Here’s a letter to the Wall Street Journal:

In his inaugural speech, President Trump vowed that his administration will be dedicated to “transferring power from Washington, D.C. and giving it back to you, the people” (“Trump’s Populist Manifesto,” Jan. 21).  Sounds great.  But in that same speech he also said that “We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.”

Overlook the absurd suggestion that foreigners who peacefully offer to sell to us attractive products at low prices are akin to invading armies and terrorists intent on violent destruction and murder.  Instead, recognize that Mr. Trump’s incessant promise to raise trade barriers is a promise to reduce each American’s freedom to spend his or her money as he or she chooses; it is a pledge to give to politicians and bureaucrats in the capital city more authority to override the economic decisions of ordinary families and businesses from Bangor to Bakersfield.  It is, in short, a vow that his administration will be dedicated to transferring yet more power from us, the people, and giving it to Washington, D.C.

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 wish also that the WSJ‘s editors had responded a bit differently to this Trump jeremiad than they did.  They wrote

U.S. companies aren’t stolen; they’re driven away by high tax rates and punitive regulation.

It’s true that U.S. companies aren’t stolen through peaceful commerce.  It’s true also that high tax rates and punitive regulation render all businesses less productive and dynamic than they would otherwise be, and cause some of these businesses to go bankrupt when they are faced with intensified competition from foreign rivals.  But contrary to the impression that I fear is conveyed by this otherwise excellent WSJ editorial, it’s not true that, were all businesses in the United States to have their tax and regulatory burdens greatly lightened, Americans would import less, that fewer American companies would be threatened with extinction by foreign rivals, or that American businesses would no longer find it profitable to expand their foreign operations or to relocate outside of America.

Trade patterns reflect the pattern of producers’ comparative advantages (whether these advantages be ‘natural’ or the results of business or policy choices).  Raise taxes or lower them, and increase regulations or decrease them, comparative advantages will still exist (even if they differ from what they would be under alternative tax and regulatory schemes).

Judging from the pronouncements of many of the people who write to me, as well as from much of the commentary that I encounter in various outlets, there’s a widespread belief among conservatives that taxes and regulations in the U.S. put American producers in general at a great disadvantage in global markets and cause Americans to import more than we would were taxes and regulations here lighter.  But this belief is mistaken.  Not only, again, do those who hold this belief ignore the reality of comparative advantage, they also wrongly assume that businesses in the United States all operate under the burden of uniquely oppressive taxation and heavy regulations.

Note that my argument here is emphatically not that tax rates should not be cut and regulations not reduced.  I support radical tax cuts and the abolition of nearly all government-imposed regulations.  Cutting taxes and reducing regulations would increase Americans’ prosperity (and, importantly, also our freedom, regardless of the economic consequences).  But cutting taxes and reducing regulations will not reduce our imports (quite the contrary, most likely) or shield American firms generally from the rigors of global competition.

(Updated above to reflect Walter Clark’s comment.)

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Quotation of the Day…

by Don Boudreaux on January 21, 2017

in Myths and Fallacies, Terrorism

… is from page 103 of Johan Norberg’s 2016 volume, Progress (footnote deleted; link added):

41kgTx-jN3L._SX323_BO1,204,203,200_Contrary to popular belief, terror is a very inefficient way of accomplishing ideological goals.  For a long time, it was considered efficient because of the success of violent anti-colonial campaigns, but opposition to colonialism succeeded whether it was violent or not.  Violent campaigns in general are great failures.  The political scientist Audrey Cronin looked at 457 terrorist groups active since 1968.  None of them managed to conquer a state and ninety-four per cent of them failed to secure even one of their operative goals.  The typical terrorist organization survived only for eight years, partly because the attacks on civilians alienated the population that the group wanted support from: ‘terroist violence contains within itself the seeds of repulsion and revulsion.  Violence has an international language, but so does decency’.

So it seems that the only way for terrorists to win is if its victims overreact, dismantle civil liberties and blame whole groups for the actions of a few.  Doing so stirs up the very conflicts the terrorists seek and makes it easier to recruit terrorists and continue the battle.

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Bonus Quotation of the Day…

by Don Boudreaux on January 20, 2017

in Politics

is from Bob Higgs’s Facebook page:

imagesSomewhat under duress, because Elizabeth insisted on listening herself, I also listened to Trump’s inaugural speech.  I would rank it among the very worst political speeches I have ever had the displeasure to hear.  Its recipe seems to have been: combine three parts mercantilist fallacies, three parts offensive nationalist bombast, and four parts sheer populist hot air about how great the American people are and how great they will soon be again, thanks to Trump.  Serve accompanied by half-hearted applause from the assembled members of the political criminal class.  All in all, simply an appalling performance, even by the abysmally low standards applicable to such egregious ceremonies.

DBx: Unsurprisingly, Trump’s presidency is off to a repulsive start.

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It’s well-known among people who bother to learn the facts that U.S. manufacturing output continues to rise despite the reality

MW-EI733_output_20160325121729_MGthat the number of Americans employed in jobs classified as being in the manufacturing sector peaked in June 1977 and has fallen, with very few interruptions, ever since.

Nevertheless, some people – for example, the Economic Policy Institute’s Robert Scott – continue to insist that the loss of manufacturing jobs in the U.S. is largely due to increased American trade with non-Americans.  Other studies find empirical evidence that labor-saving innovation rather than trade is overwhelmingly responsible for the loss of manufacturing jobs.

Were I forced to choose between these two alleged competing sources of manufacturing-job losses – trade versus labor-saving innovation – I’d go unhesitatingly with the latter.  If trade were the main source of American manufacturing-job losses, it would be very difficult to explain the continuing rise in American manufacturing output.  But I believe that asking “Are most American manufacturing-job losses due to trade or to labor-saving innovation?” misses the bigger, or a more fundamental, point – namely, the answer to this question doesn’t matter because trade and labor-saving innovation are, economically speaking, identical to each other.

Trade by it’s very nature is labor-saving.  I could bake my own bread with my own hands and my own pans in my own kitchen.  But to do so would take more of my own time than is required for me to earn, by teaching economics, enough income to buy bread from a baker.  My specializing in teaching economics and then trading for bread saves me some of my labor.

Or I could bake my own bread by using a fancy bread-making machine that sits on my kitchen counter.  But I can’t make such a machine myself; I must trade for such a machine, as well as for the inputs – including the electricity – that it requires to produce yummy bread.  So it might fairly be said that any bread that I produce in my own home with my incredible bread machine is the result of trade.

Either way – trade with a baker, or my use of the incredible bread machine – I get bread in exchange for less labor than I would have to use to supply myself with bread were I unable to trade with a baker or to use this machine.

What difference does it make if labor is saved by dealing directly with a machine or with another human being?

Recall David Friedman’s report of car production in Iowa (here as related by Steve Landsburg, with emphasis added by Don Boudreaux):

Read the full post →

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Here’s a letter to the Washington Post:

George Will correctly and wisely notes that, if foreign governments retaliate against U.S. protectionist measures with their own higher tariffs, such retaliation will likely reduce U.S. manufacturing output by reducing U.S. exports (“Trump is the waterbeetle of American politics, and he’ll keep on flabbergasting,” Jan. 19).  But the economic case against U.S. protectionist measures is even stronger than Mr. Will suggests: higher U.S. trade barriers will reduce U.S. manufacturing output even in the unlikely event that foreign governments do not retaliate by raising barriers against American exports.  The reasons are two.

First, because more than half of American imports are capital goods and industrial supplies, many of which are used by American manufacturers, higher trade barriers here will raise American manufacturers’ costs of operations.  The consequence will be reduced manufacturing output.

Second, when Americans import less, foreigners earn fewer dollars.  And having fewer dollars, foreigners buy fewer American exports as well as reduce their investments in America – both of which consequences likely lead to reduced American manufacturing output.

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 pages 544-545 of Douglas Irwin’s superb essay “Adam Smith and Free Trade,” which is chapter 32 in the 2016 volume, edited by Ryan Patrick Hanley, Adam Smith: His Life, Thought, and Legacy:

6_Burlington_Gardens_facade_SmithAt the same time, Smith generally believed that direct interference in markets by government was unlikely to work out well.  There were two reasons for this skepticism.  First, government tended to be much less responsive to the needs of the people than self-interested merchants; merchants had more of an incentive (and more information) to attend to the desires of their customers.  Second, special interest groups could manipulate governments, leading to policies for their own enrichment rather than the public benefit.

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Here’s what my colleague Bryan Caplan learned in 2016.  By his own admission, it really wasn’t a lot.  A slice:

Since I think that most news is overblown fluff, I have little sympathy for the endless pieces about “What we’ve learned about the world in 2016.”  Against the background of all of human history, 2016 taught us next to nothing.  If you just discovered that horrible people often gain vast political power with widespread popular support, you’re in dire need of remedial history.  If you’ve just discovered that politicians’ personalities matter at least as much as their policy views, you’re in dire need of remedial political science.  If you’ve just discovered that demagogic appeals to national identity work, you’re in dire need of remedial psychology.  I am only a messenger.

Still, if you compelled me to articulate what I learned in 2016, here is the most I’ll admit.

1. American voters are at the moment even more irrational than I thought they were in 2015.

2. Republicans are at the moment even more nationalist than I thought they were in 2015.

3. Democrats are at the moment even more socialist than I thought they were in 2015.

George Will accurately identifies Donald Trump as the waterbeetle of American politics.  A slice:

The Washington Examiner’s Tim Carney reports that Trump’s choice to be commerce secretary, Wilbur Ross, who was a registered Democrat until nine days into the transition, has praised China’s central direction of its economy using five-year plans. Ross favors a U.S. “industrial policy” whereby government would “decide which industries are we going to really promote — the so-called industries of the future.” Ross’s confidence in government’s clairvoyance and planning dexterity might reflect the fact that, as Carney reports, he has done well by buying steel and textile companies that then profited from tariffs on steel imports and from textile import quotas.

Tim Worstall writes about writing robots.

Mike Munger explains important unintended consequences.

Bretigne Shaffer is unimpressed, to put matters mildly, with the record of Pres. Obama.

Hans Bader explains how economic ignorance combines with camouflaged greed to create California’s fiscal problems.

Chelsea Follett adds her clear voice to those are exposing the absurdity of the method that Oxfam used to reach its recent headline-grabbing conclusions about world wealth inequality.

My Mercatus Center colleague Dan Griswold has a few probing questions for U.S. Commerce Secretary-designate, Wilbur Ross.  A slice:

4. Mr. Trump boasts of his successful efforts to persuade Toyota and other foreign-based automakers to produce more cars in America. Investments by these companies to honor their commitment to Mr. Trump will put upward pressure on America’s trade deficit. How do you square Mr. Trump’s desire for more such foreign investment in America with the administration’s often-stated goal reducing America’s trade deficit?

5. Americans spend about $130 billion a year on foreign travel and tourism. Does the Trump administration plan to impose any taxes on Americans who travel abroad in an effort to persuade them to “Buy American”?

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… is from page 100 of Frank Machovec’s profoundly important 1995 volume, Perfect Competition and the Transformation of Economics (citations omitted; original emphasis):

Unknown-2The state of affairs ultimately created by competition was certainly discussed by every classical writer, but to apply a magnifying glass to the price-equals-cost (equilibrium) condition, as if it were the heart of classical analysis, is a case of mistaking ‘the shadow for the substance’.  In fact, Adam Smith’s most emphatic and recurring thematic point – his explanation of the invisible hand – had nothing to do with the final results of the process and had everything to do with the role of incentives, i.e., the nature of the process.

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A Baker’s Dozen Economics Missteps

by Don Boudreaux on January 19, 2017

in Economics

An insightful e-mail this morning from my colleague Pete Boettke prompted me to ask myself: What are the most regrettable missteps taken by mainstream economists?  The list below is solely my own; its entries are ranked in no particular order; and this list unavoidably reflects my own interests and areas of professional focus over the 40 years that I’ve been studying economics.

Economics has, for all of its unquestioned successes, failed to be as revealing and as useful as it can be because too many economists…

… equate competition with price-taking – that is, equate competition with the condition under which any seller (buyer) that raises (lowers) the price at which he offers to sell (buy) will lose all customers (suppliers) – and, hence, too many economists insist that real-world situations that aren’t marked by complete price-taking behavior are situations that are infected by something called “monopoly power”;

… assume that competition in reality must look like what competition in economics textbooks or journal articles looks like – that is, too many economists fail to understand that workable business practices and market structures themselves are, like market prices, also the results of the competitive discovery process and are always changing in unpredictable ways;

… continue to fail to appreciate the role of entrepreneurship;

… continue to fail to adequately appreciate human-beings’ creativity at solving problems and at better satisfying their desires;

… fail to adequately appreciate the countless ways in which competitive forces can and do play out in reality;

… formulate macroeconomic theories (and policies) using carelessly conceived aggregates (for example, “the” capital stock, called K) while ignoring the formation and role of relative prices;

… ignore the influence of culture and the richness of human motivations;

… ignore the lessons of public-choice economics (despite the fact that some major contributors to public-choice analysis, such as my late colleague Jim Buchanan, were awarded Nobel Prizes);

… occasionally practice naive empiricism – that is, too many economists occasionally insist that all that we can really know about the economy comes from what the quantitative data tell us, and that all that is relevant about the economy are those things that we can observe and measure;

… mistake mathematical wizardry for insightful and important analysis;

… model the economy, and think about the economy, as if its purpose is to maximize something – and, as a result, most economists fail to study exchange with due care and consideration;

treat international trade as if it is something special and different in essential ways from trade generally (see also here.);

… have failed to fully appreciate the greatness of Armen Alchian and Gordon Tullock, who should have won, but did not win, Nobel Prizes.

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No State is Trustworthy

by Don Boudreaux on January 19, 2017

in Video, War

In this short video, GMU Econ alum Abby Hall Blanco discusses U.S. government surveillance on Americans, and explains that such surveillance is the inevitable result of an interventionist foreign policy.  (HT Pete Boettke)

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