Wednesday Briefs – 14 July 2021

THIS WEEK: Competition; Cuba; Tesla – Solar City; Selfless or Rational?

COMPETITION

Last week was good for Competition. On Saturday, Argentine football star Lionel Messi led his national team to victory over Brazil in the final of the Copa América. On Sunday, Novak Djokovic won his sixth Wimbledon trophy and 20th Grand Slam title. Also on Sunday, Italy beat England in the UEFA EURO final. (And the Milwaukee Bucks regained their footing against the Phoenix Suns in Game 3 of the NBA Finals).

Messi who is seen by many as the greatest player of all time was highly motivated to win for his country and to expunge the memory of the 2012 World Cup final in which Argentina fell to Germany. Djokovic who now equals Federer and Nadal in total wins in Grand Slam finals is preparing for the Tokyo Olympics and for the US Open. One more Grand Slam win would seal his mark as the greatest of all time. England was hopeful of winning its first Cup since 1966. It was not to be, but the team can rebound from its loss in next year’s World Cup where they will face other top teams including Italy, Argentina and Brazil.

The weekend also saw Sir Richard Branson make a brief trip to space aboard Virgin Galactic’s VSS Unity. Branson preceded by nine days Jeff Bezos who plans to travel to space aboard a rocket developed by his company Blue Origin. Mr. Bezos was gracious in his congratulations. But two days earlier, Blue Origin had hinted that Sir Richard was not quite making it to space because his vessel would climb 50 miles above Earth, whereas “for 96% of the world’s population, space begins 100 km (62.5 miles) up at the internationally recognized Kármán line”.

Branson aboard the VSS Unity.

In other Competition news last week, President Biden issued an executive order seeking to increase competition in American business. We will wait to see if the details are as good as the headline but it is clear that consolidation across a large number of sectors has resulted in less competition and possibly less innovation. Over the past several decades, airlines, banks, telcos and others have consolidated into a few giant companies. And several tech firms have created walled gardens where switching would be too costly or time-consuming for a user. On the flip side, consolidation has resulted in higher stock prices, a benefit that has accrued to anyone with an invested pension or IRA, but mainly to the wealthiest 10 or 20%.

Winning is elation and losing is agony. But Competition itself is essential since it motivates individuals and corporations to push themselves to the limit. Whether in politics, culture or the marketplace, we can probably trace most failed systems to a dearth of competition and to a preponderance of oligopolies and/or monopolies. A propos today, sectarian or identity politics are efforts by candidates to wall off competition from others who are outside the same demographic group. These leaders are in the words of a Lebanese commentator (Lebanon being a long suffering theater of identity politics) “sectarian entrepreneurs” diminishing competition for their own gain.

Competition is the lifeblood of a laissez-faire economy and blows fresh air through stale corporations and associations. It improves everything while lowering the cost of everything. Yet it is normal that we do not always appreciate it. If we dislike competition on ourselves and love competition on the other, it is because the first lowers our revenues while the second lowers our expenses.

CUBA

Cuba with an aging stagnant population of 11 million and a GDP per capita of $8,800 (2018 World Bank estimate) has for decades punched above its weight in international relations. It achieved this rare feat mainly by playing the bad boy of the Western hemisphere and by being a thorn in the side of the United States. It allied itself with Venezuela, the former Soviet Union and others who had their own anti-US grievances.

Now street protests have surprised the leadership of Miguel Diaz-Canel who fully replaced Raul Castro only three months ago. Pro-freedom pundits were quick to express hope of a major turning point. A liberalized Cuba has large potential for development through manufacturing, services and tourism. However, this has been true for decades. Cuba’s liberalization and development are hampered by the regime’s international supports and by US sanctions. These have not changed course so far. But they could.

TESLA – SOLAR CITY

It is not necessary to be an unqualified Tesla or Elon Musk supporter to agree with Musk that the current lawsuit against him regarding the Solar City acquisition is a “waste of time”. The plaintiffs’ main grievance is that Tesla shareholders were damaged by the $2.6 billion purchase of Solar City. This is an exceedingly difficult (see impossible) case to make concerning a time interval in which Tesla stock rose 17-fold. Even allowing for the fact that Tesla may have overpaid (an unproven claim), the impact on Tesla stock was negligible when measured against Tesla’s rocket-like ascent. Except for technicalities, Musk and Tesla should be exonerated. Musk’s testimony will be remembered for his colorful assertion that the plaintiffs’ attorney is “a bad human being… mentored by criminals.”

SELFLESS OR RATIONAL?

A recent column in the Wall Street Journal argues that “limousine liberals” seek higher tax rates because they are selfless. This seems wide off the mark for several reasons. First, it appears to be based on the premise that selflessness is an unalloyed virtue. Raw selfishness is abhorrent but it does not follow that selflessness is beneficial to an individual or indeed to the common good. On the contrary, most psychologists agree that a sense of self is an important foundation of success and happiness. And most economists agree that a healthy dose of self-interest is necessary to stimulate a thriving economy.

More to the point, the column’s assertion is dubious because billionaires who seek higher tax rates on everyone (including themselves) are in fact financially rational. While it is true as pointed out by the author that higher tax rates would make them less wealthy in absolute terms, it is also true that those higher rates make them wealthier in relative terms because fewer people would join their ranks.

The idea that the relative is more valued than the absolute is supported by research at the University of Warwick that found that “the ranked position of an individual’s income predicts general life satisfaction, whereas absolute income and reference income have no effect.”

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