Calling Mark Perry

by Don Boudreaux on May 24, 2017

in Budget Issues, Work

News reports abound today with allegations that Trump’s proposed budget cuts are cruel and dangerous.  Each and every proposed cut is presumed, should it become reality, to cause the operation and output of the affected government programs to shrink.  Of course, “Progressives” are among those who have no doubt that a government program that receives less funding is a government program that will thereby scale back its operation and, hence, produce less of whatever goods or services that program is meant to produce.

So I’m confused.  If cutting the budget of a government program causes the operation of that program to shrink, why does not raising the minimum wage inevitably cause the operations of employers of low-skilled workers to shrink?  How can “Progressives” be so very confident that reducing the amount of money available to fund the operation of government programs results in a scaling-back of the operations and outputs of these programs if these “Progressives” also are so very confident that reducing the amount of money available to fund the operation of employers of low-skilled workers does not result in a scaling-back of the operations and outputs of these employers?

Raising the minimum wage – should employers simply pay the higher wage and make no other adjustments in their labor arrangements (as most minimum-wage advocates believe occurs) – necessarily reduces the amount of funds employers of low-skilled workers have available to fund those parts of their operations other than paying for low-skilled labor.  Therefore, if it’s true (as it almost surely is) that cutting funding for government programs causes a scaling-back of those programs, it’s nearly impossible to see why raising the minimum wage doesn’t have the same scaling-back effect on the operations of employers of low-skilled workers.

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Quotation of the Day…

by Don Boudreaux on May 24, 2017

in Politics, Seen and Unseen

… is from page 445 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

Moreover, the public usually buys finished products in the marketplace, but can choose only among competing promises in the political arena.  In the marketplace, the strawberries or the car that you are considering buying are right before your eyes when you make your decision, while the policies that a candidate promises to follow must be accepted more or less on faith – and the eventual consequences of those policies still more so.  Speculation is just one aspect of a market economy but it is the essence of elections.

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Do You See What I See?

by Don Boudreaux on May 23, 2017

in Myths and Fallacies, Seen and Unseen, Trade

Champions of keeping markets free and government limited typically have a solid grasp of economics.  No such grasp is had by the people who run the oddly named “Americans for Limited Government.”  Here’s yet another letter to the president (Rick Manning) of that organization:

You say today in your now-daily e-mail plea for Trump to punitively tax Americans who buy low-priced Mexican sugar that “This is the perfect opportunity for President Trump to prove that what it will take to protect American jobs is through tough trade enforcement.” [sic]

Before pronouncing publicly on trade you really should learn some economics.  Contrary to your insinuation, to protect American jobs in the U.S. sugar industry is not remotely “to protect American jobs.”  Restricting Americans’ purchases of imported sugar destroys jobs not only in America’s export industries and in those American industries whose costs of production are artificially hiked by restrictions on sugar imports; the restrictions that you demand destroy jobs also in those many other American industries whose sales fall because the prices that American consumers pay for sweetened foods are driven artificially higher.

Yet you’re totally blind to the jobs that tariffs destroy.

It’s disturbing that you and your colleagues, who claim to defend individual liberty and economic prosperity, are as economically ill-tutored and misguided as are the likes of Bernie Sanders, Chuck Schumer, and Elizabeth Warren.

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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Brittany Hunter defends competition, market-driven innovation, and creative destruction against cronyism.

Adam Smith: feminist.

Mark Perry quotes Adam Smith on the virtues of free trade.

Also from Mark Perry: praise for Amazon.com.

Marian Tupy explains that the foreign-aid industry is a racket.

Greek Anarchists Provide Services the State Doesn’t

Here’s a fun lesson about the role of prices from newly minted GMU Econ PhD Joy Buchanan.

Kevin Williamson reviews the current state of Trump, Trumpism, and anti-Trumpism.

John Tamny – in contrast to the New York Times – celebrates the future being built by private enterprise.

Arnold Kling has just started to read a new book by Hugo Mercier and Dan Sperber (The Enigma of Reason: A New Theory of Human Understanding).  A slice from Arnold’s post:

Taking human beings as social animals subject to various departures from pure rationality, market exchange is still a very defensible mode of human interaction. Markets help to organize large-scale specialization and cooperation. Markets are effective learning mechanisms. If Mercier and Sperber are going to claim that our collective brain works in spite of (and perhaps even because of) the flaws of our individual reason, then I am prepared to claim that the market system is often the best tool for taking advantage of that collective brain.

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… is from page 300 of the late Paul Heyne‘s 1995 article “Economics Is a Way of Thinking,” as it is reprinted in the superb 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.):

One acquires proficiency in the art of economic thinking largely by learning to recognize the ingenious ways in which market participants overcome obstacles to mutually advantageous exchanges, obstacles created not only by government but also by ignorance and uncertainty.

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Arnold Kling has good reason to predict that, in his words,

academic economics is on the road to becoming like academic sociology. That is, it will become increasingly driven by a left-wing agenda.

Arnold himself, in the post linked here, offers no explanation(s) for this left-wing movement of economists and, hence, of economics.  I don’t doubt, however, that Arnold has a few excellent possible explanations in mind.

Let me here offer an explanation of my own: economists’ increasing embrace of empiricism that isn’t solidly rooted in basic microeconomic theory of the sort that can be, and should be, taught to undergraduates.  That which can be measured and quantified is that which can be seen.  Indeed, to quantify something is, in a real sense, to see something – or at least to see some of that something’s physical manifestations.  And yet a chief lesson taught by a sound course in basic economics is that many social phenomena are unseen.  Many social phenomena are invisible.  Even to the trained and focused economist’s eye, many social phenomena remain unseen.  We know of such invisible phenomena through logic and inference rather than through observation and measurement.

I turn again to the example of a gigantic outdoor swimming pool with people jumping in and out of it.  You stand on the edge of the pool and drop into it a tiny pebble, one the size of a sesame seed.  The pebble sinks to the pool’s bottom.  Someone then asks you: what is the effect on the pool’s water level of the tiny pebble now resting at the bottom of the pool?  If you are a thoroughly modern economist, you plead ignorance until you can measure and quantify the effect.  So you gather the most precise measuring instruments available and you measure the water level of the pool with the pebble removed and then measure it again with the pebble dropped back in.

You discover that your measuring machines detect no difference in the pool’s water level.  Of course, you do your very best to control for the effect of swimmers splashing in the pool, divers diving into the pool, people crawling out of the pool, evaporation, and rainfall.  And after heroic controlling for all that you can think to control – (Oh, did you consider the possibility that a swimmer might have urinated in the pool?  Or swallowed a bit of the pool water?  Or that one of the pool’s pumps might have slowed or quickened a bit?  There’s just so much happening in and to the pool!) – you detect that, statistically speaking, the pool’s water level is the same with the pebble in it as without the pebble in it.  You announce your scientific conclusion that, despite what theory says, small pebbles dropped into pools of this size and sort, at this latitude and longitude, and perhaps painted this color, do not displace water.  Such pebbles have no effect on such pools’ water levels.

“I’m data-driven,” you boast modestly.  “I know only what the data tell me, and the data tell me that, despite what theory predicts, small pebbles dropped into such pools do not raise such pools’ water levels.  Perhaps bigger pebbles do.  Perhaps pebbles have different effects in different pools.  We must measure to find out for sure.  But it is unscientific to use mere theory to draw any conclusions on this front.”

Of course, in reality everyone understands that even the smallest bit of matter dropped into a pool of water makes the water level of that pool higher than it would otherwise be.  Even if the effect cannot be seen, our theoretical understanding tells us what the result is.

Society is very much like a giant outdoor pool with people constantly diving in, splashing around, and crawling out (and urinating, and spitting, and swallowing gulps of the water, and cleaning the pumps’ filters….)  Much that happens in real-world economies is not only unseen but practically unseeable.

The good effects of government intervention are generally seen (which is a chief reason governments intervene as they do).  The tariff clearly protects some workers from losing jobs.  The minimum wage clearly results in some workers getting higher hourly pay.  The ‘free’ government health insurance clearly is a blessing to the young couple who use it to avoid paying for their ill-child’s medical care.  Ms. Jones is clearly better off today by receiving her Social Security check than she would be if she did not receive her Social Security check.

Because the benefits of government interventions are generally easier to see and measure than are the costs – and because the costs of market competition are often easier to see and measure than are the benefits – a profession that claims to know only what it can see and measure will naturally drift to the left politically.

The naive empiricist insists that that which remains unseen is unreal.  The naive empiricist therefore denies the reality of the very phenomena that economists from Adam Smith through Bastiat and on to such greats as Cannan, Mises, Hayek, Coase, Friedman, Alchian, Buchanan, Tullock, Yeager, Vernon Smith, Kirzner, Sowell, Demsetz, McCloskey, and Higgs have painstakingly shown to be real even if and when it remains unseen.

The naive empiricist too readily minimizes the significance and role of inference, logic, and foundational theory.  And his or her idea of what is empirically relevant are data and facts gathered from statistical studies; the data and facts that we learn from history are ranked lower in explanatory relevance.

…..

I do not believe that the explanation offered above for the left-wing drift of economics identifies the only force at work.  But I believe that it does identify one of the important forces at work to drive this dangerous trend.

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Here’s another letter to Rick Manning, president of an organization mysteriously named “Americans for Limited Government”:

Your organization sent out again today yet another blast e-mail imploring addressees to “help” Trump “implement his trade agenda.”  Your e-mail is addressed to “Dear Liberty Activist.”

To quote John Stossel: give me a break.

Why would a liberty activist encourage government to obstruct people’s ability to buy imports?  Why would a liberty activist entreat the state to punitively tax buyers who spend their money in ways that you and Trump find objectionable?  Why would a liberty activist cheer on a policy that artificially inflates the profits of some producers by artificially stripping other producers of resources and by stripping all consumers of options?  Why would a liberty activist suppose that liberty is served rather than betrayed by joining his or her voice with yours in calling for the state to threaten peaceful people with violence?  Why would a liberty activist actively oppose liberty?

Those who join with you to encourage Trump to “implement his trade agenda” are neither friends of liberty nor advocates of limited government.  Such people, instead, are officious threats to liberty.  Whether through ignorance or venality, their actions – like yours – only fuel the expansion of government power and put Americans’ liberty and prosperity in greater peril.

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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… is from pages 258-259 of the late Wesleyan University economic historian Stanley Lebergott’s great 1984 book, The Americans: An Economic Record (footnotes deleted; asterisk note added; link added; first two brackets added by Boudreaux; third bracket original to Lebergott):

The deeper answer is implicit in the Reconstruction legislation that defined the criminal.  He was “not the black man who left his plantations, but the planter who sought a free market in labor.”  The “criminals” were in fact those white planters who offered higher wages to attract labor.  They included white landowners who offered [share]croppers a better share, to get croppers, and thereby profit from their land ownership.  They also included white lenders who loaned freedman money to buy land.  They even included corporations building railroads, who bid black labor away by offering higher wages.  Moreover, and importantly, they included planters in other states, who couldn’t care less about the need for “docile” labor in a given state.

As early as 1864*, planters in other states began seeking labor in Georgia.  As General [Davis] Tillson (then head of the Freedman’s Bureau in that state) observed, Georgia planters were offering farmhands only $2 a month.  But: “Men from Alabama, Mississippi, Arkansas say that [labor] is worth fifteen dollars, and stand reading to give it”….  Throughout Reconstruction the freedman moved to those areas where planters sought labor to work their lands.  The “feverish excitement” of the 1867 boom led Mississippi planters to pay wages 50 percent greater than South Carolina and 27 percent greater than Alabama….  In a later year “some four or five thousand colored laborers” left South Carolina for “Arkansas, Alabama, Mississippi, where wages were much higher.”  Between 1870 and 1880 alone about 20,000 freedmen moved into Mississippi.  Equal numbers migrated to Texas and to Arkansas.  Alabama lost over 35,000.

Owners of the old South, therefore, had to increase their wages and their share offers if they were to keep their entire labor supply from drifting away.

DBx: Lebergott’s historical account – which reinforces the important findings of Robert Higgs about the postbellum economic trajectory of blacks in America – reveals the equalizing powers of economic competition.  Contrary to popular myth, even racist southerners put their own economic well-being ahead of their irrational prejudices by competing with offers of higher wages for blacks’ labor and with offers of low prices for blacks’ business.  This competition, in turn, increased blacks’ geographic and economic mobility and raised their incomes.  The reason southerners – whether racists or rent-seekers (or both) – turned to government to get Jim Crow legislation is that market forces were undermining their racist preferences and competing away their uncompetitively high profits, rents, and wages.

Lebergott’s account also further reveals the utter implausibly of the claims of those who assert that today’s market in America for low-skilled workers is infected with monopsony power.  While this market isn’t textbook perfect (no real-world market is), and while this market would be improved by making it even freer (for example, by eliminating occupational-licensing statutes and zoning restrictions), the ability of low-skilled workers today throughout the U.S. to move from job to job is surely better than was the ability of low-skilled blacks 150 years ago throughout the American south to move from job to job.  And yet, as Lebergott documents,  low-skilled American blacks of 150 years ago in the American south did indeed enjoy such mobility that economic competition raised their wages.  Similarly, the ability today of entrepreneurs and business owners to discover and compete for under-priced labor is surely greater than was the ability of employers 150 years ago to do the same – and yet, again as Lebergott documents, such competitive initiative by employers was common 150 years ago and served to increase low-skilled workers’ mobility and wages.

If there was, as there was, vigorous economic competition for the labor services of black former slaves in the war-ravaged American south of the mid- to late-19th century, it is completely ludicrous for anyone to insist that minimum wages, whether national or local, are required to protect low-skilled workers in today’s America from the effects of monopsony power.  Such monopsony power is nothing more than the phantasm of minds that neither understand the nature of economic competition nor know much, if any, economic history.

…..

* “1864” is a typo in Lebergott.  He almost surely meant 1865, for 1865 is the year that Gen. Tillson was appointed to this post.

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Boston Globe columnist Jeff Jacoby wisely warns the press to avoid getting carried away with their criticisms of Trump.

George Will explores the creeping (and creepy) expansion of Uncle Sam’s power.

Arnold Kling has become more pessimistic about politics – but not about private enterprise and innovators.

James Hagerty remembers Allan Meltzer.  A slice:

He evolved into a libertarian. Capitalism, he wrote in one essay, “works well with people as they are, not as someone would like to make them.”

Does capitalism help or hurt women?

Richard McKenzie offers a new and interesting angle on the BAT proposal.

Richard Ebeling writes sensibly about trade deficits.

Nick Gillespie interviews P.J. O’Rourke.

And, finally, Dilbert.  (HT Roger Meiners)

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Quotation of the Day…

by Don Boudreaux on May 21, 2017

in Hubris and humility, Work

… is from page 247 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

Third-party observers face none of the inherent constraints and trade-offs that are inescapable for both employers and employees, and therefore these third parties have nothing to force them to even think in such terms.

DBx: Quite so.  And yet in the popular mind the no-skin-in-the-game crusaders for minimum wages, for mandated family leave, and for other state-dictated terms of employment contracts are held in great esteem while the employers who must arrange for the profitable employment of workers – including arrangements to pay workers – are regarded with suspicion or even outright hostility.  As for workers, the no-skin-in-the-game crusaders inflict damage on them even though most of these worker-victims never connect the dots.

The 19-year-old inner-city single mom who can’t find a job doesn’t realize that her unemployment is the result of minimum-wage legislation.  The 30-year-old junior account executive never learns that he would have gotten a larger raise were it not for the mandated leave that the state forced into the terms of his employment contract with his employer.  The 61-year-old welder, approaching retirement and looking back on his career in the shipyard, is oblivious to the fact that his lifetime earnings would have been higher had government let competitive markets determine optimal levels of workplace safety rather than impose, as it did, safety standards arbitrarily determined by politicians and bureaucrats none of whom had sufficient knowledge of either the worker’s preferences or of the costs of the diktats.

Far too many people operate according to a screwy and uncivilized code of ethics.  Butting in to strangers’ private affairs is applauded as altruistic if done through the agency of the state, while resisting and protesting against such officiousness is portrayed in the media and in the classrooms as evidence of greed or of cruelty or of ignorance (or of some combination of the three).

Making matters much worse are the all-too-typical modern economists.  They thrill to the not-very-challenging challenge of pointing out the many ways that real-world markets ‘deviate’ from textbook models – and in particular of all the many situations in which flesh-and-blood individuals acting in markets are less than fully informed.  These economists then leap, stuffed with stupid confidence but devoid of anything at stake, to the conclusion that they – and the state officials who they imagine are eager to act on their ‘scientific’ advice – somehow know, or can make known, all that the flesh-and-blood people are presumed not to know about the details of each of these individual’s specific situations.

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