Quotation of the Day…

by Don Boudreaux on March 27, 2015

in Economics, Politics, Reality Is Not Optional

… is from page 256 of William Easterly’s excellent 2006 book, The White Man’s Burden:

It is the job of economists to point out trade-offs; it is the job of politicians and Planners to deny that trade-offs exist.

Add a Comment    Share Share    Print    Email

Carl, a high-school history teacher from South Carolina, writes to ask how, if ever, do I consider the “losers from free trade” in my defense of complete, unilateral free trade.  It’s a good question.  Being busy at the moment, I content myself here with reprising the following blog post from January 2007.

….

Trade and Romance

by DON BOUDREAUX on JANUARY 7, 2007

in TRADE

Talking about winners and losers from trade is much like taking about winners and losers from romance.  Nearly everyone of us has had his or her heart broken at least once.  And yet the typical person, even after enduring genuine pain from the unwanted transfer of The Other’s affections from him or her to some (often despised) rival, returns to action, looking to receive love in exchange for love to be given.

Suppose that Joe’s much-loved wife, Jane, just left him for another man.  We don’t abuse language by describing Joe as “a loser” in the game of love.  But we clearly here refer only to Joe’s immediate situation.  He is suffering now.  He has just endured a genuine and painful loss.

And yet, is he truly a “loser” at romance?  This question isn’t absurd.  After all, when he was dating Jane he likely ousted some other identifiable man or even men from the potential of enjoying her amorous affections.  So if we look at the longer, fuller time span, we see that Joe “won” earlier and “lost” later.  Indeed, only because Joe initially won Jane’s hand was he able to lose it later.

None of the above, of course, will heal Joe’s broken heart as he watches Jane walk, luggage in tow, out of the door, her toothbrush already at Hank’s house.  Joe will likely hate romance at that moment, and for many moments afterward.

But even if Joe fails ever to find another woman to share his affections, it’s inaccurate to describe him unambiguously as a “loser” at romance.  He was once a winner — and he might again win on another go-round.  And, of course, he owes his very existence to romance.

Like all analogies, this one is imperfect.  Dear Readers, be assured that I’m aware of the many imperfections.  Still, the essential similarity remains: not only did romance create each of us, but almost all of us who “lose” at it lose only what we previously won.  And how many of us, recognizing the frequent and deep and undeniable pain that romance often causes, would argue that this downside of romance makes romance a curse that we would be better off, all of us, to avoid?

….

See also this follow-up post.

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on March 26, 2015

in Books, Economics, Education, Housing, Immigration, Inequality, Seen and Unseen, Work

In his latest column, George Will’s shares several economic insights from John Tamny’s new book, Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You about Economics.  It’s a book that I’m especially eager to read!

In yesterday’s Wall Street Journal, Michael Saltsman describes some baneful consequences of minimum-wage legislation.  A slice:

In Oakland, local restaurants are raising prices by as much as 20%, with the San Francisco Chronicle reporting that “some of the city’s top restaurateurs fear they will lose customers to higher prices.” Thanks to a quirk in California law that prohibits full-service restaurants from counting tips as income, other operators—who were forced to give their best-paid employees a raise—are rethinking their business model by eliminating tips as they raise prices.

A new paper by MIT’s Matt Rognlie explains that, because studies of capital’s share of national income typically miss or undercount depreciation, the only capital that is truly increasing as a share of national income is housing.  A slice:

Capital income is not growing unboundedly at the expense of labor, and further accumulation of capital in fact most likely means a fall in capital’s share of total income – refuting one of the main theories of economist Thomas Piketty’s popular book Capital in the 21st Century.

Speaking of inequality, this inequality is truly among the worst and most dangerous.  (HT Robert Rounthwaite)

Here’s my brilliant colleague Bryan Caplan at his brilliant best on immigration and labor markets.  A slice, which helps expose the naive view of many people that running a business successfully is relatively easy, even rather idle, work:

Good managers know in their bones that diverse human beings aren’t built for close cooperation.  Rather than throw their hands up in despair, however, good managers rise to the challenge.  True to their job description, managers manage their workers, forging them into effective teams despite their disparate abilities, personalities, and backgrounds.  It’s an uphill battle, and you have to keep running just to stay in place.  But good managers kindle the fire of teamwork, then keep the fire burning day in, day out.

The critics of immigration are right to insist that people aren’t plug-and-play.  Cultural diversity definitely makes teamwork harder.  Unlike the critics of immigration, however, businesses around the world treat this fact not as a plague, but a profit opportunity.  Sure, some stodgy entrepreneurs mutter defeatist cliches about oil and water and keep hiring within their tribes.  But more visionary entrepreneurs rise to the challenge of diversity every day.  That‘s why even the most unskilled and culturally alien workers rightly believe that the streets of the First World are paved with gold.  Given half a chance, socially adept businesspeople rush to do the paving.

George Leef ponders the future of the university.

Jon Murphy gives the play-by-play of Robert Reich vs. Robert Reich.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on March 26, 2015

in Immigration

… is from page 75 of Julian Simon’s 1993 essay “In Favour of Immigration,” as reprinted in the splendid 2000 collection Population: The Ultimate Resource (Barun S. Mitra, editor):

Opponents of immigration seek to persuade us that new immigrants damage society economically, politically, and culturally.  Immigration restrictions are intended to “protect us” in the same way as tariffs and trade quotas.  But like trade barriers, immigration restrictions largely protect us from benefits.  This is not to say that immigration brings no adjustment costs.  But historical and current evidence shows that the costs are exaggerated and the benefits vastly under-appreciated.

Add a Comment    Share Share    Print    Email

… that if each individual can, on his or her own, choose which offerings of private businesses to accept and which to reject, and all without having to coordinate these choices with other individuals, people are slaves to corporations – but that individuals regain their freedom and dignity only by voting to use government power to regulate businesses, with every individual forced to abide by the ‘will’ of the majority.

As notions go, this one is among the weirdest.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on March 25, 2015

in Cleaned by Capitalism, Energy, Environment

… is from page 86 of Alex Epstein’s brilliant and clear 2014 book, The Moral Case for Fossil Fuels:

[T]he natural environment is not naturally a healthy, safe place; that’s why human beings historically had a life expectancy of thirty.  Absent human action, our natural environment threatens us with organisms eager to kill us and natural forces, including natural climate change, that can easily overwhelm us.

It is only thanks to cheap, plentiful, reliable energy that we live in an environment where the water we drink and the food we eat will not make us sick and where we can cope with the often hostile climate of Mother Nature.  Energy is what we need to build sturdy homes, to purify water, to produce huge amounts of fresh food, to generate heat and air-conditioning, to irrigate deserts, to dry malaria-infested swamps, to build hospitals, and to manufacture pharmaceuticals, among many other things.  And those of us who enjoy exploring the rest of nature should never forget that energy is what enables us to explore to our heart’s content, which preindustrial people didn’t have the time, wealth, energy, or technology to do.

Add a Comment    Share Share    Print    Email

What Power?

by Don Boudreaux on March 24, 2015

in Competition, Myths and Fallacies, Regulation

In my latest column in the Pittsburgh Tribune-Review, I ponder the belief held by many people that corporations in market economies wield dangerous powers – powers that harm ordinary men, women, and children unless and until government acts as The People’s protector.  It’s a belief as mysterious as it is mistaken.  A slice:

A corporation operating in the market can only make offers to consumers and to suppliers. Consumers and suppliers — including suppliers of labor (workers) — are free to accept or to reject these offers. With no coercion involved, consumers and suppliers accept only those offers that they estimate will make them better off. Corporations that consistently have too few of their offers accepted must make their offers more attractive. If they fail to do so, they go bankrupt.

Also, corporations have no power to prevent other corporations and entrepreneurs from competing with them. And as the history of market economies makes clear, such competition is unending and intense. The only “power” a corporation can exercise to enhance or to maintain its market share is to continually produce better mousetraps and offer them to consumers on terms that consumers judge to be better than those of other companies.

Consumers’ and suppliers’ abilities to reject corporations’ offers, along with the incessant struggle of corporations and entrepreneurs to take business away from each other by making better offers to consumers and suppliers, regulates the market. This regulation is far more reliable, objective and fast-acting than are the government edicts and bureaucratic supervision that are today called “regulation.”

Add a Comment    Share Share    Print    Email

An Open Letter to Robert Reich

by Don Boudreaux on March 24, 2015

in Economics, Education, Health, Seen and Unseen, Work

Mr. Robert Reich

Dear Mr. Reich:

Complaining in a much-viewed recent Facebook post* about the low pay of K-12 schoolteachers, you assert that such teachers should be paid more in order to increase the supply of teachers.  Although you’re right about the great importance of education, your economics is mistaken.

Contrary to your argument, we should celebrate rather than bemoan the fact that teachers are paid less than the likes of CEOs, professional athletes, and movie stars.  Low teacher pay means that the number of people willing and able to work as K-12 teachers is already quite large.  Precisely because education is especially important, we are blessed that so many people are willing to work as teachers that the cost to society of each teacher is relatively low.  Given the number of school-age children, higher teacher salaries would be evidence that fewer people than is actually the case today are willing to work as teachers.  That situation would be one to lament, not cheer.

In case you still don’t see my point, let me ask if you believe that the pay of physicians should rise.  After all, healthcare, like education, is vitally important.  So by your logic, we should artificially raise the pay of physicians in order to encourage more people to become doctors.  Yet, of course, we want healthcare to be more, not less, affordable.  The same is true for education.  Unfortunately, the supply of physicians is so low that the resulting pay of physicians is unusually high.

So let’s be thankful rather than regretful that we don’t suffer the same problem in education that we suffer in healthcare.  Let’s toast the fact that - as the relatively low pay of teachers reflects - a large number of people are today willing and able to work as teachers.

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

* Can be found here.

….

See also this October 3, 2013, Cafe blog post.

Add a Comment    Share Share    Print    Email

As I suggested yesterday, and – on a different matter – as Bob Murphy suggests elsewhere, Robert Reich’s knowledge of economics is no better than is a teenaged shoe-salesman’s knowledge of cardiology.

Speaking of former U.S. Secretary of Labor Robert Reich, Bob Hessen just sent to me Jonathan Rauch’s 1997 Slate review of Reich’s book Locked in the Cabinet.

Ilya Somin, my GMU colleague from over in the law school, addresses Pres. Obama’s support for mandatory voting.

John Cochrane rightly condemns government-imposed restrictions on the supply of medical care.  Here’s his opening paragraph:

In my view, health care supply restrictions are more important than the insurance or demand features that dominate public discussion. If you are spending your own money, yes, you shop for a good deal. But spending your own money in the face of restricted supply is like hailing a cab to LaGuardia at 5 o’clock on a rainy pre-Uber Friday afternoon. We need to free up innovative, disruptive health-care supply. Let the Southwest Airlines, Walmarts, Amazons and Apples in.

In the same vein, see Chris Conover.

Thomas MaCurdy’s study of the effects of minimum-wage legislation on output prices is now out; it’s in the April 2015 issue of the Journal of Political Economy.

Things at that great geyser of cronyism, the U.S. Export-Import Bank, are getting sleazy.  Tim Carney explains.

Norbert Michel exposes the ways that Dodd-Frank restricts competition among financial firms.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on March 24, 2015

in Complexity & Emergence, Prices, Property Rights

… is from page 601 of volume 2 of The Collected Works of Armen A. Alchian (2006); specifically, it’s from Alchian‘s 1977 essay “Economic Laws and Political Legislation”:

Capitalization of all foreseen future consequences into the present market price for some good, with the change in present value being borne by that private property owner [of that good], is an essence of capitalism.  Capitalization into the present price is the crux of the connotation of the word “capitalist” in the term “capitalist system.”  It is not some presence of capital goods or equipment.  It is not that capitalists (who are simply people who have private property entitlements) control the economic system.  They (we) do, of course, by making bids and offers in the market.  Since we all are capitalists (at least we own our own labor), we all affect the economic system and its outcome.

Add a Comment    Share Share    Print    Email