Bonus Quotation of the Day…

by Don Boudreaux on April 28, 2017

in Environment, Growth, Innovation

… is from page 10 of Wilfred Beckerman’s excellent 2003 monograph, A Poverty of Reason: Sustainable Development and Economic Growth:

51JzDQUM0zL._UY250_In fact, of course, not only are resources not finite in any relevant sense, but the evidence of all past history, including even the relatively recent past, shows that there have been no trends toward the exhaustion of any resources that matter.  Similarly, past history is littered with predictions of imminent resource [exhaustion or increasing] scarcity that have been subsequently falsified.

DBx: Among the most counterintuitive of sound economic principles is the fact that resources are not finite.  Resources are scarce, but they are not finite.  Economic supplies of resources are not fixed.  As Julian Simon taught so eloquently, human creativity can, and does, discover additional sources of resources, additional substitutes for today’s resources, and the means of getting more and more output out of a given physical quantity of resources.

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Here’s an open letter to a commenter at Arnold Kling’s excellent askblog:

Mr. Rohan Verghese

Mr. Verghese:

Commenting on a post at Arnold Kling’s askblog, you write that “Trump’s great breakthrough has been to convince Conservatives that the costs of many of the policies held since the 1990s have been higher and sharper than they realized, and dis-proportionally levied on specific communities.  Libertarians, as Boudreaux is constantly pointing out, simply feel that since the net benefits to humanity are still positive, everything is fine.”

With respect, you misunderstand the argument for free trade.

First, while it’s true that free trade yields net benefits to humanity, it yields net benefits also to the citizens of each country.  It’s a common error, which you seem to commit, to misconstrue the core argument for free trade as saying that free trade is justified because the gains to foreigners outweigh the losses to fellow citizens.  Again, under free trade fellow citizens gain.  (And, by the way, protectionists nearly always deny, rather than concede, that under free trade fellow citizens gain on net.)

Second, while it’s also true that domestic producers must adjust to changing patterns of consumer demand that occur with free trade, economists who argue for free trade point out a reality that most people, including you, miss – namely, because patterns of consumer demand change also without free trade, there’s no reason whatsoever to single out the adjustments required by free trade as excuses for government to prevent consumers from changing the ways that they spend their money.  Indeed, much of the economic change in the decade that you mention – the 1990s – was sparked by rapid advances in I.T. that originated right here in the USA.

Unless you’re willing to empower the state to superintend all consumption decisions, and to obstruct those decisions that politicians or bureaucrats judge to be too disruptive, you, Trump, and other protectionists are simply inconsistent to single out trade with foreigners as an alleged problem.

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

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Quotation of the Day…

by Don Boudreaux on April 28, 2017

in Seen and Unseen, Trade

… is the closing of David Hume’s essay, first published in 1759 or 1760, “Of the Jealousy of Trade” (here from page 331 of the 1985 Liberty Fund collection of some of Hume’s essays, edited by the late Eugene F. Miller, Essays: Moral, Political, and Literary) (original emphasis):

Unknown-2I shall therefore venture to acknowledge, that, not only as a man, but as a BRITISH subject, I pray for the flourishing commerce of GERMANY, SPAIN, ITALY, and even FRANCE itself.  I am at least certain, that GREAT BRITAIN, and all those nations, would flourish more, did their sovereigns and ministers adopt such enlarged and benevolent sentiments towards each other.

DBx: Indeed.

Among the most ironic misfortunes fueled by the many fallacies of economic nationalism is the weakening of the domestic economy that inevitably results from economic-nationalists’ attempt to strengthen that economy by obstructing commerce with foreigners.

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Bonus Quotation of the Day…

by Don Boudreaux on April 27, 2017

in Competition, Myths and Fallacies

… is from page 1 of the 1989 Gateway Regnery edition of the 1979 collection – Economic Policy: Thoughts for Today and Tomorrow – of Ludwig von Mises’s Fall 1958 lectures in Buenos Aires:

439px-Ludwig_von_MisesDescriptive terms which people use are often quite misleading.  In talking about modern captains of industry and leaders of big business, for instance, they call a man a “chocolate king” or a “cotton king” or an “automobile king.”  Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes, or lords of earlier days.  But the difference is in fact very great, for a chocolate king does not rule at all, he serves.  He does not reign over conquered territory, independent of the market, independent of his customers.  The chocolate king – or the steel king or the automobile king or any other king of modern industry – depends on the industry he operates and on the customers he serves.  This “king” must stay in the good graces of his subjects, the consumers; he loses his “kingdom” as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete.

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Some Links

by Don Boudreaux on April 27, 2017

in Antitrust, Books, Economics, Regulation, Trade

Here’s the full text of N.C. State emeritus economist Tom Grennes’s recent letter in the Wall Street Journal:

President Trump has promised deregulation and greater energy independence, but making the venerable Jones Act more restrictive would do the opposite. At a recent conference on the Jones Act in Maui sponsored by the Mercatus Center at George Mason University and the Institute for Humane Studies, the predominant conclusion of papers was that the Jones Act produced far more costs than benefits.

Steve Hanke argues for greater reliance on the private sector to build and maintain infrastructure.

Speaking of infrastructure, I very much like this observation by Tyler Cowen:

I find it amusing when people suggest that the rate of return on government infrastructure is high, but that corporations have nothing better to do than to sit on their cash.  It is hard to have it both ways!  Imagine arguing that biomedical R&D through the NIH yields high returns, but that pharma investment to commercialize the resulting drugs or devices does not.  National parks aside, most government investment is in inputs, and thus for it to have a high marginal rate of return someone on the output side has to have a high marginal rate of return as well.

Gene Healy reflects on Trump’s first 100 days as U.S. president.

Here’s an interview with University of Chicago economist Sam Peltzman.  (HT Levi Russell)

George Will ponders Emmanuel Macron and France.

John Tamny reviews Chip Mellor’s and Dick Carpenter’s Bottleneckers.

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Quotation of the Day…

by Don Boudreaux on April 27, 2017

in War

… is from pages 186-187 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s indispensable 1956 collection, Minority Report:

Unknown-3The kinds of courage I really admire are not whooped up in war, but cried down, and indeed become infamous.  No one, in such times of irrational and animal-like emotion, ever praises the man who stands out against the official balderdash, and seeks to restore the national thinking, so called, to a reasonable sanity.  On the contrary, he is regarded as a shabby and evil fellow, and there is not much protest when he is punished in a summary and barbaric manner, without any consideration whatever of the evidence against him.  It is sufficient that he refuses to sing the hymn currently lined out.

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by Don Boudreaux on April 27, 2017

in Media, Myths and Fallacies, Seen and Unseen, Taxes

In recent days I have – likely like you have – heard and read several media reports on Trump’s tax plan (or what we know of it so far).  Nearly all of these reports are juvenile: changes in tax rates are evaluated by the media according to changes in the legal tax liabilities of various groups of people.  For example, Trump’s proposal to cut the top federal personal income-tax rate from 39.6% to 35% is assessed only by its effect on high-income earners.  Specifically, of course, it’s portrayed as a ‘gift’ to high-income earners.  Eliminating the estate tax, as well as the alternative minimum tax, are likewise portrayed as benefits for the rich.

My purpose here isn’t to praise or to pillory Trump’s tax plan; I’ve yet to examine it in any detail.  My purpose, instead, is to lament this popular approach to evaluating taxation.  This approach, as Deirdre McCloskey might say, is that of a lawyer and not that of an economist.  The lawyer focuses on legal liabilities; the economist focuses on systemic consequences, both immediate and ‘seen’ as well as distant and ‘unseen.’

It’s true that if Smith’s last (say) $10,000 of annual income is currently taxed at a rate higher than a proposed new lower rate, Smith is made better off if this proposed lower marginal tax rate becomes reality.  (As an aside, I refuse to go along with the common-in-many-circles description of such a tax cut as a “gift” or a “giveaway” to Smith and other high-income earners.  Smith is the person who earned the income.  It is his property.  This income belongs to Smith.  The government takes it away from him.  For the government to reduce the amount of money that it takes away from Smith is not properly called a giveaway to Smith.  But let’s here say no more about this particular linguistic battering of reality.)

In contrast, serious students of the economics of taxation understand that taxation is not simply a slicing up of an economic pie the size of which is independent of the details of the system of taxation.  The core economic case for tax cuts is that they reduce the obstacles to creative and productive activities.  When Smith’s taxes fall, Smith works harder; Smith spends more time on the job and less time searching out tax shelters; Smith takes more economic risks; Smith saves and invests more; Smith acts with more entrepreneurial energy.

Smith’s increased contribution to the economy helps to “grow” (as is now said) the size of the pie.  So even if Jones’s taxes aren’t cut, because Jones is a worker and a consumer in the economy of which Smith is also a participant, Jones’s welfare, like Smith’s, is increased by the cut in Smith’s taxes.  Ditto for Williams who also experiences no change in her tax rates or tax base.

Whether or not you find this supply-side-economics story compelling is here beside the point.  The fact is that this account both is grounded sufficiently well in economic theory and common sense, and is one that many people (including me) do find to be compelling.  This supply-side account is, therefore, a plausible justification for cutting taxes.  It’s a justification frequently mentioned in scholarly assessments of tax policy.  Yet this supply-side-economics case for tax cuts is typically ignored, or buried in a single paragraph near the end of each report, in most mainstream-media accounts of tax cuts.  Such reporting is simply bad.  Biased.  Benighted.  Blind.

Suppose that freedom of the press were reported in the same way as are tax cuts “for the rich.”  In particular, suppose that a government that, until now, routinely suppressed the freedom of the press announces that it will be less censorious.  What would you think of a reporter who describes the change as a “giveaway to the press”?

Most people, of course, do not own newspapers or other media outlets.  Most people aren’t reporters or editors or paid pundits.  So a reduction in press censorship might be said to help only the relatively few people who own and who work for the news media.

But clearly the case for freedom of the press is not centered on the benefits such freedom has for press barons, news reporters, and paid pundits.  The core of the case for freedom of the press is that it bestows benefits society-wide.  When the press is free, the chief beneficiaries are the general public.  Anyone who assesses changes in the press’s freedom exclusively by how such changes affect “the press” would rightly be called out as missing the point.

Yet, regrettably, far too many mainstream-media assessments of changes in tax policy focus exclusively on how such changes affect those who earn the incomes and who own the wealth that is legally subject to the tax changes.

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Bonus Quotation of the Day…

by Don Boudreaux on April 26, 2017

in Economics, The Economy, The Future

… is from page 295 of my late Nobel laureate colleague Jim Buchanan’s October 1991 article, co-authored with Viktor Vanberg (and originally published in Economics and Philosophy), “The Market as a Creative Process” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan (footnotes deleted; original emphasis):

Unknown-2The recognition that in human social affairs the future is undetermined but “created” in the process of choice, does not imply that the future is “beyond conjecture,” nor does it ignore that individuals have expectations about the future on which they base their action.  The subjectivist’s understanding of the nature and role of such expectations is, however, critically different from their interpretation in a neoclassical [economics] framework.  To the subjectivist, expectations may be more or less reasonable (in the sense of being more or less defendable in the light of past experience), but they can, ultimately, not be more than conjectures about an undetermined and, therefore, unknowable future.  To the neoclassical economist, by contrast, expectations are about a future that is, in principle, knowable, even if its knowability may be limited by imperfections of the “expecters.”  Ignorance of the future is essentially seen as a source of inefficiency, as a problem that can, in principle, be remedied by learning.  By contrast, from a subjectivist position, such ignorance is simply “an inescapable characteristic of the human condition.”

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Some Links

by Don Boudreaux on April 26, 2017

in Crony Capitalism, History, Other People's Money, Trade, Work

Terra McKinnish’s new paper finds evidence that minimum wages do indeed destroy jobs on net for low-skilled workers – and, it appears, also evidence against the assertion that low-skilled workers in America are generally victims of monopsony power.  (HT Frank Stephenson)  Here’s the abstract:

The 2009 federal minimum wage increase, which compressed cross-state differences in the minimum wage, is used to investigate the claim that low-wage workers are attracted to commute out of state to neighboring states that have higher minimum wages. The analysis focuses on Public Use Microdata Areas (PUMAs) that experience commuting flows with one or more neighboring state. A difference-in-differences-in-differences model compares PUMAs that experienced a sizeable increase or decrease in their cross-border minimum wage differential to those that experience smaller change in the cross-border differential. Out-of-state commuting of low wage workers (less than 10 dollars an hour) is then compared to that of moderate wage workers (10–13 dollars an hour). The results suggest that an increase in own state’s minimum wage, relative to neighbor’s, increases the frequency with which low-wage workers commute out of the state. The analysis is replicated on the subset of PUMAs that experience commuting flows with more than one neighboring state, so that the estimates are identified entirely within PUMA. As a whole, the results suggest that low-wage workers tend to commute away from minimum wage increases rather than towards them.

Mark Perry exposes the folly of Trump’s lumber tariffs.  A slice:

If Canada “unfairly” subsidizes its lumber producers, that’s a form of foreign aid, and a gift from the citizens of Canada to the citizens of the United States. If we wouldn’t complain about free lumber from Canada, we shouldn’t complain about low lumber prices that might be subsidized by Canadian citizens.

(Be careful not to read Mark’s post as suggesting that protectionism destroys jobs on net in the domestic economy.  Protectionism doesn’t destroy jobs on net in the domestic economy.  Rather, protectionism – “scarcityism” – protects worse jobs in the domestic economy and prevents the creation of better jobs in the domestic economy.)

Richard Ebeling explains the morality of capitalism.

Bob Murphy flags an inconsistency in “Progressive” thought.

Arnold Kling is deeply insightful.

My GMU Econ colleague Mark Koyama offers some economic history of east Asia.  (HT Tyler Cowen)

Vernon Smith champions Americans’ First-amendment rights.

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Quotation of the Day…

by Don Boudreaux on April 26, 2017

in Hayek, Myths and Fallacies

… is from pages 82-83 of Wilfred Beckerman’s great and ahead-of-its-time 1974 book, Two Cheers for the Affluent Society (footnote deleted; link added):

51a08Uwf4RL._AC_US436_QL65_As Anthony Crosland [like Hayek] has pointed out, it is impossible to draw a sharp dividing line between those of our needs that are innate and natural and those that have been artificially developed as a result of many factors, including our whole social environment.  Furthermore, even if it were possible to draw a dividing line between artificial and natural needs, what’s so moral about natural needs and so immoral, or undesirable, about artificial needs?  Would some people’s artificially induced “need” to listen to music or to acquire knowledge be less desirable a component of welfare than some other people’s instinctive, natural and primitive instinct to rape women?

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