This Is No Way to Limit Government

by Don Boudreaux on March 24, 2017

in Myths and Fallacies, Subsidies, Trade

Here’s a letter to Rick Manning, president of Americans for Limited Government – at the end of which I challenge him to a public debate:

You call on the U.S. government to stop subsidizing U.S. sugar producers “but only after other major international sugar dumpers like Brazil, India and Thailand agree to stop subsidizing their sugar industries in a reciprocal manner.”

Your condition for ending Uncle Sam’s subsidies reveals a poor understanding of economics.

When a government subsidizes producers within its jurisdiction, it forcibly redistributes unearned riches to a handful of producers at the greater expense of the bulk of its citizens.  Subsidies make poorer most of the people of any country whose government uses subsidies.  So please explain why you believe that the U.S. government should condition its abolition of its harmful subsidies on other governments doing the same.

Suppose that you and your neighbor are each addicted to gambling, and every month you both irresponsibly lose a substantial chunk of your incomes in casinos.  One day a trusted friend comes to your door and credibly promises to help you break your addiction. Would you tell your friend “Thanks for the offer! But I’ll break my ruinous addiction to gambling only if and when my neighbor breaks his ruinous addiction. As long as my neighbor is impoverishing himself, I’ll show him by continuing to impoverish myself!”

It makes no more sense for the U.S. government to condition its abolition of subsidies on other governments abolishing their subsidies than for you to condition your breaking your self-destructive addiction on your neighbor breaking his self-destructive addiction.

Changing the subject, your organization is located in Fairfax, which is where I live.  I challenge you to a public debate.  Despite your organization’s name, you consistently support mercantilist policies that are deeply inconsistent with limited government.  So let’s pick a time and place for an open and civil debate.  The resolution will be “Unilateral free trade is economically and ethically superior to any policy in which government interferes with trade.”  I will defend this resolution while you will attempt to refute it.  Are you up for the challenge?

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

P.S. You may pick whomever you like to debate me (although ideally I’d like to debate you given that you are obviously very confident in the rightness of your support for trade restrictions).  It can be you or someone else at your organization.  Or it can be someone else who you bring in solely to debate me.  I’ll debate, in defense of free trade, anyone who you offer to pit against me.

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Quotation of the Day…

by Don Boudreaux on March 24, 2017

in Trade

… is from page 151 of Texas Tech economist (and GMU Econ alum) Ben Powell’s superb 2014 book, Out of Poverty: Sweatshops in the Global Economy (footnote excluded; link added):

UnknownEconomists have long contended that free trade promotes economic freedom.  In the nineteenth century, Richard Cobden and Frederic Bastiat contended that free trade spreads economic freedom abroad by disseminating new ideas.  The new ideas might be embodied in the goods themselves or they might come from how trade affects views toward market exchange compared with isolationist subsistence.  It turns out they were right.  When a more economically free country trades with a less economically free country, the less economically free country becomes more free.  Economists Russ Sobel and [GMU Econ’s] Peter Leeson found that countries “catch” approximately 20 percent of their trading partners’ levels snd changes in economic freedom.

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In the comments section of Kristofer Harrison’s nice expose of the cronyism that drives Uncle Sam’s protection of U.S. steel producers, Daniel Dimicco – former CEO of Nucor Steel – wrote:

Your commentary couldn’t be more misleading and dead wrong. Rather than the picture you paint, the Steel Industry is the “canary in the coal mine”. It is the case study for the Massive trade Mercantilism and cheating that China is perpetrating on the USA’s entire Manufacturing sector. Your propaganda doesn’t pass the smell test!

I could not resist responding to DiMicco’s mercantilist myth-spreading:

Mr. DiMicco:

What doesn’t pass the smell test are your apologies for trade restrictions.

Knowledgeable people are aware of the parade of excuses that you and other trade-restrictionists offer for why American consumers should allow Uncle Sam to force them to pay higher prices so that steel-industry operatives reap more revenues. None stand up to economic or ethical scrutiny.

You say that foreign steel producers are subsidized. So what? If true, this fact means only that Americans get better deals on steel. If foreigners wish to give to Americans the gift of lower-priced steel, who are you – and who is the U.S. government – to prevent American consumers from accepting this gift?

Your success in preventing us from accepting such a gift makes us Americans as a whole poorer than we would otherwise be, despite the fact that such “success” conveniently results in higher revenues for domestic steel producers.

You will, in response to this argument, ominously warn that if Uncle Sam doesn’t “retaliate” against artificially low-priced imported steel from China, then Chinese producers will eventually bankrupt all American steel producers and, thus, one day hold monopoly power in the American market. Sounds scary – but it’s a fanciful tale. Today, steel is produced in at least 37 countries (and by many more times that number of individual firms). Even if all U.S. steel producers do go bankrupt – and even if no new steel producers will be able to be launched in the U.S. in the future – and even if we ignore the many substitutes for steel such as aluminum and carbon fiber – with so many suppliers of steel in the world it’s incredible to suppose that Chinese steel producers will ever have monopoly power in the American market. (Protectionists such as yourself have a lot of cheek: among your familiar tactics for securing monopoly power for yourselves is to instill in people an implausible fear of monopoly power from abroad.)

The bottom line, sir, is that producers’ existence and operation are justified only if and insofar as they serve consumers. You, however, operate under the false and self-indulgent assumption that consumers exist to serve producers. If consumers aren’t spending their money in ways that promote the interests of U.S. steel producers, you run to the government and demand that it force consumers to change their spending patterns. Of course, you dress up your resort to coercion against consumers with all sorts of fine talk about “fairness,” and “level playing fields,” and “playing by the rules.” But this talk is disingenuous (although you might now be so unreflective that you’ve come to believe it). The trade “rules” that you and other protectionists are so fond of saluting are nothing more than arbitrary restrictions written by government officials to appease special interest groups (such as steel producers). These “rules” violate a more sacred rule – a more sacred right – the right of people to spend their money in whatever peaceful ways they choose.

Protectionism is simply an elaborate and devious means used by some – in this case, U.S. steel producers – to rob the American public.

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People succeed in markets by reducing scarcity – that is, by easing scarcity’s grip on their fellow humans.  And the more they ease scarcity’s grip, the greater their success.  Profits are earned in competitive markets only by successfully making desired goods and services less scarce than they would otherwise be.

People succeed in politics by increasing scarcity – that is, by tightening scarcity’s grip on their fellow humans.  And the more they tighten scarcity’s grip, the greater their success.  Power and prestige in politics are gained chiefly by successfully carrying through on promises to make desired goods and services more scarce than they would otherwise be so that politically influential suppliers of those goods and services reap higher profits from the artificial increase in scarcity.

….

In a full-length paper, or in a book, the differences between private markets and politics can be spelled out in more fullness and detail.  But if someone seeks a short summary – say, a summary in less than 150 words – of the differences between markets and politics, I dare say that the above two paragraphs are pretty darn good.

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On April 12th in New York City, the Soho Forum will host a debate between George Selgin and Josh Barro on the resolution “The Federal Deposit Insurance Corporation should be abolished in favor of private sector solutions for protecting the safety of bank deposits.”  George will argue in the affirmative.

Matt Ridley remembers Hayek, who died 25 years ago today.  A slice:

By contrast, trade creates a collective problem-solving brain as big as the trade network itself. It draws [as Hayek taught] upon dispersed and fragmented knowledge to create things that nobody can even comprehend, wholes that are more complex than the sum of their individual mental parts.

No other animal does this. There is exchange and specialisation within families, even huge families such as ant colonies, which gives an ant colony considerable collective intelligence. But that’s among kin. Exchange between strangers is a unique feature of us modern hominids. As Adam Smith said, “no man ever saw a dog make fair and deliberate exchange of a bone with another dog”.

David Boaz also remembers Hayek.

Matthew Fay warns that Trump’s embrace of economic nationalism and its half-witted offspring, mercantilism, might prove to be far more than merely economically calamitous.

Speaking of mercantilism, Kristofer Harrison exposes Big Steel in the U.S. a long-time corporate-welfare queen.

Russ Roberts’s latest EconTalk podcast is with Columbia University statistician Andrew Gellman.

Elaine Schwartz argues that more immigration will improve the solvency of the U.S. Social Security program.

Let’s all join with Mark Perry on Saturday to celebrate Human Achievement Hour (rather than with the historically and economically ignorant who will celebrate Earth Hour).

Here’s the video of my colleague Bryan Caplan’s debate (at the University of San Diego) with Christopher Wellman on the question of whether or not immigration is a basic human right:

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… is from page 76 of F.A. Hayek’s last – his 1988 – book, The Fatal Conceit:

Friedrich August von Hayek_0The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.  To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order.  Yet that decentralization actually leads to more information being taken into account.

DBx: Hayek died 25 years ago today.

Hayek’s great lesson is that each of us, individually, can know only an infinitesimally small amount of the knowledge the full use of which is required for any great and prosperous civilization to exist – but that, when we engage with each other under the laws of private property, contract, and tort (what Hayek called “the rules of just conduct”), each of us is led by this engagement to combine his or her speck of knowledge with the specks of knowledge of countless others in a way that causes this use of these dispersed bits of knowledge to produce and sustain a great and prosperous civilization.

Hayek’s great counsel is that we never forget how individually ignorant each of us inevitably is, or how unfathomably great is the amount of knowledge daily put to productive use in free, market-oriented societies.

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Here’s a letter to the Wall Street Journal:

The headline is promising: “Peter Navarro Responds to His Trade Critics” (March 22).  So I eagerly anticipated reading Navarro’s substantive defense, against knowledgeable critics, of his reasons for fearing trade deficits.  Alas, disappointment.  Navarro offers not a single relevant argument.

Typical is his contemptuous treatment of Dan Ikenson.  To establish that Mr. Ikenson has an “Alice-in-Wonderland worldview,” Navarro merely lists some of Mr. Ikenson’s policy positions without offering as much as a syllable to inform us why these positions are untenable.  (Each of Mr. Ikenson’s positions strikes me as quite reasonable.)

The closest Navarro comes to making a relevant argument is when he writes, responding to Desmond Lachman, that “if India agrees to lower its tariffs on Harley Davidson motorcycles, Indian consumers will buy more Harleys and save less while Harley will sell more Harleys and invest more.”

Well, no one has ever denied that Indians would buy, and Harley would sell, more Harleys if India reduces its tariff on these bikes.  But it doesn’t follow that Indians would necessarily, as a result, save less.  (Does Navarro always save less when his cost of living falls?)  And while more resources would indeed likely be invested in Harley’s operations, these resources would have to come from foreigners if Americans don’t increase their savings.  Contrary, therefore, to the conclusion that Navarro wants us to draw from what he pretentiously (if inaccurately) calls “obvious general equilibrium effects,” a cut in India’s tariffs on Harleys is not remotely guaranteed to lead to a decrease the U.S. trade deficit.

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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More on Real Versus Fake Wants

by Don Boudreaux on March 22, 2017

in Myths and Fallacies, Trade

Here’s a letter to Intissar Guettou, who is with ReportLinker

Thanks for e-mailing your press release announcing the results of a survey showing that “57% of Americans are ready to pay more for ‘Made in USA’ products.”

Alas, I’m confident that these survey results are utterly unreliable.  The reason for my confidence is that Americans are now, and have always been, free to pay more for “Made in USA” products (which, as you surely know, really only means “Final-assembly-occurred-in-USA” products).  Yet American consumers consistently choose not to pay more for such products.

The fact that American consumers, when given the actual choice – and when spending their own money – choose to buy so many lower-priced foreign-assembled household products that few American companies can today successfully compete to be the final assemblers of these products is proof as good as it gets that Americans really do not want to pay higher prices for “Made in USA” products.

The only “wants” that are trustworthy guides for what should reign in reality are wants that people are willing to pay for.  To want something that you are unwilling to pay for is to want something the value of which is not worth its cost.  Such a something, indeed, is something that you really do not want.

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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Surprised and Dismayed?

by Don Boudreaux on March 22, 2017

in Politics, Reality Is Not Optional

Below is a letter to WTOP Radio in Washington.  When I heard this college-age kid express his ‘surprise’ I burst out laughing.

I’m struck by the young man interviewed on your station, during the 12pm hour, who said that the politics on display at the Senate hearings on Neil Gorsuch’s Supreme Court nomination is “surprising and dismaying.”

To be sure, observing the performance of these U.S. Senators is neither enlightening nor uplifting.  But to be surprised and dismayed upon going to the Capitol and observing its resident politicians not seeking truth and understanding but, instead, scoring partisan points makes no more sense than being surprised and dismayed upon going to the zoo’s reptile exhibit and observing its resident snakes not tap dancing and twirling canes, but, instead, slithering on their bellies.

One should not be surprised or dismayed that creatures behave as they are directed by their nature and their environment.

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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Levi Russell nicely busts a common myth about economics.  (Note: to the extent that any actual economists are guilty of even coming close to living ‘up’ to this myth, among the actual economists who emphatically do not live ‘up’ to this myth are the Austrians – who are, of course, the most consistently market-oriented economists in the world today.)

Speaking of economics and economists, here’s Arnold Kling.

T. Norman Van Cott corrects a common fallacy about immigrants’ spending.

GMU Econ alum Mark Perry is inspired by a recent post from my Mercatus Center colleague Dan Griswold to further explain why the U.S. trade deficit isn’t making Americans poorer.

James Pethokoukis reports on a possible source of slower productivity growth.

Tico Moreno explains that any American who truly want to ‘put America first’ should support free trade.

The comments thread on this Steve Landsburg post on the health-insurance market caused me to remember this interesting 1992 article, in Regulation, by Susan Feigenbaum.

Here’s the second installment in George Selgin’s warning against drawing mistaken lessons from Canada’s experience with privately issued currency.

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