… is from page 312 of Thomas Sowell’s 2009 volume Intellectuals and Society:

The intelligentsia … have encouraged the poor to believe that their poverty is caused by the rich – a message that may be a passing annoyance to the rich but a lasting handicap to the poor, who may see less need to make fundamental changes in their own lives that could lift them up, instead of focusing their efforts on tearing others down.

The intelligentsia have acted as if their ignorance of why some people earn unusually high incomes is a reason why those incomes are either suspect or ought not to be permitted.

I add here only that many of the intelligentsia who are here rightly criticized by Sowell are unaware of their ignorance of why some people earn unusually high (while other people earn usually low) incomes.  These members of the intelligentsia think they have this knowledge.  But as is so often true of a human being who is ignorant of X, his or her conclusions about X are typically mistaken despite his or her soaring confidence that he or she knows what’s going on.

Economically uninformed members of the intelligentsia (that is, nearly all members of the intelligentsia) seem, on my reading of much public commentary, to believe that workers’ pay – especially pay at the high end (such as the pay of CEOs) – is determine arbitrarily, by intention and design.  Thomas Piketty (who, as a trained economist, should know better) attributes high and rising CEO pay in the U.S. to a chummy relationship between corporate boards and CEOs, along with American social attitudes that permit boards to award CEOs high pay that is unconnected with the performance of CEOs.

Regardless of the particulars of each such ‘explanation’ of pay offered by this or that member of the intelligentsia, no such explanation is based upon any intelligent understanding of competition and marginal valuation.  Therefore, all such explanations – even the (relatively) more sophisticated ones that do not attribute all prices, wages, and salaries simply to some craftily designed scheme and intentional decisions of plutocrats – treat wages and salaries as being heavily determined by arbitrary forces.  It follows (in the minds of people who fall for such explanations) that good and smart government officials can counteract these arbitrary forces in ways that help ‘the poor’ yet which come either at the expense of no one at all or at the expense only of some ‘bad’ group of people who have somehow managed to arbitrarily serve themselves unjustifiably large slices of the economic pie.

Are wages paid to members of this group too low relative to your personal assessment of what this group’s wages ‘should’ be?  No problem.  Just threaten to cage or to shoot all employers of members of this group who refuse to raise the wages paid to members of this group.  Are salaries paid to members of that group too high relative to your personal assessment (My, what a god-like genius you are!) of what this group’s pay ‘should’ be?  No problem.  Just threaten to cage or to shoot anyone who is deemed responsible for setting such high pay yet who refuses to lower such pay to levels that you, with your uncanny brilliance, divine are appropriate.

In short, the explanation that most members of the intelligentsia have of the pattern of wages and salaries (and other prices) prevailing on the market is as intellectually credible as is the explanation that prehistoric humans had of the weather: it is determined directly by the often-capricious intentions of some mysterious and powerful mind (or cabal of such minds).

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David Henderson has an account of yet another instance of government thievery in the United States that would cause even the most shameless banana-republic autocrat to blush noticeably.

Speaking of the horrendous and lawless practice called “civil asset forfeiture,” here’s my Mercatus Center colleague Nita Ghei from three years ago.

David Boaz wishes us all a Happy July 2nd!

I love this line from Arnold Kling:

Capitalism is inherently sustainable, relentlessly producing more human satisfaction using fewer resources. What environmentalists call “sustainability” ought to be called primitivism, producing less human satisfaction using more resources.

Here’s George Selgin on the euro.

George Will rightly criticizes some GOP pols for their reaction to the recent Court ruling on same-sex marriage.

Here’s the audio of a talk given not long ago by Steve Horwitz on the socialist-calculation debate.

Bart Hinkle writes on the foolishness of Bernie Sanders’s socialism.  A slice:

Sanders’ defenders will say he wants to redistribute wealth, not control the allocation of economic goods. But as Hungarian philosopher and economist Anthony de Jasay explained in The State, the two are inseparable. There is no point in taking money from A and giving it to B except to change the allocation of goods. The whole point is to get A to buy less champagne (or spend less money marketing new deodorants) and allow B to buy more of what she wants. Redistribution of wealth is meant to divert resources from “socially useless” goods to socially useful ones.

Which brings us to the principled objection: socially useless to whom? In a world of hungry children, Jones might think it’s idiocy to spend a single cent on one more song by Kanye or Taylor Swift (and Jones would be right!). But that isn’t Jones’ choice to make for anybody except Jones. If Smith wants to waste his money on a pop singer’s latest release, he has every right to do so, and nobody else has the right to force him to do otherwise. After all: If Smith has no right to decide how he will spend his own money, then by what means does Jones, whose money it isn’t, acquire such a right?

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Here’s a letter to the Wall Street Journal:

Your report on how the minimum wage destroys job opportunities for many Puerto Ricans is useful (“Puerto Rico’s Pain Is Tied to U.S. Wages,” July 2).  Yet this report repeats a highly misleading error from a 2012 New York Fed study.  Accurately citing this study, you write that on the American mainland in 2010 16 percent of workers earned the federal minimum wage.  In fact, the real figure is far lower.  According to the Bureau of Labor Statistics, the percentage of mainland workers who earned the minimum wage (or less) in 2010 is 6 percent – much less than half the 16 percent repeated in your report.

Indeed, for two reasons the actual percentage of mainland American workers earning the federal minimum wage or less is much lower than even 6 percent.  First, the BLS data cover only workers who are paid by the hour – a group consisting of only about 60 percent of all U.S. workers.  Adding in workers paid on bases other than hourly rates would, of course, further reduce the percentage of workers earning the minimum wage.  Second, as explained by the BLS, “[t]he estimates of workers paid at or below the federal minimum wage are based solely on the hourly wage they report (which does not include overtime pay, tips, or commissions).”  And such self-reported hourly earnings apparently also exclude the value of fringe benefits.

The reality is that only a tiny fraction of mainland American workers earn as little as the minimum wage – a reality that (1) explains why it is so difficult statistically to detect the disemployment effects of the minimum wage, and (2) is powerful evidence against the oft-repeated assertion that competitive market forces do not on their own adjust each worker’s wages upward as his or her productivity rises.

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 July 2, 2015

in Myths and Fallacies, Politics

… is from page 228 of my teacher Randy Holcombe’s excellent 1985 book, An Economic Analysis of Democracy (links added):

The theoretical work done during these decades [1960s and 1970s] has provided explanations for the poor actual performance of government in solving social problems.  Many specific studies … cite problems inherent in the existing incentive structure embodied in political institutions.  The suggestion is that existing political institutions are not well suited for allocating economic resources.  More far-reaching are general studies, such as Arrow’s that show the general inappropriateness of any political institution as a mechanism for choosing social conditions.  Arrow showed that under reasonable conditions, collective decision making in any form is not capable of making rational choices among alternative social states.

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After reading the account of civil asset forfeiture in today’s Some Links post, Chuck Hampton asked me to rerun this post from four years ago.  Here ’tis:

…….

Fifteen years ago, Adam Pritchard (now a law professor at the University of Michigan) and I had the following op-ed published in the March 15, 1996, edition of the Washington Times:

Would you like to forfeit your house?

March 15, 1996
Section: A COMMENTARY OP-ED
Edition: 2
Page: A21
Byline: By Donald J. Boudreaux and A.C. Pritchard

Imagine a guest with a marijuana cigarette secretly tucked in his pocket visits your house. The police storm in, seize the cigarette, and arrest your guest for drug possession. The police then announce that the government now owns your house.  “What?!” you wail, “I did nothing wrong. How can you take my house?”

You are told that civil-forfeiture law allows government to take property that harbored an “abatable nuisance” – illegal drugs, in this case. An officer explains that “Your house, not you, committed a wrong. To help stem drug trafficking, it must be seized. Your doubts about our ability to confiscate your property will be dispelled by reading the Supreme Court’s March 4th decision in Bennis vs. Michigan.”

Certain that such tyranny is impossible in America, you rush to read Bennis. Your heart sinks. Chief Justice Rehnquist explains that the Constitution permits Michigan to use civil forfeiture to strip Tina Bennis of her ownership of an automobile in which her husband John had a tryst with a prostitute. Civil forfeiture allows government to take property from someone without convicting that someone of a crime.

Everyone concedes that Mrs. Bennis was unaware that John used the car for illegal sex – for which he was convicted and fined $250. Still, according to the Court, Michigan violated neither the Due Process nor the Takings clauses of the Constitution by taking the innocent Mrs. Bennis’ property without as much as a “thankee, ma’am.” The court reasoned that the state’s confiscation and forfeiture of Mrs. Bennis’ car is constitutional because courts have long upheld civil-forfeiture seizures of some properties.  But these were historically confined to properties whose owners could not be tried in domestic courts. Not until Prohibition – long after the Constitution was adopted – did government generally wield civil forfeiture against people who could easily be criminally prosecuted.

Traditionally, no one can be punished unless first convicted. And government cannot convict someone – nor forfeit his property – who is denied an opportunity to defend himself before an impartial jury. But what to do about criminals outside of a domestic court’s jurisdiction? This was a pressing question for courts in cases involving smuggled goods as well as ships used for smuggling or piracy on the high seas. Owners of these properties were typically outside of domestic jurisdiction. Unless the law found a practical way to punish these foreign owners, smuggling and piracy would continue unabated.

Civil forfeiture solved the problem of unreachable wrongdoers. Under civil-forfeiture law, a court declared the property itself to be the wrongdoer. This legal fiction allowed the court to bypass the requirement of convicting the foreign wrongdoer before punishing him. Courts realized that the threat of civil forfeiture made foreign shipowners more reluctant to use their properties wrongfully. Civil forfeiture began here – and here is where it remained until after the Civil War. After the Civil War, civil forfeiture was expanded only far enough to reach property used to evade liquor taxation. Fact is, forfeiture of the properties of domestic citizens did not become widespread until Prohibition, when it was used to punish bootleggers smuggling alcohol.

When the Constitution was adopted, the common law did not condone using civil forfeiture against domestic citizens; therefore, use of civil forfeiture to seize the Bennis automobile is not permitted by the Constitution today. The Bennis criminals – Mr. Bennis and the prostitute – were within Michigan’s jurisdiction, and thus, outside the realm of civil forfeiture.

The Constitution does permit civil-forfeiture seizures of aircraft and similar properties belonging to the likes of Colombian drug lords. Such criminals are precisely the kinds of wrongdoers that civil forfeiture was meant to punish. But by upholding civil forfeiture in cases for which the government can easily prosecute suspected criminals in person – such as in the Bennis ruling – the court unleashes a government power unknown to America’s founding generation.

The Bennis decision frees government to impose huge costs on people never charged with criminal wrongdoing. Governments will respond to this novel constitutional loophole by devising ever more creative ways of preying upon innocent citizens as sources of revenue. A Supreme Court committed to respect legal precedent poorly serves judicial restraint and justice by so carelessly interpreting the tradition it seeks to protect.

Oliver Wendell Holmes observed that “hard cases make bad law.” For Tina Bennis, bad history makes hard law.

Donald J. Boudreaux is Visiting Olin Scholar in Law and Economics at the Cornell Law School. A.C. Pritchard practices law in the Washington office of Bickel & Brewer

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Here’s the always wise and insightful Alberto Mingardi, writing over at EconLog, on the Greek government’s default.

On the very same Greek topic is the Wall Street Journal‘s Holman Jenkins.  (gated).  A slice:

But Mr. Tsipras shriekingly insisted that Europe go on subsidizing Greece so Greece wouldn’t have to change. He effectively put a gun to Greece’s head and said, “Pay us ransom or the idiot gets it.”

The idiot is now getting it. Greece’s banking system and government are running out of cash because Mr. Tsipras spurned loans that the EU, frankly, was quite eager to give. The Greek people will likely vote overwhelmingly to stay in the euro in next week’s referendum, but by then it may be too late. By then, too, Mr. Tsipras likely will be propagating a “stab in the back” myth to blame Europe for rejecting Greece, not the other way around.

But it also pays to see why this crisis was baked into the euro. Of course the Greek people want to keep the common currency: Not only is the euro an excellent currency, but it comes with the additional virtue of requiring the EU to bail out member governments so politicians and voters can always view reform as less than an absolute necessity.

Cato’s Dan Ikenson correctly warns opponents of cronyism to remain vigilant in light of the demise of that great geyser of cronyism and monstrous monument to the myths of mercantilism, the U.S. Export-Import Bank.

Reserve your seats for upcoming “Conversations with Tyler.”

Here’s yet another account of the disgusting, would-shame-a-banana-republic-autocrat practice in the United States of civil asset forfeiture.  Again I ask of drug-war advocates (as I will ask of them whenever I encounter such instances of government thievery and tyranny): Do you really think that this ‘war on drugs’ makes the U.S. more civilized, law-abiding, free, and pleasant?  And if you are a white, middle- or upper-class suburban person, do you not think it incumbent upon you to put yourself in the shoes of blacks and other minorities upon whom the bulk of this atrocious tyranny is unleashed?

Finally, here’s the great Israel Kirzner’s lecture last month in Berlin upon his receipt of the 2015 Hayek Medal, awarded annually by the Berlin-based Hayek Gesellschaft:

(HT Pete Boettke)

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O happy day!

Screen Shot 2015-07-01 at 8.17.38 AM No one deserves more credit – and I’m not sure that anyone deserves even as much credit – for bringing about the closure (at midnight last night) of that great geyser of cronyism, the U.S. Export-Import Bank, than does my intrepid Mercatus Center colleague Veronique de Rugy.  This feisty economist from France has, over the past few years and on many different fronts, toiled tirelessly and brilliantly to expose the lies, half-truths, deep economic ignorance, and shameless cronyism upon which popular and political support for the Ex-Im Bank rested.

All Americans – save those formally privileged few whose wallets and purses are today lighter because of their reduced receipts of government-created rents – should this evening raise a glass of Pol Roger Brut or some other genuine and excellent champagne to Vero.  She’s genuinely and excellently heroic!

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Quotation of the Day…

by Don Boudreaux on July 1, 2015

in Myths and Fallacies, Science, Scientism

… is from page 70 of Vol. 12 – Economic Inquiry and Its Logic (2000) – of The Collected Works of James M. Buchanan; specifically, it’s from Jim’s 1981 article, co-authored with Geoff Brennan, “The Normative Purpose of Economic ‘Science’”:

By its very nature, intellectual activity involves coming to terms with a chaos of observations through the imposition of an order which is itself an artifact of the mental process.

Indeed.  So anyone who proclaims that he or she is guided without any priors or presumptions only by “the facts” or exclusively by “the data” is someone who is both insufficiently self-aware and inadequately philosophical.  Such a person is destined to be a poor thinker and analyst, having adopted his or her theory haphazardly (or even unawares).

In the above quotation, Buchanan and Brennan do not offer a recommendation for how best to do science; instead, they describe an unavoidable reality that must be lived by anyone who does, or who attempts to do, science (or any sort of intellectual activity).  Such priors and presumptions are not optional.  The “imposition of an order which is itself an artifact of the mental process” – note carefully the word “artifact” – is literally unavoidable.  Therefore, the chief issue is not whether a scholar or thinker or analyst or scientist will or will not have theoretical priors and presumptions that affect both the questions that he or she asks and the manner in which he or she interprets empirical reality; the chief issue is just what those theoretical priors and presumptions will be.

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Mr. Bob Keener
Business for a Fair Minimum Wage

Dear Mr. Keener:

According to your June 30th press release, “DC business owners are welcoming the minimum wage increases effective July 1.  They say … that businesses will benefit from lower employee turnover and increased productivity, product quality and customer satisfaction.”

Let’s get this matter straight.  These business owners are confident that if their lowest-paid workers get a raise the resulting increase in worker productivity will improve these businesses’ bottom lines, yet each of these owners is too daft to take such an available profit-enhancing step on his or her own.  In other words, these are business owners who refrain from running their companies as profitably as possible until and unless they are ordered to do so by politicians.

I’m afraid that your press release proves only that these business owners are so incompetent and clueless that any pronouncements they make about public policies should be utterly ignored.

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

…..

The press release mentioned in my letter arrived in my e-mail box today; it is dated June 30th, 2015.  Yet this press release – titled “DC Businesses Set to Benefit from July 1 Minimum Wage Increases” – doesn’t seem (yet) to be available on-line at the website of this organization-of-evidently-incompetent-business-owners.

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Here’s a letter to the Washington, DC- based WTOP Radio:

In your report this morning on Pres. Obama’s proposal to force employers to expand the number of employees who are eligible for overtime pay, you featured a clip of a law professor proclaiming that such intervention is made necessary by employees’ alleged lack of bargaining power.

This law professor is a poor economist.

If workers in fact have no bargaining power, then firms will respond to the president’s mandate by demanding from workers fully offsetting concessions such as lower base pay, fewer fringe benefits, or more difficult job duties.  Without bargaining power, workers cannot refuse these offsetting demands.  Therefore, the mandate, by causing the mix of employment terms to change without any increase in overall compensation, will at best leave workers no better off than before.

More realistically, because each unregulated firm – even one with incontestable monopsony power over workers – has incentives to arrange the mix of employment terms (for example, the mix of wages, fringes, and workplace rules) in ways that are most attractive to its workers, the president’s mandate will almost certainly result in mixes of employment terms that are less attractive to workers than were the previously offered mixes.  This mandate will thus make workers worse off.

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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