Bill Shughart remembers the great Fred McChesney.  David Henderson also remembers Fred.

Here’s an op-ed that Fred had two years ago in the Washington Post; it showcases Fred’s scholarly creativity and insightfulness.

Inu Manak is right to call on everyone simply to cool it on protectionism.

Gary Wolfram explains the solid case against prohibitions on so-called “price gouging.

Shikha Dalmia rightly scolds Trumpian nativists.

Bryan Caplan reflects on his recent debate on immigration.

Nicolas Cachanosky warns of the danger of populism.

Brittany Hunter correctly points out that technology is no friend of monopolists or of monopolist wannabes.

Richard Epstein explores efforts to make health care in America great again.

Sheldon Richman ponders the state of freedom in America today.

In my latest column in the Pittsburgh Tribune-Review I emphasize the unpopular but indisputably correct reality that a society with mass prosperity cannot also be a society with security in particular jobs.  A slice:

Indeed, in the U.S. today, roughly 1.7 million jobs are destroyed each month. Compare that to the total of U.S. jobs destroyed by increased trade with China between 1999 and 2011: 2.4 million. That’s correct: In less than any ordinary two-month period in America, the total number of jobs destroyed is greater than the number of jobs destroyed by trade with China during the 21st century’s entire first decade. If you wonder why we’re not suffering massive unemployment, the reason is that, on average, slightly more than 1.7 million jobs are created each month.

Jobs are constantly being destroyed while others are created — a necessary feature of the market economy which generates our enormously high standard of living. Our widespread prosperity would be impossible without it.

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Exports are Costs; Imports are Benefits

by Don Boudreaux on October 17, 2017

in Myths and Fallacies, Trade

Here’s a letter to a regular e-mail correspondent, Nolan McKinney:

Mr. McKinney:

You write that “exports are at least as much a benefit to us as our imports are.”

With respect, you’re mistaken.  To see why, look at the matter at the level of your household.  What you export from your household is your labor; what you import are the goods and services that you purchase with your income.  Suppose that you were given the option of continuing to do one or the other of these activities but not both.  That is suppose that you could either (a) continue to export (that is, continue to work) but no longer import (that is, no longer bring into your household any goods and services) or (b) continue to import into your household goods and services for your consumption but no longer work.  Which option – (a) or (b) – would you choose?

You would clearly choose option (b).*  The reason is that you supply the fruits of your labor to others in order to increase your ability to consume.  What you export from your household is a cost that you willingly incur in order to be able to import into your household the goods and services that you and your family consume.  What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange.  Exports are the means; imports are the end.

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

* If I’m mistaken and you’d choose option (a), please call me as I have several household repairs to be done and I’d be delighted to have you do the repairs for me for free.

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Steeling

by Don Boudreaux on October 17, 2017

in Crony Capitalism, Myths and Fallacies, Seen and Unseen, Trade, War

Here’s a letter to the Wall Street Journal:

Nucor Steel CEO John Ferriola doth protest too much against free trade for the steel industry (Letters, Oct. 17).  He starts by complaining that Chinese steel is subsidized and ends by asserting that U.S. steel producers should be protected from foreign competition because such protection will strengthen U.S. national defense.

If the national-defense argument is valid, then the reason for the low prices of foreign-made steel is irrelevant.  National-defense considerations should, by Mr. Ferriola’s reckoning, suffice to justify steel tariffs even if the low prices of Chinese steel stem from Chinese steel producers’ genuine efficiency advantages.  So if Mr. Ferriola is truly concerned about national defense, what’s the point of his complaining about the alleged subsidies?

But the national-defense argument is almost certainly invalid.  Forget that any subsidies bestowed by Beijing on Chinese steel producers make the overall Chinese economy less productive than it would otherwise be.  Focus instead on the reality that protecting U.S. steel producers from foreign competition dampens innovation not only in the U.S. steel industry but also in those American industries that produce goods that compete with steel – goods such as aluminum and carbon fiber.  There’s no substitute for the spur of competition to incite businesses to find ways to improve the quality of their outputs and to lower their production costs.  Therefore, government protection of U.S. steelmakers results, over time, in the quality of American-made steel, aluminum, carbon fiber, and other such materials being lower than it would be with the competition of free trade, and the costs of these materials being higher.

How lower-quality U.S. steel and other outputs produced at unnecessarily high costs will strengthen U.S. national defense is a deep mystery.

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 October 17, 2017

in Regulation, Seen and Unseen, Trade

… is from page 58 of my Mercatus Center colleague (and GMU Econ alum) James Broughel’s excellent new book, Regulation and Economic Growth (citation omitted):

A key insight from trade theory in recent decades has been that open trade gives firms access to a greater variety of more highly specialized production inputs.  Access to such resources allows firms greater opportunity to specialize and differentiate their products.  Firms and, indeed, whole industries may face increasing returns to scale for just these kinds of reasons.  Therefore, regulations in the form of trade restrictions have limited the ability of firms to specialize and to take advantage of increasing returns to scale where it exists.

DBx: James here identifies one of the very many reasons why Trump and other economic nationalists who propose to use trade restrictions to make “make America great again” don’t know that they’re talking about.

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Bonus Quotation of the Day…

by Don Boudreaux on October 16, 2017

in Politics, Virginia Political Economy

… is from pages 237-238 of my late Nobel-laureate colleague Jim Buchanan‘s July 1967 Ethics article, “Politics and Science,” as this article is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty (1999) (original emphasis):

Politics can be considered as the choice of rules by which men live together.  We are deep in the cardinal sin of using the same word “politics” to mean two quite different things, and, indeed, this has been one of the major sources of modern confusion.  I shall, from this point, refer to this higher-stage, rule-making politics as “constitutional.”  This will appropriately distinguish it from the mundane stage of politics in the ordinary meaning.  It is one of the major tragedies of twentieth-century liberalism that the importance of distinguishing these two stages has now been almost wholly forgotten.

DBx: Whether you accept or reject Buchanan’s own particular brand of constitutional economics, it remains vital to appreciate the importance of the truth – stressed always by Buchanan – that choosing and acting within a given set of rules is quite different from choosing which set of rules to live under.

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Alberto Mingardi identifies some of the astounding errors in Yoram Hazony’s recent Wall Street Journal essay on liberalism.

Allan Golombek writes beautifully about creative destruction and jobs.  A slice:

Jobs are just tasks we carry out to produce and obtain the things we desire. We will never run out of consumer desires, no matter how many robots or other technologies we create. When technologies take care of some of our needs, they just give us the opportunity to pursue others, an opportunity we grasp eagerly.

Dan Mitchell identifies the most significant source of Puerto Rico’s woes.

Here’s Kevin Williamson on the G.O.P.’s fiscal ‘policy.’

Speaking of Republicans, Steven Greenhut bemoans conservatives’ increasing hostility to free markets.  (HT Anthony Onofreo)

“Liberty is not the outgrowth of homogeneity. It is the solution to the seeming problem of heterogeneity” – so argues Jeff Tucker.

James Pethokoukis speaks with Deirdre McCloskey.  Here’s part of Deirdre’s reply to a question about a political survey:

I think the middle ground is the libertarian ground. I think that most Americans are prepared to let people alone, and that’s the key. That’s what the middle wants. Of course it’s not actually the middle, and that’s the problem. It’s not just left and right, though that’s the way we always talk about it. That ends up putting the true liberals on the right, which makes no sense at all. There’s a second dimension as the survey pointed out, that means we aren’t on this coercive left/right. Both sides, left and right, are interested in coercion of some sort. Whereas we libertarians want people to be free, everyone.

The world is a much poorer place with Fred McChesney no longer in it.

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Trump’s Trade Policy Is Madness

by Don Boudreaux on October 16, 2017

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

I applaud your clear explanation of the great damage that Trump’s proposed changes to Nafta will inflict on the American economy (“Trump’s Nafta Threat,” Oct. 16).  Yet one feature of Trump’s approach to trade warrants more explicit criticism – namely, his belief that we Americans benefit from trade the more we export and the less we import.

It cannot be said too often that exports are the costs that we pay for the goods and services that we import.  And so when Trump boasts that he’ll deploy his tough negotiating skills to rework Nafta in order to increase American exports and reduce American imports, he boasts, in fact, that he’ll negotiate to ensure that Americans pay more and receive in return less.

Those who deny the truth of this claim – that is, people who, like Trump, believe that exports are benefits and imports are costs – can prove the sincerity of their belief by shipping all of their worldly possessions to foreigners in exchange only for foreign currency to be stuffed into mattresses and never spent.  Anyone unwilling to perform this impoverishing feat should dismiss Trump’s trade policy as the unalloyed madness that it is.

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 October 16, 2017

in Virginia Political Economy

… is from page 212 of my late colleague Gordon Tullock’s pioneering article in the Autumn 1975 Bell Journal of Economics, “The Transitional Gains Trap,” as this article is reprinted in Virginia Political Economy, which is Vol. 1 of The Selected Works of Gordon Tullock (Charles K. Rowley, ed., 2004):

One of the major activities of modern governments is the granting of special privileges to various groups of politically influential people.

DBx: This truth is seldom denied when it is, as here, explicitly stated.  And yet well-meaning people from across the political spectrum continue to plead for government to intervene in whatever ways these pleaders imagine the intervention – if carried out just right – will further their favorite cause.  The pleaders never imagine that the power for which they plead will be used to further causes that they oppose.

Those in possession of concentrated power have an uncanny ability to enchant.

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Quotation of the Day…

by Don Boudreaux on October 15, 2017

in Adam Smith, Growth, Immigration, Trade

… is from pages 116-117 of Razeen Sally’s superb 2008 book, New Frontiers in Free Trade: Globalization’s Future and Asia’s Rising Role:

There are short-term (or static) gains from trade.  That is but the necessary preface for capital accumulation, economies of scale, and other long-run (or dynamic) gains, such as the transfer of technology and skills, and the competitive spur that comes from exposure to world-class practice.  This feeds into productivity gains, increases in real incomes, and economic growth.  Indeed, it is the dynamic gains from trade that [Adam] Smith and his contemporary David Hume emphasized.  They strongly linked free trade (broadly defined to include cross-border flows of capital and people) to domestic institutions and growth, all on the canvas of the long-run progress of commercial society.

DBx: The principle of comparative advantage is real, robust, and an important reason that individuals specialize and trade.  Also, the discovery of this principle is an impressive intellectual achievement.  But contrary to much uninformed commentary, the economic case for free trade does not rest exclusively upon comparative advantage.  As David Hume and Adam Smith understood, two persons identical in every way in their abilities to produce can still secure mutual gains by specializing and trading.

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Horwitz on MacLean

by Don Boudreaux on October 14, 2017

in Books, Virginia Political Economy

Here’s the Cato Journal version of Steve Horwitz’s devastating review of Nancy MacLean’s fabulist tale, Democracy in Chains.  Some slices:

But the argument for school choice has a long history outside the context of race. For example, it appears in nearly identical form in John Stuart Mill’s On Liberty (1859) exactly 100 years earlier. Like Mill, Nutter and Buchanan genuinely believed that their proposed system would provide a better education for all students. Given the way integration had been so strongly resisted by state governments in the south, their proposal, with all of its imperfections, would have plausibly been better than the status quo at delivering more integration. This is consistent with Buchanan’s career-long objections to utopian policy proposals, preferring instead imperfect changes that have a more realistic chance of improving people’s lives on the margin, even if they fall short of an imagined ideal.

….

MacLean also claims that public choice theory involves no empirical work (p. 42), and that no empirical support exists for it, ignoring the vast quantity of empirical research in its flagship journal Public Choice, including in the very first issue. The irony here is that she employs zero quantitative or statistical data to back up any of the empirical claims she makes about the failures of free markets or the influence of ideas (e.g., the very questionable claim that James Buchanan was highly influential in bringing people to libertarianism). Her reference to Charles Dickens’s novels, which are fiction, as a way to “grasp the reality of unregulated capitalism” is both an abuse of literature and nothing resembling empirical evidence.

And, most important, Phil Magness (2017a, 2017b) has pointed out that neither John Calhoun’s nor Donald Davidson’s name appears anywhere in the index of the 20 volumes of Buchanan’s collected works. There is one mention of the Southern Agrarians in his autobiography, but not as an intellectual influence. Buchanan names his intellectual influences in several places in his work, and neither of those names appears in those lists. It is stunning to anyone reasonably familiar with Buchanan’s work to read MacLean’s passages in which she gives prominence to those thinkers. There is simply no evidence whatsoever to support that intellectual influence. They appear to be figments of her imagination. Finally, nearly absent from the book is Buchanan’s teacher at Chicago, Frank Knight. He appears briefly as she discusses Buchanan’s Chicago experience, but she has no discussion of his role as a deep influence on a number of aspects of Buchanan’s thought. This is an enormous omission on her part, as anyone even casually familiar with Buchanan’s work would recognize.

….

In addition, she is unable to correctly explain the idea of concentrated benefits and diffuse costs in the context of public choice’s explanation of the growth of government. Her discussion of Buchanan’s Southern Economic Association presidential address “What Should Economists Do?” shows that she does not understand what economists mean by “allocation problems” — it’s not about “resource distribution” and inequality. She gets the message of Buchanan’s “The Samaritan’s Dilemma” article completely backward. She also completely misreads Buchanan and Tullock’s (1962) discussion in The Calculus of Consent about the tradeoff between external costs and decisionmaking costs in the context of the role of the Constitution in 1900 and 1960, claiming they argue the exact opposite of what they do, as the next sentence after her truncated quote shows (p. 80). She claims (p. 290, fn. 42) that Tyler Cowen’s (1998) In Praise of Commercial Culture “elaborated on old shibboleths” from Ludwig von Mises’s (1956) The Anti-Capitalistic Mentality, which only demonstrates that she either did not read or did not understand either book, as their overlap is minimal and their major claims are completely orthogonal to each other. At some point, her consistent pattern of misusing and misreading her sources, and always in the same way, has to lead even a sympathetic reader to wonder whether there is something more at work here than confirmation bias resulting from having exceeded her intellectual limits.

….

Having had our work so deeply misunderstood and maligned, including our commitment to improving the lives of all citizens, it’s understandable how strongly so many public choice scholars, and libertarian academics more broadly, have reacted to the book. In turn, MacLean has accused those scholars of a “coordinated attack,” and, at one point, claimed that “Koch operatives” were trying to destroy her reputation and silence her. The truth is simpler: when you attack a well-respected and beloved scholar and the ideas that many other living scholars take very seriously, they aren’t going to roll over and play dead. The pushback against MacLean’s book has included very careful documentation of her errors and misrepresentations as summarized above. Her response has been not to address the particular criticisms but to, instead, maintain the rhetoric of being unfairly “under attack” by the forces of the right. Her unwillingness to respond to the chapter-and-verse criticisms of her misinterpretations, misuse of sources, and unsupported claims is further evidence that concern with the truth is not her primary objective.

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