Quotation of the Day…

by Don Boudreaux on November 1, 2014

in Civil Society, Trade

… is from page 87 of Martin Wolf’s excellent 2004 book, Why Globalization Works:

[C]ommerce is commerce, regardless of whom it is with.

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Here’s a letter to the Wall Street Journal:

You report that Hillary Clinton tried to explain (away) her recent ‘businesses don’t create jobs’ remark by saying that what she really meant is that jobs are not created by businesses that “outsource jobs or stash their profits overseas” (“Hillary Rodham Warren,” Oct. 31).

Ignore Ms. Clinton’s outsourcing comment, which reflects nothing but pedestrian economic illiteracy (or her willingness to pander to such).  Instead, note that if Ms. Clinton is correct to suggest that corporations are stashing lots of profits overseas, Thomas Piketty and his fans ought to be pleased.  Profits that are stashed abroad (or anywhere, for that matter) are not - contrary to M. Piketty’s suspicions - paid out frivolously and unfairly to undeserving CEOs; are not ploughed back into profit-making activities that further widen wealth disparities by increasing the value of capital assets; are not spent to finance the conspicuous consumption that M. Piketty and many on the left worry ignites envy in the 99 percent; and are not used to buy the political favors and electoral outcomes that “Progressives” fret are now being bought by the 1 percent.

So the downside of jobs potentially lost to the stashing of profits might be balanced, or even outweighed, by the upside of these stashed profits not being invested and spent in all those socially corrosive ways that M. Piketty so famously warns against.

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 page 197 of Michael Huemer’s impressive 2013 book, The Problem of Political Authority (emphases original):

A related form of utopianism consists of suspending general assumptions about human nature when considering agents of the state.  Defenders of government are often keen to point out the harms that might result from the widespread greed and selfishness of mankind in the absence of a government able to restrain our worst excesses.  Yet they seldom pause to consider what might result from the very same greed and selfishness in the presence of government, on the assumption that governments are equally prone to those very failings.  It is not that statists have some account of why government employees are more virtuous than average people.  Nor do they have some plan for making that be the case.  Rather, it seems simply to have never occurred to most statists to apply realistic assumptions about human nature to the government itself.  The state is treated as if it stood above the empirical human world, transcending not only the moral constraints but also the psychological forces that apply to individual human beings.

In short, the typical statist case for government intervention depends upon the occurrence of miracles.  It’s very unscientific and not at all reality-based.  It’s utopian in the worst way.

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My former student Alex Nowrasteh, now with the Cato Institute, writes in the Wall Street Journal to advise the G.O.P. to abandon its hostility to immigrants.

Sandy Ikeda on the power of no.

Terry Anderson explains that the Endangered Species Act threatens wildlife.

The New York Times says that Obamacare is a success; Merrill Matthews says that the New York Times‘s analysis is a failure.

Speaking of Obamacare, the market responds to that man-made calamity humanely – as explained by Maxim Lott.

James Pethokoukis points us to Scott Winship’s recent debunking of many asserted claims of the destructiveness of income inequality.

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Quotation of the Day…

by Don Boudreaux on October 30, 2014

in Data, Inequality, Seen and Unseen

… is from pages 38-39 of the manuscript of Deirdre McCloskey‘s extensive and insightful review of Thomas Piketty’s Capital in the Twenty-First Century; (quoted here with Deirdre’s kind permission) (original emphasis; footnote excluded):

The usual way, especially on the left, of talking about poverty relies on the percentage distribution of income, starting fixedly for example at a relative “poverty line.”  As the progressive Australian economist Peter Saunders notes, however, such a definition of poverty “automatically shift[s] upwards whenever the real incomes (and hence the poverty line) are rising.”  The poor are always with us, but merely by definition, the opposite of the Lake Wobegon effect – it’s not that all the children are above average, but that always there is a bottom fifth or tenth or whatever in any distribution whatsoever.  Of course.

[The Saunders citation is: Peter Saunders, "Researching Poverty: Methods, Results, and Impact," Economic and Labor Relations Review, Vol. 24, June 2013, pp. 205-218.]

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Bill Hill (who has no Facebook account), after reading this post, asks a sensible question.  I’ll paraphrase his question.  (Mr. Hill: If I paraphrase mistakenly, do let me know ASAP.)

You [Boudreaux] say that minimum-wage legislation blocks the creation or discovery of economic opportunities that might well, had there been no such legislation, employed many low-skilled workers.  That claim might be true.  But even so, why would not empirical studies of changes in the minimum wage, and of differences in minimum-wages across political jurisdictions, fail to pick up these disemployment effects?

The answer is that such legislation likely blocks the creation or discovery of kinds of enterprises that differ greatly from existing enterprises in their mixes of labor and capital.  In particular, it’s plausible (although not certain) that, absent minimum-wage legislation or any significant threat of such legislation being enacted, entrepreneurs would experiment with enterprises using lots of low-skilled labor relative to other inputs.  For example, (and I here just speculate, because I’m no entrepreneur), a firm might arise that uses legions of low-skilled workers to deliver advertising fliers door to door, or uses legions of low-skilled workers to canvas neighborhoods offering to do light gardening work.

But because we are burdened by minimum-wage legislation, and have been burdened by it for so long now without any reasonable prospect of its repeal, no one bothers even to think along the lines of creating such enterprises.  The enterprises that are created are ones that are reasonably well-equipped to deal with minimum-wage legislation – which is one reason why the (relatively) small changes and differences in such legislation do not register larger disemployment effects in the empirical studies (and why such effects are sometimes impossible even to detect).

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I challenge anyone to justify, or even to excuse, such an abuse of power.  (HT a dear and wise and passionate friend.)

Words normally do not escape me, but I can find none that adequately convey the anger and sense of injustice that course through me when I read of seizures such as this one.  Best to let the matter speak for itself, which it surely does to anyone this side of Frank Underwood in decency and civility.  Fortunately, the great Institute for Justice is on the case.

If it weren’t so appalling and dangerous, the conclusion – drawn by many (especially by those who consider themselves to be gentle and liberal) – that the same institution that performs inexcusable aggressions such as this one is fit and trustworthy enough to oversee and ‘correct’ the market would be amusing.

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… is from page 108 of Deirdre McCloskey’s excellent 1990 book, If You’re So Smart: The Narrative of Economic Expertise:

Economics is the science of the post-magical age.  Far from being unscientific or hoobla-hoo, it is deeply anti-magical.  It keeps telling us that we cannot do it, that magic will not help.

Yes.  Sound economics is indeed scientific in the truest sense of that term.  Its best and wisest practitioners stand like the senior scholar in this cartoon demanding that the distressingly common “then a miracle occurs” step be eliminated – and that if this step cannot be eliminated, then the entire formula for government intervention that depends upon it be scrapped, regardless of how impressive this formula may be to politicians, people on the street, and the unfortunately large numbers of impressionable students with high I.Q.s but low wisdom-Q.s.

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While I believe that no empirical studies of minimum-wage legislation can measure all of the likely negative consequences of such legislation, I also believe that such studies have a sound role to play in the public debate.  David Neumark, I.M. Ian Salas, and William Wascher are, in my opinion, the most careful, analytically sound, and skillful of the researchers who today empirically investigate the effects of minimum-wage legislation.  Here’s the abstract from their latest paper on the topic:

A central issue in estimating the employment effects of minimum wages is the appropriate comparison group for states (or other regions) that adopt or increase the minimum wage. In recent research, Dube et al. (2010) and Allegretto et al. (2011) argue that past U.S. research is flawed because it does not restrict comparison areas to those that are geographically proximate and fails to control for changes in low-skill labor markets that are correlated with minimum wage increases. They argue that using “local controls” establishes that higher minimum wages do not reduce employment of less-skilled workers. In Neumark et al. (2014), we present evidence that their methods fail to isolate more reliable identifying information and lead to incorrect conclusions. Moreover, for subsets of treatment groups where the identifying variation they use is supported by the data, the evidence is consistent with past findings of disemployment effects. Allegretto et al. (2013) have challenged our conclusions, continuing the debate regarding some key issues regarding choosing comparison groups for estimating minimum wage effects. We explain these issues and evaluate the evidence. In general, we find little basis for their analyses and conclusions, and argue that the best evidence still points to job loss from minimum wages for very low-skilled workers – in particular, for teens.

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Sour Policy

by Don Boudreaux on October 28, 2014

in Crony Capitalism, Seen and Unseen, Trade

Here’s a letter to the Wall Street Journal:

Worried that his subjects are getting too good a deal on sugar grown in Mexico - and, hence, that his privileged cronies who grow sugar in the U.S. might have to compete more vigorously - Uncle Sam is pressuring Mexico’s government to force sugar growers there to serve American consumers less agreeably (“U.S. Imposes New Sugar Tariffs, but Pact May Negate Them,” Oct. 28).  Let’s re-write a key paragraph of your report to more accurately describe this reality:

“The draft agreement between the U.S. A SMALL NUMBER OF U.S. POLITICAL OPERATIVES and THEIR COUNTERPARTS IN Mexico contains provisions DIKTATS to ensure there isn’t a flood of Mexican sugar FLOURISHING OF VOLUNTARY SUGAR PURCHASES BY AMERICANS that could cause price declines that would be MAKE THE VAST MAJORITY OF AMERICANS MORE PROSPEROUS harmful to the U.S. industry and its farmers, the HOSTILE-TO-Commerce Department said. That includes preventing imports from being concentrated during certain times of the year AMERICANS FROM BUYING MEXICAN SUGAR AT WHATEVER TIMES OF YEAR THEY WISH, limiting the amount of refined sugar that can enter the U.S. market AMERICANS CAN CHOOSE TO PURCHASE FROM MEXICO, and establishing minimum prices for Mexican sugar producers FORCING AMERICANS WHO DO MANAGE TO BUY MEXICAN SUGAR TO PAY MORE MONEY FOR IT.”

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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