In Tuesday’s USA Today, Glenn Reynolds wrote about the “Cajun Navy” – a group of volunteers in Louisiana who helped to rescue and provision victims of the Baton Rouge floods.  Voluntary, civil-society arrangements arise and outperform the state.

And, as Mark Perry reports, state officials – perhaps embarrassed by being outperformed by spontaneously organized, voluntary arrangements – seek to saddle such arrangements with diktats and fees.

Also from Mark Perry are some data showing the job-destroying impact of minimum wages.

I join my colleague Alex Tabarrok in applauding the University of Chicago’s rejection of political correctness on campus.

Kevin Grier dumps on “anti-dumping” intrusions.

PERC’s Terry Anderson marks the 100th anniversary of U.S. National Parks.

How aluminum changed the world.  (HT Ross Nordeen)

My Mercatus Center colleague Dan Griswold reflects on trade, the middle class, and the 2016 U.S. election.

Finally, here’s the abstract of my colleague Pete Boettke’s and GMU Econ PhD candidate Patrick Newman’s recent paper, “The Consequences of Keynes“:

This paper discusses the consequences of John Maynard Keynes for the science of political economy, or the fields of economics, economic policy, and politics. It argues that the consequences of Keynes in all three fields were negative and resulted in a significant retrogression. For economics, a macroeconomic theory of an unstable capitalist economy supplanted the theory of the market process which concentrated on the individual actions of entrepreneurs and their effects on relative prices and production. For economic policy, activist tinkering on behalf of policy advisors replaced the theory of limited and hands off governments. For politics, unrestricted politicians and continual deficits and inflation replaced restrained politicians who adhered to balanced budgets and sound money.

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Quotation of the Day…

by Don Boudreaux on August 25, 2016

in History, Hubris and humility

… is from page 145 of Thomas Sowell’s 2008 volume, Economic Facts and Fallacies (footnote deleted); here Sowell deals with the fallacy upon which rest public and political denunciations of golden parachutes and big-dollar severance packages paid to departing executives of privately owned corporations:

When Sewell Avery was head of U.S. Gypsum from 1905 to 1931 and then head of the Montgomery Ward retail store chain after 1931, he was regarded as one of the premier business leaders in the country.  However, during his later years, when conditions in retailing became quite different, there were complaints about his leadership of Montgomery Ward, and bitter internal struggles to try to get rid of him.  When he finally left [in 1954], the value of Montgomery Ward stock shot up immediately.  It might well have been a bargain for the stockholders, the customers, and the employees to have paid Avery enough to get him to leave earlier, since a badly run company hurts all of these people.

Third party observers may find it galling that some people seem to be rewarded handsomely for failing.  But third parties are neither paying their money nor are in a position to know how much it is worth to be rid of someone.  When an individual pays dearly to divorce a spouse who is impossible to live with, that too might be seen as rewarding failure.  But does any third party presume to say that the decision to divorce was wrong, much less feel entitled to be morally outraged, or to call on government to stop such things?

The lesson, here as in so many other places in life, is to mind your own business and let other individuals mind theirs.

Avery, by the way, was a noted opponent of the New Deal and of U.S. militarism.  When Uncle Sam seized control of Montgomery Ward in December 1944, Avery refused to leave his office and had to be physically carried out by armed agents of the state.

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At the gym earlier this afternoon I caught a snippet of what was literally a water-cooler conversation between two women, each of whom appeared to be in her late 40s.  The subject of the conversation was one of the women’s daughters who just this week is starting her freshman year of college.

Woman #1 (to the woman whose daughter is starting college): “What’s she majoring in?”

Woman #2: “Political science.  She wants eventually to run for office.  She tells me all the time, ‘Mom, I want to change the world!’  And she means it.  She’s volunteering for the Clinton campaign.”

Woman #1: That’s so great!  You must be so proud!”

Woman #2: “I am!”

…..

Were I not a model of politeness, I would have turned to Woman #2 and said, “Ma’am, I couldn’t help but overhear your conversation.  I’ve one request: Please tell your daughter to mind her own business.  The world doesn’t need the kind of change that politicians, both actual and aspiring, want to bring.”

This “change-the-world” meme is, at best, juvenile.  At its worst it is downright dangerous.

I’m certain that there’s a great deal in the world that could be changed for the better.  But I’m equally certain that no such beneficial change will be achieved by social-engineering performed by politicians and other government officials.

The world changes for the better incrementally, bit by bit, and experimentally.  Smith opens a new restaurant in competition with Jones’s established restaurant, and consumers – spending their own money – ultimately decide if one or the other or both is to continue operating or shut down.  This competition changes the world very slightly: the restaurant scene in this town is improved.  Williams breaks his addiction to alcohol and returns to school to learn a trade; his success at getting a job as a machinist or electrician improves the world.  Johnson invents a new app to help birdwatchers keep track of interesting sitings: this advance, too, changes the world.

With rare exceptions, each world-improving event is too small to be detected in statistics.  It’s not sufficiently newsworthy to land its doer’s name in the headlines.  It’s one of millions of everyday improvements, each one small, but the sum total amounting to noticeable change indeed over time.

Most people who want to change the world seldom pause to ponder what, exactly, about the world needs changing.  After all, much about the world is pretty darn good and, hence, is likely not an appropriate candidate for the wiles of any “change-agent.”  Worse, most people who want to change the world have in mind schemes that involve forcing others to behave in ways that these others would otherwise not behave.

Our world has massively changed, mostly for the better, over the past two or three centuries.  And nearly all of this change came in doses so small that the names of those who performed each beneficial change were never widely known and are today lost forever in the thick mists of history.  Most – although by no mean all – of the “change-agents” whose names are known were human butchers (e.g., Hitler and Stalin) or arrogant ‘men of system’ (e.g., Clement Attlee and Franklin Roosevelt) who saddled others with counterproductive burdens and restrictions even if the destructiveness of these efforts is today still largely denied.

The bottom line is that attempts to “change the world” whole – to change it in a way that is noticeable and traceable to one action or small set of actions – is the height of arrogance.  No such change, no matter how well-intentioned the change-agent, will be for the better.  Beneficial efforts to change the world are almost always small, incremental, and performed in the voluntary sector of society – in the market, in families, in civil society.  Not in or through the state.  Most beneficial change occurs by adding small drops to the Prosperity Pool.  Not by making big splashes in that Pool.

….

See also this earlier Cafe Hayek post.

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My Mercatus Center colleague Dan Griswold reflects on creative destruction, competition, and trade.  A slice:

To impose tariffs on imports to save jobs in the apparel or footwear or steel industry makes no more economic sense than would restricting access to the Internet to bring back the tens of thousands of middle-class jobs that have disappeared from newsrooms across America.

The Cato Institute’s Dan Ikenson – in exposing the economic ignorance that saturates Clyde Prestowitz’s recent New York Times op-ed on trade – explains that trade deficits are not to be feared.  A slice:

In all cases, the dollars that go abroad to purchase foreign goods and services (imports) and foreign assets (outward investment) are matched almost perfectly by dollars coming back to the United States to purchase U.S. goods and services (exports) and U.S. assets (inward investment). Any trade deficit (net outflow of dollars) is matched by an investment surplus (net inflow of dollars). That investment inflow undergirds U.S. investment, production, and job creation.

Eileen Wittig uncovers evidence that many so-called “public goods” can be, and are, supplied privately.

I don’t endorse all that Michael Gerson says in this column, but much of it is good and important.  For example, this slice:

For the record, I am in favor of the Davos set becoming more sensitive to the struggles of their countrymen. But all these fat cats at Coca-Cola, Monsanto, Pfizer and Microsoft deserve at least a bleat in response. They are leading participants in an economic system — with its global supply chains, freely moving capital and rapid innovation — that, during the past 20 years, has taken about a billion people out of extreme poverty around the world. This is arguably the greatest humanitarian achievement in history. With this economic growth have come miracle drugs, vaccines, improved sanitation and better agricultural technology. Global life expectancy in 1960 was 52.5 years; today it is 71.4. In the early 1930s, American life expectancy was about 60 — what it currently is in Malawi. Now American life expectancy is nearly 80.

In this short video, Johan Norberg busts some myths about the role of money in politics.

In this Bryan Caplanesque and Julian Simonesque essay, Jeff Jacoby stoutly challenges modern neo-Maltusians who argue that human beings are a scourge to the environment and to humanity itself.  A slice:

Population doomsayers get lots of attention, but the doom they predict invariably fails to materialize. That is because babies are more than carbon footprints. They grow up not merely to consume, but to produce. They think and create and explore and imagine — and they inspire others to do so as well. With more people a society gets more innovation, more acts of kindness, more social welfare, more enterprise, more caregiving, more discovery, more growth, more prosperity.

When parents bring a baby into the world, they do a wonderful thing — both for the baby and for the world. You really want to save the planet? Ignore the gloom-and-doomers, and have more children.

“Berkeley’s Soda Tax Appears To Cut Consumption Of Sugary Drinks” – so reads a recent NPR headline.  (HT John Csekitz)  Demand curves do indeed slope downward to the right!

Sandy Ikeda offers a useful primer on the housing market.

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This news item is rich.  Famed law’n’order Arizona sheriff Joe Arpaio faces criminal contempt charges for consistently disobeying court orders.

Arpaio is popular with the anti-immigrant crowd for staunchly “protecting” Americans from “illegal” immigrants, most of whose only offense is coming to America without the documentation demanded by Uncle Sam.  “Disrespect for our law” – specifically, failure to abide by Congress’s immigration restrictions – is touted by many people as reason enough to regard undocumented non-Americans as scofflaws and scoundrels and to deport them from the United States.

And yet Sheriff Arpaio chooses to disobey court orders that he dislikes and disapproves of.  The man is a hypocrite.

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Protectionism is Robbery

by Don Boudreaux on August 24, 2016

in Crony Capitalism, Trade

Two people (Jones and Smith), each owning some things that are valued by the other, meet in an exchange situation.  Jones proposes to transfer to Smith ownership of something that Jones now owns but that Smith also values.  Jones of course wants something from Smith in return.  And naturally Jones wants as much as possible from Smith.  So Jones proposes that Smith not only give Jones some of Smith’s money in exchange for what Jones will transfer to Smith, but also that Smith sleep with Jones as part of the bargain.  Smith refuses, saying that she’ll pay the monetary price but does not agree also to have sex with Jones as part of the deal.

Jones, not wishing to lose Smith as a customer, says to Smith “Okay, I ask only the money price.  You don’t have also to sleep with me.”  Smith then agrees to this revised, less-costly bargain.  Smith pays some of her money over to Jones and Jones transfers the merchandise to Smith.

Later that day, Jones goes to the town’s strongman, Clump, and informs Clump that he, Jones, is unhappy with the terms of exchange that he, Jones, struck earlier that day with Smith.  “I want Smith also to sleep with me,” Jones tells Clump.

Clump – a pro-business brute – sympathizes.  “Leave it to me,” Clump assures Jones.

Clump and his goons then march to Smith’s house and order her, on pain of having the merchandise that she earlier bought from Jones confiscated from her possession, to sleep with Smith.

….

Although the details differ in inessential ways, the above little parable captures the essence of protectionism – which is a policy of the state forcing consumers into terms of exchange with domestic merchants that consumers do not voluntarily agree to.  I explain further in my most recent column in the Pittsburgh Tribune-Review.  A slice:

When politicians promise to raise tariffs on imports, they are promising to penalize you for spending too little of your money on products sold by domestic suppliers. The presumption is that domestic suppliers of steel, of textiles or of tires are entitled to a portion of your income. And if you, by buying goods from foreign suppliers, refuse to turn over that portion of your income to domestic suppliers, you must pay a penalty.

Clearly, supporters of tariffs believe that certain domestic producers have a higher claim on some portion of your income than you have.

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Quotation of the Day…

by Don Boudreaux on August 24, 2016

in Education, History

… is from page 176 of Matt Ridley’s excellent 2015 book, The Evolution of Everything:

Horace Mann, widely regarded as one of the fathers of American public education, was a keen student of the Prussian model.  He visited Prussia in 1843, and came back determined to emulate that country’s public schools.  In 1852 Massachusetts explicitly adopted the Prussian system, followed shortly after by New York.  In Mann’s eyes, the purpose of public education was not mainly to raise standards (after all, by 1840 literacy in the northern states had already reached 97 per cent), but to turn unruly children into disciplined citizens.  He could not have been clearer that this was for the good of the country, not the needs of the individuals.

Government schools exist for the good of the State (and, today in the U.S., also for the good of that malignant state-growth called teachers’ unions).  Unlike supermarkets, big-box retailers, restaurants, vegetable farmers, furniture manufacturers, and Broadway producers, government schools do not prosper by serving customers who are free to withhold payment if they believe that they will not receive good value in return.   Government schools prosper by preying upon the populace in the name of education.

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Back in February of 2013 I spoofed minimum-wage legislation by writing a satirical report on minimum-grade legislation.  My vanity prevents me from denying that I’m rather proud of that post.

Here, though, is a slightly different take, although one done as a straight blog post rather than as satire.

Suppose the state enacts minimum grades for all college-level engineering students.  No professor of engineering is allowed to assign to any student in his or her class any grade lower than a B-.  Further suppose that professors of engineering are rewarded, with pay and promotion, according to how many of their students pass independently administered engineering exams – that is, exams administered by the likes of the Electrical Engineers’ Association and the Civil Engineering Society.

In order to practice professionally as an engineer, each engineer must pass one of these independently administered exams.  And these exams – unlike the exams administered in the engineers’ college classrooms – are not governed by minimum-grade legislation.  The organizations that administer these exams have strong incentives to pass only those persons who truly display real aptitude for, and deep knowledge of, engineering.  Put differently, these organizations have strong incentives to use their exams to discover, and to weed out, those engineering graduates who do not know engineering well enough to be certified to practice professionally as engineers.

Anyone who gets a bachelor’s degree in engineering is eligible to sit for one of the engineering-organization’s exams.  The results of the exams are tallied each year and it is easy to determine from these results which professors (and engineering departments) have lots of students who pass the exams and which have unusually large numbers of students who fail the exams.  Again, each collegiate engineering professor has strong incentives to have as large as possible a number of his or her students pass, and as small as possible a number of his or her students who fail, the engineering-organization’s exams.  (Ditto for each engineering department and college.)

Before the minimum-grade legislation – which, remember, applies only to grades administered by collegiate engineering professors in their collegiate classrooms – the engineering professors had powerful incentives to assign grades accurately, for to assign, say, a grade of B to a student who in the classroom really displayed only grade D level competence would mean that that D student would be eligible to sit for one of the organization’s exams.  Yet this poor student would be likely to fail that exam.  Any professor who is overly generous in assigning grades would suffer as a result.

So what are the predictable consequences of this minimum-engineering-grade legislation?

Most obviously, no grades lower than B- will be assigned in collegiate engineering classrooms.  It is, as they declare with rather careless language, “the law!”  And just as obviously, the average grade assigned in these classrooms will rise.  Duh.

Another prediction: champions of minimum-grade legislation will self-righteously declare victory.  “Yay!” yell the champions of minimum-grade legislation.  “Take a good look!  Our legislation on behalf of the least-advantaged engineering students has succeeded!  Despite predictions of armageddon by the greedy opponents of minimum-grade legislation, the average engineering grade has risen as a result of our legislation!”

But while champions of such legislation stop their analysis at this point, good economists go further.  Good economists predict also that Departments of Engineering in colleges and universities throughout the land will become far more selective than otherwise in allowing students into their programs and classrooms.  Departments of Engineering, and engineering schools, will no longer accept into their majors and schools those students whose chances of becoming at least B- grade engineers are not high enough for schools to incur the risk of admitting these students into engineering programs and then being forced by the state to assign to these students grades higher than these students actually earned.

Further, the good economist predicts also that the minimum-engineering-grade legislation will increase the quantity supplied of engineering students.  Heck, if you’re guaranteed to be assigned in each engineering class a grade at least as high as B- , that’s attractive if you’re a student.  More students will seek acceptance into engineering programs.  But – because (as explained above) the good economist also predicts a reduction in the quantity of majors and students ‘demanded’ by engineering departments and schools – the good economist predicts not only that the number of students enrolled in engineering programs will fall, but also that there will be a surplus of students seeking admission into engineering programs and schools.  Lots of students who seek acceptance into engineering majors and schools will be denied.  And the number of such denials will be higher than was the number of such denials before the minimum-grade legislation took effect.

Here’s yet another prediction: because the faculty and administrators who are in charge of student admission in engineering departments and schools have no way to be certain which student applicants will truly be at least B- caliber engineering students and which will not, these faculty and administrators are quite likely to understandably resort to a greater reliance on discrimination in favor of students who fit a certain ‘type’ that is most likely to excel at engineering.  Such discrimination might take the form of the following rule of thumb:

Graduates of private high schools are generally more likely to perform better in college than are graduates of even acclaimed public high schools.  And graduates of acclaimed public high schools are generally more likely to perform better in college than are graduates of inner-city public high schools.  Therefore, with the minimum-engineering-grade legislation, it is no longer worth our while even to consider applications from graduates of inner-city high schools who wish to major as engineers.  We’ll give the benefits of all doubts to graduates of private high-schools.  It’s too risky to admit students from inner-city high public high schools.

Minimum-engineering-grade legislation will make it far more difficult for those students who are least likely at the start to perform well as engineering students – or who even just appear to be least likely to perform well as engineering students – to be admitted into engineering programs.  Engineering students – and, later, the engineering profession itself – will become artificially dominated by members of those groups (for example, graduates of private high schools) who at the start of their collegiate careers ‘look’ the part or better fit the profile.  An ambitious inner-city black kid with lots of native intelligence that can, with good collegiate instruction, be turned into excellent engineering skills will become more likely, with minimum-engineering-grade legislation, to be denied admission into engineering programs.

The world will never know what it missed.  Perhaps, even this young student will never know what he or she missed.

And here’s a final prediction for now: the good economist will not change any of the above predictions if he or she is told that most engineering professors are quite wealthy.  That is, the good economist will continue to predict the above consequences even if some minimum-grade proponent, after correctly noting that most engineering professors are quite wealthy, says “Therefore, there’s no need to worry that the risk of lost future salary raises will dissuade engineering professors from admitting less-advantaged students.  Those professors can afford to not get raises, so they’ll not take any steps to minimize their risks of being denied salary raises.”

….

Note that in the above hypothetical example the exams administered by the engineering societies are analogous to the tests that competitive markets administer to firms.  Firms must consistently earn at least enough revenue to cover their costs if they are to remain in business.  Market competition is strict.  If a firm continues to employ workers at hourly wages that are in excess of the hourly contributions that these workers make to the firm’s revenues, then this firm will suffer losses and, eventually, be forced out of business.  The fact that this firm pays such excessive wages only because government commands it to do so does nothing to alter this reality.

In reality, minimum-wage legislation never prompts employers of low-wage workers simply to raise to the legislated minimum the wages of all of its workers.  Instead, employers adjust on other margins – most likely by not only reducing the number of low-wage workers they employ, but also by becoming more selective in choosing which particular low-wage workers they employ.  The white teen from the leafy suburb will find his prospects of employment at the minimum wage not much reduced; this white-teen’s good fortune will be paid for by the black teen from the inner city who is made, by the same minimum-wage legislation, less likely to find employment.

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“That’s Just a Theory”

by Don Boudreaux on August 23, 2016

in Economics, Science, Work

Here’s an insightful and spot-on cartoon by GMU Econ alum David Youngberg.

Screen Shot 2016-08-23 at 6.59.36 PM

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Matt Ridley laments the recent retreat of genuine liberalism.  A slice:

Laissez faire, laissez passer” is the most tolerant of all creeds. As [Adam] Smith insisted, it’s the very opposite of “pro-business” or pro-inequality; the market loves to disrupt complacent cartels. Yet to listen to most of the intelligentsia, you would think that freedom to exchange goods and services – which they prefer to call by the Marxist word “capitalism” – has done terrible harm in the world and needs taming by virtuous government. Further, that small-government philosophy has been terminally discredited, not least by the financial crisis of 2008.

But the financial markets were heavily regulated cartels in the run-up to the crisis. The Insurance giant AIG, whose credit default swaps went belly up, had been, in George Gilder’s words, “supervised and pettifogged by federal, state, local, and global beadles galore, in fifty states and more than a hundred countries”. The explosion in sub-prime lending, far from being the product of deregulation, was the direct result of mandates passed by Congress to increase mortgage lending to low-income and minority people. These mandates were imposed on government–sponsored enterprises (Fannie Mae and Freddie Mac), enforced by law and encouraged by two presidents. George W. Bush added regulations to the US economy at the rate of up to 78,000 pages a year.

Tim Worstall points to yet more evidence that minimum wages do in fact destroy jobs.

Also from Tim Worstall is this explanation that, while floods and other natural disasters might cause measured GDP to rise, they do not cause prosperity to rise.  Quite the opposite.

Emily Skarbek ponders equilibrium theorizing.

My GMU Econ colleague Bryan Caplan is rightly mystified that so many people believe that a strict free-market ideology does reign – or has, until very recently, reigned – in much of the world.

My intrepid Mercatus Center colleague Veronique de Rugy warns about lies meant to protect that great geyser of cronyism, the U.S. Export-Import Bank.

Philosopher Kyle Swan correctly argues that government failure is, in reality, a far larger problem than is market failure.

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