Greg Mankiw, writing in today’s New York Times, makes the case for free trade – and, in the process, rightly laments the economic ignorance that leads so many people to oppose it. Back in 2007, my colleague Dan Klein argued along the same lines.
Yandle’s “bootleggers and Baptists” hypothesis is given many illustrations, from environmental regulations to Obamacare, in a new book of that title, co-authored with his economist grandson, Adam Smith. Yandle’s hypothesis expands “public choice” theory, which demystifies and de-romanticizes government by applying economic analysis — how incentives influence behavior — to politicians and bureaucrats. It rebuts the fiction that such officials are more disinterested than actors in the private sector. Yandle does the same thing regarding many of those who seek regulations.
Understanding the connection between economic freedom, entrepreneurship and prosperity isn’t difficult. In a free market, entrepreneurs devise new products, as well as new methods of production and distribution. If consumers find entrepreneur Jones’s new product valuable enough to buy it a price that covers its cost, Jones reaps profits. If consumers find entrepreneur Smith’s new product to not be worth the price necessary to cover its costs, Smith suffers loses that are his to bear. This simple market test—one in which each consumer and entrepreneur spends his or her own money, and in which almost all economic transactions are consensual—is by far the best means yet devised for ensuring not only that scarce resources are used as productively as possible, but also that creative human effort is continually called forth to discover ever-newer and better ways to use resources.
The Wall Street Journal rightly criticizes Wisconsin governor Scott Walker’s economic ignorance about immigration. (gated) A slice:
And let’s ask this question. If more people, even people with skills such as those on H-1B visas, are bad for an economy, why is the high-growth state of Texas working overtime to get people from other parts of the country to move there? Under the Walker-Sessions model, shouldn’t that depress wages and take jobs from those already there?
Economists call this the lump of labor fallacy, which holds that the amount of available work is fixed. If one person gets a job, another loses it. But the addition of new workers into a market, especially skilled workers, can increase the productivity of companies in a way that expands the supply of work for everybody.
Republicans used to understand this basic economic principle, but the politics of immigration is turning some of them into economists for the AFL-CIO.
Richard Epstein ponders “historic-preservation” regulations.
You can help the victims of the Nepal earthquake. (HT Krishna Neupane)
