Open Letter to Steve Moore

by Don Boudreaux on December 3, 2016

in Crony Capitalism, Seen and Unseen, Trade

Steve Moore
Economic Advisor to Donald Trump

Steve:

Reading your recent column, I was relieved to learn that you still believe that trade is “unambiguously good for the country” (“Welcome to the Party of Trump,” Nov. 30).  But my relief turned to confusion when I read that you condition your support for freer trade on it not being “shoved down our throats by the elites.”

What do you mean?  By its very nature free trade is the absence of any shoving.  Free trade is what occurs naturally and spontaneously without state interference.  Free trade is simply a condition under which each individual is free to spend his or her money as he or she deems best.  Free trade is the guarantee to everyone that his or her voluntary, commercial choices will be obstructed by no official or by no group, be they blue-blooded elites or slack-jawed brutes.

The shoving about which you complain occurs only under protectionism.  Indeed, protectionism’s essence is shoving: government agents officiously shoving fellow citizens away from those with whom these citizens wish to peacefully trade; politicians arrogantly shoving their diktats into the faces of ordinary men and women whose only offense is that they seek to stretch their incomes by purchasing goods assembled abroad; and politically organized producer groups greedily shoving their narrow material interests ahead of the interests of those countless consumers, firms, and workers who necessarily, if invisibly, have the bill for protectionism (to adapt your wording) shoved down their throats.

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 v of Edwin Cannan‘s Preface to his remarkable 1927 collection, An Economist’s Protest:

unknownI had long been a protestant against the current identification of “the country” or “the nation” (that is, the country or the nation of the speaker or writer) with the economic “society” or “community.”

DBx: All great and good economists – from Adam Smith to Deirdre McCloskey and beyond – understand, as the great Cannan understood, that the larger the expanse of trade and reach of commerce, the more prosperous, the more peaceful, the more civilized, and, indeed, the more intelligent are people.  Commerce kept confined by tradition, by culture, or by the force of arms to some political jurisdiction such as “the country” or “the nation” keeps the people of that country or nation poorer and less civilized.  Trade kept confined by popular and silly fevers such as the “buy local” movement to different locales likewise keeps the people of those locales poorer and less civilized.

Yet the superstitions that lead many conservatives and “Progressives” to believe that trade is zero-sum, and to suppose that successful efforts to artificially raise the incomes of some existing, highly visible national or local producers thereby raise the incomes of almost everyone within the nation or locales, endure.  These superstitions endure against all logic, against all sound economics, and against all experience.

And so all economists worth their salt must tirelessly do battle against these superstitions.

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Here’s a letter to National Review:

Edward Conard writes that “Trade deficits occur when countries such as Germany lend the U.S. economy the proceeds from the sale of goods to Americans, rather than using them to buy goods made by American workers.  To prevent trade deficits from reducing the wages and employment of lower-skilled workers … Americans must borrow and spend these savings.  But today, savings sit unused despite near-zero interest rates, putting downward pressure on wages as they accumulate” (“A Trade Policy That Wouldn’t Leave Low-Wage Workers Behind,” December 5th).

Mr. Conard errs.  Contrary to his claim – and to popular myth – trade deficits (more accurately, current-account deficits) are not exclusively, or even chiefly, debt.  Trade deficits occur when countries (actually, foreign people) do any form of investing in the U.S. economy.  The U.S. trade deficit also consists of foreigners’ purchases or creation of equity and intellectual property in the U.S., foreigners’ purchases of real estate in the U.S., and foreigners’ holdings of U.S. dollars.  In all but the last case, the dollars that foreigners earn from their exports to America return directly to the U.S. in ways that are just as likely to contribute to economic growth and job creation as are dollars that Americans themselves spend in the U.S. on equity, intellectual property, and real estate.  (And, it should be noted, dollars held by foreigners are not debt that Americans owe to foreigners.)

There is, furthermore, a bizarre mystery lurking in Mr. Conard’s argument.  In his view, foreigners lend Americans lots of money that Americans then simply sit on.  This scenario is too implausible to take seriously.  Why are we Americans borrowing all this money if we aren’t spending or investing it?

In fact, the entity that borrows the most from foreigners is Uncle Sam, whose borrowing in the first quarter of 2016 was 29 percent of the U.S. current-account deficit.*  Surely Mr. Conard knows that Uncle Sam immediately spends all of the dollars that it borrows.  And, as alluded to above, the great bulk of the U.S. trade deficit that is not lent by foreigners to Uncle Sam consists of funds that return to the U.S. as equity investments – that is, investments that promote American economic growth and job creation.

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

* Calculated from here.

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Bob Higgs explains the rise of Trump.  A slice:

Enter Trump, seemingly on a lark, because his manner of speaking and campaigning amounted to little more than thumbing his nose at political correctness and its adherents. Yet, no doubt to the surprise of the Clinton camp, he elicited an enthusiastic and growing response from millions of people united by little more than resentment and, in some cases, hatred of their self-anointed betters. This kind of popular rebellion was not supposed to happen; the deplorables were supposed to recognize that they were on the losing side of a long historical-cultural conflict and act in a way that validated their acceptance of defeat. But the make-America-great-again group was not buying it, and they leaped at the chance to embrace a political leader who would proudly endorse their burning desire to spit out political correctness like a rotten fish.

Kevin Williamson reflects on what he accurately calls “the economic stupidity of the Carrier bailout.”  (HT Warren Smith)  A slice:

This is a case of Frédéric Bastiat’s problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.

But the math is the math is the math. Trump and Pence are trying to sell you a free lunch, the same way the Keynesians and their magical spending multiplier do when they promise that government stimulus programs (Trump is pushing one of those, too) will somehow magically pay for themselves.

Speaking of this especially nasty slice of corporate welfare served up by Generalissimo Trump, Fred Hiatt understandably finds disturbing similarities shared by Trump and Putin.

Here’s a wonderful podcast with Deirdre McCloskey.  (HT Neel Chamilall)

You can find here, in one convenient place, all of Mark Perry’s inspired Venn diagrams.

Virginia Postrel writes with great insight on Obama’s (thankfully now on hold) new overtime-pay diktat.  A slice:

Regardless of the eventual outcome, the mandate illustrates an all-too-common blindness to the diversity and nuances of employment arrangements. Not every workplace is, or aspires to be, the civil service. Not every worker longs to be on an assembly line. And not everybody is working entirely for money. One size does not fit all.

Just as Trump imagines he can give industrial workers job security by canceling trade agreements, the Obama administration thought it could give managers more money or shorter hours by decree. The overtime rule assumes that employers have a big pot of money somewhere that they’re keeping for themselves instead of paying their hard-working staffs. It also assumes that rigid time-keeping that forces people to work 9 to 5 is a good thing. Announcing the new rule, Vice President Joe Biden called it part of “the basic middle-class bargain that used to exist.” Nostalgia for the Organization Man is a bipartisan affair.

Wisdom from GMU Econ PhD student Jon Murphy.

Arnold Kling explores the fake-news problem.

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… is from page 175 of Arnold Kling’s wonderful new book, Specialization and Trade: A Re-introduction to Economics:

imagesThe main point here is that better economic outcomes arise when patterns of sustainable specialization and trade are formed.  These patterns do not come about as a result of tinkering undertaken by the Federal Reserve or by deficit spending undertaken by Congress.  It requires the creative, decentralized, trial-and-error efforts of thousands of entrepreneurs and millions of individuals seeking the best way to use their talents.  Probably the best thing that the government can do to encourage new forms of specialization is to rethink existing policies that restrict competition, discourage innovation, and retard mobility.

Yes.

Yet America’s new president-elect seems intent on doubling-down on existing policies that restrict competition, discourage innovation, and retard mobility.  He, his aides, and his fans will point to the existing businesses and jobs that they “save” (using a toxic combination of force and other-people’s money) and boast of their brilliant achievements.  But they will remain blind (or callously indifferent) to the businesses and jobs that they destroy in the process, especially the ones that would, but now never will, emerge in the absence of their ignorant interventions.

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An Open Letter to Generalissimo Trump

by Don Boudreaux on December 1, 2016

in Man of System, Seen and Unseen, Trade

Donald Trump
Trump Tower
New York, NY  10022

Mr. Trump:

Like a despot drunk and delirious with power, you bellowed today that “[c]ompanies are not going to leave the U.S. anymore without consequences.”

Even if we ignore much that oughtn’t be ignored – such as your unconstitutional promise to use the office of the president of the executive (note: not legislative) branch of the national government to dictate how private companies conduct their business – you reveal appalling economic ignorance.

How do you anticipate business executives will respond to your bullying threats?  Are you truly so stupid as not to understand that among the results of your intimidation is that fewer firms will open in America?  That fewer businesses here will expand?  That those that do open or expand will use a higher ratio of capital to labor because they fear that the greater the number of workers they employ the more likely they are to be victimized by your arbitrary diktats?  That no matter how much you cut the monetary taxes they pay, the uncertainty and absurdity of your promised autocratic rule drastically raises firms’ costs of starting and growing on U.S. soil?  And that each of these inevitable responses to your imperious fulminations will be slower job and wage growth for Americans?

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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Buy [fill-in-the-blank]!

by Don Boudreaux on December 1, 2016

in Myths and Fallacies, Seen and Unseen, Trade

The argument that I make below against the economic case for “buying local” has almost certainly been made by others – perhaps, in some variety, even by me.  So I here claim no originality.  Still….

Many advocates of “buying local” insist that buying local is good for the local economy and, hence, economically good for each person in the local economy.  For a number of reasons, the economics on which the “buy local” movement rests is remarkably weak.  (Just as it is a sure sign that someone has no sound grasp of economics if he or she believes that protectionism is a source of national economic prosperity, an even surer sign that someone has no sound grasp of economics is that person’s belief that buying local is a source of local economic prosperity.)

So to everyone who believes that buying local enriches local people,  I pose a question: Do you also believe that, say, “buying white” would enrich white people?  According to the logic of “buying local,” “buying white” should enrich white people no less than “buying local” is said to enrich local people.  Other than occasionally saving on the cost of one input – namely, transportation – every argument made for “buying local” seems to apply to “buying white.”  Keeping the money in the white community would ensure that this money doesn’t drain, or spill, out into other communities such as the black community, the Asian community, and the Hispanic community.  Demand for white-made goods and services would be better ensured!  And whites could take pride in helping each other to better secure a bright economic today and tomorrow for their white selves and their white children!

And what’s true for whites is true for other groups!  “Buy black” will – if the logic of “buy local” is sound – enrich the black community.  Blacks so enlightened as to understand the economic benefits for blacks of “buying black” must surely join with the sages in the Ku Klux Klan in regarding the economic integration of whites and blacks as an economic calamity rather than as a blessing.

So, too, of course for other ethnic groups!  “Buy Asian!”  “Buy Hispanic!”  “Buy Native American!”

Alternatively, what about “Buy straight!”  Would the economic fortunes of heterosexual people be raised if all heterosexuals successfully commit to engage in commerce only with each other and not with those in the LGBT community?  If “buy local” enthusiasts are correct, the answer seems to be ‘yes.’

And so, of course, “Buy gay!” “Buy lesbian!” “Buy bisexual!” and “Buy transgendered!” would also be sound guides to economic prosperity for these people.

Or, here’s yet another way to slice and dice the relevant community: What about “Buy tall!”  Would tall people – say, all men more than 6 feet tall and all women more than 5’9″ – enrich themselves buy buying only from each other?  Same question for short people.

Or what about “Buy T!”  Would all people whose last names begin with the letter “T” enrich themselves economically if they trade only with each other and not with those whose last names begin with letters other than “T”?

…..

I oughtn’t need to say so – but I will – that I find it to be both ethically repulsive and economically insane to endorse any such movement as “Buy white” or “Buy straight!” or “Buy T!”  Most people (I suspect) naturally understand that a “Buy T” movement would make those “T”s who adhere to it poorer, not richer.  Likewise with such absurdities as “Buy white” and “Buy straight” and “Buy tall!”

Yet insert the word “local” behind the word “Buy” and many people fall for the crazy notion that those who “Buy local” will make themselves and their local communities economically richer.

Nuts.  No one should buy it.

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In this short video, Johan Norberg explains that the identity politics of the political left contribute to the racism, nationalism, and all other ‘groupisms’ that are scarily on the rise today.

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Calling Adam Smith

by Don Boudreaux on December 1, 2016

in Adam Smith, Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

unknownYou rightly call out Commerce Secretary designate Wilbur Ross for mistakenly asserting that “Econ 101” teaches that a trade deficit reduces GDP and “weakens our economy” (“Trump’s Money Men,” Dec. 1).  Sadly, this failure to understand that a U.S. trade deficit generally expands the size of our economy’s capital stock – and, hence, is beneficial for Americans – is widespread, bipartisan, and an endless source of trade-policy follies.

If Mr. Ross really wants to know what Econ 101 teaches on this matter, he can do no better than to consult Adam Smith himself who, in 1776, observed that “Nothing, however, can be more absurd than this whole doctrine of the balance of trade”* – from which it follows that nothing can be more absurd than to base trade policies on balance-of-trade figures.

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

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Book IV, Chapter 3, paragraph 31.

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Quotation of the Day…

by Don Boudreaux on December 1, 2016

in Complexity & Emergence, Seen and Unseen

… is from page 52 of Ronald Coase‘s and Ning Wang’s superb 2012 book, How China Became Capitalist:

maxresdefaultEven when the state intervenes judiciously, the coercive force of the state does not come free.  Largely out of practical necessity, a collateral casualty of state enforcement is the loss of institutional diversity.

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