Slave to a Myth

by Don Boudreaux on December 20, 2014

in History, Myths and Fallacies

Here’s a letter to the Chronicle of Higher Education; (thanks to Lyle Albaugh and George Leef for alerting me to this Beckert essay) :

Sven Beckert struggles to portray slavery as essential to the origins of capitalism (“Slavery and Capitalism,” Dec. 12).  His core argument, it seems, boils down to this: slavery existed at the time of the industrial revolution; textile production was the leading activity of that revolution; textile mills used lots of “cheap, slave-grown cotton” from the U.S.; therefore, slavery was necessary for the creation of capitalism.

Problems aplenty infect Prof. Beckert’s narrative, but none more fatally than his presumption that using slaves to grow cotton made that commodity especially “cheap” (and, thus, an unusually inexpensive input without which there would have been no industrial revolution).  Data from the 1880 U.S. Census show that by the mid-1870s the price of cotton at New York was about the same as this price had been, on average, during the quarter-century before it spiked because of the Civil War.*  And as reported by economic historian Stanley Lebergott, “by the period 1870-79 Southern production [of cotton] was running 42 percent above its pre-war level.”**

If slavery made cotton especially “cheap” (meaning especially abundant) - so cheap and abundant to have supplied the necessary spark for the greatest economic transformation in human history – we can only wonder why this millennia-old institution failed to supply such a spark at any earlier time and only in Britain.  Yet even greater wonder is caused by the data’s failure to show that the price of cotton was lower, and the supplies of cotton higher, with slavery than without 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

* I thank Christophe Biocca for this link – and include below a screenshot of the most relevant part of it.

** Stanley Lebergott, The Americans: An Economic Record (New York: W.W. Norton, 1984), p. 249.

Screen Shot 2014-12-20 at 8.53.16 AM

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Quotation of the Day…

by Don Boudreaux on December 20, 2014

in Complexity & Emergence, Prices

… is from page 120 of the third edition (2015) of my colleagues Tyler Cowen’s and Alex Tabarrok’s microeconomics textbook, Modern Principles: Microeconomics:

How is order produced from freedom of choice?  That is a scientific mystery, and prices are the biggest clue to the solution.  Prices do much more than tell people how much they must shell out for a burger and fries.  Prices are incentives, prices are signals, prices are predictions….  A price is a signal wrapped up in an incentive.

People who advocate government controls on prices (such as rent-control and minimum wages) – and controls on activities (such as speculation) that cause prices to more accurately reflect underlying economic realities – do not understand the reality that Tyler and Alex point out.  Such advocates of price controls think that, because they do not like the information that prices convey, they can change the underlying economic reality by forcing prices to lie about that reality.

A well-meaning advocate of minimum-wage legislation, for example, understandably laments that some workers’ hourly wages are much lower than what that advocate would like those wages to be.  But then this advocate (who, it pains me to say, is sometimes a credentialed economist) reveals his or her failure to truly grasp the role of prices by demanding that the price give a false report about the underlying reality.  The minimum-wage advocate believes that changing what the wage reports about the underlying economic reality is sufficient to change the underlying reality in just the way that this advocates desires.

It’s as if a newspaper editor, distraught at a report written by reporter Smith of a gruesome murder, orders reporter Smith to change his report to read that the victims were only slapped around a bit rather than murdered.  No one this side of sanity would suppose that changing the wording of the newspaper report would miraculously bring the murder victims back to life.  Yet many people, otherwise sane, believe that a government policy of forcing wages and prices to report realities different from what those realities actually are miraculously changes reality for the better.

And note: the monopsony story that the more-sophisticated advocates of minimum wages strain to use to justify their policy of forcing wages to lie about reality does not escape the above criticism.  If wages for many workers don’t currently reflect those workers’ marginal productivities, these currently too-low wages themselves are both market signals and incentives: they reveal profit opportunities that either existing or new employers can exploit, and will exploit absent government-erected barriers to doing so.

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Reality-Based?

by Don Boudreaux on December 19, 2014

in Energy, Hubris and humility, Man of System, Politics

At the same time that I was writing this blog post earlier today, one of the quack healers mentioned in that post held a press conference, it would seem, for the purpose of supplying evidence in support of the point of that post.  Here’s a slice from the Wall Street Journal‘s analysis of a choice part of that press conference:

Mr. Obama’s market analysis is more remarkable and worth quoting at length: “So there’s no—I won’t say ‘no’—there is very little impact, nominal impact, on U.S. gas prices—what the average American consumer cares about—by having this pipeline come through. And sometimes the way this gets sold is, let’s get this oil and it’s going to come here. And the implication is, is that’s going to lower gas prices here in the United States. It’s not. There’s a global oil market. It’s very good for Canadian oil companies and it’s good for the Canadian oil industry, but it’s not going to be a huge benefit to U.S. consumers. It’s not even going to be a nominal benefit to U.S. consumers.”

Let’s break that down. The oil market is global, but somehow adding to the global supply of oil via the pipeline is not going to affect the global price for oil, so it won’t affect American gasoline prices. That doesn’t seem to pass the basic supply-demand test.

But it also overlooks that refiners on the Gulf Coast can handle Canada’s heavy crude, which means more lighter crude from the Bakken and Eagle Ford Shales would be available to export onto the global oil market. If global supplies increase, all other things being equal, the global oil price would fall for everyone—including American consumers.

No one with even a rudimentary knowledge of petroleum markets and of basic economics would deny the veracity of the Journal‘s analysis.  But the current president of the executive branch of the United States government (an official commonly, if misleadingly, called “the president”) – an official who is treated by the populace and (if this official is of a Democratic stamp) also by the mainstream media and the professoriate as a uniquely wise and knowledgeable social sherpa – here reveals himself to be an utter economic ignoramus.  And yet such ignoramuses on matters economic are routinely touted by “Progressives” as people who should be trusted with enormous discretionary powers over the economy.

No one in their right mind would trust Barack Obama (or Elizabeth Warren or Chuck Schumer or John McCain or Lindsey Graham or… the list of officious ignoramuses is long) to perform cardiovascular surgery on their children or even to replace the garbage disposals in their kitchens, yet we trust these very same buffoons with extensive powers to intervene into the economy.  It’s insanity.

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No Wizard is Oz … or Obama

by Don Boudreaux on December 19, 2014

in Myths and Fallacies, Seen and Unseen

Here’s a letter to the Washington Post:

So Dr. Mehmet Oz isn’t really a wizard: he and other media medics often peddle, not sound advice, but entertaining quackery (“Half of Dr. Oz’s medical advice is baseless or wrong, study says,” Dec. 19).  No surprise.  People are gullible, especially when credentialed ‘experts’ promise easy ‘solutions’ to problems that skeptical minds understand to be inherently complex and either unsolvable or solvable only at significant costs.

My own field of economics is crowded with such ‘experts.’  Pandering politicians and pundits are forever recommending snake-oil policy concoctions that appeal to people’s primitive superstitions and childish hopes about the way economies work.  The result is an endless stream of endorsements of quack economic remedies such as minimum wages, export subsidies, stimulus spending, income redistribution, and command-and-control regulation.

Just as the popularity of advice issued by the likes of Dr. Oz does not testify to the medical soundness of that advice, the popularity of the advice issued by the likes of Dr. Obama does not testify to the economic soundness of that advice.

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

There are, though, two important differences between quackery peddled by media medics and quackery peddled by politicians.  First, people are likely to be even more gullible about political matters than about personal health matters because the costs and benefits of the latter fall in a more sure and concentrated way upon each individual decision-maker than do the costs and benefits of the former.  Second, and relatedly, a person who makes an irresponsible decision about his or her personal health care damages only himself or herself, while a person who makes an irresponsible decision about public policy damages multitudes of people.  Collective decision-making is the ultimate mare’s nests of externalities.

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Quotation of the Day…

by Don Boudreaux on December 19, 2014

in Growth, History, Myths and Fallacies

… is from pages 214-215 of David Landes’s often brilliant but uneven 1998 volume, The Wealth and Poverty of Nations:

At the same time, the British were making major gains in land and water transport.  New turnpike roads and canals, intended primarily to serve industry and mining, opened the way to valuable resources, linked production to markets, facilitated the division of labor.  Other European countries were trying to do the same, but nowhere were these improvements so widespread and effective as in Britain.  For a simple reason: nowhere else were roads and canals typically the work of private enterprise, hence responsive to need (rather than to prestige and military concerns) and profitable to users.  This is why Arthur Young, agronomist and traveler, could marvel at some of the broad, well-drawn French roads but deplore the lodging and eating facilities.  The French crown had built a few admirable king’s highways, as much as to facilitate control as to promote trade, and Young found them empty.  British investors had built many more, for the best business reasons, and inns to feed and sleep the users.

These [British] roads (and canals) hastened growth and specialization.

At the time of the industrial revolution, the British state, in fact, did not build a great deal of ‘that’ – a fact that calls into question the notion that economic prosperity requires that infrastructure be built, or even financed, by government.  Also, the other fact highlighted here by Landes – the one about roads in France – shows that the mere building of infrastructure is not itself sufficient to spark economic growth, as well as that political-officials’ motives for building infrastructure are often (I would argue typically) much less aligned with the general welfare than are the motives of private investors who undertake to build roads and other pieces of infrastructure.

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Some Links

by Don Boudreaux on December 18, 2014

in Crony Capitalism, Cuba, Regulation, Scientism, Trade

Over at EconLog, David Henderson rightly cheers Pres. Obama’s steps to normalize American relations with Cuba.

Over at the Wall Street Journal, one of today’s leading trade economists, Dartmouth’s Doug Irwin, also cheers the prospect of freer trade between Americans and Cubans.  A slice:

The trade ban has been in effect for more than 50 years. It has been a complete failure to promote any positive change in the country. Instead, it has strengthened the Castros’ grip on the country by giving them a ready-made excuse for their disastrous economic policies.

Restoring trade ties and expanding commerce would revolutionize the Cuban economy and transform Cuban society. It would spur the growth of a business class, creating competing pockets of power and new, wealthy groups that would challenge the ruling Communist Party. It would give Cuban citizens access to more information, and information about the outside world destabilizes any repressive regime. What would happen if every Cuban citizen had access to a smartphone, could organize protests via Twitter, and spread the word about government outrages?

Kevin Erdmann fruitfully explores the allure of design.  A slice:

We are conditioned by the scientific movement to look for falsifiability.  In the search for things we can learn, falsifiability is very useful and important.  Where we do our work, this is central.  We find topics to concentrate our efforts on, and we find little details to test – something falsifiable that moves our understanding to a higher plane.  But, our self-guided attention gives us a false sense of the pervasiveness of falsifiability.  The fact is, there is no promise that the truth is falsifiable, and, in fact, in the range of true facts with the complexity of broad human endeavors, falsifiability is unlikely.

Writing in the pages of the Washington Post, my Mercatus Center colleague (and GMU Econ PhD) Matt Mitchell explains why policies that are pro-business are often anti-middle-class policies.

I had no idea about the other of Charles Dickens’s Christmas stories.  Sarah Skwire educates me.

Speaking of Christmas stories, here’s “‘Twas the Overnight Before Christmas”.

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Quotation of the Day…

by Don Boudreaux on December 18, 2014

in Trade, War

… is from the abstract of Solomon Polachek’s and Carlos Seiglie’s important 2006 paper, “Trade, Peace and Democracy: An Analysis of Dyadic Dispute“:

At least since 1750 when Baron de Montesquieu declared peace is the natural effect of trade, a number of economists and political scientists espoused the notion that trade among nations leads to peace….  The greater two nations’ gain from trade the more costly is bilateral (dyadic) conflict.  This notion forms the basis of Baron de Montesquieu’s assertion regarding dyadic dispute.  This paper develops an analytical framework showing that higher gains from trade between two trading partners (dyads) lowers the level of conflict between them….  Crosssectional evidence using various data on political interactions confirms that trading nations cooperate more and fight less.  A doubling of trade leads to a 20% diminution of belligerence.

The precise number is less important than is the nature and direction of the effect.  Perhaps a doubling of trade leads to something more or something less than a 20% diminution of belligerence.  Econometricians and statisticians can entertain themselves and their specialized audiences for years with different specifications of the model and with alternative ways to measure – and to gather data on – ‘belligerence,’ ‘trade, and other relevant variables.  But the proposition that increased trade is a force for – if, sadly, not a guarantor of – peace can hardly be doubted.

When people trade they must engage with others, mostly strangers; when people trade across political borders they must engage with greater numbers of strangers still.  This trade, though, makes the strangers less strange to each other, because each learns better what the other is like and what the other likes and dislikes.  Trade is peaceful, and so it reveals to each trader the other’s humanity; war reveals the other’s brutality.  Each party to every trade gains; with war, one party certainly losses, and even the ‘winner’ might well, in the end, have lost so much to have made the entire activity a losing proposition.

Trade obliges each participant to empathize, to some degree, with the other; war obliges each participant to demonize the other.

Trade increases our dependence on each other – and even base self-interest dictates that it’s a bad strategy to terrorize your customers or to firebomb your suppliers.  Trade, like war, incites retaliation.  Yet the retaliation incited by trade – retaliation such as more exchange, more hiring, and greater effort to match competitors’ offers – is not only mutually productive and peaceful, it nurtures (because it requires) our intelligence and rationality.  The retaliation incited by trade is positive-sum and intelligent: “I’ll make you an even better deal if you make me an even better deal.”  In stark and horrible contrast, the retaliation incited by war is mutually destructive and violent; it nurtures (because it requires) our capacity to look distortingly upon other human beings as monsters.  The retaliation incited by war is negative-sum and stupid: “You killed someone whose passport is issued by the same agency that issues my passport, so I’ll kill someone whose passport is issued by the same agency that issues your passport.  That’ll teach you!”

I applaud any move to make trade freer, including, of course, between people living in America and people living in Cuba.

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Dan Klein on the Hayekian Narrative

by Don Boudreaux on December 18, 2014

in Complexity & Emergence, Hayek, Video

Here’s a video of a talk that my colleague Dan Klein delivered in October at Guatemala City’s indispensable Universidad Francisco Marroquin.  Dan here speaks about “The Hayekian Narrative.”  (This video is not the same as the one I posted a few days ago.)

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More McCloskey on Piketty

by Don Boudreaux on December 17, 2014

in Inequality

Here’s the audio of the Deirdre McCloskey portion of a great panel discussion (of Thomas Piketty’s Capital in the Twenty-First Century) featuring Deirdre, Chris Giles, John McTernan, and Evan Davis.

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Quotation of the Day…

by Don Boudreaux on December 17, 2014

in Adam Smith, Politics

… is from pages 114-115 of Ronald Coase‘s 1994 collection, Essays on Economics and Economists; specifically, it’s from Coase’s 1976 superb essay “Adam Smith’s View of Man”:

Adam Smith’s argument for the use of the market for the organisation of economic activity is much stronger than it is usually thought to be.  The market is not simply an ingenious mechanism, fueled by self-interest, for securing the co-operation of individuals in the production of goods and services.  In most circumstances it is the only way in which this could be done.  Nor does government regulation or operation represent a satisfactory way out.  A politician, when motivated by benevolence, will tend to favor his family, his friends, members of his party, inhabitants of his region or country (and this whether or not he is democratically elected).  Such benevolence will not necessarily redound to the public good.  And when politicians are motivated by self-interest unalloyed by benevolence, it is easy to see that the results may be even less satisfactory.

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