I just re-watched Pierre Desrochers presentation – at Cato in June 2012 – on “buy local” myths. It’s superb: fun, fact-filled, and informative. Because I believe that I inexcusably failed earlier to post this video on Cafe Hayek, I share it now. (Pierre is the co-auther, with his wife Hiroko Shimizu, of The Locavore’s Dilemma – a truly wonderful book.)
Anne Koeller responds to my earlier e-mail with this objection:
Your [Boudreaux’s] air example doesn’t apply because it takes no work to fill bottles with air but strenuous work is required to perform as first responders.
Ms. Koeller’s objection misses the point. Indeed, the very fact that it takes no work on the surface of the earth to fill bottles with breathable air supports rather than undermines my point. Still, to clarify, let me amend the example marginally:
Jones, noting that breathable air is of enormous total value to humanity, works very hard to discover a sealed pocket of breathable air buried far beneath the earth’s surface. The air in this underground pocket has been sealed there for millions of years. The pocket is discovered only because of Jones’s intrepid efforts. And Jones must toil many hours in hard, dirty, and dangerous conditions in order to fill on each underground expedition just a few dozen bottles with air from this pocket, which he then struggles hard to carry back to the surface for sale. Jones increases the supply of breathable air on the earth’s surface by emerging each week from the bowels of the earth with a couple dozen bottles of fresh, breathable air that he extracted from this underground pocket.
How much will Jones fetch for each of these bottles of air? Despite his undoubted hard work and excellent intentions, the answer is $0.00 – for the reason explained in my previous post.
Here’s a letter to a long-time correspondent (who doesn’t like today’s Quotation of the Day):
Ms. Anne Koeller
Dear Ms. Koeller:
Thanks for your kind e-mail.
You’re correct that the importance to humanity of the services of firefighters, paramedics, and other first-responders is huge. But your conclusion that these workers are underpaid doesn’t follow. Pay isn’t determined by what you call “the total social worth” of some particular line of work. Rather, pay is determined by the value of each individual worker’s contributions to his or her fellow human beings.
The amount that Jones is paid on the market is determined by the amount that Jones adds to his or her employer’s revenue – which itself is determined by how much consumers willingly pay for the additional output produced by Jones. If elsewhere lots of what Jones produces is available relative to the amounts of this good or service that people wish to consume, then consumers won’t be willing to pay much for what Jones produces. The market value of Jones’s output will be low even if the “total social worth” of the good or service produced by all people in Jones’s line of work is astronomically high.
Consider this example. Nothing has more ‘total worth’ to society than does breathable air. Without it, we’d all die within minutes. So suppose that, having accurately noted the great “total social worth” of air, Jones goes into the air-supply business. He toils many hours to capture air in bottles. Jones then offers to sell these bottles of life-sustaining gases to willing buyers here on earth.
What price will Jones fetch for his bottles of air? Zero. Even you, I dare say, would not pay more than $0.00 for a bottle of Jones’s air. The reason is not that you deny the great importance of being able to breathe. The reason is not that you don’t recognize air’s great “total social worth.” The reason isn’t that you’re oblivious to the fact that humanity could not survive if it were denied the product that Jones works to supply. Instead, the reason is that air is so abundant relative to humans’ demand for it that each unit of air is worthless. If you reject the opportunity to breathe the air that Jones offers for sale, the abundance to you of air elsewhere is so great that you sacrifice nothing by spurning Jones’s offer of the air in his bottles. Any one unit of air is of no market value to you.
While the life-saving services of first-responders are less abundant than is air, the reality is that these services are nevertheless quite plentiful. These services are so plentiful (relative to our demand for them) that the market value of the contributions of any individual first-responder is relatively low.
Your temptation, I’ll guess, is to lament this economic reality. But this reality should be celebrated, for it means that something of unambiguously great “total social worth” is supplied to humankind in such abundance that the prices we pay for it are low. The alternative world in which the market wages of first-responders are very high would be a world cursed by a low supply of people who are willing and able to work as first-responders. In that world, we’d all, except for the very rich, be constantly at greater risk of dying prematurely. Put differently, unless you think the world would be better if air were so scarce that air-supply workers would earn high wages by selling air to willing buyers, you should recognize that our world is better than one in which first-responders commanded higher market wages.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
… is from page 312 of Thomas Sowell’s 2009 volume Intellectuals and Society:
The intelligentsia … have encouraged the poor to believe that their poverty is caused by the rich – a message that may be a passing annoyance to the rich but a lasting handicap to the poor, who may see less need to make fundamental changes in their own lives that could lift them up, instead of focusing their efforts on tearing others down.
The intelligentsia have acted as if their ignorance of why some people earn unusually high incomes is a reason why those incomes are either suspect or ought not to be permitted.
I add here only that many of the intelligentsia who are here rightly criticized by Sowell are unaware of their ignorance of why some people earn unusually high (while other people earn usually low) incomes. These members of the intelligentsia think they have this knowledge. But as is so often true of a human being who is ignorant of X, his or her conclusions about X are typically mistaken despite his or her soaring confidence that he or she knows what’s going on.
Economically uninformed members of the intelligentsia (that is, nearly all members of the intelligentsia) seem, on my reading of much public commentary, to believe that workers’ pay – especially pay at the high end (such as the pay of CEOs) – is determine arbitrarily, by intention and design. Thomas Piketty (who, as a trained economist, should know better) attributes high and rising CEO pay in the U.S. to a chummy relationship between corporate boards and CEOs, along with American social attitudes that permit boards to award CEOs high pay that is unconnected with the performance of CEOs.
Regardless of the particulars of each such ‘explanation’ of pay offered by this or that member of the intelligentsia, no such explanation is based upon any intelligent understanding of competition and marginal valuation. Therefore, all such explanations – even the (relatively) more sophisticated ones that do not attribute all prices, wages, and salaries simply to some craftily designed scheme and intentional decisions of plutocrats – treat wages and salaries as being heavily determined by arbitrary forces. It follows (in the minds of people who fall for such explanations) that good and smart government officials can counteract these arbitrary forces in ways that help ‘the poor’ yet which come either at the expense of no one at all or at the expense only of some ‘bad’ group of people who have somehow managed to arbitrarily serve themselves unjustifiably large slices of the economic pie.
Are wages paid to members of this group too low relative to your personal assessment of what this group’s wages ‘should’ be? No problem. Just threaten to cage or to shoot all employers of members of this group who refuse to raise the wages paid to members of this group. Are salaries paid to members of that group too high relative to your personal assessment (My, what a god-like genius you are!) of what this group’s pay ‘should’ be? No problem. Just threaten to cage or to shoot anyone who is deemed responsible for setting such high pay yet who refuses to lower such pay to levels that you, with your uncanny brilliance, divine are appropriate.
In short, the explanation that most members of the intelligentsia have of the pattern of wages and salaries (and other prices) prevailing on the market is as intellectually credible as is the explanation that prehistoric humans had of the weather: it is determined directly by the often-capricious intentions of some mysterious and powerful mind (or cabal of such minds).
Capitalism is inherently sustainable, relentlessly producing more human satisfaction using fewer resources. What environmentalists call “sustainability” ought to be called primitivism, producing less human satisfaction using more resources.
Sanders’ defenders will say he wants to redistribute wealth, not control the allocation of economic goods. But as Hungarian philosopher and economist Anthony de Jasay explained in The State, the two are inseparable. There is no point in taking money from A and giving it to B except to change the allocation of goods. The whole point is to get A to buy less champagne (or spend less money marketing new deodorants) and allow B to buy more of what she wants. Redistribution of wealth is meant to divert resources from “socially useless” goods to socially useful ones.
Which brings us to the principled objection: socially useless to whom? In a world of hungry children, Jones might think it’s idiocy to spend a single cent on one more song by Kanye or Taylor Swift (and Jones would be right!). But that isn’t Jones’ choice to make for anybody except Jones. If Smith wants to waste his money on a pop singer’s latest release, he has every right to do so, and nobody else has the right to force him to do otherwise. After all: If Smith has no right to decide how he will spend his own money, then by what means does Jones, whose money it isn’t, acquire such a right?
Here’s a letter to the Wall Street Journal:
Your report on how the minimum wage destroys job opportunities for many Puerto Ricans is useful (“Puerto Rico’s Pain Is Tied to U.S. Wages,” July 2). Yet this report repeats a highly misleading error from a 2012 New York Fed study. Accurately citing this study, you write that on the American mainland in 2010 16 percent of workers earned the federal minimum wage. In fact, the real figure is far lower. According to the Bureau of Labor Statistics, the percentage of mainland workers who earned the minimum wage (or less) in 2010 is 6 percent – much less than half the 16 percent repeated in your report.
Indeed, for two reasons the actual percentage of mainland American workers earning the federal minimum wage or less is much lower than even 6 percent. First, the BLS data cover only workers who are paid by the hour – a group consisting of only about 60 percent of all U.S. workers. Adding in workers paid on bases other than hourly rates would, of course, further reduce the percentage of workers earning the minimum wage. Second, as explained by the BLS, “[t]he estimates of workers paid at or below the federal minimum wage are based solely on the hourly wage they report (which does not include overtime pay, tips, or commissions).” And such self-reported hourly earnings apparently also exclude the value of fringe benefits.
The reality is that only a tiny fraction of mainland American workers earn as little as the minimum wage – a reality that (1) explains why it is so difficult statistically to detect the disemployment effects of the minimum wage, and (2) is powerful evidence against the oft-repeated assertion that competitive market forces do not on their own adjust each worker’s wages upward as his or her productivity rises.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
… is from page 228 of my teacher Randy Holcombe’s excellent 1985 book, An Economic Analysis of Democracy (links added):
The theoretical work done during these decades [1960s and 1970s] has provided explanations for the poor actual performance of government in solving social problems. Many specific studies … cite problems inherent in the existing incentive structure embodied in political institutions. The suggestion is that existing political institutions are not well suited for allocating economic resources. More far-reaching are general studies, such as Arrow’s that show the general inappropriateness of any political institution as a mechanism for choosing social conditions. Arrow showed that under reasonable conditions, collective decision making in any form is not capable of making rational choices among alternative social states.
Fifteen years ago, Adam Pritchard (now a law professor at the University of Michigan) and I had the following op-ed published in the March 15, 1996, edition of the Washington Times:
Would you like to forfeit your house?
March 15, 1996
Section: A COMMENTARY OP-ED
Byline: By Donald J. Boudreaux and A.C. Pritchard
Imagine a guest with a marijuana cigarette secretly tucked in his pocket visits your house. The police storm in, seize the cigarette, and arrest your guest for drug possession. The police then announce that the government now owns your house. “What?!” you wail, “I did nothing wrong. How can you take my house?”
You are told that civil-forfeiture law allows government to take property that harbored an “abatable nuisance” – illegal drugs, in this case. An officer explains that “Your house, not you, committed a wrong. To help stem drug trafficking, it must be seized. Your doubts about our ability to confiscate your property will be dispelled by reading the Supreme Court’s March 4th decision in Bennis vs. Michigan.”
Certain that such tyranny is impossible in America, you rush to read Bennis. Your heart sinks. Chief Justice Rehnquist explains that the Constitution permits Michigan to use civil forfeiture to strip Tina Bennis of her ownership of an automobile in which her husband John had a tryst with a prostitute. Civil forfeiture allows government to take property from someone without convicting that someone of a crime.
Everyone concedes that Mrs. Bennis was unaware that John used the car for illegal sex – for which he was convicted and fined $250. Still, according to the Court, Michigan violated neither the Due Process nor the Takings clauses of the Constitution by taking the innocent Mrs. Bennis’ property without as much as a “thankee, ma’am.” The court reasoned that the state’s confiscation and forfeiture of Mrs. Bennis’ car is constitutional because courts have long upheld civil-forfeiture seizures of some properties. But these were historically confined to properties whose owners could not be tried in domestic courts. Not until Prohibition – long after the Constitution was adopted – did government generally wield civil forfeiture against people who could easily be criminally prosecuted.
Traditionally, no one can be punished unless first convicted. And government cannot convict someone – nor forfeit his property – who is denied an opportunity to defend himself before an impartial jury. But what to do about criminals outside of a domestic court’s jurisdiction? This was a pressing question for courts in cases involving smuggled goods as well as ships used for smuggling or piracy on the high seas. Owners of these properties were typically outside of domestic jurisdiction. Unless the law found a practical way to punish these foreign owners, smuggling and piracy would continue unabated.
Civil forfeiture solved the problem of unreachable wrongdoers. Under civil-forfeiture law, a court declared the property itself to be the wrongdoer. This legal fiction allowed the court to bypass the requirement of convicting the foreign wrongdoer before punishing him. Courts realized that the threat of civil forfeiture made foreign shipowners more reluctant to use their properties wrongfully. Civil forfeiture began here – and here is where it remained until after the Civil War. After the Civil War, civil forfeiture was expanded only far enough to reach property used to evade liquor taxation. Fact is, forfeiture of the properties of domestic citizens did not become widespread until Prohibition, when it was used to punish bootleggers smuggling alcohol.
When the Constitution was adopted, the common law did not condone using civil forfeiture against domestic citizens; therefore, use of civil forfeiture to seize the Bennis automobile is not permitted by the Constitution today. The Bennis criminals – Mr. Bennis and the prostitute – were within Michigan’s jurisdiction, and thus, outside the realm of civil forfeiture.
The Constitution does permit civil-forfeiture seizures of aircraft and similar properties belonging to the likes of Colombian drug lords. Such criminals are precisely the kinds of wrongdoers that civil forfeiture was meant to punish. But by upholding civil forfeiture in cases for which the government can easily prosecute suspected criminals in person – such as in the Bennis ruling – the court unleashes a government power unknown to America’s founding generation.
The Bennis decision frees government to impose huge costs on people never charged with criminal wrongdoing. Governments will respond to this novel constitutional loophole by devising ever more creative ways of preying upon innocent citizens as sources of revenue. A Supreme Court committed to respect legal precedent poorly serves judicial restraint and justice by so carelessly interpreting the tradition it seeks to protect.
Oliver Wendell Holmes observed that “hard cases make bad law.” For Tina Bennis, bad history makes hard law.
Donald J. Boudreaux is Visiting Olin Scholar in Law and Economics at the Cornell Law School. A.C. Pritchard practices law in the Washington office of Bickel & Brewer
On the very same Greek topic is the Wall Street Journal‘s Holman Jenkins. (gated). A slice:
But Mr. Tsipras shriekingly insisted that Europe go on subsidizing Greece so Greece wouldn’t have to change. He effectively put a gun to Greece’s head and said, “Pay us ransom or the idiot gets it.”
The idiot is now getting it. Greece’s banking system and government are running out of cash because Mr. Tsipras spurned loans that the EU, frankly, was quite eager to give. The Greek people will likely vote overwhelmingly to stay in the euro in next week’s referendum, but by then it may be too late. By then, too, Mr. Tsipras likely will be propagating a “stab in the back” myth to blame Europe for rejecting Greece, not the other way around.
But it also pays to see why this crisis was baked into the euro. Of course the Greek people want to keep the common currency: Not only is the euro an excellent currency, but it comes with the additional virtue of requiring the EU to bail out member governments so politicians and voters can always view reform as less than an absolute necessity.
Cato’s Dan Ikenson correctly warns opponents of cronyism to remain vigilant in light of the demise of that great geyser of cronyism and monstrous monument to the myths of mercantilism, the U.S. Export-Import Bank.
Here’s yet another account of the disgusting, would-shame-a-banana-republic-autocrat practice in the United States of civil asset forfeiture. Again I ask of drug-war advocates (as I will ask of them whenever I encounter such instances of government thievery and tyranny): Do you really think that this ‘war on drugs’ makes the U.S. more civilized, law-abiding, free, and pleasant? And if you are a white, middle- or upper-class suburban person, do you not think it incumbent upon you to put yourself in the shoes of blacks and other minorities upon whom the bulk of this atrocious tyranny is unleashed?
Finally, here’s the great Israel Kirzner’s lecture last month in Berlin upon his receipt of the 2015 Hayek Medal, awarded annually by the Berlin-based Hayek Gesellschaft:
(HT Pete Boettke)
O happy day!
No one deserves more credit – and I’m not sure that anyone deserves even as much credit – for bringing about the closure (at midnight last night) of that great geyser of cronyism, the U.S. Export-Import Bank, than does my intrepid Mercatus Center colleague Veronique de Rugy. This feisty economist from France has, over the past few years and on many different fronts, toiled tirelessly and brilliantly to expose the lies, half-truths, deep economic ignorance, and shameless cronyism upon which popular and political support for the Ex-Im Bank rested.
All Americans – save those formally privileged few whose wallets and purses are today lighter because of their reduced receipts of government-created rents – should this evening raise a glass of Pol Roger Brut or some other genuine and excellent champagne to Vero. She’s genuinely and excellently heroic!