by Don Boudreaux on June 1, 2020
in Books, Competition, Complexity & Emergence, Current Affairs, Economics, History, Innovation, Myths and Fallacies, Seen and Unseen, Standard of Living
Max Gulker explains that basic economics taught well conveys the reality and importance of market processes. A slice:
Faced with uncertainty across so many dimensions, reopening firms are not simply central planners with smaller jurisdictions than government. Their best practices emerge as they do business in this new landscape, observe price signals, make mistakes, and ultimately adjust countless times. The process of competition is what central planners can’t replicate.
Speaking of process, Logan Chipkin reviews Matt Ridley’s new book, How Innovation Works.
Alberto Mingardi continues to be unimpressed with Marianna Mazzucato’s efforts to credit the state with accomplishment for which it deserves no credit. A slice:
This is standard Mazzucato. Shining words and great parsimony of details. How were academia, the army, the private sector, and civil society mobilized? Who did what? What incentives were put in place, how was spending channeled through? We are asked for a leap of faith: it was “the State”.
Omigosh, how the lives of ordinary people in the modern world have improved since the 1990s! (HT Russ Roberts)
Scott Atlas, John Birge, Ralph Keeney, and Alexander Lipton predict that the covid lockdown will prove to be very lethal.
Scott Sumner rightly praises this excellent tweet by Matt Yglesias.
David Hart offers a brilliant and deep history on Bastiat’s ‘Seen and Unseen.‘
… is from page 1 of GMU law professor Ilya Somin’s newly published (2020) book, Free to Move: Foot Voting, Migration, and Political Freedom:
We often take it for granted that ballot box voting is the essence of political freedom. In liberal democracies, it is generally considered the main way for the people to choose what sort of government policies they will live under.
The ballot box indeed has great value. But it also has significant flaws. As a mechanism for expressing political choice, it leaves much to be desired. The individual voter almost never has more than a minuscule chance of making a difference to the outcome of an election. And for that very reason, he or she has little incentive to become well-informed about the issues at stake in any election.
Voting with your feet – “foot voting” – is in many ways a superior alternative.
DBx: “Progressives” rightly value and praise freedom of expression. But the only acts that they regard as expressive are ‘voice’ acts – acts such as speaking, writing, the creation and display and performance of art, and, above all, voting. (I here overlook many “Progressives’” rising ambiguity toward – and in some cases outright hostility to – freedom of speech.) But we human express ourselves also in ‘action’ ways. Two of the most important of our ‘action ways’ are contracting (that is, engaging in commerce) and migrating (what Ilya calls “foot voting”). “Progressives” are very skeptical of the first of these action-ways (with more and more conservatives now joining in on this skepticism). Many modern-day conservatives especially, but also large numbers of “Progressives,” are skeptical also – indeed, in many cases opposed – to the second of these action ways.
Of course voice-ways differ from action-ways, and at least some of these differences have relevance for law and policy. But great progress in our thinking will occur if we come to see more clearly that action-ways have significant expressive components. Indeed, the expressive components of our action-ways are often more accurate and meaningful than are the expressive components of our voice-ways.
…..
So far I’ve read only a few pages of Ilya’s new book. And so far it’s splendid. I’ll be shocked if, when I’m finished reading it, my assessment of the entire work differs from my assessment of its opening pages.
by Don Boudreaux on May 31, 2020
in Competition, Complexity & Emergence, Curious Task, Hayek, Hubris and humility, Man of System, Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, The Economy, The Profit Motive
… is from pages 406-407 of the 2014 collection, The Market and Other Orders (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s previously unpublished 1961 lecture at the University of Virginia “Economics and Technology,” which is the third of four lectures that Hayek delivered in UVA’s Newcomb Hall during the Spring 1961 semester; the title of this lecture series by Hayek is “A New Look at Economic Theory” (original emphasis):
The economic problem of society is therefore not normally solved deliberately by somebody working out all the implications of the data, because nobody has all the data. It is solved not by somebody beforehand drawing up a comprehensive plan and everybody then acting according to this plan, as a technological problem would be solve, but by the individuals so mutually adjusting their actions that an order is formed.
Each individual will always know only a small fraction of the relevant facts…. The collaboration of the individuals here involves not only a division of labour, as the working according to a single plan usually also would, but also a division of knowledge guiding the action – a division of knowledge which cannot be all conveyed to one designing mind but must be used where it exists, dispersed among many persons who must make their own separate decisions on the basis of the knowledge they individually have.
DBx: Advocates of industrial policy no less than advocates of full-on socialism are unaware of the reality identified here by Hayek, or they deny it. Either way, this reality is unavoidable.
And this reality doesn’t begin to bite only when government planning of the economy rises to the level of full-on socialism. Consider, for example, industrial policy. While it doesn’t prevent as many individuals as does full-on socialism from using their unique bits knowledge, it does prevent many individuals from doing so. Industrial policy substitutes the coercively imposed ignorance of a relatively minuscule number of government officials for the peacefully elicited knowledge of millions of individuals.
Advocates of industrial policy deny this reality because they do not understand the price system. They are ignorant of how economic competition, profits and losses, and financial markets work.
Further and more fundamentally, industrial-policy advocates believe the economy to be far simpler than it really is. Failing to grasp the economy’s complexity, industrial-policy advocates mistake the case for free markets – mistake the recommendation to “let the market handle it” – as being simplistic. But the true simpletons are those who insist that a handful of human beings imposing a single plan can outperform the competitive process of each individual using his or her unique knowledge of time and place and adjusting through the price system to the use of such knowledge by countless others.
In short, to advocate industrial policy is to advocate the replacement of knowledge and understanding (and peaceful commerce) with ignorance and stupidity (and coercive diktats).
Here’s a letter to someone who is displeased with my “Notable & Quotable” in yesterday’s Wall Street Journal:
Mr. Cowan:
I’m sorry that you find my “Notable & Quotable” in yesterday’s Wall Street Journal to be “disingenuous.” Disingenuity was neither my motivation nor goal.
You write that “when Oren Cass points out finance is ‘purely derivative’ he obviously means its role is secondary to the primary role of manufacturing.” You capture Cass’s meaning accurately, and it is precisely this meaning that I tried to explain is economically uninformed.
If the performance of each of two tasks, F and M, is required to result in outcome C, it makes no sense to describe either F or M as “secondary” and the other as “primary.” Both tasks contribute to C, and that’s all there is to it. Modern finance (F) is required for modern manufacturing (M) to take place, and the ultimate result of their combination – a result that would be impossible if either activity were to disappear – is a stream of goods and services for human consumption (C).
Finance is no more “secondary” to manufacturing than manufacturing is secondary to finance. Although, it’s important to note, both finance and manufacturing are means to the end of consumption. Neither finance nor manufacturing are ends in themselves; each activity derives its value ultimately from its contribution to people’s ability to consume.
I emphasize this latter point because in other of his writings Mr. Cass argues as if manufacturing – or, more generally, production – is an end in itself. He doesn’t understand the fact that work and other productive activities are productive only if and insofar as they enhance our ability to consume.
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
… is from page 26 of Roger Koppl’s superb 2018 book, Expert Failure (references deleted; link added):
Defoe contrasts
skilled physicians with the “Quack Conjurers” brought forward by the plague. He laments “the foolish Humour of the People, in running after Quacks, and Mountebanks, Wizards, and Fortune tellers.”
DBx: Yesterday’s Bonus Quotation of the Day was from George Will’s recent column lamenting the genuinely lamentable turn away from modernity by many American conservatives. “Progressives” shouldn’t think themselves superior. They, too, very often reject modernity. Despite doing so under the guise of science and rationality, “Progressives”, too, peddle a great many pre-scientific superstitions and quack remedies.
…..
Here’s what is surely one of the peak ironies of our day: The typical “Progressive” is among the first and the loudest to point out – correctly and rightly so – the ridiculous scientific pretenses that constitute so-called “Scientific Creationism,” yet this same “Progressive” is also among the first and loudest to endorse the equally ridiculous scientific pretenses that constitute “Progressivism” – that is, that constitute the superstition that the economy is the creation of a higher power (the state) that will intervene in benevolent and all-knowing ways if it receives from the faithful enough prayers, devotion, and blind obedience.
… is from this brilliant new column by George Will titled “When American conservatism becomes un-American“:
Nostalgia functioning as political philosophy … is usually romanticism untethered from information.
DBx: Yes. And the information from which such a political philosophy is untethered is information both about what the past really was like, and about what consequences will arise from efforts to coercively construct today and tomorrow into the imaginary yesterday.
Here’s a letter to my friend Steve Conover (and I thank John Tamny for the term “deficit hawkery”):
Steve:
Thanks, as always, for your e-mail and valuable perspective.
I don’t doubt that deficit financing of government projects is sometimes justified. Nor do I doubt that examples of the wise use of such financing can be found in history. Nothing in my argument – nothing, that is, in my deficit-hawkery – implies otherwise. The same is true, I’m sure, for warnings of the dangers of deficit financing offered by economists such as Jim Buchanan, Dick Wagner, and Veronique de Rugy.
But three points require emphasis:
First, even productive projects funded with debt are costly; someone must pay for them. And when government funds such projects with debt, these projects are paid for by future citizens-taxpayers. Future citizens-taxpayers might unanimously and avidly agree that they’re better off with a particular debt-funded project and its accompanying repayment obligation than they would have been without the project and no repayment obligation. But this positive assessment of the project by future citizens-taxpayers does not mean that these future people don’t pay for the project. The burden of paying for debt-funded projects always falls on future citizens-taxpayers even when those projects are marvelously productive and worthwhile as judged by the citizens-taxpayers who pay for them by servicing the debt.
Second, because neither government officials nor citizens-taxpayers are personally on the hook to repay any debt incurred today, they – unlike private individuals, households, and firms – have greater incentives to abuse the debt-financing option. Jones’s and Jackson’s ability to spend Smith’s and Williams’s money tempts Jones and Jackson to spend excessively. The significance of this fact isn’t diminished by real-world examples of Jones and Jackson having occasionally spent Smith’s and Williams’s money wisely.
Third, because of the second point above, prudence counsels that we impose restraints on governments’ use of debt financing that are more restrictive than are the restraints used to govern the use of debt financing by private parties.
Don
… is from page 287 of one of Harold Demsetz’s brilliant 1982 De Vries Foundation lectures, “Competition in the Public Sector,” as this lecture is reprinted in volume II of the 1989 collection of some of Demsetz’s most important works, Efficiency, Competition, and Policy:
Many national policies require the passage of time before their success or failure can be determined, and many programs require a commitment to others that has an important time dimension. Infrequency of elections allows working time, but it also reduces the rapidity with which voters may directly discipline their parties. Business firms are disciplined by consumers on a continuing basis. The impact of poor quality or of dishonest performance is felt quickly by firms once it is discovered; revenues available from sales or from the capital market are soon made more difficult to secure….
The desirability of providing governments with time to work out their programs comes at the cost of an increase in the probability that politicians will behave opportunistically, taking advantage of the delay in reckoning. The infrequency of elections encourages more short-run opportunistic behavior than the continuity of economic competition permits to business firms.
DBx: Competition in a private-property-based economy amongst people spending their own money is concurrent and non-coercive. A thousand – or, rather, a multiple million – ideas bloom simultaneously, each to be compared to the other. Experimentation is continual. The relatively better ideas survive at a higher rate than do the relatively worse ones. The economy improves.
To describe in any detail some ‘ideal’ economic ‘outcome’ is unavoidably to produce the product of an individual’s imagination. Yet because no single individual’s, or committee of individuals’, creativity and knowledge come within light-years of the creativity and knowledge at work in free markets – modern markets which host and encourage a never-ending orgy of ideas having sex with each other – no individual or committee or parliament or duma of individuals can hope to outperform the market process over time.
Keep the above in mind when you next hear a plea for industrial policy.
…..
Note also, by the way, that Demsetz above mentions one of the many productive roles played by financial markets – a point to remember when you next encounter the assertion that financial markets ‘produce nothing.’
Share
