Open Letter to Wilbur Ross

by Don Boudreaux on April 29, 2017

in Crony Capitalism, Myths and Fallacies, Trade

Mr. Wilbur Ross, Secretary
United States Department of Commerce

Mr. Ross:

Earlier this week on CNBC, in a discussion about NAFTA, you proclaimed that “It was a silly idea to let a lot of outside stuff in.  The whole idea of a trade deal is to build a fence around participants inside and give them an advantage over the outside.  So there’s a conceptual flaw in that, one of many conceptual flaws in NAFTA.”

You, sir, are the one operating with a conceptual flaw – namely, that trade is to be evaluated by how much it enhances the sales and profits of domestic producers.  In reality, trade is to be evaluated by how much it enhances the purchases and well-being of domestic consumers.  Your innocence of this elementary fact is appalling.

Yet despite your cockeyed viewpoint, perhaps we free traders should thank you for being so frank about the nature of your and Trump’s mercantilist schemes.  In the passage quoted above you unwittingly but clearly reveal two central flaws of protectionism.  One is the zany notion that people are made poorer if their government does not restrict their access to goods and services; the second is the cronyist sentiment that government’s role is to bestow special privileges on existing domestic producers.

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 Bryan Riley and Ed Tower for alerting me to Ross’s ludicrousness.)

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Takl

by Don Boudreaux on April 29, 2017

in Competition, Innovation, Work

I just heard on Washington, DC’s, ESPN 980 radio an ad for a new app called Takl.  This is an app that connects people who need small handyman jobs performed with handymen (and, surely also, handywomen) willing to perform those jobs.  But the ad is not aimed at homeowners to encourage them to use Takl to find handymen; rather, the ad is aimed at workers to encourage them to sign up to get handymen jobs through Takl.  The workers explicitly targeted in the ad are low-skilled.

This innovation – Takl – is yet another instance of the entrepreneurial market process at work.  Specifically, this innovation reduces the information and other transaction costs of workers connecting with employers.

Although even before Takl it was, of course, ridiculous for anyone to allege that employers in the U.S. possess monopsony power in the market for low-skilled workers, the advent of Takl (and no doubt of similar techniques) renders allegations of monopsony power only more absurd.

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Quotation of the Day…

by Don Boudreaux on April 29, 2017

in Myths and Fallacies, Seen and Unseen

… is from page 100 of Dwight Lee’s insightful 1995 essay “Poverty, Politics, and Personal Responsibility,” which is a chapter in the 1995 collection American Perestroika: The Demise of the Welfare State:

Unknown-2Most compassion exercised through the political process is a cheap imitation of the real thing and is invariably subverted by powerful interest groups.

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Steve Horwitz explains the unfairness and inequality of forced economic equality.

Bob Higgs, on his Facebook page, distills the essence of protectionism.  A slice:

No one doubts that one way for an individual to increase his wealth is by stealing other people’s stuff. But protectionism, as it is known, is not simply a misleading name for this truism. It is instead the idea that entire groups of individuals (e.g., Americans as a whole) can become more prosperous by raising the cost or depriving consumers entirely of the best deals otherwise available to them in the market. Get it? Having fewer or worse options improves the group’s situation.

Also from Bob Higgs is this wise warning against romanticizing the pre-industrial past.

Marian Tupy is correct: income and prosperity are not identical.

Citing Cato’s Ike Brannon, George Will registers keen objections to mortgage-interest tax deductibility.

Stephanie Slade reacts to Pope Francis’s uninformed criticism of libertarians.

Victoria Brown Calder ponders changes in Americans’ geographic mobility.

Randy Holcombe says that Trump’s tax plan is a move in the right direction.

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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.

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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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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