Cafe Hayek — where orders emerge

Bonus Quotation of the Day…

by Don Boudreaux on September 26, 2016

… is from page 95 of Benjamin A. Rogge’s February 27, 1976, op-ed in the Indianapolis News titled “The Bicentennial of Economic Liberty,” as this essay is reprinted in A Maverick’s Defense of Freedom, the 2010 collection of Rogge’s essays that is edited by Dwight Lee:

I would add that I trust the businessman only when he’s out to make money – because then he’s going to want to do things my way. When he’s out to do me good, he is going to do it his way.

The context of this quotation makes clear that when Rogge writes “when he’s out to make money,” he means when the businessperson is seeking profits by competing in the private market for consumers’ patronage (rather than when the businessperson is seeking rents by pleading for, and getting, special privileges from the state).

The beautiful truth of Rogge’s statement is vital. Businesspeople earn profits in the private market only by pleasing others – consumers as well as workers and other input suppliers – as these others judge matters. In contrast, someone seeking to do good for another person too often is guided chiefly by his or her own notion of what is best for the other person and, thus, discounts – or utterly ignores – the wishes and assessments of the other person.

As Bob Murphy put it, in a private market, the higher a businesses’s profit, the more good that business is doing for humanity.

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Economists’ Normative Case for Government Intervention is a Very Poor Positive Theory of that Intervention

by Don Boudreaux on September 26, 2016

in Crony Capitalism, Economics, Myths and Fallacies

The economic theory: the state intervenes in the economy in order to prevent free-riding – in order to internalize externalities – in order to better ensure that all private parties pay the full marginal costs of their activities, and that all private parties reap the full marginal benefits of their activities – in order to promote competition – in order to protect the weak from the strong.

The political reality: the state intervenes in the economy in order to promote free-riding – in order to externalize costs and benefits that the market has reasonably internalized – in order to better ensure that politically powerful private parties escape the full marginal costs of their activities, and that politically disfavored groups be stripped of much of the marginal benefits of their activities – in order to promote monopoly – in order to render some people weak who are then pillaged by the strong.

(The above obviously owes much to the late, great Ronald Coase.)

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There’s Nothing Special About Voting

by Don Boudreaux on September 26, 2016

in Myths and Fallacies

A friendly and thoughtful reader, who doesn’t like my refusal to vote in political elections, e-mails to me the following (original emphasis):

It strikes me that non-voting is a form of free riding, like slip-streaming a semi-truck on the highway. *Any* form of governance needs accountability to function well—whether that governance is free-association or representative democracy or constitutional monarchy. Without an effective means to hold decision-makers accountable for their actions, all governance eventually devolves into tyranny

By not participating in the principal form of accountability we have in our society—voting—you and other like you are essentially free-riding on those of us who do vote, go to town meetings, attend school board meetings, write letters to the editor, blog, organize, and so on. Voting may be the least-important means of holding our officials accountable, but least-important does not mean unimportant

And if you insist on slip-streaming the truck in front of you on the highway, you can’t really see where you’re going. Nor do you have a right to complain about the route the truck takes. If you choose to tailgate, you gotta go with the flow.

I respectfully disagree with the main premise of this correspondent’s note. That is, I disagree that voting is “the principal form of accountability that we have in our society.” Voting itself is notoriously an unaccountable action. Because the material consequences of the vote are borne not only by the voter but by multitudes of other people, each voter – by voting – has a say in how other people live without any feedback from those many others. Having such a say is free riding on a massive scale: Voter Jones expresses his political opinion in a voting booth and countless other people, many of whom disagree with Jones’s opinion, are forced to bear consequences of Jones’s expression. Jones gets to express his opinion, and see it potentially become policy, despite the disagreement of many others.

Of course, my correspondent likely means that voting is the principal form of keeping government officials accountable. But for reasons that I explain in my original post, I emphatically regard this belief to be incorrect. I’ll not here rehearse those reasons again, but I will repeat that helping to change popularly held ideas is a far better means of constraining the actions of political officials. At the very least, the writing of op-eds, letters-to-the-editor, monographs, and books – and the giving of public lectures, as well as appearing on radio and television programs – are also ways of helping to change the ideas that define the range of acceptable activities of government officials. And if it is the case that doing such writing and public speaking is an important means of changing public opinion (and of holding government officials accountable to that opinion), then are those of you who do not blog, do not write letters-to-the-editor, do not write op-eds, monographs, and books free riding on my and my prolific colleague Bryan Caplan’s efforts?

I do not believe that you are free riding on our efforts. For the same reason, I do not believe that Bryan and I are free riding on the efforts of those who vote in political elections.

(See also my earlier post.)

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Thank Goodness Government Isn’t as Involved in the Food-Service Industry as it is in the Health-Care Industry

by Don Boudreaux on September 26, 2016

in Competition, Health, Other People's Money, Subsidies

Here’s a letter to the New York Times:

Margot Sanger-Katz usefully analogizes Obamacare to all-you-can-eat restaurants (“Football Team at the Buffet: Why Obamacare Markets Are in Crisis,” September 24): if these restaurants don’t price their buffets wisely, they go bankrupt.

Given the helpfulness of Ms. Sanger-Katz’s analogy, I’m surprised that it didn’t lead her to draw what is for me the obvious conclusion – namely, replace heavy government involvement in health-care with private competitive markets of the sort in which restaurants and supermarkets operate. After all, despite the pricing challenges that Ms. Sanger-Katz correctly notes confront many restaurants, they continue to thrive, all while being only very lightly regulated and completely unsubsidized.

Nutrition is even more vital to human well-being than is health-care. Yet nutrition is today supplied abundantly and in great and ever-improving varieties by privately owned and operated restaurants and supermarkets competing in open, decentralized markets for the dollars of consumers. And consumers are free to spend at these private establishments as much or as little as, and however, they choose. It somehow all works out beautifully.

If competition within unsubsidized and lightly regulated private food-service markets – with their continually falling real prices, improving quality, and expanding variety – keeps Americans well fed, why presume that competition within unsubsidized and lightly regulated private health-care markets would not work just as effectively to keep Americans well doctored?

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

(I thank Peter Minowitz for the pointer to Sanger-Katz’s essay.)

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Quotation of the Day…

by Don Boudreaux on September 26, 2016

in Hayek, Hubris and humility, Man of System

… is from page 255 of Thomas Sowell’s 1995 book, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy:

When one considers how small a defect in reasoning can utterly destroy a whole elaborate analysis, it is truly staggering to expect intellectuals to construct social policies which will compare with what emerges from the systemic interactions of millions of other human beings, continuously adjusting to consequences reflecting the revealed preferences of others and the changing opportunities and constraints of technology.

Truer words were never written or spoken. Yet intellectuals continue to mistake their abilities to construct elaborate abstract models that are said to be of social or economic reality – such as economists’ system of simultaneous equations that describe General Competitive Equilibrium – for an ability to engineer society or the economy in ways that improve society or the economy. This error is what Hayek called “the fatal conceit.”

This conceit, however, is typically fatal only for people generally; it’s not fatal for the social-engineering intellectuals. These intellectuals’ models, so elaborate and impressive on paper – and their presumptions that lead them to use these models as policy guides – win these intellectuals tenure, prizes, uncritical attention from (and often space in) the New York Times, generous consulting fees from governments and NGOs, and intoxicating places at court beside those with power.

The rest of us are pawns being shoved, tugged, and yanked* about by diktat-issuing politicians and bureaucrats who flatter the intellectuals by using their whiteboard models as pretenses for all this shoving, tugging, and yanking. The intellectuals want a sense of being influential; the politicians want power; and those who are shoved, tugged, and yanked are, sadly, mostly in want of understanding of what is being done to them.

….

* Calling some of this shoving, tugging, and yanking “nudging” doesn’t change the reality that government force is being wielded. This pig is made no prettier by being smeared with lipstick.

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Surprising Agreement!

by Don Boudreaux on September 25, 2016

in Myths and Fallacies, Other People's Money, Subsidies, Wal-Mart

Here’s a letter to a new correspondent:

Dr. Harlan Quarles:

Dr. Quarles:

You write that you find “hysterically laughable” all attempts by “free marketeering nut jobs,” including me, “to defend WalMart free-riding on taxpayers” – by which, you explain, Walmart’s ability (as you mistakenly see it) to pay to its workers excessively low wages because these workers receive welfare handouts from the state. I’ll not bother repeating here the arguments that send you into such stitches (although – in case you’re in the mood for more side-splitting amusement – I provide convenient links to some of these arguments below*).

I here rest content to ask you a serious question – and, in doing so, I grant for the sake of argument the truth of your false belief that taxpayers do indeed subsidize Walmart’s employment of low-wage workers: If, as you apparently agree, forcing taxpayers to subsidize the activities of private parties is objectionable, why don’t you turn your ire away from Walmart and concentrate it instead on those people who are directly responsible for arranging for such subsidies in the first place – namely, politicians and pundits who continue to support the welfare state? I agree with you that institutional arrangements that allow Jones to free-ride on Smith are undesirable. Yet such free-riding is at the very core of the welfare state; free-riding is inseparable from this institutional arrangement. Therefore, given your apparent, deep concern for the well-being of taxpayers, and your anger that third parties now have indefensible access to taxpayers’ funds, I should expect that you will join me and other classical liberals and libertarians in calling for the welfare state to be completely abolished.

Can we count on you?!

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

* See here, here, and here.

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Free Trade: A Prosperity Machine

by Don Boudreaux on September 25, 2016

in Seen and Unseen, Trade, Video

Here’s a wonderful, short video on trade featuring Tom Palmer. (I believe that I failed to mention it here, at Cafe Hayek, when it first came out in 2010.) Watch this video!! (HT Jim Rose)

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Some Links

by Don Boudreaux on September 25, 2016

in Books, Competition, Immigration, Monetary Policy, Prices, Seen and Unseen, Taxes, Trade

Bob Higgs gets to the heart of the benefits of trade. A slice:

Yet producing and exporting goods is clearly always a means whereby the goods produced abroad and imported into the USA are acquired at lesser total resource cost than would be the case if those goods were produced domestically.

Many people fail to see the simple logic of this kind of exchange, yet in economic essentials it is no different from beneficial exchange that does not involve crossing national borders. The economically irrelevant borders are used by interested parties and economic nincompoops to muddy the waters of understanding—and to feather the nests of special interests who cannot or do not wish to compete openly for the business of American buyers. The outrageous upshot is, among other things, that aspirants for the presidency currently compete to promise the public that if elected they will carry out economically destructive anti-free-trade policies of various sorts.

Here’s part 7 of George Selgin’s Primer on Monetary Policy.

Matt Welch supplies a helpful readers’ guide to lefty panic over Gary Johnson’s candidacy.

John Cochrane offers an economics quiz to Clinton, Trump, and everyone else who wants to lower the cost of child care in America.

Ryan Bourne defends surge pricing.

I am very eager to read Doug Irwin’s forthcoming (2017) book on the history of trade policy in America. (HT Tyler Cowen)

Everyone who frets over “corporate inversions” should read this essay by Veronique de Rugy.

Sarah Skwire gives a wonderful history lesson in religious freedom.

Steve Horwitz explains that there is no such thing as “trickle-down economics.“

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Quotation of the Day…

by Don Boudreaux on September 25, 2016

in Hubris and humility, Prices, Reality Is Not Optional, Seen and Unseen

… is from page 18 of Arnold Kling’s splendid new book (2016), Specialization and Trade: A Re-introduction to Economics:

[T]he price system guides the economy toward sustainable use of resources. In contrast, individuals who attempt to override the price system through their individual choices or by imposing government regulations can easily miscalculate the costs of their actions.

Common examples of people who display such hubris and who commit such miscalculation include, but are not limited to, proponents

– of minimum wages

– of tariffs and of “infant-industry” protection

– of subsidies of all sorts, including the export subsidies doled out by that great geyser of cronyism, the U.S. Export-Import Bank

– of price ceilings, including rent control and prohibitions on so-called “price gouging”

– of buying local as a means of improving the local economy or of helping the environment

– of recycling of the sort that is politically correct today (Although much recycling is indeed sensible; such sensible recycling is encouraged by market prices.)

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Bonus Quotation of the Day…

by Don Boudreaux on September 24, 2016

in Complexity & Emergence, Law

… is from page 24 of the 1998 Liberty Fund reprint of John Maxcy Zane’s 1927 volume, The Story of Law:

Each one of the community was driven to conform to customary ways of acting. This fundamental instinct is still as intense in us as in the original man. It is for law the most important instinct of the animal man, for upon it and not upon force or authority, has depended the growth and development of law. But it fixes, once and for all, the important fact that law cannot be changed any faster than the mass of the community changes in opinion or belief. The most absolute despot that has ever lived, the force of legislation or the irrefutable arguments for change, cannot impose upon men a change in law until the mass of the community is ready to accept or has already accepted the change.

Unlike legislation, which is the result both of human action and of human design, law is the result of human action but not of human design.

This truth, explained so eloquently by Zane in his book, lies at the heart of why I regard voting in political elections to be far less important than most people think voting to be.

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