Protectionism

by Don Boudreaux on May 27, 2016

in Myths and Fallacies, Other People's Money, Trade

All protectionism is rooted in the mistaken presumption not only that existing, domestic producers have a moral right – enforceable by the state – to the patronage of domestic consumers, but also that no future domestic producers have such a right as against current domestic producers.  This right, were it real, implies that consumers exist to please existing domestic producers; it implies that continued or expanded production of that which is currently produced domestically is the end, while consumption is only the means of encouraging such production.

Only the widespread, if unthinking, acceptance of this presumption gives credence to the demands of domestic producers that some “unfair” practice by a foreign rival or foreign government justifies the imposition by the home government of punitive taxes on domestic consumers who purchase imports.  Only a widely shared, if seldom articulated, belief that current domestic producers have a right to some minimum portion of domestic-consumers’ incomes explains the nodding of the heads of many people of all political persuasions when they hear some politician or pundit or preacher demonize foreign producers for selling wares to domestic citizens.

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Johan Norberg calms frantic and foolish fears about GMOs.

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Sarah Skwire explains how the state and labor unions harm women.

Steve Landsburg proposes that politicians put their own money where their loud mouths are.

Ben Zycher argues – correctly – that “sustainability” is incoherent and, hence, dangerous.

Steve Horwitz’s list of “12 Articles Every Aspiring Economist Should Read” is excellent.  I would add to it, though, Armen Alchian’s 1959 masterpiece, “Costs and Outputs.”  (If obliged to eliminate one of the articles on Steve’s list in order to keep the number at 12, I’d – reluctantly – remove Ronald Coase’s “The Nature of the Firm.”  Alchian’s 1959 masterpiece, while nowhere nearly as influential as is Coase’s justly influential 1937 article on the nature of the firm, it is so good that I seize every opportunity that I can to plug it.)

Alan Reynolds offers five facts about the minimum wage.

Mark Perry highlights another market miracle.

Here’s part six of George Selgin’s important primer on monetary policy.

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… is from page 251 of William Easterly’s superb 2013 volume, The Tyranny of Experts:

The market, by contrast [to state and other nonmarket means of supplying goods and services], rewards the profit-seeking baker according to just how much the consumers feel the bread is worth at solving their nutritional gluten problem.  So the market will self-correct.  Suppose there is a high social payoff to making bread for consumers – as measured by what consumers are willing to pay – but nobody is producing any bread to take up consumers on what they are offering.  Some suppliers in search of profit will start solving the missing bread problem, rewarded by the private payoffs of the revenue per loaf that is aligned with the social payoff to consumers.

Bill Easterly – an excellent economist – understands the logic of the market process.  He understands that even the most well-functioning market economy is, at each moment in time, filled with as-yet-unexploited opportunities for profit.  And he understands that when and where these opportunities exist, alert entrepreneurs will exploit them and, thus, in the process cause resources to be reallocated in ways that better serve consumers.  Or, put differently, Bill understands that the only reliable test we have for whether or not such exploitable profit opportunities exist in any of countless specific places in the market is the actions of entrepreneurs.  Where such opportunities exist, entrepreneurs are likely to exploit them.  And when entrepreneurs en masse are observed not to act in ways to exploit some alleged profit opportunity, the only plausible conclusion is that the alleged profit opportunity isn’t real.

Non-economists, or poor economists, do not understand this reality.  And their failure to understand exaggerates in their own minds the likelihood that their own personal speculations about reality are correct.  Yet because these speculations are not market-tested – that is, because they are not tested in actual markets where people spend their own money (but instead, at best, tested only in academic offices with data processed by some econometric methods, and where the testers risk nothing of their own on the correctness of the conclusion) – these speculations are too likely to be incorrect.

People (including some economists) who assert that minimum wages are justified by existing market failures – failures that, in all cases involving the minimum wage, imply exploitable profit opportunities for entrepreneurial folk – yet who themselves risk nothing of their own on their speculations should be ignored for the cheap talkers that they are.  These people – insufferably arrogant in their academic degrees, their facility with (too often economic-theory-free) econometrics, or their felt empathy with poor workers – are, astoundingly, insulted and angered when called upon to put their money where their mouths are.  We are to overlook their personal non-actions, their personal idleness in markets, while we trust them to advise state officials to threaten with physical violence millions of other people who, spending their own money, stubbornly refuse to act as the idle speculators wish them to act.

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Bonus Quotation of the Day…

by Don Boudreaux on May 26, 2016

in Myths and Fallacies, Trade

… is from page 477 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

The last thing needed when real national income is going down is a policy that makes it go down faster, by denying consumers the benefits of being able to buy what they want at the lowest price available.

Indeed so.  And yet Trump, Sanders, and Clinton each endorses such a policy.

Suppose that massive atomic warfare so destroys food supplies and food-supply lines that the vast majority of Americans, in order to stay alive, return to subsistence agriculture – growing the likes of tomatoes and beets and peas in on their land, as well as raising at home, for home consumption, chickens and pigs.  (Locavores cheer!)  From time to time a squirrel or rabbit – or, for the unusually fortunate families, a deer – scurrying across the yard is shot to supplement the evening’s meager meal.  This atomic-warfare destruction, in other words, creates tens of millions of agricultural jobs by vastly increasing the relative wages (pay) of subsistence agricultural work.  Jobs once abundant in America return!

Messrs. Trump and Sanders – if they really believe and understand the logic of the ‘economics’ that they routinely spew – should applaud these economic consequences of atomic warfare.  Ditto Ms. Clinton, despite the skilled, cynical hemming-and-hawing that she does before endorsing trade restrictions.  Each of these people, and each of their panting fans and apologists, believes that to artificially create greater scarcity is to create greater prosperity.

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Some French folk are now protesting the French state’s proposal to slightly ease employers’ legal ability to fire workers.  When a good economist hears of such protests, and of the allegedly pro-worker diktats that the protesters wish to keep in place, the first question that occurs to that economist is “Don’t these protesters understand that to raise employers’ costs of firing workers is to raise employers’ costs of hiring workers?”

While I’m certain that some of the protesters do understand this reality – “Hey, I’ve got my le poste; and all I care about is keeping that job no matter what happens to you or to anyone else!” – I’m certain also that many other people, sadly benighted, honestly believe that these so-called ‘worker-protection’ diktats actually help workers as a group.  These benighted people are incapable of seeing, not just beyond what Deirdre McCloskey calls “the first act” of the economic drama; they can’t or won’t see beyond the opening lines!

It’s bewildering to contemplate.  How can someone not see that the higher the cost of hiring and employing human labor relative to the benefits that that labor can generate for employers, the less interest employers have in employing human workers?  How can someone not see that government-erected barriers to the firing of workers make each worker hired a more costly investment for employers – and, thus make some workers who would have been, without these barriers, worthwhile to hire, unattractive to hire.

Such blazing blindness is truly bewildering.

I wonder how many of the people who deny the reality that government-imposed restrictions on firing are, in effect, government-imposed restrictions on hiring have the same view about non-human inputs in production.  Suppose that the state enacts ‘IT-protection’ legislation that prohibits firms from ever discarding – from ever not using – any computer hardware and software that firms purchase as inputs.  Would people who support legislation protecting workers from ever being fired think that this ‘IT-protection’ legislation will have no effect on the amounts and kinds of computer hardware and software that firms choose to purchase or rent?

Or suppose that the state enacts ‘landlord-protection’ legislation that prohibits businesses and families from ever ceasing to rent any office space, factories, apartments, or houses that they might rent today.  Do people who support legislation protecting workers from ever being fired not see that this ‘landlord-protection’ legislation will reduce the number (or the square footage, or both) of properties that are today rented out?

Or suppose that the state enacts ‘clothing-protection’ legislation that forces people who buy clothing today to wear that clothing with some minimum frequency (say, once weekly) for some minimum number of years (say, ten years).  Do people who support legislation protecting workers from ever being fired not see that this ‘clothing-protection’ legislation will change both the quality and the quantity of clothing purchased today?

I suspect that even people who support such ‘worker-protection’ diktats understand that ‘IT-protection’ and ‘landlord-protection’ and ‘clothing-protection’ legislation would indeed change both the quantities and qualities of IT, rental properties, and clothing that are bought today – and change these in ways that harm IT producers as a group, that harm owners of rental properties as a group, and that harm clothing producers as a group.

…..

A related point: I suspect also that many of the people – including many of the economists – who do see that French-style ‘worker-protection’ diktats in fact harm workers as a group are among those people who nevertheless are skeptical of the employment-destroying effects of minimum-wage legislation. Such skepticism is mysterious.  If someone understands that a prohibition on firing workers so artificially raises the costs of employing workers that fewer workers are employed, why does that same someone not understand that a minimum wage, by artificially raising the cost of employing workers, also – and according to the same economic logic – results in fewer workers being employed?  Apart from the empirically utterly implausible claim that monopsony power runs throughout the U.S. market for low-skilled workers, there’s no reason why someone who correctly understands the employment-shrinking effects of French-style ‘worker-protection’ diktats should not also understand the employment-shrinking effects of minimum-wage diktats.  But mysteriously, many people – including, embarrassingly, many economists – hold these mutually incompatible beliefs.

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Quotation of the Day…

by Don Boudreaux on May 26, 2016

in Economics

… is from page 56 of the 2013 Liberty Fund edition of Israel Kirzner’s path-breaking 1973 volume, Competition and Entrepreneurship:

The task of a theory of the market is to provide insight into the course of events set in motion by the state of market disequilibrium.  The crucial question concerns the nature of the forces that bring about changes in the buying, selling, producing, and consuming decisions that make up the market.  And it is here that the entrepreneurial notion is indispensable.

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In the current (July 2016) issue of Reason, Deirdre McCloskey reviews Thomas Leonard’s new book on the very illiberal ideas of early “Progressives.”  Many of these ideas – such as the alleged benefits to humanity of eugenics – are now thankfully and thoroughly discredited.  Many other of these ideas, which often arose in support of horrendous ideas such as eugenics, remain today favorites of “Progressives,” although the excuses to hold some of these ideas have changed.  One such idea is the purported loveliness of minimum-wage legislation – which started out as a device to keep ‘undesirable’ people out of the labor market and is today regarded, by economically misinformed people, as a device to raise the incomes of low-skilled workers.

Below, I quote the opening few lines of Deirdre’s review (original emphasis).  (I have access only to the print edition of Reason, and not to the on-line edition, so I can here supply no link to the review.)  I quote these lines not exclusively to feed my vanity but to remind Cafe Hayek patrons that the offer to which Deirdre refers was first made last summer.  Yet still not a single genius “Progressive” among those who are confident enough to put the well-being of low-skilled workers at risk by endorsing minimum wages has stepped forward to actually put his or her own money and effort where his or her own cheap mouth is.  We can only conclude that that mouth knows not of what it speaks when it shouts “monopsony!” as an excuse to ruin the lives of many low-skilled workers with minimum wages.

Here’s Deirdre:

What to do with George, your dear progressive friend who stoutly defends the minimum wage?  One idea is to point out how it excludes low-productivity workers from jobs.  (To the smart-aleck supposition that “monopsony” is widespread, and so the minimum raises employment, Café Hayek‘s Don Boudreaux has challenged George to pick up the unlimited profits implied by the supposition.  No dice so far.)

Indeed, no dice so far.  The world appears to be full of people confident enough in their academic claims that these people will arrogantly risk the well-being of others on the truth of those claims, but these people are too cowardly to risk anything of their own.

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Commence to Humility

by Don Boudreaux on May 25, 2016

in Hubris and humility

My initial thought was to include Thomas Sowell’s latest column in one of my “Some Links” posts.  But this column – which I first learned of from Mark Perry – is so good that I here give it the single billing that it deserves.  A slice (but do read the whole column):

Two themes seem to dominate Commencement speeches. One is shameless self-advertising by people in government, or in related organizations supported by the taxpayers or donors, saying how nobler it is to be in “public service” than working in business or other “selfish” activities.

In other words, the message is that it is morally superior to be in organizations consuming output produced by others than to be in organizations which produce that output. Moreover, being morally one-up is where it’s at.

The second theme of many Commencement speakers, besides flattering themselves that they are in morally superior careers, is to flatter the graduates that they are now equipped to go out into the world as “leaders” who can prescribe how other people should live.

In other words, young people, who in most cases have never had either the sobering responsibility and experience of being self-supporting adults, are to tell other people — who have had that responsibility and that experience for years — how they should live their lives.

I have always hated – even when I was still a college student – the “go out and change the world” advice given by commencement speakers.  Not only does this advice mistakenly presume that the world is in need of wholesale change, it foolishly flatters people still in their 20s that they know enough to effect such change wisely.  In fact, of course, not even older people with lots of solid, real-world experience know enough to be trusted with the power or the charge to “change the world.”

Here and here is the graduation speech that I would give.

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Quotation of the Day…

by Don Boudreaux on May 25, 2016

in Competition, Immigration

… is from page 26 of my colleague Peter Leeson’s and GMU Econ alum Zachary Gochenour’s excellent article “The Economic Effects of International Labor Mobility,” which is Chapter 2 of the superb collection (2015), edited by Ben Powell, The Economics of Immigration (link added):

If citizens are mobile and political authorities are concerned with enlarging, or at least preserving, their tax bases, the prospect of inter-jurisdictional migration may improve their incentive to follow those policies their citizens demand.

Traditionally, inter-jurisdictional competition is considered in domestic contexts with reference to the movement of a country’s citizens between federal jurisdictions, such as states, or within states, between municipalities.  However, the mobility of citizens internationally may also be useful to citizens for improving the quality of their countries’ governments.

International labor mobility is nowhere near as great as labor mobility domestically – because of the much more substantial policy barriers to international movement as well as the considerably larger cost of moving to another country for many citizens.  Thus Tiebout competition‘s potential to improve government quality at the national level is surely much weaker than its potential to do so at the local level.  Still, since some citizens in developing countries do in fact migrate internationally, and many more desire to do so, there is reason to think that inter-jurisdictional competition at the international level may be able to affect national government quality to some degree and that reducing policy impediments to international migration could strengthen that effect.

I add to Pete’s and Zac’s point that, despite the naturally higher costs of migrating internationally compared to the costs of migrating intranationally, at the margin the payoff – in terms of improved government behavior – from more international migration is today likely higher than is the payoff from more intranational migration.  The reason is the one highlighted above by Pete and Zac: precisely because policy now puts far higher obstacles to international migration than to intranational migration, international migration has not yet been allowed to put as much “Tiebout” pressure on governments as has intranational migration.

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