Quotation of the Day…

by Don Boudreaux on November 19, 2014

in Economics, Inequality, Myths and Fallacies

… is from a plenary talk that Deirdre McCloskey delivered this past September at the Mont Pelerin Society meetings in Hong Kong; Deirdre here refers critically to Thomas Piketty’s project:

Marx got it wrong.  Ricardo got it wrong.  Combining the two is not a good plan.

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Politicians Should Pipe Down

by Don Boudreaux on November 18, 2014

in Environment, Myths and Fallacies

Here’s a letter to WTOP Radio in Washington, DC:

During today’s 10:00am hour you reported that Maryland governor Martin O’Malley objects to building the Keystone XL pipeline because (as you summarized his objection) “the pipeline will create too few jobs to offset its environmental cost.”

I have no idea if this pipeline should or should not be built.  But I do know that Mr. O’Malley’s stated reason for opposing it makes no sense.  Labor (like each of the other resources) used to build the pipeline is a cost, not a benefit.  So whatever are the environmental costs of the pipeline, this project becomes more justified the fewer are the workers used to build and to operate it.  Mr. O’Malley seemingly thinks that one cost (namely, the pipeline’s environmental risk) becomes acceptable to bear, not if it is offset by lower costs on other fronts but, instead, only if another cost of the pipeline proves to be even greater than the environmental cost.

Mr. O’Malley’s objection, in short, is that the pipeline is not costly enough!

It’s distressing that people as economically illiterate as Mr. O’Malley have influence over public policy.

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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Low Flow Sense

by Don Boudreaux on November 18, 2014

in Environment, Myths and Fallacies, Seen and Unseen

I loathe low-flow faucets and shower heads.

First, they likely do not cut down on the amount of water used per incident.  For example, I know that I rinse my hands for a longer duration under low-flow faucets than I do under regular-flow faucets.  The point is to rinse my hands, and that takes a minimum amount of water.  Reduce water flow per second and the result is a increase in the number of seconds the faucet is kept in operation.  Ditto for showering.

Second, the solution to over use of water is a free market in water.  Save under bizarrely extreme circumstances that almost never occur on earth in modern societies, if I’m paying the market price for water, it should be no one else’s business how much water I use and for what purposes I use it.

Third, some of the justifications for low-flow faucets are plainly idiotic – such as that (as I’ve seen and heard on several occasions) “water is our most precious resource.”  Nonsense.  Potable water in most places in the civilized world today is incredibly unprecious.  Buildings are almost all equipped with little machines called water fountains that routinely dispense the stuff for free.  Ever see a machine dispensing Chateau Latour or even Budweiser for free?  Water is in most places in modern society today quite abundant; it’s not quite to the point of being superabundant, but it’s awfully close in many situations.

Yesterday in my class on sustainability at GMU my students and I were discussing low-flow faucets.  We all agreed that if government-mandated low-flow faucets make sense, then government should also mandate that Dasani and other suppliers of bottled water equip each bottle with a low-flow nipple so that drinkers of such water “conserve” this “precious resource.”

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Quotation of the Day…

by Don Boudreaux on November 18, 2014

in Inequality

… is from page 574 of the 2000 Modern Library edition of Charlotte Bronte’s brilliant 1847 novel, Jane Eyre; here – in chapter 33 – Jane has just learned that she unexpectedly inherited, from her uncle John, a fortune of £20,000:

One does not jump, and spring, and shout hurrah! at hearing one has got a fortune; one begins to consider responsibilities, and to ponder business; on a base of steady satisfaction rise certain grave cares, and we contain ourselves, and brood over our bliss with a solemn brow.

In Capital in the Twenty-First Century, Thomas Piketty cites several 19th-century novels to help drive home his point about the idleness of the rich and of the dangers of economic inequalities.  While I share Piketty’s belief that literature contains a great deal of useful scientific information – or, put differently, literature offers treasures of information and insight that are useful for science – that information, like all information, must be used with care and good judgment.  Steve Horwitz and Sarah Skwire show that Piketty’s use of literature is neither careful nor done with good judgment.  The above quotation from Jane Eyre similarly offers evidence, from classic 19th-century literature, that conveys an impression about reality quite the opposite of the impression that Piketty attempts to convey.

Piketty does not, in his book, cite Jane Eyre.  Yet the passage quoted above is obviously relevant to Piketty’s point.  One may debate the economic- or policy- relevance of the sorts of responsibilities that Jane then brooded over.  But at least the passage reveals that even aristocratic wealth of the sort that was still common in mid-19th-century Britain carried with it some greater obligation to “ponder business”: even landed wealth – certainly during that era when the economy was undergoing such vast, foundational changes – did not automatically reproduce itself independently of human agency and cares.

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Public Choice and Ideas

by Don Boudreaux on November 17, 2014

in Politics, Reality Is Not Optional

I’m pleased and honored to have written the lead essay for the November / December Cato Policy Report.  It’s entitled “Why Government Fails and Why Ideas Matter.”  Here’s a slice from near the essay’s end:

In private markets, each person who ignores the preferences of buyers or sellers in order to indulge his or her personal ideological interests pays the cost of doing so. For instance, a racist restaurateur who refuses to serve African-Americans forgoes the profits he would earn from such customers. As a result, markets naturally temper ideological actions that are inconsistent with sellers’ efforts to earn profits or with buyers’ efforts to stretch their spending power as far a possible. Matters differ in politics, for two reasons. First, most political decisions are about how to spend other people’s money or resources; and second, no voter truly expects that his or her vote will determine the outcome of any election. Each of these realities means that the bulk of the consequences of every individual political decision falls on people other than the decisionmaker.

Consider a citizen in a voting booth. We’ve already seen one reason why he’ll cast an uninformed vote — namely, because he knows that his vote won’t determine the outcome of the election, the benefit to him of becoming adequately informed is very small. A second, related reason is that he stands to capture only an infinitesimally small share of benefits of casting an informed vote, and to suffer only an infinitesimally small share of the costs of casting an uninformed vote. Because becoming informed is costly, each voter remains rationally ignorant of the detailed facts and issues at play in any election.

Although this rational ignorance initially appears to be an unambiguous cause for despair about the prospects of any good ever coming from politics, it isn’t necessarily so. Precisely because each voter, as such, has no material interest that will be affected by how he, as an individual voter, casts his ballot, he has free rein to vote ideologically — to vote his conscience, if you will. For example, a steelworker in Pittsburgh who supports free trade can safely vote against the candidate who promises higher tariffs on steel imports. Because this steelworker has no hope of determining the election’s outcome, it costs him nothing to express in the voting booth his ideological preference for free trade, even though his material interest would be better served by the protectionist candidate. The upshot is that democratic outcomes are not destined to be determined strictly by special-interest-group politics and other collective-decisionmaking imperfections. Ultimately, voters’ ideas about the proper role of government matter a great deal.

If the public believes that a large and discretionary government will generally intervene productively, then the result will be a large, discretionary government that intervenes. And special-interest groups will then get “cleared” by uninformed and pro-government voters to then determine the actual details of government’s activities. Basic Public Choice economics predicts that these details will be ugly.

….

Far too much modern economics and other social science is unscientific because it ignores the realities highlighted by public choice.  Such ‘science’ – ‘science’ such as whiteboard demonstrations of how, under just the right circumstances, minimum-wage legislation can improve the lot of low-skilled workers, or of how bureaucrats empowered to negate or to modify the contractual terms voluntarily agreed to by private borrowers and private lenders might possibly do genuine good – is in fact more akin to snake-charming than it is akin to genuine, objective science.

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The Wisdom and Wit of Warren Nutter

by Don Boudreaux on November 17, 2014

in Hubris and humility, Politics

Here’s a letter to the Wall Street Journal:

It’s very good that you (with help from my colleagues Bryan Caplan and David Levy) draw readers’ attention to the late University of Virginia economist and Defense Department official Warren Nutter (“Notable & Quotable,” Nov. 17).  Nutter was a fountain of profound insight and wisdom before his early death in 1979; sadly, today he is largely forgotten.

My favorite example of Nutter’s acumen - and of his wit - is his observation that “in the academic world, you think now and decide never; and in the government, it’s just exactly the other way around.”*

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

* Quoted on page 51 of William R. Allen, “Economics, Economists, and Economic Policy: Modern American Experiences,” History of Political Economy (Spring 1977), Vol. 9, pp. 48-88; reprinted here at Econ Journal Watch.

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Quotation of the Day…

by Don Boudreaux on November 17, 2014

in Other People's Money

… is from page 237 of Michael Huemer’s 2013 book, The Problem of Political Authority (footnote omitted):

Due to their monopolistic positions, governments can afford to make extremely large and costly errors without fear of being supplanted.  For example, the estimated combined cost of the U.S. wars in Iraq and Afghanistan is $2.4 trillion, and yet the U.S. government need fear no loss of market share as a result of this dubious investment.  If each American could choose between a government that carried on these wars and one that did not and if each individual were guaranteed to actually get what he chose, then even the most ardent hawks might find themselves thinking twice about the price tag.  Fortunately for the government, individuals have no such choice.

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Quotation of the Day…

by Don Boudreaux on November 16, 2014

in Man of System

… is from page 4 of the 1989 revised edition of David Friedman’s 1973 book, The Machinery of Freedom; (this indispensable book is available on-line for free):

The direct use of physical force is so poor a solution to the problem of limited resources that it is commonly employed only by small children and great nations.

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For those of you in the Bay Area, today (Sunday) at 9:00am PST, Adam C. Smith will discuss the new book that he wrote with his grandfather Bruce Yandle, entitled Bootleggers and Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics, on The Bob Zadek Show.  You can catch it on radio station 910AM.

Scott Sumner nails it here on the question of allowing a free-market in kidneys to develop.  A slice:

Think about how America has freaked out about the nonexistent threat from Ebola. Now imagine that a Boeing jet carry [sic] 210 passengers crashed once a week as a result of terrorism.  [Each week in the U.S., the shortage of transplantable human kidneys causes an estimated 210 people either to die or to become too ill for transplants.] How much money would we spend beefing up airport security?

At this point people tell me that I’m just an unimaginative utilitarian. There are other issues at stake; human dignity, natural rights, etc., etc. OK, let’s return to the one Boeing a week crashes hypothesis. What sort of indignities would Americans meekly put up with at airports in that case? How many “natural rights” would they give up in a heartbeat? The truth is that human dignity and natural rights don’t explain our lack of a kidney market, it’s ignorance on the part of the public. If they understood the gains they’d accept the market immediately, even if they had to accept these costs. Just as they’d accept tighter airport security, at a cost of freedom and dignity, if terrorism got that bad.

Another problem is “cognitive illusions.” People are hardwired (or taught?) to think that money taints certain types of transactions, but not others. Other bloggers have explained this problem much better than I can. My point here is that these cognitive illusions (smokers deserve to pay for their sins, drug users deserve to be put in prison, money taints transactions, etc) are not costless. Indeed they create some of the very worst evils in our society.

On this general topic of useful and humane markets being squelched by superstition and economic ignorance (often mixed with more than a dash of interest-group greed), my vanity compels me to link to this 1995 article of mine calling for a liberalized market in infant adoptions.

Steven J. Davis and John Haltiwanger explain the importance of labor-market fluidity.

Ryan Bourne identifies ten errors that frequently arise in discussions of economic inequality.

Per-capita, inflation-adjusted spending by the U.S. government, 1945-present.

Finally, apropos nothing: I love this picture of the Beatles.

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James Grant on The Forgotten Depression

by Don Boudreaux on November 16, 2014

in Books, History, Monetary Policy

At lunchtime on Tuesday, Jim Grant will speak at the Cato Institute headquarters about his new book, The Forgotten Depression.  If you’re in the DC metro area, do consider attending.  I’ll be there.  Here’s the announcement:

Featuring the author James Grant, Publisher, Grant’s Interest Rate Observer; with comments by Jim Powell, Senior Fellow, Cato Institute; and Lawrence H. White, Professor of Economics, George Mason University, and Senior Fellow, Cato Institute; moderated by George Selgin, Director, Center for Monetary and Financial Alternatives, Cato Institute.

What happens if you throw a depression and nobody from the government shows up? No Quantitative Easers or fiscal stimulators or financial-firm rescuers? And what would happen if, instead of lowering interest rates and spending more to spur recovery, the government did nothing? The answer, in 1921 at least, is that the economy not only recovers but is “roaring” in less than two years. Was “The Crash that Cured Itself,” as the subtitle of James Grant’s fascinating new book refers to it, a fluke, or does it offer useful lessons for today’s erstwhile depression fighters?Join us to hear James Grant, Jim Powell, and Lawrence H. White discuss this and other important questions raised by Grant’s stimulating new book.

If you can’t make it to the Cato Institute, watch this event live online at www.cato.org/live and follow @CatoEvents on Twitter to get future event updates, live streams, and videos from the Cato Institute.

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