Trade Is Not War

by Don Boudreaux on July 20, 2016

in Myths and Fallacies, Trade, Video

In this short video, Johan Norberg explains that – contrary to bloviating-ignoramus politicians and to antediluvian mercantilist superstitions – trade is not war (and China is not “killing us”).

By the way, Johan’s 2003 book, In Defense of Global Capitalism, is one of the very best books ever written on trade and globalization.

….

The full set of Johan’s splendid “Dead Wrong” videos is available for free here.

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Quotation of the Day…

by Don Boudreaux on July 20, 2016

in Other People's Money, Politics

… is from page 331 of the 1996 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, On Politics: A Carnival of Buncombe; specifically, it’s from Mencken’s October 26, 1936, article – published just before the national election pitting incumbent president Franklin Roosevelt against challenger Alf Landon – “Sham Battle”:

The state – or, to make the matter more concrete, the government – consists of a gang of men exactly like you and me.  They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office.  Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them.  Nine times out of ten that promise is worth nothing.  The tenth time it is made good by looting A to satisfy B.  In other words, government is a broker in pillage, and every election is a sort of advance auction sale of stolen goods.

Perhaps showing how much longer and more expansive the reach of government has become over the past 80 years, I suspect that were Mencken writing these words today he’d change nothing save to note both that lots more women have gotten into the looting-through-government business, and that the percentage of electoral promises made good by looting A to satisfy B has risen to well above the ten percent that Mencken estimated it to be on the eve of F.D.R.’s first re-election as U.S. president.

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Every summer since 2011 I’ve taught an intro economics course for undergraduate interns brought to D.C. by my dear friends at the Fund for American Studies.  (Since 2013, this course has been offered through my home institution, George Mason University.)  Almost all of the students are Americans who study at American colleges and universities.  The majority of these students are aspiring journalists.

As always, near the end of the course I cover foundational public-choice economics – including an introduction to Arrow’s Impossibility Theorem.  Summarizing the conclusions of this literature as succinctly as my meager writing skills permit, Arrow’s theorem – made famous by Nobel laureate economist Kenneth Arrow (and often explained using examples from the work of the Scotsman Duncan Black) – says that it is impossible for any collective decision-making mechanism or procedure to generate outcomes that reflect only the preferences of the choosers.  The outcomes of all collective decision-making mechanisms or procedures – including majoritarian voting – necessarily are determined in part by the manner in which those mechanisms or procedures are used to settle upon outcomes.  Put differently, Arrow proved that it is impossible to devise any collective decision-making mechanism or procedure that generates results free of the influence of arbitrary factors (that is, factors that reasonable people believe should not play a role in determining the outcomes of decision-making procedures).

The short conclusion for majoritarian voting is this: the preferences of the voters are not the only factors that determine the outcomes of elections.  If the manner in which the vote in conducted is changed, the outcome of an election will change even if no voter’s preferences change.

Put even more succinctly: in almost all elections, there isn’t only one correct outcome.  There isn’t one outcome that reflects the individual-voters’ collective “preference” better or more accurately than some other possible outcomes.  Stated differently, in almost all collective-decision-making settings, there is no “will of the people.”  It’s a mistake to anthropomorphize a group of people.  Each individual has preferences; a collection of individuals has only a collection of individual preferences and not a separate and determinate group preference.

This material is pretty heady stuff, for an understanding of it drains away much of the foolish romance that many people have about ‘the people’s will’ being discovered and implemented through non-corrupt democratic voting.  (And when the work of other public-choice-oriented scholars such as Jim Buchanan, Gordon Tullock, Mancur Olson, Anthony Downs, Bob Tollison, Bruce Yandle, Charlie Goetz, Charlie Plott, Dwight Lee, Roger Meiners, Fred McChesney, Bob Higgs, Geoff Brennan, Loren Lomasky, Bill Shughart, Randy Holcombe, Sam Peltzman, Mark Crain, Viktor Vanberg, Russ Sobel, Roger Congleton, and George Stigler – along with many of my current colleagues, including Dick Wagner, Bryan Caplan, Thomas Stratmann, and Alex Tabarrok – are added to the mix, the notion that the government consistently acts to promote some identifiable ‘public welfare’ becomes downright laughable.)

After running this evening in class through a few examples of Arrow’s Impossibility Theorem, a young woman raised her hand to ask me: “What year did you say Professor Arrow won the Nobel Prize?”

1972,” I replied.

“How come, then, we’ve never heard of him until just now, in your class?” she sensibly and earnestly inquired.  “Why haven’t we been taught this material until now?”

Good – great! – question.  I don’t know the answer.  I do know, however, that it’s appalling that the typical college student today is ‘taught’ only the unscientific, romantic view of democratic government and is never exposed – save at schools such as GMU – to the science of public choice.

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Some Links

by Don Boudreaux on July 19, 2016

in Hayek, Hubris and humility, Inequality, Politics, Trade, War

Roslyn Layton argues that the mandarins at the FCC should be more humble.

Doug Bandow is correct: Uncle Sam’s meddling in the affairs of other governments puts Americans at greater risks.

I often disagree with Washington Post columnist Michael Gerson, but here he is correct – about both the GOP’s sorry rejection of free trade and its sickening embrace of Donald Trump.  A slice:

What Trump has proposed, according to GOP strategist Vin Weber, is “to reverse a Republican stance taken since World War II and embrace the notion of a state-planned economy.” In threatening a 35 percent tariff on many goods imported from Mexico and a 45 percent tariff on imports from China — and by pledging to punish specific U.S. businesses for behavior he doesn’t approve of — Trump is attempting to assume Hugo Chávez-like powers over global commerce.

My old professor Randy Holcombe writes eloquently on Black Lives Matter.

Reading Nick Gillespie is always fun and enlightening.

Matt Ridley describes how ‘industrial policy’ is regressive.

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Some Choice

by Don Boudreaux on July 19, 2016

in Politics

In 2016, listening to and reading about the proposed economic “policies” of each of the two major American political parties is sickening and surreal.  For me, the resulting sensation is not much different from the sensation I would experience if, having sprained my wrist, I’m obliged to choose between one of two physicians, the first of whom promises to cure me by sawing off my hand with a rusty blade while the other promises to cure me by boiling my hand in super-heated acid.  And me, wishing only freedom from both quacks, forced to endure, without anesthesia, one or the other’s treatment – and me also expected to express my admiration and gratitude for the fact that I am free to vote for which lethal imbecile will lay his or her grimy paws on me.

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… is from pages 564-565 of the final volume – Bourgeois Equality – of Deirdre McCloskey’s trilogy on the essence of bourgeois values and their role in modern life:

But if a profit occurs – at any rate, if the profit does not come from political favors, as it does to the sugar industry or the wind-farm industry – the economy is articulating something worth attending to.  It is saying, “Do more of this.  People want it strongly enough to pay for it.”  If a loss occurs it is saying, “Don’t do that.  People won’t pay for it.”  The articulation comes from the dollar votes of ordinary people, a democracy of what people in the aggregate are willing to pay.  It’s not one person, one vote, and the rich do get more votes.  And so for some purposes – voting for representatives especially – dollar voting would be objectionable, though in cynical truth it happens.  But in markets under dollar voting, at least the rich do not get to tell the poor what to buy; whereas under personhood suffrage the tyranny of the majority, sometimes purchased by the rich, can indeed force to poor to buy a war, say, or a subsidy to the rich.  Dollar votes are in any case better than the will of the raj or even most plans of the bureaucrat.

As Thomas Leonard documents in Illiberal Reformers (which Deirdre reviews here), American “Progressives” a century ago explicitly rejected the idea that an ordinary person spending his or her own money does so in ways that promote that ordinary-person’s best interest.  “Progressives” believed that knowledge of that ordinary-person’s best interest, and the fortitude to pursue it, was possessed reliably only by “experts” (that is, “Progressive” professors, pundits, politicians, preachers, and mandarins).  Today’s “Progressives” differ only in being more crafty than their predecessors of a century ago when making the case for the state to superintended the lives of ordinary people.  While today’s “Progressives” speak of “nudging” by the state and of government efforts to reduce “phishing for phools,” the contempt that today’s “Progressives” have for the choices and abilities of ordinary people is no less searing than was the contempt felt by “Progressives” of the past.

….

Note also that, while it’s true that the rich today have more dollar votes than do the poor today, the rich – or, those many rich people whose riches are the result of market exchanges – have more dollar votes today than do the poor only because the rich increased the number and value of the poor’s dollar votes.  However many more dollar votes some rich market entrepreneur or market investor or market CEO has today than I have, the number of my dollar votes, and the range of ways that I have available to express those votes, is larger than it would be had that rich entrepreneur or investor or CEO not done whatever it was that he or she did to earn the large number of dollar votes that he or she enjoys today.

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Here’s a letter to the Washington Post:

Robert Samuelson rightly criticizes Donald Trump’s proposed policies, most of which are – insofar as we can make them out – concocted from economic idiocy and nativist superstitions (“’Make America Great Again’ is not a policy.  It’s an exercise in mass psychology,” July 18).

Yet Mr. Samuelson himself commits an error that, because it is so common, is especially regrettable.  Protesting against Trump’s call for tax cuts, Mr. Samuelson writes that “the economy doesn’t need more ‘stimulus’ now.”  But the proper economic case for tax cuts is not that they stimulate the economy with more spending.  Rather, the proper case is that tax cuts increase the returns to individuals – to workers, investors, and entrepreneurs – who undertake productive activities.  By allowing producers to keep more of the fruits of their efforts and risk-taking, even a fully employed economy becomes more productive and grows faster.

As Mr. Samuelson suggests, Donald Trump is a fast-flowing river of economic fallacies.  Mr. Samuelson should be careful not to inadvertently contribute to this flow.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercator Center
George Mason University
Fairfax, VA  22030

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Bonus Quotation of the Day…

by Don Boudreaux on July 18, 2016

in Trade

… is from page 24 of the 1978 reprint of the English-language translation of Ludwig von Mises‘s 1929 essay “Karl Menger and the Austrian School of Economics”* (translated by Albert Zlabinger); this reprint appears in Ludwig von Mises, The Clash of Group Interests and Other Essays (New York: Center for Libertarian Studies):

Protective trade policies divert production from where it can best take advantage of natural conditions, and thus reduce the abundance produced by economic activity and depress the standard of living of the masses.

…….

* Menger‘s first name in this publication is misspelled “Karl”; its proper spelling is “Carl.”  (Menger’s son – born just weeks before his father turned 62 – was named “Karl.”)

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Some Links

by Don Boudreaux on July 18, 2016

in Hubris and humility, Immigration, Scientism, State of Macro

Over at the Law & Liberty blog, Northwestern University law professor John McGinnis warns that “Progressivism” by its nature is a threat to the rule of law.  (HT Brian Mannix)  A slice:

Many people are concerned about Donald Trump’s commitment to the rule of law, a concern I share. But the other choice in this election is a Progressive one, and Progressivism by its nature lacks that commitment. Moreover, its history shows that it permanently damages the constitutional foundations of the United States. And the United States suffers from the fevers of progressivism more than any time since the 1960s.  Thus, this election pits a candidate lawless by virtue of temperament against one lawless by virtue of ideology and emboldened by the spirit of the times.  The rule of law is under threat, whoever wins.

Progressivism has proved a greater long-term danger than any single individual, because it is born in part out of systematic rather than personal hostility to the Constitution. Federalism and separation of powers are obstacles to the social engineering at the heart of progressivism, and thus progressivism has tried to eviscerate these restraints. Packed with FDR appointees in the 1930s, the Supreme Court gutted the enumerated powers. The administrative state has eroded the separation of powers, making the executive ever more powerful in domestic affairs. The theory used to justify these departures from the original constitution, living constitutionalism, is itself a threat to the rule of law, because it devalues the formal rules laid down by the Constitution.

Speaking of the hubris, scientism, and disregard for individual rights that are hallmarks of “Progressivism,” Phil Magness reports on John Maynard Keynes’s ugly, illiberal record on this front.

And speaking of Keynes – who bequeathed to us bushels of unhealthy scientistic fruits, not the least of which is naive theorizing about aggregates – here’s Arnold Kling setting Barry Eichengreen straight about the case for trade.

Steve Chapman rightly exposes Mike Pence’s insufferable hypocrisy.

Jared Meyer asks if Uber drivers lose money.

Richard Ebeling reflects on Clinton and Trump in plunderland.

I hope that my former student Alex Nowrasteh is correct that the American public is becoming more open to immigration.

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Quotation of the Day…

by Don Boudreaux on July 18, 2016

in Hayek, History, Man of System

… is from page 184 of F.A. Hayek’s 1938 essay “Freedom and the Economic System,” which is reprinted as chapter eight of the 1997 collection, edited by Bruce Caldwell, Socialism and War:

That the increasing discredit into which democratic government has fallen is due to democracy having been burdened with tasks for which it is not suited is a fact of the greatest importance which has not yet received adequate recognition.  Yet the fundamental position is simply that the probability of agreement of a substantial portion of the population upon a particular course of action decreases as the scope of State activity expands.

Although this quotation is nearly 80 years old, and despite its point being featured prominently in Hayek‘s best-selling 1944 book, The Road to Serfdom, this insight still “has not yet received adequate recognition.”  Many of the same pundits and professors who would justifiably criticize a private greeting-card company for expanding into the production of steel simply because a majority of its shareholders clamor for such an expansion of the company’s tasks* themselves clamor for the state to take on an ever-expanding set of unrelated tasks.  These pundits and professors – and the politicians whom they cheer – pay attention neither to the capacity of the state to perform myriad different and often-conflicting functions nor to the practical impossibility of securing widespread and meaningful agreement of the people about how these different functions should be ranked and weighted in importance and on the specifics of how these functions should be carried out.

The assumption made by the pundits and professors appears to be very much like the assumption made by people who pray to god for desired outcomes: god is all-knowing, all-powerful, and all-good; simply request from god a desirable set of outcomes and then trust that god will achieve these outcomes in the best manner possible.  But regardless of your theology, the human beings who are the state are not gods (although judging from many of their proclamations they want you to believe that they possess something approaching god-like information, wisdom, power, and goodness).  (Indeed, the lust for power that politicians today must possess in order to succeed in politics makes most of these individuals more akin to devils than beatific gods.  But that’s a different subject.)

Thomas Leonard’s Illiberal Reformers (which usefully covers some of the same ground that I first toured when I read Arthur Ekirch’s The Decline of American Liberalism [1955] and Progressivism in America [1974], and then later Robert Higgs’s Crisis and Leviathan [1987]) makes clear that American “Progressives” of a hundred or so years ago ‘solved’ the problem of securing widespread agreement on what government should do and how government should do it simply by assuming that such agreement isn’t needed.  The “Progressives” themselves – self-anointed “experts” on the economy and society – fancied that they knew what the People should get from the state and these “Progressives” were naively confident in their ability to ensure that the state would do their bidding in the same way that a well-constructed chop saw or kitchen blender does the bidding of its operator.

The more one learns about the history of “Progressivism” and of the personalities and vanities of “Progressives,” the more one is astonished not only at “Progressives'” boundless arrogance but also at their utterly irrational and romantic ideas – ideas whose irrationality and foolish romance were cleverly hidden behind “Progressives'” boasts about their commitment to science.

…..

* That we seldom see private firms expand and diversify so thoughtlessly and unwisely is due to the fact that shareholders and creditors of firms have their own funds at stake.  This ‘skin-in-the-game’ fosters prudence and good sense – prudence and good sense that are absent when, through politics, everyone spends everyone else’s money.

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