Cafe Hayek — where orders emerge

Bonus Quotation of the Day…

by Don Boudreaux on August 14, 2017

… is from page 277 of my late colleague Jim Buchanan‘s 1985 article “Constitutional Democracy, Individual Liberty, and Political Equality” as it is reprinted in Moral Science and Moral Order, Vol. 17 of The Collected Works of James M. Buchanan:

Those persons who object to the explicit introduction of or an extension of constitutional limits over the range and scope of political activity often, at the same time, strongly support constitutional guarantees of democratic decision-making procedures, as such. In the literal sense, therefore, these persons are also “constitutionalists,” and they would acknowledge the necessity of affixing the word “constitutional” to “democracy.” Without effective guarantees of electoral processes, a majority coalition, once in office, could, of course, simply abolish all elections and establish itself in permanent authority. In this context, those persons who most strongly oppose constitutional constraints on the activities of governments accept the necessity of constitutional constraints on the procedures of politics. There are few who claims to adhere to democratic values, however these values may be described, who are not, at the same time, constitutionalists of one sort or another. There is then no inherent or internal inconsistency in the position that urges the imposition of constraints on the range of activities open to political authority. Just as a majority coalition may, unless it is restricted, abolish electoral feedbacks that insure the potential for rotation in office, so may any effectively operating political coalition seek to extend its authority beyond any plausibly acceptable boundaries described by the publicness notion.

DBx: One of the most irritating facts about Nancy MacLean’s fabulist book, Democracy in Chains – apart from her countless careless factual errors, flights of illogical ‘reasoning,’ and tales fabricated out of thin air – is her palpable ignorance of political theory. She isn’t ignorant only of public-choice scholarship. She seems to be ignorant of political theory generally. Nowhere does she give evidence of seriously appreciating the manifold difficulties that scholars throughout the ages, and of diverse ideological stripes, have identified with collective decision-making procedures. For her, majority-rule democracy is a rather simple and straightforward institution that is unquestionably superior to all alternatives at ensuring that government acts in ways that promote the true public interest. (In his review of MacLean’s book, Mike Munger marveled that MacLean herself champions, with apparent sincerity, a straw-man version of majoritarian democracy.) Any one who wishes to put majority-rule democracy “in chains” is, therefore in MacLean’s opinion, either a fool or a villain. (On her telling, Jim Buchanan was a villain.)

So I wonder what MacLean would say to those who argue for a constitutional rule that prevents today’s winning majority coalition from eliminating democratic elections going forward? Would she accuse those who support such a rule as being enemies of the People – enemies who would deny the majority the right to do as it pleases? I suspect not. That is, I suspect that even the naive MacLean would see the wisdom in “chaining” today’s majority from changing the voting rules going forward in ways that protect that majority from being outvoted in the future.

Yet if so – that is, if MacLean would support this constitutional restriction on the power of the current majority – then she obviously does not trust the majority always to do what’s best for the general public. But once the majority is reckoned not to be 100-percent trustworthy, surely it’s prudent at least to consider the possibility that constitutional restrictions on the power of the majority (beyond those that restrict its ability to abolish majority rule itself) might yield positive benefits for society at large. If today’s majority is not to be trusted without constraint to use its power wisely for the public interest, then there is no good reason to interpret calls for constitutional limitations on the scope and power of political majorities as evidence that those who make such calls are foolish or villainous – or anti-democratic – enemies of ‘the People.’

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Some Links

by Don Boudreaux on August 14, 2017

in Competition, Education, Growth, Innovation, Myths and Fallacies, Politics, Regulation, Seen and Unseen, Standard of Living, Trade, War, Work

Kerry McDonald celebrates homeschooling.

Most of us Americans today enjoy benefits available a quarter-century ago only to multimillionaires.

Here’s more good news: efforts to price low-skilled workers out of jobs with mandatory $15 minimum wages are waning. (HT Warren Smith) A slice (link added):

In fact, University of California, Irvine, economist David Neumark examined more than 100 credible minimum wage studies of the past two decades and found that 85% of them “found consistent evidence of job loss effects on low-skilled workers” — including lost jobs, reduced hours and closed businesses.

Mark Perry identifies a significant inconsistency in the beliefs of “diversity” advocates.

Richard Epstein riffs on the UAW’s recent resounding defeat in Canton, Mississippi. (Among the myths that “Progressives” cling to is the notion that workers’ wages rise, not mainly because of competition among employers for workers, but because – and to the extent that – workers bargain harder with employers. Bargain as hard as you like: no employer will pay you a wage higher than the value of your marginal product.)

Erik Goepner and Trevor Thrall argue against U.S. drone strikes in the Philippines.

Writing in the Wall Street Journal, John Tamny explains the foolishness of the belief – held by Trump and many others – that a weak U.S. dollar is good for Americans. A slice:

A final simple point is that American workers are paid in dollars. Devaluing the currency erodes their ability to buy the necessities and pleasures of life, whether they’re created across the street, or on the other side of the world. This obvious truth has long eluded proponents of a weak currency, who are prone to limiting their analysis to first-stage implications. They focus on the economy as an abstract blob, forgetting that it’s made up of millions of individual workers who earn dollars. Never explained by Mr. Trump or any backer of a weak currency is how eroding its value will help these people and companies.

Virginia Postrel makes a case for permissionless innovation.

My Mercatus Center colleagues Stefanie Haeffele-Balch and Virgil Storr plea for moderation.

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Quotation of the Day…

by Don Boudreaux on August 14, 2017

in Complexity & Emergence, Hubris and humility

… is from page 291 of the late Vincent Ostrom’s 1997 book, The Meaning of Democracy and the Vulnerabilities of Democracies:

Great Societies are not organized by some single center of Supreme Authority exercising tutelage over Society. Knowledgeable, skillful, and intelligible persons build great societies by working with one another and mediating conflicts to achieve conflict resolution in forming coherent patterns of relationships with one another.

DBx: Yes. But to understand the reality here identified by Ostrom (and identified elsewhere by scholars such as Adam Smith, Carl Menger, Ludwig von Mises, F.A. Hayek, Bruno Leoni, and Vincent Ostrom’s Nobel-laureate wife, the late Elinor Ostrom) requires adult thought. To grasp this understanding requires (1) a willingness to overcome the temptation to see conscious design or intent in all observed patterns, (2) relatedly, the maturity to reject interpretations of all social interactions as a child might – namely, as battles between good guys and bad guys, and (3) the civility to judge other people’s actions (and the outcomes of those actions) by criteria other than your own personal preferences and suppositions.

None of the above is to say that human intent is irrelevant, that there aren’t sometimes battles between good guys and bad guys, or that your own personal preferences are insignificant and your own suppositions always mistaken. It is, however, to insist that, when observing and assessing the economy or society, you exercise more thought and maturity, and less arrogance and hubris, than are too often exercised by those who observe and assess social reality. That reality is vastly more complex than you know. For example, in market-oriented economies income isn’t “distributed” by anyone or by any cabal; nor is income or wealth “distributed” in accordance with a consciously chosen plan or with a simple formula such as r>g. Prices and wages aren’t “set” by conscious design or to satisfy the wills of evil plutocrats or of angelic politicians. Patterns of specialization and trade aren’t determined by government or CEO design. At the levels on which people focus most discussions of policy – “the” economy, this industry, that group of workers, etc. – the patterns that exist are all emergent. They are the results of human action but not of human design.

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Deirdre McCloskey Chats with Nick Gillespie

by Don Boudreaux on August 13, 2017

in Growth, History, Standard of Living, Video

Here’s a great interview of Deirdre McCloskey by Nick Gillespie.

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Quotation of the Day…

by Don Boudreaux on August 13, 2017

in Myths and Fallacies, Seen and Unseen, Trade

… is from page 249 of Liberty Fund’s newly published, expanded English-language edition, brilliantly edited by David Hart, of Frédéric Bastiat’s indispensable work Economic Sophisms and “What Is Seen and What Is Not Seen”; specifically, it’s from Bastiat’s February 1847 essay “Domination through Work” (“Domination par le travail”):

If a product is seen only as the opportunity for work, it is certain that the anxieties of protectionists are well founded. If we considered iron, for example, merely with regard to its relationship with iron masters, we might fear that competition from a country in which it was a free gift of nature might extinguish the furnaces in another country in which both mineral and fuel were scarce.

However, is this a comprehensive view of the subject? Has iron a relationship only with those who make it? Is it foreign to those that use it? Is its sole and final purpose that of being produced? And if it is useful, not because of the work to which it gives rise but because of the qualities it possesses and the number of services for which its hardness and malleability make it suitable, does it not follow that foreigners cannot reduce its price even to the point of preventing its production here without doing us more good in this latter respect than any harm it might do in the former?

DBx: Pardon my repetitiveness, but it’s important to reveal the flawed reasoning that gives rise to a common misunderstanding that lies at the root of much protectionist sentiment. The common misunderstanding that I here have in mind is that protectionism is justified if enough consumers or voters are willing to pay higher prices in order to help workers. There are at least three flaws in this reasoning.

First, those who justify protectionism on this ground typically suppose that foreign trade uniquely destroys particular jobs in the domestic economy. But of course in modern economies many particular jobs are destroyed (and created) daily for reasons having nothing to do with imports. If punitive taxes on consumer expenditures are justified because they prevent particular job losses, then consistency requires that anytime any consumer changes his or her spending pattern that that consumer’s new expenditures be taxed punitively. The local handyman who loses his job because improvements in home construction reduce the need for his services suffers no less than does the local steelworker who loses her job because fellow citizens are buying more steel from abroad. Unless and until protectionists proclaim that they want to prevent all economic change, there’s no good reason to pay attention to their calls for restrictions only on imports.

Second, those who justify protectionism on this ground ignore the jobs in the domestic economy that are currently made possible by imports, as well as jobs in the domestic economy that would in the future be made possible by imports in the absence of protectionism. The debate over free trade is not a debate between those who, on one side, champion consumers over producers, and those who, on the other side, champion producers over consumers. While it must never be forgotten that the ultimate justification for all economic activity lies in its ability to satisfy consumer demands, it must also never be forgotten that to protect some particular jobs with tariffs and other import restraints (or with export subsidies) is to destroy other particular jobs – other particular jobs currently existing and also, absent protectionist policies, to exist in the future.

Third, those who justify protectionism on this ground ignore the foreign jobs that are destroyed by the protectionists’ own governments’ protectionist policies. Even if we stipulate for the sake of argument that trade policy is to be judged exclusively by its effects on workers in the particular jobs that they currently hold, a professed willingness to pay higher prices in order to magnanimously prevent some workers from suffering particular job losses rings hollow as a proclamation of one’s alleged superior morality if the person who so professes that willingness ignores the job losses inflicted on foreign workers by that person’s own-government’s protectionist policies.

Anyone who accuses free traders of having a morality that’s too narrow and cramped is usually a hypocrite, although often unawares. It is the typical protectionist whose morality is far more narrow and cramped, for that person (1) ignores or discounts the interests of both domestic and foreign consumers, (2) ignores the interests of all workers, domestic and foreign, save for the relatively small handful who stand to be protected today from having to compete with imports, and (3) ignores the benefits of freedom as an end in itself.

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Some Links

by Don Boudreaux on August 13, 2017

in Antitrust, Crony Capitalism, Current Affairs, Inequality, Monetary Policy, Movies, Myths and Fallacies, Truth-seeking & ideology, Virginia Political Economy

Jeffrey Tucker is rightly repulsed by the resurgence of bigotry and of what Ludwig von Mises called “right-Hegelianism” on disgusting display this weekend in Charlottesville. A slice:

But one thing you learn from history is that no idea is too insane to be off limits to a group infected with a longing to rule.

Anthony Gill wonders if it’s even possible to “buy local” in the way that buy-local enthusiasts suppose. (Few enthusiasms, in my view, so thoroughly reveal in those who hold them a profound ignorance not only of economics but also of the brute facts of reality as does the enthusiasm to “buy local.”)

Scott Sumner points to research showing that neoliberalism (as it is called by its opponents) promotes global equality.

Here’s the latest installment in George Selgin’s important monetary-policy primer.

Alan Reynolds talks good sense – here, and then here – about antitrust (which, contrary to popular myth, stymies rather than stimulates market competition).

Film-maker Ted Balaker reports on a University president who can’t take a joke.

Kevin Williamson says that the Congressional GOP is AWOL. A slice:

There is disagreement among Republicans about what policies should be forwarded, and President Trump does not know what he himself thinks about any of them, because he does not think anything about any of them, because he doesn’t know about them. Trump does not do details – he does adjectives. He wants a “terrific” health-care system. So does Bernie Sanders, but the two of them don’t agree on what that means in practice. At least, they don’t agree anymore: Trump has in the past endorsed the same single-payer system that the grumpy little socialist Muppet from Vermont prefers, which he, or whoever writes the books published under his name, described at some length in his 2000 offering The America We Deserve. He pointed to Canada as an example of how health care in the United States should be organized. He might even have believed that for a week or two, but Trump is simply too lazy to do the intellectual work necessary to develop a coherent position beyond his facile superlatives.

Barkley Rosser (who, by the way, is no libertarian free-marketeer) finds great fault in Nancy MacLean’s fabulist book, Democracy in Chains. (He is, however, mistaken on a few matters. Jim Buchanan did not attend the inaugural meeting of the Mont Pelerin Society. More importantly, there in fact is very little evidence, and no reason to believe, that Buchanan had any influence on the creation of a new Chilean constitution under Pinochet. Andrew Farrant has a couple of working papers, at least one with Vlad Tarko, on Buchanan’s alleged influence on Pinochet.) Here are some slices from Rosser’s essay:

What about major problems with MacLean’s arguments? I shall note three, starting with one noted by others and effectively granted by MacLean herself. This is the claim she makes in the final chapter that Tyler Cowen supports suppressing democracy. This is based on a quote she supplies that was definitely taken out of context, a context where it was clear that the content of the isolated quote was contradicted by what immediately followed it. Even those who have supported MacLean’s book on Facebook such as Gary Mongiovi have agreed that MacLean was simply out to lunch on this matter, although while she has recognized that the quote is problematic, she has not fully retracted her argument related to it.

….

A second problem reflects that MacLean is not an economist and seems to seriously misunderstand public choice theory, with her views on rent seeking being a strong example. In discussing rent seeking, a concept originated by Buchanan’s important coauthor, the late Gordon Tullock, and labeled by the centrist liberal development economist, Anne Krueger, she consistently identifies the supposed rent seekers as politicians seeking voting support from activist liberal groups such a unions and civil rights groups, especially the latter, whom the the supposedly anti-democratic tendndencies of Buchanan are directed against. But in fact in public choice theory the rent seekers are priviate interest groups that use government to create artificial monopolies, which generate the rents these groups are seeking. It is really a quasi-Marxist view that sees capitalists using the government to enhance their corrupt profits. It is ironic that I have seen public choice economists show up at URPE [Union for Radical Political Economics] social gatherings at meetings to discuss how they have this in common with the radical left URPE folks, opposition to corrupt use of the government by rent seeking private interests.

….

But when MacLean links the Kochs with Trump there is indeed a further problems: they did not support him, certainly not in the GOP primaries, where reportedly they preferred pretty much anybody but him, although it would appear that they may have made at least some peace with him since he entered office. But they disagree with him on many of his policies, see the list above of things they support I agree with and which Donald Trump by and large disagrees with.

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Bonus Quotation of the Day…

by Don Boudreaux on August 12, 2017

in Economics

… is from page 171 of my colleague Richard Wagner’s superb new intellectual biography of Jim Buchanan, James M. Buchanan and Liberal Political Economy (2017) (link added):

Peter Boettke (2012) explains that Buchanan, like Frank Knight and Henry Simons, regarded economics as a relatively simple science of great public significance. That science, moreover, could be easily manipulated and distorted in the service of special pleadings of all sorts, and with proper economics serving mostly to explain why the political promises and speeches of the day typically are more sources of problems than of solutions.

DBx: The economist’s greatest role is to expose the poor logic and fallacies that infect so much public discussion of markets and of politics. It’s not rocket science. It involves always asking, almost to the point of being annoying, questions such as

“Who will pay for that?”

“How will people respond and adjust to your scheme, beyond the responses and adjustments that you assert will occur?”

“If your scheme is so splendid, why has no one yet attempted to put it into operation? And why do you demand that the state force people to conform to your scheme?”

“What makes you think that you know better than Smith what’s best for Smith?”

“If private markets ‘fail’ because of asymmetric or information, moral hazard, adverse selection, human psychological quirks, or other ‘imperfections,’ what is it about government that enables political operatives to overcome these ‘imperfections’?”

“Why is it worse for a worker to lose a job when his neighbor buys a foreign-made car than when his neighbor buys a used car?”

“As compared to what?” “As compared to what?” “As compared to what?”

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Quotation of the Day…

by Don Boudreaux on August 12, 2017

in Myths and Fallacies, Virginia Political Economy

… is from page 62 of my late Nobel-laureate colleague James Buchanan’s May 1988 American Economic Review article, “Contractarian Political Economy and Constitutional Interpretation,” as this article is reprinted in Choice, Contract, and Constitutions (2001), which is volume 16 of The Collected Works of James M. Buchanan:

If, however, the organic or communitarian paradigm is rejected in favor of an individualistic one, implications emerge that embody both methodological and normative content. If individuals, or organizations of individuals, are the units that enter into exchanges, the values or interests of individuals are the only values that matter for the quite simple reason that these are the only values that exist. Such terms as “national goals,” “national interest,” and “social objectives” are confusing at best. Individuals in a community may, of course, share values in common and they may agree widely on specific goals or objectives for policy directions to be taken by their political organization. But this very organization, like others, exists only for the purpose of furthering individual values and interests.

DBx: One is free to disagree with this method of doing economic and political analysis. One may, instead, insist that there are indeed “national interests” and “social objectives” that somehow exist independently of the individual human beings who comprise the nation and society. But what one may not legitimately do is to accuse those, such as Jim Buchanan, who employ this method of analysis of thereby being hostile to liberal values, to civil society, or to political equality. No such conclusion follows from the use of this method. This method, after all, has a long and honorable history. Nor may one legitimately conclude that to use methodological individualism is thereby to assume that individuals are not social creatures, each deeply influenced by the actions and talk of other individuals.

But beware of rejecting methodological individualism in favor of some “holistic” method of analysis – say, a method of analysis that is premised on the existence of a “national interest” that emerges from some source other than from the desires, interests and choices of each of the many individuals in the nation (for example, from “history”). In practice, the detailed contents and contours of this “higher” interest – say, the “national interest” – must be determined or specified, or “discovered,” in order to be acted upon. And those who determine or specify, or “discover,” just what these detailed contents and contours are will inevitably be flesh-and-blood individuals. Individuals in power, or with influence on those in power, will in fact make this determination and specification, or “discovery,” even though these individuals will at the same time proclaim that they are but the heralds of the “nation,” of “history,” of god, or of whatever superhuman interest individuals on the ground are being enticed to obey and follow.

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Consumption Is Indeed the End; Production Is Indeed Only a Means

by Don Boudreaux on August 12, 2017

in Economics, Myths and Fallacies, Trade

In a Facebook comment to this post, Kenneth Betts objected to my repeat of Adam Smith’s insight that consumption is the end to which production is a means. Mr. Betts’s objection springs from a fact of reality, but that fact does not refute my point.

The fact of reality that Mr. Betts emphasizes is that resources used in consumption are not resources used to further increase the productive capacity of the economy. True enough. But one must ask: What is the purpose of having an economy with a high productive capacity? And, even more fundamentally: How to assess productive capacity to begin with? The key to both answers lies in understanding that the purpose of all economic activity is ultimately to satisfy each person’s desire to enjoy a high standard of living (including, let us not forget, opportunities to enjoy leisure). Here’s my slightly edited reply to Mr. Betts on Facebook:

Mr. Betts: You misunderstand the point. The point is not that resources do not have to be husbanded well and used efficiently in order to promote economic growth. Nor is the point that economic growth is undesirable. Quite the opposite. The point is that the point of it all is to enable us humans to enjoy standards of living as high as possible. And success or failure on that score is measured in our ability to consume.

Suppose that I have at my disposal some metal, glue, rubber, fruit, and flour. Suppose further that I use the fruit and flour to fashion a faucet for my bathroom, and the metal, glue, and rubber as ingredients in a pie that I bake. How productive have I been? I would argue, not very. (Indeed, I have been unproductive given that I squandered perfectly good inputs, including my time, to produce outputs that are of no use to anyone.)

Now suppose that I instead use the fruit and flour as ingredients in a pie that I bake and the metal, glue, and rubber to construct a faucet for my bathroom. Has my productivity changed? I would argue – and I’ll bet you would, too – that I was more productive in the second case than in the first. And this fact is true even if I spent as much, or even more, time working in the first case than in the second case. The point is that productivity is ultimately measured by how well raw materials, inputs, and human labor contributes to output that people wish to consume. Production for the sake of production is pointless; the point of production is to satisfy consumer desires either directly (as when a supplier sells directly to a final consumer) or indirectly as when a supplier supplies an input used by another producer who is part of a chain of production that results in goods or services for final consumers.

I note again that to say that production is ‘only’ a means is not to denigrate the importance of production. Production is an essential means toward the end of consumption. The more production there is, the more consumption there can be. But we use the means to create the end. We produce in order to consume; we do not consume in order to produce. Anyone who doubts the truth of this claim should try to explain to himself or herself (and to others) why people must be paid to work but pay to consume.

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Bonus Quotation of the Day…

by Don Boudreaux on August 11, 2017

in Politics, Reality Is Not Optional, Video

… is from page 7 of the late Vincent Ostrom’s 1997 book, The Meaning of Democracy and the Vulnerabilities of Democracies:

The world of politics is likely to attract both those who presume to know the Truth and seek to lead others to Salvation and those who are attracted by the fruits of victory like bees to a pot of honey on a warm summer day.

DBx: Or to borrow from Bruce Yandle, politics attracts into its ranks both Baptists and bootleggers. Neither of these types is especially appealing. The first – the “Baptists” – might be motivated by a sense of high-mindedness, but they arrogantly mistake the fact that their minds are high for their minds being able to comprehend that which no human minds can comprehend – namely, the vast amounts of information and knowledge operating at every moment in time to make real even the most mundane of modern realities. These arrogant people fancy themselves smart and well-meaning enough to substitute their own blueprints for the countless choices and actions of millions of individuals. This fancy of theirs makes them dangerous.

The second group – the “bootleggers” – are simply out to use the levers of state power to get what is not rightfully theirs. They scratch no itch to save the country or humanity or anything else. But they are clever enough to understand that if they pretend to be high-minded, they’re far more likely to succeed in politics. So they lie.

What a system.

Here, by the way, is a video from 2010 of Bruce discussing bootleggers and Baptists: