A Nation Isn’t A House

by Don Boudreaux on February 9, 2016

in Immigration, Myths and Fallacies

Peter Yoo asks that I again share here at Cafe Hayek my September 2007 Freeman article entitled “The Nation Is Not a House.”  A slice:

Analogizing a nation to a home creates the myth that citizens of a nation can, and do, trust each other in ways that members of the same household typically trust each other. But, of course, when I lock my home at night I do so to guard against violence and theft that might otherwise be inflicted on my family by other Americans. If every foreigner were immediately and forever expelled from the United States today, I—like all Americans—would be not one whit less vigilant in locking my home.

The fact is that the relationships each of us has with our fellow citizens overwhelmingly are of the arm’s-length, impersonal variety. They are market relationships, governed chiefly by self-interest on both sides of each exchange. They are not the sorts of personal relationships that guide decisions made within households. They are, indeed, precisely the sorts of relationships that each of us has with strangers from foreign countries.

So what value is there in analogizing a nation to a home? Very little. No one would seriously insist that each city should shut down its streets at night (on the grounds that private homes at night become inactive). No one would seriously demand that each pedestrian on Manhattan’s Fifth Avenue or on New Orleans’s Bourbon Street first secure a specific invitation to stroll those famous boulevards. And very few Americans would agree to give to the government the same sort of power to govern speech and personal behavior that members of each household routinely exercise over each other.

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Here’s a letter to a young woman – a student at the University of Iowa – who tells me that she reads Cafe Hayek occasionally “to see what conservatives think.”

Voters cast their ballots at University Lutheran Church of Hope polling station Tuesday in Dinkytown. The Predominantly student prescient draws heavy traffic, as well as complications with election day registration.

Ms. Erica C_____

Dear Ms. C_____:

Thanks for your e-mail.  First, I am not conservative.  I am liberal in the original and correct sense of that term.

Second, I’m afraid that I don’t share your enthusiasm for politics, be they democratic or not.  Where you “see citizens [at the polls] selecting our leaders,” I see people voting on which power-mad person will crack the whip over those same people and brand and herd them like cattle.  Where you are “inspired by candidates campaigning openly to win the election,” I am frightened to realize that one of those hubris-slathered men or women will actually come to possess such power that no man or woman is, or ever will be, fit to possess.  Where you are “charged” by the “vigorous debates” among candidates, my stomach is sickened and my intelligence is insulted by the economics-free, fact-strained, and too-often-vacuous talking (and shouting) points that pass for a serious discussion of issues.

And where you say that you “trust voters” more than I trust them, that depends.  You’re correct that I distrust people as voters, for in that capacity they largely express opinions on how other people’s (their fellow citizens’) money should be spent and on how other people’s lives should be led.  But I trust – perhaps more than you do, and certainly more than do any of the candidates – those same voters as individuals each to spend his or her own money wisely and to lead his or her life well, each according to his or her own lights, without interference or direction from any of the officious, arrogant, and venal candidates seeking power over the lives of other people.

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 February 9, 2016

in Seen and Unseen

… is from page 480 of Deirdre McCloskey’s 2006 volume, The Bourgeois Virtues:

“Real wealth” in the economist’s way of thinking is not a pile of finished stuff merely to be allocated, as in the children’s playroom.  Nor does wealth consist of those tokens of ownership such as money in your pocket or stocks in your pension plan or profits from your drug deal.  Wealth is the real ability in arm or brain or machine to produce more stuff, the “real” backing for the tokens.

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Gary Bryant, in an e-mail, asks:

What is [the] most ridiculous economic fallacy that is believed by a significant number of professional economists?

Wow.  Good question.  There are many such fallacies, and it’s difficult to rank-order them according to their ridiculousness.  My list and rank-ordering, of course, reflects my own understanding of economics (which is Hayekian-Alchianian-Coasean-Buchananite-McCloskeyan) and my subjective assessment of ridiculousness.  But Mr. Bryant’s question is fun, so here’s a list of five:

(5) the idea that government-subsidized health care will lower the cost of health care;

(4) the notion that government must have monopoly control over the money supply in order to ensure sound performance of the economy;

(3) the belief that large differences among people in monetary incomes or monetary wealth reflect some market failure that ought to be ‘addressed’ by the state;

(2) the blind faith that government officials in democratic societies can be trusted to exercise power over people who economists do not trust to make choices for themselves;

(1b) the notion that welfare payments (other than EITC) subsidize employers by pushing workers’ wages lower, and

(1a) the notion that the minimum wage is, or can practically be, a boon to all low-skilled workers.

Each of these notions reflects not only an ignorance of history but also an utter failure to grasp basic price theory.

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In response to this recent post, the great Deirdre McCloskey sent the following e-mail to me (links added; ellipses original):

On “protection” (if we could get rid of that word . . .): Mill in On Liberty (1859) wrote of the suffering from shifting demands and supplies, “Society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit—namely, fraud or treachery, and force.”​ That is to say, what is crucial is the ideological change that short-circuits the “protective” impulse of tariffs, licensure, quotas, and other uses of the monopoly of violence against the general interest.

In my reply to Deirdre I confessed that I’d read On Liberty only once, and that reading occurred at least 20 years ago.  I didn’t recall Mill’s eloquent objection on this score to protectionism the cronyist policy of exerting government force against fellow citizens to prevent them from spending their money as they choose.

…..

Deirdre’s e-mail gives me the opportunity to clarify a confusion that my poor wordsmanship has caused in some commenters and e-mail correspondents.  When I say that there are no losers today from international trade I emphatically do not mean that there is no one who must adjust to changes in the patterns of consumer expenditure what he or she does economically.  There are many such people.  These adjustments are typically costly, and in many cases greatly so.  The American steelworker who loses his job because his fellow citizens come to prefer to buy steel from Brazil rather than from Pittsburgh might remain unemployed for months or even years.  That unemployment is a source of real and undeniable suffering for that unemployed man and his family.

My point is not to deny the reality of outcomes such as the one described here of a hypothetical unemployed Pennsylvania steelworker.  My point, instead, is to insist that (1) there is nothing unique or special about losing a job to imports compare to losing a job to any of the countless other sources of job losses, and (2) any suffering that Jones endures from the economic institution of open trade must be weighed against the benefits that Jones reaps from that economic institution.  So when I say that there are in America today no losers from trade, I mean only that there are no losers from the institution of international trade all things considered.  I do not mean that there are not people who are made worse off economically, compared to how these people would otherwise have fared, by changes today in the patterns of consumer spending.

Perhaps an analogy would be helpful.  As with trade, I insist that there are no losers from freedom of speech.  Of course, it’s true that if, say, Paul Krugman exercises his freedom of speech to criticize a particular politician, that politician might suffer.  That politician’s pet piece of legislation might lose so much public support that it is not enacted by the legislature.  Or, worse for that politician, she might be rejected, as a result of Krugman’s exercise of Krugman’s freedom of speech, by voters in the next election.  It is no offense against the American English language to describe that politician as having suffered losses because of what Paul Krugman said about her.

But I insist that, even if this politician suffers unjustified public disgrace because of some (not legally slanderous) utterance that Krugman made publicly about her, she is not a “loser” from the policy of freedom of speech.  The civilization of which this politician is a part is unquestionably stronger, more durable, and greater because of its policy of free speech.  And the resulting benefits that this politician enjoyed in the past, and continues to enjoy even after Krugman’s talking unflatteringly or unfavorably about her, are almost surely so large that her suffering at the mouth of Paul Krugman is insufficient to classify her as a “loser” from free speech.

Just as we do not say that people, such as this hypothetical politician, are “losers” from free speech, we should not say that workers who today lose their current jobs to imports are “losers” from free trade.  (Note that a similar analogy can be drawn with freedom of religion.  Freedom of religion has, no doubt – because of the competition it unleashes among different religions and churches – caused many a priest, preacher, pastor, rabbi, Iman, and wicken to lose his or her job, or to otherwise suffer a loss of income or of prestige.  And yet we rightly do not describe these losses as being the results of freedom of religion.)

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I wish that I were in Toronto this afternoon so that I could attend this talk by EconLog’s David Henderson.

Here’s a link to the Stossel show of a few weeks ago that (I boast) was built on this Cafe Hayek blog post.

Ben Zycher shares a key scientific truth (but one that is shockingly ignored in too many discussions of policy-making).

I’m chagrined to confess that I only just today learned of this 2007 paper by my old Clemson colleague John Warner, my current GMU colleague Jim Miller, and RAND’s Beth Asch on economists’ role in ending U.S. military conscription.  (I learned of this paper here.)  Here’s the paper’s abstract:

An important case in the last half century where the “economic way of thinking” contributed to a major government policy change in the United States was the decision to terminate conscription as the means of staffing the bulk of the U.S. armed forces. After an acrimonious public debate that lasted five years, conscription was ended in 1973. Economists played an important role in the draft debates and in the decision to terminate it, and, since then, in the management of the All-Volunteer Force (AVF). While their recommendations have not always been heeded, economists, and the economic way of thinking they have advanced, have helped shape effective military personnel.

Barry Brownstein explains the economic-equalizing force that is modern capitalism.  Here’s his conclusion:

The essential consumption goods we couldn’t even imagine a hundred years ago are almost universally available in the United States today. The marketplace, aided by many creative, pioneering entrepreneurs and every person who strives to put in a good day’s work, is generating consumption equality.

Here is yet further evidence of the job destruction unleashed by minimum-wage legislation.

Regardless of your opinion of Ted Cruz, he is right to oppose Uncle Sam’s ethanol boondoggle.

Kevin Williamson reflects on Hillary Clinton’s ode to serfdom.

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Quotation of the Day…

by Don Boudreaux on February 8, 2016

in Hubris and humility

… is from a personal conversation that I had in the summer of 1991 with Julian Simon.  I was then about to enter my third year of law school at the University of Virginia, and Julian had invited me to play racquetball with him and, later, to dinner near his home in Chevy Chase, MD.  At dinner, Julian asked how I was enjoying law school.  I replied “Just fine.  The professors and my fellow students are all, to a person, really smart.”  Julian replied immediately:

Smart has never impressed me.  Smart is directionless.

So, so true.

Julian died, far too young, 18 years ago today.

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On this post, Bob Guzzardi offers this comment:

Free Trade has winners and losers at points in time. The fears and needs of the losers have to be addressed and vague theories are inadequate. My point is that Free Trade seems to be most beneficial to more people than Protectionism, however, one cannot ignore those who are not benefited in the short run. It is very upsetting to think oneself unproductive and useless to one’s community.

Here’s my reply in the comments section (which I here expand):

For reasons that I spell out in the post, I disagree.  International trade produces no more losers, even in the short run, than does any other change in economic activity.  To fall into the trap – seemignly correct, but wholly inconsistent with the way that we typically treat domestic economic phenomena – of agreeing that trade has “losers” is not only to be incorrect, but to pave with this incorrectness the path to policies that do indeed create genuine losers.

Again, trade – all trade, foreign or domestic – that causes the demand for some people’s market offerings to fall is a result of nothing other than voluntary exchange that occurs within the institutions of freedom of contract and economic competition.  And all trade, at every moment as a practical matter, causes the demand for some people’s market offerings to fall (as it simultaneously causes the demand for other people’s market offerings to rise).  Unless you’re willing to say that whenever people exercise their freedom of contract (which freedom, of course, includes the freedom not to contract) the resulting short-term losers’  losses must be accommodated politically, you are inconsistent if you say such a thing about the short-term losses that result by trade that occurs internationally.

I understand that people, as a practical matter, complain more about unemployment allegedly caused by international trade than they complain about unemployment allegedly caused by domestic trade.  My firm convicition is that the best way to deal with this inconsistency in people’s understandng is not to concede the complainers’ erroneous premise but, instead, to fight to expose that premise as being not only mistaken but also thorougly inconsistent with the way most of the complainers themselves assess economic activities that are (or that appear to be) exclusively domestic.

A final note: I do not doubt that it is “very upsetting to think oneself unproductive and useless to one’s community.”  Yet even ignoring the fundamental point that people who are rendered unemployed by a change in domestic patterns of trade have every right to be as “upset” as do people who are rendered unemployed by a change in patterns of trade that span international borders, none of the proposals of protectionists adequately address this problem you raise at the end of your comment.

If, to salve the feelings of people who lose their jobs because others now spend money differently, government erects artificial barriers to international trade, do you really restore these workers’ pride in their productiveness and usefulness to their communities?  If, on one hand, these workers understand the true nature of protectionism, they should feel even more upset, for not only are they then not useful to their communities, they are downright damaging to their communities: their fellow citizens are prevented by force of arms from buying products at attractive prices from their competitors.  The resulting benefits reaped by these protected workers are forced extractions from their fellow citizens.

On the other hand, if these workers don’t understand the true nature of protectionism – that is, if they fancy themselves productive and useful to their fellow citizens because they (these workers) are artificially protected by tariffs from having to find employment that better serves their communities – have you, by endorsing protectionist policies, really done the community a favor?  What responsibility has the community to tax and impoverish itself in order to prevent some of its members from feeling bad when consumer demands shift away from what some workers are currently selling?

Very much the same is true for government policies aimed at compensating or otherwise “helping” people who are rendered unemployed by imports.  Do you make an unemployed man or woman feel more useful to his or her community by seizing taxpayer funds and putting that man or woman on the government dole?  Anyone who feels pride for holding a job that exists only because of protectionist policies, or anyone who feels pride because fellow citizens are forced to support him or her when they lose a job, is someone whose feelings I do not respect and who, I believe, should be shamed rather than coddled – for such a person, again, is worse than useless to his or her fellow citizens: he or she is a costly nuisance.

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Quotation of the Day…

by Don Boudreaux on February 7, 2016

in Man of System

… is from page 53 of the 3rd (2008) edition of Vincent Ostrom‘s 1973 volume, The Intellectual Crisis in American Public Administration (link added; emphasis original to Crozier):

Michel Crozier concluded his study of French bureaucracy by asserting that “a bureaucratic organization is an organization that cannot correct its behavior by learning from its errors.”

In short, bureaucracies, by their nature, are stupid.

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Kenneth Regas e-mails me (link added):

Dear Professor Boudreaux,

On the EconLog blog Professor Caplan recently opined that voter ADHD is fortunate, because if protects us from popular bad ideas, including resistance to free trade. On that point I commented to demur, hoping to get a free trader like you to engage. I wrote:

“‘Never mind centuries of economics classes on the wonders of comparative advantage; the masses are convinced that cheap foreign products make us poorer.’

Actually, they believe that those cheap products make them poorer. And to the extent they’re near the bottom of the socio-economic ladder, they’re right. Cheap shirts are a boon to you and me, not so much for the one who, absent the cheap imports, would have been the shirtmaker.

“The average standard of living in my country and in the shirt exporting country both increase due to free trade. But in my country, that increase amounts to a gain for me but a loss for the erstwhile shirtmaker, who already had a lower standard of living.”

I saw your response to another commenter. Could I get you to engage my point?

Sincerely,
Ken

I’ve written often on this very topic here at Cafe Hayek.  See here, here, and here.  (This last link has links to yet other Cafe posts on this topic.)

In addition to offering the above links to earlier posts, let me add two additional substantive points here – points which are perhaps repetitive but, if so, hopefully also worthwhile.

First, to say that someone is harmed by trade is, in fact, to say that someone is harmed by freedom of contract, private property rights, and economic competition.  That is, if you show me someone who today suffers economic harm because some fellow citizens have increased their purchases of imports, I’ll show you someone who, economically and ethically, is in a position no different than are the thousands of other people who today suffer economically because some fellow citizens exercised their freedom to contract with their own private property within a competitive economy.  I’ll show you someone who, economically and ethically, is in a position no different from a person across town from that someone who lost her job at the bakery because fellow citizens now choose to spend fewer dollars buying donuts and muffins. I’ll show you someone who, economically and ethically, is in a position no different from a person who lost his job installing telephones in homes because people choose to switch to mobile phones.  I’ll show you someone who, economically and ethically, is in a position no different from fellow citizens who lose their jobs as retail clerks because consumers more and more choose to shop on-line.

So unless you believe it to be questionable that the economy grows as a result of economic change that occurs in response to changes in patterns of consumers spending – changes which themselves are prompted by entrepreneurial innovation and economic competition – you have no reason to question the economic benefits of freer, or more, international trade.  Put differently, if you insist on pointing to the “losers” from international trade as potential justification for forcibly restricting such trade, then you should also point to the “losers” from intranational trade as potential justification for forcibly restricting such trade.  There is no economically or ethically relevant difference between economic change that is the result of more foreign-made widgets and economic change that is the result of more domestic-made zidgets.

Second, identifying someone as a “winner” or “loser” from trade (that is, from economic change) requires an appropriate time horizon.  If the time horizon we use is “today” – or “now” – then, yes, the economy is filled with losers from trade, both domestic and foreign.  But so, too, is the economy filled with with losers from contract law.  If I bought a car yesterday and contracted to pay for that car today, then if we look only at today, I’m a loser: I’m obliged today to fork over money to my creditor while, today, I receive nothing in return from that creditor.  But does anyone other than Bernie Sanders’s fans think that I should appropriately be called an economic “loser” because today I pay the price for a benefit that I gained yesterday?  Does anyone (again, other than Bernie Sanders’s throng of ignorant fan-boys and fan-girls) think that government would promote a fairer or a more prosperous (or more both) economy if it today “protected” debtors from paying debts for goods and services that these debtors acquired yesterday?

Everyone today in America – and I do mean everyone – is a huge beneficiary of an extensive global market.  Nearly everything that each American today consumes contains materials and labor inputs that originated outside of the geographical region called “the United States.”  This fact means that no American could afford to consume on a daily basis as much as he or she consumes were it not for the international trade that make today’s consumption possibilities possible (not only by creating many goods and services physically, but also by reducing the prices of “American-made” goods and services).

Likewise, nearly every job today in America – including those that are today being destroyed by changes in the pattern of international trade – is, to one degree or another, itself the result of international trade.  Many jobs simply wouldn’t exist if there were no foreign trade (or fewer such jobs would exist if foreign trade were less frequent or voluminous).  I speak here not only of jobs in industries that produce goods for export, but also of jobs whose economical existence requires complementary inputs imported from other countries – imported goods such as the low-priced Indonesian-made clothing inventories stocked and sold by workers at Target and Macy’s; the Japanese-made construction cranes operated by hard-hat-wearing workers in St. Louis and Santa Fe; or the Chinese-assembled cell-phones that justify Apple employing at good wages software engineers in Cupertino and retail clerks in Chattanooga.  Restrict these and other imports, and the costs of inputs used by producers and other employers in America rise and the productivity of American workers falls.  In some cases, the effect would be lower pay for American workers; in other cases, the effect would be the absence altogether of certain jobs.  In nearly all cases, American workers would be made worse off.

So, over time – that is, over an appropriately defined span of time – there are no losers from international trade.

….

Note that it is possible for any American who wishes to stop participating in the global economy to actually do so.  All that person need do is to refuse to buy or consume anything that contains any foreign materials or labor and to refuse to sell anything that is ultimately destined to be bought by someone living abroad.  Of course, to so remove oneself from the global economy would be both practically difficult (“How can I tell if this hammer that I’ll use to build my house contains iron ore only from America?”) and deeply impoverishing.  But it can be done.  Indeed, the very fact that it is so difficult (and unpleasant) to remove oneself completely from the global economy is further, strong evidence that no American today – even one who loses his or her jobs to imports today – is a net loser from international trade.  No one has a moral right to rake in the benefits of an economic process while refusing to bear the ill-consequences that come along with those benefits.  If you don’t want the ill-consequence, fine; reject also the benefits.  But never do protectionists wish to protect themselves from the benefits of trade; they selfishly seek to protect themselves only from it’s ill-consequences.

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