Commence to Humility

by Don Boudreaux on May 25, 2016

in Hubris and humility

My initial thought was to include Thomas Sowell’s latest column in one of my “Some Links” posts.  But this column – which I first learned of from Mark Perry – is so good that I here give it the single billing that it deserves.  A slice (but do read the whole column):

Two themes seem to dominate Commencement speeches. One is shameless self-advertising by people in government, or in related organizations supported by the taxpayers or donors, saying how nobler it is to be in “public service” than working in business or other “selfish” activities.

In other words, the message is that it is morally superior to be in organizations consuming output produced by others than to be in organizations which produce that output. Moreover, being morally one-up is where it’s at.

The second theme of many Commencement speakers, besides flattering themselves that they are in morally superior careers, is to flatter the graduates that they are now equipped to go out into the world as “leaders” who can prescribe how other people should live.

In other words, young people, who in most cases have never had either the sobering responsibility and experience of being self-supporting adults, are to tell other people — who have had that responsibility and that experience for years — how they should live their lives.

I have always hated – even when I was still a college student – the “go out and change the world” advice given by commencement speakers.  Not only does this advice mistakenly presume that the world is in need of wholesale change, it foolishly flatters people still in their 20s that they know enough to effect such change wisely.  In fact, of course, not even older people with lots of solid, real-world experience know enough to be trusted with the power or the charge to “change the world.”

Here and here is the graduation speech that I would give.

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Quotation of the Day…

by Don Boudreaux on May 25, 2016

in Competition, Immigration

… is from page 26 of my colleague Peter Leeson’s and GMU Econ alum Zachary Gochenour’s excellent article “The Economic Effects of International Labor Mobility,” which is Chapter 2 of the superb collection (2015), edited by Ben Powell, The Economics of Immigration (link added):

If citizens are mobile and political authorities are concerned with enlarging, or at least preserving, their tax bases, the prospect of inter-jurisdictional migration may improve their incentive to follow those policies their citizens demand.

Traditionally, inter-jurisdictional competition is considered in domestic contexts with reference to the movement of a country’s citizens between federal jurisdictions, such as states, or within states, between municipalities.  However, the mobility of citizens internationally may also be useful to citizens for improving the quality of their countries’ governments.

International labor mobility is nowhere near as great as labor mobility domestically – because of the much more substantial policy barriers to international movement as well as the considerably larger cost of moving to another country for many citizens.  Thus Tiebout competition‘s potential to improve government quality at the national level is surely much weaker than its potential to do so at the local level.  Still, since some citizens in developing countries do in fact migrate internationally, and many more desire to do so, there is reason to think that inter-jurisdictional competition at the international level may be able to affect national government quality to some degree and that reducing policy impediments to international migration could strengthen that effect.

I add to Pete’s and Zac’s point that, despite the naturally higher costs of migrating internationally compared to the costs of migrating intranationally, at the margin the payoff – in terms of improved government behavior – from more international migration is today likely higher than is the payoff from more intranational migration.  The reason is the one highlighted above by Pete and Zac: precisely because policy now puts far higher obstacles to international migration than to intranational migration, international migration has not yet been allowed to put as much “Tiebout” pressure on governments as has intranational migration.

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Here’s a letter to the Wall Street Journal:

Ambassador Donald Blinken thinks that the case for free trade is sound only if government ensures that trade “isn’t unnecessarily harmful to those sectors of the economy it negatively impacts” (Letters, May 24).  He’s mistaken, for at least two reasons.

First, free trade is simply a particular manifestation of economic competition.  It makes no more sense for government to give special assistance to producers who must adjust to changes caused by competition from new foreign rivals than it does to give special assistance to producers who must adjust to changes caused by competition from new domestic rivals or from new technologies.  Indeed, if government adopts a policy of giving special assistance to workers and firms that lose jobs and market share to foreign rivals, inefficiently large numbers of workers and firms will be attracted into sectors that are especially exposed to international competition.  One ironic result of this policy will therefore be an artificial increase over time in the number of domestic workers and firms that lose jobs and market share to foreign rivals.

Second, all that is needed to ensure that trade “isn’t unnecessarily harmful to those sectors of the economy it negatively impacts” is that trade be free.  The reduction in domestic prices caused by free trade is supposed to push some domestic resources out of their older, less-productive lines of work and into newer, more-productive lines.  Free trade (that is, competition) accomplishes this task by reducing the returns earned by resources in their older, less-productive lines of work.  Contrary to Mr. Blinken’s presumption, however, there’s no reason or evidence to suppose that free trade causes these returns to fall further than is necessary to bring about the appropriate contraction of those domestic industries that should contract – and, thus, that makes possible the appropriate expansion of those domestic industries that should expand.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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Quotation of the Day…

by Don Boudreaux on May 24, 2016

in Budget Issues, Other People's Money, Politics

… is from page 427 of H.L. Mencken’s indispensable 1949 collection, A Mencken Chrestomathy; specifically, it’s from Mencken’s marvelous May 27, 1935, essay in the Baltimore Evening Sun entitled “The New Deal”:

Of such sorts are the wizards who now run the country.  Here is the perfect pattern of a professional world-saver.  His whole life has been devoted to the art and science of spending other people’s money.  He has saved millions of the down-trodden from starvation, pestilence, cannibalism, and and worse – always at someone else’s expense, and usually at the taxpayer’s.  He has been going at it over and over again at Washington.  And now, with $4,800,000,000* of your money and mine in his hands, he is preparing to save fresh multitudes, that they may be fat and optimistic on the Tuesday following the first Monday in November, 1936, and so mark their ballots in the right box.

* The situation was even worse than Mencken here reports, for he (or a copy editor) forgot a digit: federal spending in 1935 was $14.8 billion.

Here’s a quick back-of-the-e-envelope calculation:

Adjusted for inflation (using the CPI), $14.8 billion 1935 dollars is the equivalent of about $258.47 billion in 2016 dollars.  Because the U.S. population in 1935 was about 127.3 million, that means that Uncle Sam that year spent about $2,030 (in 2016 dollars) for every man, woman, and child in America.  Today Uncle Sam spends annually a hair under $4 trillion – let’s call it, conservatively, $3.9 trillion.  Therefore, today Uncle Sam spends annually – for every man, woman, and child in America’s current population of about 322 million – approximately $12,110.  That’s annual per-capita spending today approximately 6 times more than Uncle Sam’s annual per-capita spending in the year when Mencken penned the above quotation.

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Bonus Quotation of the Day…

by Don Boudreaux on May 23, 2016

in Myths and Fallacies, Work

… is from page 570 of the final volume – Bourgeois Equality – of Deirdre McCloskey’s indispensable trilogy on the essence and role of bourgeois values in modern life (original emphasis):

Nothing is served, though, by merging the idea of “poverty” with the idea of “slavery.”  The paid laborer, like the factory owner, is no slave, since he is paid in proportion to how well he serves other people.  Slaves are not.  A slave is “paid” in subsistence, if the owner reckons that it’s not good business to let him starve, but not in proportion to productivity.  Paid employment is the satisfying of other people in exchange for a wage.  Slavery by contrast is a violent extraction, not an exchange, and has nothing to do with pleasing anyone except the owner-by-violence of the product of another human being.

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David Henderson does a very nice job summarizing why it’s true that stripping workers of the right to offer X as part of an employment contract makes most workers worse off even if the intention of the government officials who do the stripping is to help workers – and, indeed, even if a Nobel laureate economist misses this reality.

Here’s another part of the picture.

Workers’ bargaining power ultimately is tied positively to workers’ alternatives: the greater the number, and the better the quality, of a worker’s employment options, the stronger is that worker’s bargaining power.  If many different employers are competing for your services – each by offering you good pay, good benefits, and good work conditions – you as a worker have splendid bargaining power.*  It follows that government interventions that reduce the creation of good jobs – that is, interventions that reduce firms’ incentives to create better opportunities for employing human labor – reduce workers’ bargaining power.  In turn, it follows that if overtime-pay arrangements of the sort that emerge in the absence of government restrictions on employment contracts are for many firms and workers the most efficient sorts of labor contracts available – as they are likely to be in a competitive economy – then government prohibitions that make those contract terms illegal will reduce firms’ efficiencies and, hence, dampen their willingness to create new jobs that pay as much as jobs would pay in the absence of those prohibitions.  (Put differently, government restrictions that shrink the ways that employers can squeeze more efficiency into their operations shrink the number of jobs that are created, or reduce the maximum pay that employers can offer to employers who perform newly created jobs.)

Over time, therefore, regulations such as the newly imposed overtime-pay diktats dampen workers’ bargaining power by reducing the number of high-as-possible-quality jobs created by employers.  With fewer such jobs, there’s less competition for workers.  And with less competition for workers, workers’ bargaining power shrinks.

Note that empirically documenting this reduced competition for workers, as well as documenting its effects on workers’ pay (lower than otherwise), fringes (lower than otherwise), and work conditions (worse than otherwise) would be practically impossible.  Because the consequences of these diktats play out fully only over a long span of time, it is simply too difficult for an empirical investigator to uncover, amidst all the countless other changes that occur in the economy, the details of what pay, fringes, and work conditions would be otherwise – that is, had such diktats not been imposed.  Yet unless you think you can say nothing absent empirical evidence about the effects on workers’ well-being of a reduction in the intensity and quality of competition for labor, then you should worry that these new overtime-pay diktats will, over time, make many workers worse off than they would otherwise be.

…..

* Note that if, in this situation, you as the worker (whose services employers are competing for) agree to reduce the value that you will receive on one margin (say, pay) in order to increase the value you will receive on another margin (say, working conditions), it would be wholly mistaken for an outside observer to notice your agreement to work for lower pay and conclude from that observation that your employer has undue bargaining power over you.  And it would harm you if this outside observer, arrogant in his or her ignorance of the details of your and your employer’s affairs, orders your employer to increase your pay to some level higher than you agreed to accept.

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Some Links

by Don Boudreaux on May 23, 2016

in Crony Capitalism, Data, Monetary Policy, Seen and Unseen, Trade, Work

David Beckworth recently interviewed his teacher George Selgin on monetary matters.

GMU Econ-Ph.D. candidate Stewart Dompe helps to expose the economic ignorance of “Progressives” who support protectionism as a means of helping the poor.  A slice:

The justification for all trade is that it benefits the hardworking consumer. Trade restrictions benefit the few at the expense of the many, which is the exact opposite of what politicians like Sanders claim to represent. Protectionism is an insidious tax because it doesn’t show up on a paystub like federal withholding or Social Security. Instead, it manifests in higher prices and lower quality for the consumer. We should resist it in all its forms.

Walter Olson reviews the longer-than-you-might-think tradition of American politicians threatening the press.

I share James Pethokoukis’s – and Jan Hatzius’s – sense that measurements of economic productivity are increasingly faulty.

David Henderson explains – contra the economically mistaken Paul Krugman – why workers’ bargaining power is weakened, rather than strengthened, whenever the state reduces the range of options that workers are allowed to offer to employers in exchange for higher pay or other worker benefits.

My intrepid Mercatus Center colleague Veronique de Rugy offers her counsel on how the Puerto Rican economy can best be saved.

The first issue of the Molinari Review has been published!

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… is from page 130 of the 2007 Definitive Edition (Bruce Caldwell, ed.) of F.A. Hayek’s classic 1944 volume, The Road to Serfdom:

That in a competitive society most things can be had at a price – though it is often a cruelly high price we have to pay – is a fact the importance of which can hardly be overrated.  The alternative is not, however, complete freedom of choice, but orders and prohibitions which must be obeyed and, in the last resort, the favor of the mighty.

This insight springs from basic price theory.  It’s an insight that my freshman students learn well by mid-semester of their first course in economics.  It’s also an insight that a prominent economist who was in the process of assessing the price-control-ridden, and already autocratically hammered, Venezuelan economy in 2007 ought to have put front and center of his analysis.  Yet, as Roger Koppl points out in a comment on this post, Joseph Stiglitz instead chose to warn Venezuelans to beware of excessive dependence upon oil and of the ‘Washington Consensus.’  That ‘consensus’ features much that deserves to be warned against, but even its worst parts are nothing as compared to the destructive interventions that Chavez was inflicting on the Venezuelan people – interventions the predictable destructiveness of which is today in full and awful bloom in that county.

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Writing for Defining Ideas, David Henderson and Charley Hooper explore some claims of the science of global warming and of global-warming’s effects on weather.

Here’s the full, 90-minute-long video of my April 21st Conversation with Deirdre McCloskey.  It aired last night on Book TV.

John Cochrane does his best to figure out what can possibly be in the minds of well-intentioned people who support the Obama administration’s new overtime-pay regulations.  (To figure out such a thing is a difficult task for a good economist, given that those regulations have zero economic logic if the goal of their proponents is to help lower-paid workers.)

The Boston Globe‘s conservative columnist, Jeff Jacoby, wisely advises Americans not to fear imports from China, regardless of how inexpensive they are.  A slice:

Sooner or later, competition and disruption challenge every industry and market. The pain they can inflict is real, but far greater and more enduring are the benefits and prosperity they generate. American steel mills are understandably chagrined that competitors from China are beating them on price. But cheaper steel also means more affordable cars, homes, and appliances for tens of millions of Americans. It means more employment at General Motors, Boeing, and John Deere. Jacking up steel prices through “antidumping” tariffs and other protectionist measures makes life more expensive for all of us and jeopardizes far more jobs than it saves.

The Cato Institute’s Marian Tupy, writing at HumanProgress.org, is inspired by the socialist catastrophe that is today’s Venezuela to wonder why so many human beings continue to find such a miserable and lethal economic system so appealing.  A slice:

As much as I would like to enjoy rubbing [Chavez-admirer David] Sirota’s nose in his own mind-bending stupidity, I cannot rejoice for I know that Venezuela’s descent into chaos – hyperinflation, empty shops, out-of-control violence and the collapse of basic public services – will not be the last time we hear of a collapsing socialist economy. Looking into the future, it is safe to predict that more countries will refuse to learn from history and give socialism “a go”. And, I am equally certain that there will be, to use Lenin’s words, “useful idiots,” like David Sirota, who will sing socialism’s praises until the moment when the last light goes out and time comes for them to move on and find something else to write about. And that begs an important question: considering that socialism has failed wherever it has been tried, why do we persist in trying to make it work?

(HT Mark Cancellieri.  It’s bad enough when non-economist pundits such as David Sirota and Chesa Boudin sing the praises of heavy-handed government interventions and ‘redistribution,’ but as this Cafe Hayek post from yesterday suggests, it’s far worse when professional economists – particularly ones boasting Nobel Prizes – fail to warn of the calamities that await any people who are so unfortunate as to live under such economic ‘systems.’)

George Will for President!  Here’s part of the very short inaugural address that a Pres. Will would deliver:

This will be enough business for Day One of my first 100 days. And I promise you this: On the 100th day of my administration, America will be . . . pretty much indistinguishable from what it is today. Would you, my over-excited countrymen, really want it any other way? Would you really want to live in a nation that can be substantially changed in a matter of a few months by a hyperactive government?

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Quotation of the Day…

by Don Boudreaux on May 22, 2016

in Growth, History, Myths and Fallacies

… is from page 98 of the final volume – Bourgeois Equality – of economic-historian Deirdre McCloskey’s vital trilogy on the essence and role of bourgeois values in modern life:

Competition, which sets entrepreneurs against one another for our benefit, needs to be encouraged, not checked.  Wages were in fact rising and children were being taken out of English factories before the legalization of trade unions and well before the factory legislation began seriously to bite.

Higher wages and improved work conditions were not supplied by heroic collective-bargaining efforts, by unions threatening to strike, or by any of the slew of finely named but economically counterproductive statutes such as, in the United States, the National Labor Relations Act or the Fair Labor Standards Act.  Higher wages and improved work conditions were supplied by what Deirdre calls “trade-tested innovation” in combination with competition of entrepreneurs and businesses for market share and for inputs, including the input ‘labor’ – as well as worker freedom to choose among jobs and employment terms, and the freedom of employers not only to compete for workers but also to fire or lay-off workers at will.

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