this objection).

Anyway, what does the addition of mobile capital do to concept of comparative advantage?  It acts only as a lubricant, to allow the gears to turn a little more freely, and make the inevitable – and mutually beneficial – specialization happen more quickly.  Saudi Arabia could have husbanded its resources in 1950, invested in one early well and refinery, used the profits from that too bootstrap a second well, and so forth, but there is no difference in the inevitable outcome.

Q.E.D.: comparative advantage exists, even with mobile capital.

Now let us look at Vox’s second objection: mobile labor.

Let us picture a Japanese sushi chef.  In Japan, he creates more value per unit of labor by making sushi than he does by, say, driving a bus. If he immigrates to the United States, it is likely that he continues to create more value per unit of labor by making sushi than he does by driving a bus.  In Japan his smart strategy is to sell his sushi-making labor and buy his transportation.  After immigrating to the US his strategy is likely still the same.

Let us consider a second example: a Mexican farmer.  Let us posit that he has skills tied to the particular climate of Mexican farms (agave cactus farming, let us say).  This his smart strategy is to work as a farmer, and hire relatively unskilled labor to mow his lawn or take out his garbage.

If the farmer immigrates to the US, perhaps, North Dakota, the utility of his agave expertise diminishes, and his comparative advantage is now perhaps in unskilled labor.  Perhaps the former farmer now carries trash for others, and uses the proceeds to buy agave, in an exact reversal of his former situation.

Q.E.D.: comparative advantage exists, even with mobile labor.

Because so many people who discuss Ricardo also carry water for legal and social policies that are repugnant to the alt-right, it’s easy to conflate the two, so let me by clear:

In this essay I have not demonstrated, not have I claimed, that:

  1. unchecked immigration is a good thing for the culture of the receiving country
  2. unchecked immigration is a good thing for the economy of the receiving country
  3. immigration of unskilled labor benefits unskilled natives
  4. unchecked importation of capital is good for the governance of the receiving country
  5. unchecked importation of capital is good for the economy of the receiving country

I believe that I have, however, demonstrated :

  1. that the law of comparative advantage exists
  2. that the law of comparative advantage continues to exist even with mobile capital
  3. that the law of comparative advantage continues to exist even with mobile labor

If Vox’s objection is only to one or more of the first five items, we have no quarrel.

If Vox’s objection is to one or more of the latter three items, I’d like to hear him explain – not how populations flows interact poorly with the modern anarcho-tyranical welfare states of the West – but how the law of comparative advantage qua the law of comparative advantage does not exist.

The illusion of knowledge

Now, I like Clark of PopeHat, but a challenge is a challenge. And one of the lures I find most irresistible is the cocksure breeziness of the man who thinks he knows what I know perfectly well he does not know. The fact is that no one who thinks “David Riccardo” is a reasonable response to a comment about immigration knows anything about economics. Or, for that matter, free trade.

James Thompson @JamesPsychol
Immigrants only benefit locals if they are better than the local average in ability and character, & make greater contributions

ClarkHat ‏@ClarkHat
The jury finds you guilty of economic ignorance and sentences you to read David Riccardo. 

Casher O’Neill @CasherONeill
@ClarkHat Do not invoke the sacred writings of Ricardo, that will get @voxday on your @@@ if he notices. 😀

ClarkHat ‏@ClarkHat
Vox can attack me on economics if he wants; I’ll fight back.

First, however, I will correct Mr. Thompson and observe that immigrants in sufficient numbers present a significant problem if even they are “better than the local average in ability and character”. Consider the British in India, for example. If immigrants are inferior, they drag the invaded nation down. If they are superior, they tend to set themselves up to rule over the natives in their own interest and at the natives’ expense.

Second, David Ricardo IS economic ignorance. Ricardo believed in a) the cost-of-production theory of value, which is a precursor of Marx’s Labor Theory of Value, b) the price-of-corn theory of profit, and c) the theory of comparative advantage, all of which are widely recognized by modern economists to be intrinsically false. His mode of argument was so hopelessly inept that Joseph Schumpeter even mocked it in his epic History of Economic Analysis.

His interest was in the clear-cut result
of direct, practical significance. In order to get this he cut that
general system to pieces, bundled up as large parts of it as
possible, and put them in cold storage – so that as many things as
possible should be frozen and ‘given’. He then piled one simplifying
assumption upon another until, having really settled everything by
these assumptions, he was left with only a few aggregative variables
between which, given these assumptions, he set up simple one-way
relations so that, in the end, the desired results emerged almost as
tautologies…. The habit of applying results of this character to
the solution of practical problems we shall call the Ricardian Vice.

Third, David Ricardo did not take immigration into account when he copied the concept from Robert Torrens, who introduced the theory of comparative advantage in An Essay on the External Corn Trade. As Ambrose Evans-Pritcher noted:

Ricardo described a world where free trade in goods was opening up, but labour markets remained largely closed. This is no longer the case. Globalisation bids up the wages of high-skilled engineers or software analysts towards international levels wherever they live.

Since Ricardo never took immigration into account, we shall do so on his behalf. I direct your attention to his original postulates from On the Principles of Political Economy and Taxation.

Unit Labor Costs

Britain 100 cloth 110 wine
Portugal 90 cloth 80 wine

In the absence of transportation costs, it is efficient for Britain to produce cloth, and Portugal to produce wine, since, assuming that the two goods trade at an equal price (1 unit of cloth for 1 unit of wine) Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading, rather than 110 units by producing the wine itself, and Portugal can obtain cloth at a cost of 80 units by trade rather than 90 by production.

Now we introduce immigration into the equation and the free movement of labor. Obviously both wine and cloth laborers will move to Britain, since they believe they will receive an 11 percent raise and a 38 percent raise respectively. However, once they get there, the doubling of the labor supply in Britain this immigration causes will quickly cause the price of labor to fall. It will fall considerably.

This is great for Britain! It can now produce the same amount of cloth as before for price of only 47.5 units of labor and the same amount of wine for 47.5 labor units as well, thereby obtaining an equal quantity of both wine and cloth for less than what it used to cost to produce the wine alone. This will vastly increase profits in the British cloth and wine industries, as well as creating a windfall for the financial industry investing those profits! Granted, this is because wages have fallen by 50 percent; other consequences include how the newly unemployed British workers go on the dole and turn to crime, the new Portuguese immigrants are heavily inclined to vote for the Labour Party thereby imbalancing the British political system, and British women begin bearing half-Portuguese children and lower the average IQ of the next generation from 100 to 97.5, but those are mostly non-economic factors and therefore don’t count as far as economists are concerned.

They sound suspiciously familiar, though, don’t they?

In conclusion, we can see that open immigration and the free movement of labor is not only economically desirable, but is vastly preferable to comparative advantage by a factor of 105/200 and to autarky by a factor of 105/210. QED. What else can we conclude from this exercise of the Ricardian Vice?

  1. Ricardo implicitly postulated the immobility of labor.
  2. The mobility of labor not only fails to disprove comparative advantage, but actually strengthens the case for even freer trade… at least if you’re in the higher labor cost country and you only look at the labor costs.
  3. The mobility of labor will eliminate international trade since everyone will be living in Britain.
  4. The mobility of labor operates to the detriment of labor.
  5. Ricardo’s logic is remarkably stupid.

But my argument against free trade does not rest on David Ricardo’s intellectual corpse. It is not even, strictly speaking, economic in nature. This is the four-step Vox Day Argument Against Free Trade.

  1. Free trade, in its true, complete, and intellectually coherent
    form, is not limited to the free movement of goods, but includes the
    free movement of capital and labor as well. (The “invisible judicial line” doesn’t magically become visible simply because human bodies are involved.) 
  2. The difference between domestic economies and the global
    international economy is not trivial, but is substantive, material, and
    based on significant genetic, cultural, traditional, and legal
    differences between various self-identified peoples.
  3. Free trade is totally incompatible with national sovereignty,
    democracy, and self-determination, as well as the existence of
    independent nation-states with the right and ability to set their own
    laws according to the preferences of their nationals.
  4. Therefore, free trade must be opposed by every sovereign,
    democratic, or self-determined people, be they American, Chinese,
    German, or Zambian, who wish to preserve themselves as a free and
    distinct nation possessed of its own culture, traditions, and laws.

The Greek drama is far from over

Now there are stories about two alternative angles explored by the Greek government before they finally submitted to the Eurotroika:

In short, Varoufakis claims Tsipras had pre-approved the creation of secret accounts for every tax filer (which, knowing Greece, might have left Varoufakis short on accounts for quite a few citizens). Greeks would be made aware of the accounts’ existence in the event the banking system ceased to function altogether, and Athens would effectively facilitate payments through the new system in defiance of the EMU. Clearly, this would not have been well received by Brussels – especially the bit about hacking their software – but ultimately, because the new system would be entirely controlled by Varoufakis’ finance ministry, it could be converted to the drachma immediately.

Kathimerini goes on the quote Varoufakis as saying that German FinMin Wolfgang Schaeuble intended to use Grexit as leverage to force France into supporting a system that ceded fiscal decision making to Brussels (which would of course mean giving Berlin more say over EMU countries’ finances):

    “Schaeuble has a plan. The way he described it to me is very simple. He believes that the eurozone is not sustainable as it is. He believes there has to be some fiscal transfers, some degree of political union. He believes that for that political union to work without federation, without the legitimacy that a properly elected federal parliament can render, can bestow upon an executive, it will have to be done in a very disciplinary way. And he said explicitly to me that a Grexit is going to equip him with sufficient bargaining, sufficient terrorising power in order to impose upon the French that which Paris has been resisting. And what is that? A degree of transfer of budget making powers from Paris to Brussels.”

The new revelations raise serious concerns for Alexis Tsipras. The deep divisions within Syriza are by now well publicized, but reports of covert plans to establish parallel banking systems using tax filers’ IDs and the idea that elements within the ruling party plotted to seize billions in currency reserves and take control of the central bank have left some lawmakers demanding answers.

There is always considerably more to these things than meets the eye. But it is interesting, is it not, that a national referendum is so completely irrelevant to the events nominally happening around it? Why, it’s almost as if we’re living in a post-democratic age!

The one thing everyone seems to have in common is that no one wants to bite the bullet and deal with the economic realities. Debt that can’t be repaid will be defaulted. Everything else follows from that.

Is Grexit finally here?

The surprise call for a sudden referendum seems to indicate that Tsipras and Syriza want to make sure that the public shares the blame for Greece crashing out of the Euro.

In the aftermath of yesterday’s “nuclear option” announcement by Greece, when in a dramatic after-midnight speech Greek PM Tsipras announced that Greece would hold a referendum next Sunday, the day after the US independence day, the same Greek government made it very clear how it wants the Greeks to vote.

First, it was the Greek Energy Minister Panagiotis Lafazanis, head of the Left Platform movement of Syriza, who said in comments broadcast on state-run ERT TV that a no vote by the Greek people in July 5 referendum “will open the road for a new future for the country” adding that “the dilemma facing Greeks is “whether to live better or not. Greek people are aware of difficulties of a new starting point, they’re ready to support new national effort.”

Then the alternate health and social security minister Dimitris Stratoulis doubled down telling ERT-TV that Greeks are being given the opportunity to decide the way forward and “I’m optimistic” that they will give a “resounding” no to the “provocative” demands of the country’s creditors. The only issue is the question being put to the people in the referendum.” It got better when he said that “Greeks are being asked to vote whether the country should be a colony, or not, of creditors.”

Well, if that’s how the referendum question is indeed phrased then yes, it is clear how the Greeks will vote.

As was to be expected, the Greek opposition parties, except for the Nazi-inspired Golden Dawn, expressed horror at the referendum. Conservative main opposition leader Antonis Samaras accused Tsipras’ radical left government of advocating an exit from the eurozone and the European Union. “Mr Tsipras has led the country to an absolute impasse,” he said. “Between an unacceptable agreement and leaving Europe.”

Why? Because they know that despite the referendum move, which is clearly just a last ditch attempt by Tsipras to save his political career by punting the decision straight to the people, if there is a “Yes” vote to the proposed bailout, then Syriza is out and new elections have to follow.

As for the reason why Tsipras had to punt, it is a simple one: at the core of the ongoing Greek negotiation debacle is the inability of the local people to decide what they want: according to various recent polls 80% of Greeks want to stay in the Eurozone and keep the Euro currency, the problem is that 80% also want an end to austerity. Two conditions which are mutually exclusive. It is no surprise then that Tsipras had no clue how to proceed based on his mandate.

Getting out of the Euro and the EU is absolutely the right move for the Greeks, but they’re afraid to go ahead and do it. But given the unacceptable price of the status quo, which is unemployment levels higher than anything the USA saw in the Great Depression, it looks as if they may be forced to do the right thing.

A fascinating confession

It appears the post-2008 economy has humbled, be it ever so slightly, the Nobel-prize winning economist, Paul Krugman:

[L]et me tell you about a dirty little secret of economics — namely, that we don’t know very much about how to raise the long-run rate of economic growth. Economists do know how to promote recovery from temporary slumps, even if politicians usually refuse to take their advice. But once the economy is near full employment, further growth depends on raising output per worker. And while there are things that might help make that happen, the truth is that nobody knows how to conjure up rapid productivity gains.

An interesting admission from a man who never saw a government spending program he didn’t like. The truth is that both the Neo-Keynesians and the Keynesian heretics that call themselves monetarists are up a conceptual creek without a paddle, because both their intellectual models reject the possibility that the quantity of debt can have anything to do with the economy’s ability to grow.

I realize that sounds ridiculously stupid, but it is nevertheless the case. And, as you may have noticed, events are proving otherwise.

The endless “temporary”

Paul Krugman asks why he is a Keynesian:

Noah Smith
sort-of approvingly quotes Russ Roberts, who views all macroeconomic
positions as stalking horses for political goals, and declares in
particular that

Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government.

OK, I’m not going to
clutch my pearls and ask for the smelling salts. Politics can shape our
views, in ways we may not recognize. But I’m aware of that risk, and
make a regular practice of asking myself whether I’m letting that kind
of bias slip in. In fact, I lean against studies that seem too much in
tune with my political preferences. For example, I’ve been aggressively
skeptical of studies that seem to show a negative relationship between
inequality and growth, precisely because that result is so convenient
for my political tribe (which doesn’t mean that it’s wrong.)

So, am I a Keynesian
because I want bigger government? If I were, shouldn’t I be advocating
permanent expansion rather than temporary measures? Shouldn’t I be for
stimulus all the time, not only when we’re at the zero lower bound? When
I do call for bigger government — universal health care, higher Social
Security benefits — shouldn’t I be pushing these things as job-creation
measures? (I don’t think I ever have). I think if you look at the
record, I’ve always argued for temporary fiscal expansion, and only when
monetary policy is constrained. Meanwhile, my advocacy of an expanded
welfare state has always been made on its own grounds, not in terms of
alleged business cycle benefits.

In other words, I’ve
been making policy arguments the way one would if one sincerely believed
that fiscal policy helps fight unemployment under certain conditions,
and not at all in the way one would if trying to use the slump as an
excuse for permanently bigger government.

This all sounds very well and good, except for one thing. Do you EVER recall Paul Krugman once calling for a REDUCTION in government spending at any point of the business cycle? Do you ever remember him recommending spending cuts or tighter monetary policy at all?

In 2013, Krugman wrote: “I’ve often argued on this blog and in the column that now is a particularly bad time to cut spending.” And this was four years into the Fed-reported economic recovery. Last year, he pointed out that “Prima facie, cutting spending depresses economies.” Even looking back to the heights of the 2007 and 1999 booms, I can’t find any evidence that Krugman called for fiscal contraction or anything but more spending and more taxes.

In any event, we already know why Krugman is a Keynesian. He read Foundation, he wants to be Hari Seldon, and Keynesianism permits him to wallow in the delusion of controlling future events.

Approaching endgame

Is there one last kick in the can? It doesn’t look like it:

Greece admitted its sovereign coffers are totally empty this week when it “bundled” its modest €345 million payment to the IMF along with others, for a lump €1.5 billion payment, which may well never happen.

And the bigger problem for Greece is that after testing yesterday the faith and resolve of its depositors (not to mention the Troika, aka the Creditors) and found lacking, said depositors no longer believe in the full faith (ignore credit) of the Greek banking system.It may have been the Greek government’s final test.

Because according to banking sources cited by Intelligent News, things today went from bad to horrible for Greek banks, when Greeks “responded with massive outflows to the Greece’s government decision to bundle the four tranches to IMF into one by the end of the June.”

According to banking sources, the net outflows sharply increased on Friday and the available liquidity of the domestic banking system reduced at very low and dangerous levels.

    The same sources estimate the outflows on Friday around 700 million Euros from 272 million Euros on Thursday. The available emergency liquidity assistance (ELA) for the Greek banks is estimated around 800 million Euros. In addition, the outstanding amount of the total deposits of the private sector (households and corporations) has declined under 130 billion Euros or lower than the levels at early 2004.

    The total net outflows in the last 7 business days are estimated 3.4 billion Euros threatening the stability of the Greek banks.

This means 2.5% of all Greek deposits were pulled in just the past 5 days! Indicatively, this is the same as if US depositors had yanked $280 billion from US banks (where total deposits amount to about $10.7 trillion)

Greece didn’t default yesterday because they said they would make the payment at the end of the month. It appears, however, that the government is merely giving the Greek people time to empty out their accounts so that they will not be bailed-in as creditors when the default takes place.

Economics 102 and remedial Theology

We begin with explaining the economic concept of “opportunity cost” to Jim Hines, John Scalzi, and Patrick Nielsen Hayden:

In the wake of Scalzi’s Big Book Deal, folks have been saying some rather ignorant or ill-informed stuff about how publishing works. I wanted to address a few of those points here.

Let’s start with the easiest, in which folks over on Theodore Beale’s blog claim that by Tor giving Scalzi a $3.4 million advance, they’re “squeezing out” approximately “523 initial advances to new science fiction authors.” In other words, Beale claims that “Patrick Nielsen Hayden and John Scalzi have combined to prevent more than 500 authors from getting published and receiving paid advances.”

This is a particularly egregious bit of ignorance coming from Mister Beale, who fancies himself a publisher.

Publishing is a business. As a business, Tor not only spends money on things like acquiring and publishing books, they also earn money by selling said books. Assuming Scalzi shut out 500 authors assumes that Tor is simply pissing away that $3.4 million. This is a rather asinine assumption. John Scalzi has repeatedly hit the NYT Bestseller list, earned a Best Novel Hugo, and has several TV/film deals in development for his work. Tor buys books from John Scalzi for the same reason they buy books from Orson Scott Card: those books sell a hell of a lot of copies, and earn Tor significant profits.

Very often it’s those profits — the income from reliable bestsellers like Card and Scalzi — that allow publishers to take a chance on new and unknown authors.

Let’s count the errors:

  1. Scalzi and PNH have combined to render it impossible for 523 new science fiction authors to break into mainstream publishing through Tor Books. This is a simple fact so long as we know that Tor does not have an unlimited amount of money at its disposal. The fact that Pan Macmillan just canned PNH’s counterpart at Tor UK “following a review of the company’s science fiction and fantasy publishing” should suffice to indicate that Tor’s advance budget is not limitless. The math is straightforward: PNH chose to give one author 13 advances of ~$250,000 per book rather than giving 523 authors $6,500 advances of the sort he gave John Scalzi for Old Man’s War. Any response that doesn’t take this into account is mere handwaving and evasion.
  2. I don’t fancy myself a publisher. I am very pleased to have the privilege of publishing John C. Wright, Jerry Pournelle, Eric Raymond, Tom Kratman, Sarah Salviander, Jonathan Moeller, Rolf Nelson, Martin van Creveld, and William S. Lind, among others. And we expect to announce the publication of several big names from the game industry soon.
  3. Observing that Scalzi financially shut out 500+ authors does not assume that Tor is simply pissing away that $3.4 million. Those authors are now shut out whether Scalzi sells millions of books or none at all. If Tor is pissing away that $3.4 million, it is the authors now being published by Tor who will be shut out in the future. Tor is literally betting their careers on Scalzi. I expect some will like that gamble, others not so much.
  4. The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. We’ve already established that Tor’s resources are limited. So, the question is not whether John Scalzi’s next 13 books “sell a hell of a lot of copies, and earn Tor significant profits”, but if those 13 books will sell MORE copies, and earn Tor MORE significant profits, than the books from other authors Tor otherwise might have signed.
  5. Tor bought Scalzi’s various one-and-done appearances on the oft-gamed NYT Bestseller list. The idea that Fuzzy Nation was ever more popular than Old Man’s War
    or sold more copies is downright risible. To cite Tor’s past
    marketing efforts as justification for the new authors it has decided not to publish is a category error. It’s a sunk cost of trivial
    benefit going forward, not that Hines likely knows what a “sunk cost” is. As for the appeal to the Hugo Award, I’m going to give McCreepy the benefit of the doubt and assume that’s sarcasm.

Remember, each new author doesn’t have to outsell Scalzi to generate opportunity cost. The breakeven on units for each book is 2.5 percent of Scalzi’s individual book sales. Assuming the average new Tor writer sells 10,000 books, (and the biggest publisher in SF had better be able to sell that many) that means each of the 13 Scalzi books has to sell at least 402,308 copies for Tor to break even on the opportunity cost from a reasonable unit sales perspective. And each new author who proves capable of selling more than 10k copies only makes the decision that much worse for Tor. You will notice that none of the Scalzi allies attempting to defend the deal ever bother to work through the actual math of it, preferring to rely instead on general phrases like “a hell of a lot”.

However, there are two very real and even significant justifications for preferring 13 John Scalzi
books to 523 new author books even if the future sales estimates tend to favor the latter. Hines doesn’t bring them up, presumably because they highlight my point
about how there are 3.4 million reasons the deal is shutting out new authors. It is more expensive, and
therefore less profitable, to edit, print, and distribute 523 different
authors than one. Even if we use the EFA’s very conservative guidelines and assume an unrealistically low production amount of $5,000 per book, those 523 authors would cost Tor at least $3 million more in production costs than producing John Scalzi’s 13 books will.

Furthermore, there are a limited number of available slots in the retail channels, even for Tor. Barnes & Noble is not going to endcap 500 different Tor books; they probably don’t even carry that many in total. But again, this supports my larger point about how the increased centralization of traditional publishing tends to lock out new authors and midlist authors alike. That was why I stopped even talking to traditional publishers years ago; as a midlist author who sold 30k to 40k copies per book, I knew I was of little interest to them. These days, if you can’t at least threaten six digits in your two chances at publication, you will need to be a gatekeeper’s pet in order to stay in traditional print for long. The dirty little secret of traditional publishing is that its profits are no less dependent upon constant churn than the average stockbrokerage.

And this points to the best part of what increasingly looks like a pretty good deal for Scalzi: he is locking in Tor’s marketing focus on his behalf, although again, at the expense of its other authors. And that, combined with what we have learned about Pan Macmillan’s unhappiness with its editorial product in the UK, leads me to suspect that PNH is feeling the heat from above and has therefore thrown a bit of a Hail Mary in order to buy himself more time.

Since we’re on the subject of openly clueless statements about me at File 770, let’s address two of their creative takes on theology while we’re at it:

CPaca on June 1, 2015 at 3:27 pm said:
VD isn’t a Christian, despite claiming he is. The belief that Satan rules the world instead of God is some form of Christian Gnostic heresy. One has to wonder if Wright is fully aware of who he’s hanging out with.

If this were a science fiction novel, the dialogue would end here, with the Atheist Who Knows the Bible Better than the Bible-Thumping Bigot gloriously triumphing. Of course, this isn’t a science fiction novel, and in fact, their knowledge of Christianity literally doesn’t rise to the level of Out of the Silent Planet. Do they not even understand what “Silent Planet” means? Do they not truly not understand the entire purpose of the Word made flesh, much less the Crucifixion?

The belief that Satan rules the world is the very essence of Christianity!

Again, the devil took him to a very high mountain and showed him all the kingdoms of the world and their splendor. “All this I will give you,” he said, “if you will bow down and worship me.” Jesus said to him, “Away from me, Satan! For it is written: ‘Worship the Lord your God, and serve him only.’
-Matthew 4:1-11


But very truly I tell you, it is for your good that I am going away. Unless I go away, the Advocate will not come to you; but if I go, I will send him to you.  When he comes, he will prove the world to be in the wrong about sin and righteousness and judgment:  about sin, because people do not believe in me;  about righteousness, because I am going to the Father, where you can see me no longer;  and about judgment, because the prince of this world now stands condemned.
– John 16:7-11

The god of this age has blinded the minds of unbelievers, so that they cannot see the light of the gospel that displays the glory of Christ, who is the image of God.
– 2nd Corinthians 4:4

Stevie on June 1, 2015 at 3:56 pm said:
I think we agree that VD is not a Christian; I think that VD would happily abandon his not very good grasp of Gnosticism on the grounds of ‘rhetoric’, or ‘Aristotle’, or whatever flavour of evasion he happens to feel like at any given time. Given his obsessive hatred of John Scalzi I suspect that VD cheers himself up by imagining him as ‘left behind’.

Sadly, Wright’s track record as a professed Christian suggests that he doesn’t understand Christianity either; his appalling outburst about Terry Pratchett is wholly incompatible with Christ’s commandment that we should love each other. Wright appears to be under the impression that Christ really didn’t understand being God, and that Wright has much better ideas as to what God actually wants than the reprobate who spent his time with the poor, the sick, the hungry, and consorted with dreadful people like tax collectors…

I can’t abandon what I don’t have. And as for the idea that John Wright’s rejection of the late Pratchett’s euthanasia activism is somehow incompatible with Christianity, that is simply false. Terry Pratchett was not only, as Neil Gaiman described him, a very angry man, he was a very wicked and cowardly man.

You have loved righteousness and hated wickedness; therefore God, your God, has set you above your companions by anointing you with the oil of joy.
– Hebrews 1:9

But it is true that as a man outside the Church, we should not judge him; God will do that. In any event, the extent and intensity of their hatred for me should suffice to testify as to whether I am a Christian or not.

If the world hates you, keep in mind that it hated me first. If you belonged to the world, it would love you as its own. As it is, you do not belong to the world, but I have chosen you out of the world. That is why the world hates you.
–  John 15:17-19

Let them hate. I never forget who they hate first and foremost.

The can resists the kickers

Greece appears almost ready to do what they should have done years ago and default:

Greek premier Alexis Tsipras has accused Europe’s creditor powers of issuing “absurd demands” and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further.

Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone’s dominant players were by degrees bringing about the “complete abolition of democracy in Europe” and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the “doctrines of extreme neoliberalism”.

“For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim,” he said.

The Greek leader, head of the radical-Left Syriza government, issued a stark warning that his country will not submit to these demands and will instead take action “to entirely transform the economic and political balances throughout the West.”

Alexis Tsipras made his thoughts known in a piece for Le Monde, the French newspaper

“If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”,” he said.

Hey, the debt-funded Euro party was fun. But it’s over. Now it’s time to default, bring back the drachma, and return to the world of real world economics.

We’re going to need a bigger facepalm

More brilliance from the genius-commenters at File 770. Seriously, what you have to remind yourself whenever you read them is to keep in mind that they quite genuinely believe that they are our intellectual betters. It makes everything much, much funnier.

Glenn Hauman on May 25, 2015 at 9:51 am said:
Stevie: The deal with Tor means that Scalzi gets to write, and all the other stuff is done by Tor who are better at it than Scalzi is; VD is too egotistical to accept that he isn’t the best at everything he does. Scalzi certainly has a healthy ego but he’s got the brains to know that it doesn’t make any sense to spend his time doing something which other people do better

More, that implies that Beale has never heard of Ricardo’s theory of comparative advantage, which states that you should be doing what you’re best at even if you do other things better than other people, as it’s a waste of your efforts otherwise. Surprising for Beale to claim to be so well versed in economics and yet be ignorant of a basic tenet of the field.

I wonder what Mr. Hauman believes I was addressing when I wrote the column entitled The Religion of Free Trade, which begins in the following manner:

Let us suppose I told you of a certain doctrine in which millions of people believe without ever having read the book in which it is contained, which is predicated upon a situation that has never existed, and promises positive consequences that not only have never been delivered, but we are told cannot even be measured and cannot be realized without achieving something that has never been done before in the history of Man. Furthermore, the doctrine was developed by a gambler and politician with absolutely no credentials or qualifications on the subject, which subject he had never encountered before the age of 27, in tandem with a related theory that is so obviously insane that barely anyone has ever even heard of it.

So long as we are careful to set aside any reliance upon the genetic fallacy, does this sound like a doctrine that is not only infallible, but one that it would be crazy to even consider questioning? And yet, the fervor with which the advocates of the free-trade doctrine defend David Ricardo’s outdated, disproven theory of comparative advantage and decry those who question it is so ferocious as to indicate the nature of a belief that can only be described as religious.

David Ricardo was without question a brilliant and successful man, but what is much less often noted is how intellectually dishonest he was. In a previous WND column, titled Free Trade Harms America, I showed how Joseph Schumpeter labeled his peculiar and tautological method of argument the “Ricardian Vice.” Furthermore, he was not even the original author of the theory of Comparative Advantage, it having been first introduced by Robert Torrens in “An Essay on the External Corn Trade” two years before Ricardo transformed a specific argument for a specific situation into something passing for a general principle, which he published in “On the Principles of Political Economy and Taxation.”

Truly, my ignorance on the subject, which I also addressed in 2010 and in 2014, astounds. The theory of Comparative Advantage also came up in my interview with Ian Fletcher, who has devoted a considerable amount of time and effort to utterly demolishing Ricardo.

Remember, SJWs always lie. And perhaps more importantly, we again see an example of the midwit having so little ability to grasp what his intellectual superior is saying that he erroneously assumes stupidity and ignorance on said superior’s part. As it happens, I am probably one of the 100 people on the planet most equipped to discuss David Ricardo’s theory of comparative advantage in critical detail, so it is vastly amusing to see Mr. Hauman assert that I am “ignorant of a basic tenet of the field.”

Perhaps Mr. Hauman, being such a noted expert in Ricardian theory, would do us all the favor of calculating the real value of Mr. Scalzi’s new contract based on the only true determinant of profit.

And just to be clear, if you are not one of the five people reading this who understand the reference, that is a joke.