Here’s a letter to the Wall Street Journal:

Dear Editor:

Hunter Blair opposes cutting corporate income taxes because, as he puts it, “Corporate income-tax cuts are supposed to boost wages by incentivizing investment in plants and equipment, which boosts economy-wide productivity.  But for most of the past few decades, increases in economy-wide productivity have not translated smoothly into wage increases for the vast majority of workers.  Instead, the fruits of this productivity growth have disproportionately accrued to workers at the very top of the salary scale” (Letters, August 31).

Forget that, as Liya Palagashvili and I argued in your pages not long ago, it is a myth that worker pay hasn’t kept pace with increasing worker productivity.  If it is true that the increased worker productivity brought about by more investment has not yet been, and will continue not to be, matched by increased worker pay, then Mr. Blair should quit his job at the Economic Policy Institute and launch his own business to take profitable advantage of the legions of underpaid workers who he so confidently insists populate the land.  If he’s correct, he’ll make a mint!  If, however, Mr. Blair refuses to exploit in some form or fashion, using his own money, this profit opportunity that he himself avers is real, then he has no business advising government to continue to tax away huge chunks of money from other people – other people who, unlike Mr. Blair, put their own skin in the market.

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

I find it to be intensely maddening that so many intellectuals are so confident in their views about economic reality that they feel justified in recommending government interventions based upon the assumption that these views are accurate, but simultaneously refuse to risk their own time and money in seeking in the market the ready profits that their views in many cases imply are there for the taking by private parties who have the information that these intellectuals insist that they have.

There are many beliefs that I have about reality – beliefs about which I merely write and pontificate and never, ever actually back with my own money, time, and sweat.  But not only is it the case that most of my beliefs are that real-world markets work pretty darn well and, therefore, there aren’t any profits for me to make if my beliefs are correct, it is also true – and more importantly so – that I never use my beliefs as a justification for the state to restrict other people’s freedoms or to take other people’s property.

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As Jim McClure points out in a Facebook comment, the editors of The Economist – in the July 21st introduction to that magazine’s recent series of six briefs of ‘big ideas’ in economics that economists should pay more attention to – wrote that

The job of economists is to impose mathematical rigour on intuitions about markets, economies and people. Maths was needed to formalise most of the ideas in our briefs.

I believe that this description of the job of economists is incorrect.  The job of economists is indeed, and emphatically, to impose rigor “on intuitions about markets, economies, and people” – and, I add, also on intuitions about government.  But it is a myth to suppose that mathematics is either necessary or sufficient to impose the necessary rigor.

I emphasize that I am not saying that mathematics is never helpful in imposing such rigor.  Instead, I am saying that – despite appearances to the contrary – the rigor that sound economics imposes on our intuitions not only does not require mathematics in most cases, in many cases the mathematics blinds its users to aspects of relevant reality.  If, for example, a mathematical model leaves out important margins of adjustment that are available to individuals in reality, then the mathematical model itself, despite its apparent rigor, will be a source of misguided analysis of reality.  And no amount of facility with mathematics reveals which avenues of action and response are open to individuals in reality.  Knowledge of reality, and wisdom about it, is necessary to have a good sense of which such avenues of action and response are available – and of which such avenues of action and response are more likely than others to be chosen.

….

Claims such as that made, above, by the editors of The Economist are standard fare when the discussion is of the science of economics.  Yet I wonder if biologists are subjected to the same sort of claim.  Do people regularly say that “The job of biologists is to impose mathematical rigour on intuitions about phenotypes, behaviors, and genetic mutations”?  Do biologists demand that an explanation of, say, how natural selection led to humans’ opposable thumbs or cheetahs’ hunting habits be expressed in equations before that explanation is regarded as scholarly enough to take seriously?

I’m no biologist, but having read some biology – my favorite works include Richard Dawkins’s The Selfish Gene and The Extended Phenotype, George Williams’s The Pony Fish’s Glow, and papers by Leda Cosmides and John Tooby – I don’t detect any demand, either by biologists themselves or by intellectuals who retail biologists’ findings to the general public, that explanations of observed phenotypes or of observed behaviors be expressed in mathematics in order to be regarded as sound.  (I might well be mistaken here.  I’ve read relatively very little biology scholarship that is addressed chiefly to professional biologists.  So I welcome correction or clarification.)

Surely we can understand, without mathematics, that if bearing and rearing offspring of a certain species to reproductive age demands more of the female’s resources and time than of the male’s resources and time, then that species’ females will be more sexually choosy than will that species’ males.  Surely when a biologist sees small sea creatures using mud on the sea floor to form protective dwellings for each of those creatures, the biologist asks “Why?  What purpose does that dwelling serve?  Does it control the creatures’ body temperature?  Is it for protection from predators?  Is it a display to attract mates?”  The biologist examines not only the creature’s observed behaviors and phenotype, but also its regular surroundings, in order to propose an explanation.  I don’t believe that the explanation must first be written in mathematical form in order for it to make sense or for it to be accepted as valid – or provisionally valid, until a better explanation comes along – by other biologists.

…..

As it is (I suppose) with biologists, so it should be with economics.  Rigor is indeed called for; such rigorous thinking is what makes economics and biology scientific.  And this rigorous thinking does indeed demand that ‘things add up.’  For example, the economist who hears a politician screech about the trade deficit “costing jobs” points out (among other things) that the trade deficit is offset by capital inflows.  The economist who encounters a reporter’s prediction that the devastating hurricane will actually be good for the economy points out that the resources and labor used to rebuild that which the hurricane destroyed are thereby unavailable to build other goods and services that would otherwise have been made available.  But sound and rigorous economic explanations of many real-world phenomena – as with sound and rigorous biologists’ explanations of many real-world phenomena – do not necessarily require for their expression mathematics.

At the risk of being too repetitive, I repeat again: I do not oppose, as matter of methodological principle, the use of mathematics in economics.  What I oppose is the unthinking, if fine-sounding, assertion that solid economics must be done mathematically, or that it is always possible to improve an economic theory or explanation by putting it into mathematical form.

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Quotation of the Day…

by Don Boudreaux on August 30, 2016

in Economics, Risk and Safety, Seen and Unseen

… is from page 5 of the third edition (2015) of my colleagues Tyler Cowen’s and Alex Tabarrok’s principles-of-microeconomics textbook, Modern Principles: Microeconomics (original emphasis):

People cheered when, in the 1990s, Speaker of the House Newt Gingrich advocated mandatory executions for drug dealers.  But economists wondered by Gingrich wanted to decrease the penalty for murder.  How does the death penalty for drug dealers decrease the penalty for murder?  Think about it this way: Suppose that Gingrich’s bill becomes law and the police bust into an apartment where three drug dealers have hidden their stash.  What happens?  The drug dealers know that if they give up, they will be put to death.  So why not try to kill the police?  If the dealers are lucky, they get away.  If the dealers are unlucky, they are no worse off than if they didn’t fight because when drug dealing is a capital offense, drug dealers face no additional penalty for murder.

This passage is from the opening chapter of Tyler’s and Alex’s intro-economics text.  It is the text that I assign (along with some other readings that I send to my students electronically) to the 328 students who this semester are taking my ECON 103 class at George Mason University (“Principles of Microeconomics”).  This class meets every Tuesday evening from 7:20 to 10:00pm.  I absolutely love teaching principles of microeconomics.  A well-taught micro-principles class will give an attentive and thoughtful student 75 to 80 percent of all that he or she needs to understand in order to think and to reason like a truly expert economist – and about 95 percent of all that he or she needs to see the errors of most of what is asserted by politicians and pundits who plead for more state control over people’s lives.

Here’s what I wrote on the first day of class last year.

…..

By the way, the passage quoted above offers an example of the importance of thinking at the margin.  Thinking at the margin is much more crucial than it seems to non-economists when it is first explained to them.  Only by thinking at the margin can we correctly understand, for example, why the wages of life-saving first-responders are lower than are the wages of NFL players and of Hollywood starlets and why this fact is a good thing for society.  Only by thinking at the margin can we understand the error of those who assert that firms that have lots of money stashed away in reserve, or that are currently earning higher-than-normal profits, will respond to a hike in minimum wages simply by raising the pay of all of their affected workers.  And only by thinking at the margin can we come close to fully understanding why there is no objectively correct minimum standard of drug safety, workplace safety, food safety, or of any other kind of safety.

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Some Links

by Don Boudreaux on August 30, 2016

in Economics, Health, Hubris and humility, Immigration, Seen and Unseen, Work

Reason’s Matt Welch applauds what Gary Johnson says about immigration.  A slice from Matt’s article:

The GOP’s nativist summer was revealing not just in the way that it accelerated the party’s long trend away from the Reagan/Bush welcome mat toward a more Tancredoan restrictionism, but also how in how it ratified the obviously unattainable demands of conservatism’s entertainment wing as the party’s preferred policy approach. Those commentators who damn well knew that you could never deport 15,000 illegal immigrants a day (plus another 5,000 or so of their U.S.-citizen children), yet cheered Trump on when he said crazy stuff like that, deliberately chose know-nothingism over reality. Never forget that the same National Review that showily came out “Against Trump” in January, were spending last August editorializing that “Trump’s Immigration Plan Is a Good Start—for All GOP Candidates,” while its editor encouraged the party to “pander to Trump on immigration.”

Writing in U.S. News & World Report, my Bahrain-based Mercatus Center colleague Omar Al-Ubaydli warns minimum-wage enthusiasts to beware of the unintended ill-consequences that will perhaps befall the workers these enthusiasts wish to help.  A slice:

Most people walk past impoverished panhandlers every day; if they were forced to donate $1 each time on moral grounds, would we be surprised to see people trying to avoid panhandlers, potentially leaving them with even less money than if the donation were voluntary? Analogously, many economists expect firms to look for ways to minimize hiring, such as automation and downsizing, in response to minimum wage hikes, which is to the detriment of the lowest earners.

GMU Econ alum Larry McQuillan shares an image that helps explain the thick and entangling web of government dependency in the U.S.  A slice from Larry’s commentary:

Relieving people from the responsibilities and challenges of life, especially building skills and performing productive work, does them no favor. Government assistance has expanded to the point that it does more harm than good to the people it was intended to help, allowing people to effectively drop out of society and to live off the labor of others without donors’ explicit consent.

Kevin Williamson is rightly angry at the unbearable arrogance of Hillary Clinton and other politicians who criticize the pricing of EpiPen and other pharmaceutical products:

Pardon my bluntness here, but screw these people. Nobody, anywhere, at any time, has ever in a moment of mortal terror cried out: “For God’s sake, is there a politician in the house?” You know how many treatments for anaphylaxis have been produced by politicians over the course of human history? Zero. Congress’s sole contribution to the existence of a handy device that keeps your children from dying from bee stings is the fact that Mylan CEO Heather Bresch is the daughter of a Democratic senator, Joe Manchin of West Virginia.

If we were relying on the intelligence, work ethic, creativity, entrepreneurship, scientific prowess, and far-sightedness of the members of Congress to produce treatments for allergic reactions or any other medical problem, we’d still have a million people a year dying from smallpox and preventable infections. We’d also be starving to death.

Over at Roger Koppl’s Facebook page, my emeritus colleague Vernon Smith – a pioneer in experimental economics – relates a story of just how flimsy the thinking of even famous Ivy League economists can be.  Here’s Vernon:

I sat in Alvin Hansen’s grad classes (he taught M&B [Money & Banking] and Business Cycles) in 1952-54, and heard all of his views on secular stagnation. I believed, until I watched the economy defy it all. It was countered by Gotfried Haberler and Wassily Leontief, but Hansen’s views prevailed at Harvard/MIT unto the end of time. BTW, the grad students loved him. I remember him bouncing into class one day, excited. His theme was that growth (no stagnation in class today!) would soon allow all governemnt spending to be financed out of growth in the money supply! No wonder I turned to experiment!

Sir Antony Jay, the creator of my favorite television show of all time, has died.

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Bonus Quotation of the Day…

by Don Boudreaux on August 29, 2016

in Myths and Fallacies

… is from pages 290-291 of the 1990 Transaction Publishers reprint of W.H. Hutt‘s superb (but now, sadly, largely forgotten) 1936 book, Economists and the Public:

Yet the man of culture, if his criteria are those of the past, has really very little of which to complain in the triumph of mass taste in modern society.  He may deplore it; yet he should recognize that the scope for the realization of his own aesthetic feelings has never been so wide.  Standardization in consumers’ goods is largely the product of the consumers’ preference for cheapness, and the technical facts on which the economies of mass production rest are the means which have made their preference realizable.  But the same technical facts have contributed to the cheaper satisfaction of the connoisseur’s demand.  In so far as his demand springs from love of the elegant, the delicate, the refined, and is not unconsciously motivated by the desire to possess what is merely rare and expensive, machine production has cheapened and increased the power of passive enjoyment of things of beauty on the part of many.  There never has been a greater popular interest, for example, in music, the drama and literature than that which exists to-day.  The gramophone and wireless have brought first-rate music within the reach of the poor, the standards of commercial art have been continuously advancing, amateur dramatics have never been so flourishing, and the number of books sold expands annually.

My colleague Tyler Cowen – author of the great and pioneering 1998 book In Praise of Commercial Culture – could not have said it better.

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Devilish

by Don Boudreaux on August 29, 2016

in Data, Scientism, Seen and Unseen

If the devil is in the details, and if the details can be hidden from view by lumping them all into various aggregate statistics, then among the biggest fans of the uncritical use of aggregate statistics will be the devil.

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My Big Six (or Eight)

by Don Boudreaux on August 29, 2016

in Economics

Here’s a letter to a new correspondent of mine:

Mr. Sean Horvath

Mr. Horvath:

Thanks for your e-mail – in response to this earlier post – and for your challenge for me to list my own “Big 6 modern ideas in economics” that deserve more of economists’ attention today.  You don’t specify what you mean by modern, so I’ll interpret you to mean ‘within the past 75 years.’  Here’s my list, in increasing order of importance.  (I cheat by having two related ideas tied for #6 and two related ideas tied for #2.)

6. (i) Milton Friedman’s and Anna Schwartz’s demonstration that the Federal Reserve’s incompetence led to a much greater than necessary contraction of the economy in the early 1930s.  (See pages 299-419 of their 1963 book, A Monetary History of the United States: 1867-1960.)  (ii) Robert Higgs’s theory of regime uncertainty.  (See Higgs’s 1997 article “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War.”)

5. Armen Alchian’s proposed reformulation of production and cost theory – a reformulation that would be far more explanatory and much less misleading than are the conventional cost curves still taught today.  (See his 1959 article “Costs and Outputs.”)

4. James Buchanan’s, Gordon Tullock’s, Mancur Olson’s, Anthony Downs’s (and others’) public-choice analysis.  Despite Jim winning the 1986 Nobel Prize, to this day it is, bizarrely, considered to be scientifically acceptable for economists to treat government officials as not responding to incentives in the same way that individuals in the private sector are known to respond to incentives.  (See Buchanan’s and Tullock’s 1962 book, The Calculus of Consent; Olson’s 1965 book, The Logic of Collective Action; and Downs’s 1957 book, An Economic Theory of Democracy.)

3. Ronald Coase’s explanation that externalities necessarily are caused by the actions both of the parties who are identified as ‘causing’ the harms and of the parties who suffer the harms.  (See his 1960 article “The Problem of Social Cost.”)

2. (i) Julian Simon’s demonstration that human creativity is the ultimate resource.  (See his 1996 book, The Ultimate Resource 2.)  (ii) Deirdre McCloskey’s explanation that modern prosperity is largely the result of market-tested innovation unleashed by greater dignity accorded to bourgeois pursuits.  (See especially her 2010 volume, Bourgeois Dignity and her 2016 volume, Bourgeois Equality.)

1. F. A. Hayek’s 1945 explanation that market prices convey the information necessary for each of multitudes of economic actors to coordinate his or her choices with the actions and choices of others. (See his 1945 article “The Use of Knowledge in Society.”)

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

Picking six – or even eight – isn’t easy.  Names that don’t, but arguably should, appear on this list include Harold Demsetz, Aaron Director, Israel Kirzner, Henry Manne, Elinor Ostrom, and Vernon Smith.

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Quotation of the Day…

by Don Boudreaux on August 29, 2016

in Environment, Property Rights, The Future

… is from page 35 of Richard Stroup’s 2003 book, Eco-nomics: What Everyone Should Know About Economics and the Environment:

In a sense, the [market] value of a resource is a hostage that ensures protection and good management by the owner.  This value gives the owner an incentive to maintain the land’s productivity and, where possible, to make investments that improve it.  If the land is damaged, its value declines whether the damage occurs through misuse, negligence, trespass, or pollution.  If necessary, an owner will go to court against trespasses and polluters to protect the value of the property.

This splendid book by Rick Stroup is one of the texts – along with Matt Ridley’s The Rational Optimist – for my class at George Mason University entitled “Economics of Sustainability.”  This class’s first meeting will occur this afternoon on GMU’s Fairfax campus.  (In addition to these two books, student in the class will also read a large number of articles and essays, including much of the United Nations’s document on sustainability, “Our Common Future.”  Here’s Chapter 2 of that document.)

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Some Links

by Don Boudreaux on August 29, 2016

in Hayek, Legal Issues, Monetary Policy, Movies, Parenting, The Crisis, Work

On September 7th, Cato’s Center for Monetary and Financial Alternatives is teaming with the Mercatus Center to hold a conference in Arlington, VA, entitled “Monetary Rules for a Post-Crisis World.”

Dan Mitchell details (some of) Hillary Clinton’s statist agenda.

Art Carden, writing in Forbes, celebrates Ludwig von Mises.

I join Tyler Cowen in recommending this Richmond Fed interview with Erik Hurst.

The Free Republic of Liberland.  (HT Betsy)

Here’s my brilliant colleague Bryan Caplan’s reaction to the movie Captain Fantastic.  A slice:

1. On the surface, Captain Fantastic is a leftist cliche: not just a socialist living off the grid, but a cultish Chomsky fan.  But I’ve never met a socialist remotely like him.  He’s not just amazingly open to reasoned argument; his intellectual style is perfectly calm and genuinely friendly.

2. Captain Fantastic is a full-blown economic illiterate.  When he looks at stores, all he can see is capitalists gutting American democracy.  The idea that stores make life easier, freeing up time for more worthwhile pursuits, is alien to him.  So is the idea that modern technology makes primitive survival skills obsolete.

Speaking of reasoned argument, here’s Bob Higgs at his Facebook page.

George Leef is unimpressed with the merits of a recent legal action brought by a labor union.

GMU Econ alum Liya Palagashvili draws important lessons from NYC Mayor Bill de Blasio’s showdown with Uber.

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Bonus Quotation of the Day…

by Don Boudreaux on August 28, 2016

in Myths and Fallacies

… is from page 273 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s indispensable 1956 collection, Minority Report:

Samuel Johnson’s saying that patriotism is the last refuge of scoundrels has some truth in it, but not nearly enough.  Patriotism, in truth, is the great nursery of scoundrels, and its annual output is probably greater than that of even religion.  Its chief glories are the demagogue, the military bully, and the spreaders of libels and false history.  Its philosophy rests firmly on the doctrine that the end justifies the means – that any blow, whether above or below the belt, is fair against dissenters from its wholesale denial of plain facts.

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