Bonus Quotation of the Day…

by Don Boudreaux on April 26, 2017

in Economics, The Economy, The Future

… is from page 295 of my late Nobel laureate colleague Jim Buchanan’s October 1991 article, co-authored with Viktor Vanberg (and originally published in Economics and Philosophy), “The Market as a Creative Process” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan (footnotes deleted; original emphasis):

Unknown-2The recognition that in human social affairs the future is undetermined but “created” in the process of choice, does not imply that the future is “beyond conjecture,” nor does it ignore that individuals have expectations about the future on which they base their action.  The subjectivist’s understanding of the nature and role of such expectations is, however, critically different from their interpretation in a neoclassical [economics] framework.  To the subjectivist, expectations may be more or less reasonable (in the sense of being more or less defendable in the light of past experience), but they can, ultimately, not be more than conjectures about an undetermined and, therefore, unknowable future.  To the neoclassical economist, by contrast, expectations are about a future that is, in principle, knowable, even if its knowability may be limited by imperfections of the “expecters.”  Ignorance of the future is essentially seen as a source of inefficiency, as a problem that can, in principle, be remedied by learning.  By contrast, from a subjectivist position, such ignorance is simply “an inescapable characteristic of the human condition.”

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on April 26, 2017

in Crony Capitalism, History, Other People's Money, Trade, Work

Terra McKinnish’s new paper finds evidence that minimum wages do indeed destroy jobs on net for low-skilled workers – and, it appears, also evidence against the assertion that low-skilled workers in America are generally victims of monopsony power.  (HT Frank Stephenson)  Here’s the abstract:

The 2009 federal minimum wage increase, which compressed cross-state differences in the minimum wage, is used to investigate the claim that low-wage workers are attracted to commute out of state to neighboring states that have higher minimum wages. The analysis focuses on Public Use Microdata Areas (PUMAs) that experience commuting flows with one or more neighboring state. A difference-in-differences-in-differences model compares PUMAs that experienced a sizeable increase or decrease in their cross-border minimum wage differential to those that experience smaller change in the cross-border differential. Out-of-state commuting of low wage workers (less than 10 dollars an hour) is then compared to that of moderate wage workers (10–13 dollars an hour). The results suggest that an increase in own state’s minimum wage, relative to neighbor’s, increases the frequency with which low-wage workers commute out of the state. The analysis is replicated on the subset of PUMAs that experience commuting flows with more than one neighboring state, so that the estimates are identified entirely within PUMA. As a whole, the results suggest that low-wage workers tend to commute away from minimum wage increases rather than towards them.

Mark Perry exposes the folly of Trump’s lumber tariffs.  A slice:

If Canada “unfairly” subsidizes its lumber producers, that’s a form of foreign aid, and a gift from the citizens of Canada to the citizens of the United States. If we wouldn’t complain about free lumber from Canada, we shouldn’t complain about low lumber prices that might be subsidized by Canadian citizens.

(Be careful not to read Mark’s post as suggesting that protectionism destroys jobs on net in the domestic economy.  Protectionism doesn’t destroy jobs on net in the domestic economy.  Rather, protectionism – “scarcityism” – protects worse jobs in the domestic economy and prevents the creation of better jobs in the domestic economy.)

Richard Ebeling explains the morality of capitalism.

Bob Murphy flags an inconsistency in “Progressive” thought.

Arnold Kling is deeply insightful.

My GMU Econ colleague Mark Koyama offers some economic history of east Asia.  (HT Tyler Cowen)

Vernon Smith champions Americans’ First-amendment rights.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on April 26, 2017

in Hayek, Myths and Fallacies

… is from pages 82-83 of Wilfred Beckerman’s great and ahead-of-its-time 1974 book, Two Cheers for the Affluent Society (footnote deleted; link added):

51a08Uwf4RL._AC_US436_QL65_As Anthony Crosland [like Hayek] has pointed out, it is impossible to draw a sharp dividing line between those of our needs that are innate and natural and those that have been artificially developed as a result of many factors, including our whole social environment.  Furthermore, even if it were possible to draw a dividing line between artificial and natural needs, what’s so moral about natural needs and so immoral, or undesirable, about artificial needs?  Would some people’s artificially induced “need” to listen to music or to acquire knowledge be less desirable a component of welfare than some other people’s instinctive, natural and primitive instinct to rape women?

Add a Comment    Share Share    Print    Email

Fair Currency Pricing

by Don Boudreaux on April 25, 2017

in Trade

In my latest column for the Pittsburgh Tribune-Review I use the mundane example of a school fair to clarify thinking about currency manipulation.  The school fair is – or once was – a real one.  It’s the annual fair conducted by the Immaculate Conception School in Marrero, LA – a fair that I attended each school year as a student at Immaculate Conception in the 1960s and early ’70s.  A slice:

Return with me to the school fair, where we students couldn’t spend dollars directly on the food, toys and other marvelous offerings. We first had to convert our dollars into fair tickets. The school administrators determined a fixed number of tickets that each dollar bought.

The fair tickets were, in effect, a different currency, the only one used in the small economy that was our school fair. Each good and service for sale was priced in these tickets — for example, one ticket for a box of popcorn, five for a donkey ride.

Obviously, the more fair tickets we students could buy for each dollar, the more fair goodies we could purchase. Lower ticket prices enriched us students.

Equally obviously, the lower the dollar price of a fair ticket, the less money the school earned on sales of any fair offerings. Because the purpose was to raise money for the school, the administrators had no incentive to price the tickets too low in terms of dollars.

Suppose, though, that the administrators had fallen for politicians’ and pundits’ claims that a country enriches itself by devaluing its currency against the dollar. The administrators would have intentionally priced each fair ticket too low. We students would have gotten lots of tickets for our dollars and feasted merrily on the fair’s offerings. To supply our very high demand for fair goodies, the school would have had to increase its production of them. This increased production is, of course, costly.

The bottom line: If the school administrators had underpriced their fair tickets, the school would have lost, rather than made, money. And in doing so, it would have subsidized its students’ consumption. In short, fair-ticket devaluation would have transferred wealth from the school to its students.

Add a Comment    Share Share    Print    Email

Bonus Quotation of the Day…

by Don Boudreaux on April 25, 2017

in Growth, Trade

… is from page 74 of the original edition of Todd Buchholz’s 1989 volume, New Ideas from Dead Economists:

51hKns9CvUL._SX327_BO1,204,203,200_When economies turn inward, they almost always turn downward.  There is no such thing as an inward and upward spiral in economics.

DBx:  Yes.  Without question.

Although it’s a much-used argument by economists, the argument remains true and useful: If it is true that increased riches are generally available for the people of a country who cut themselves off from trading with the people of other countries, it must also be true that further riches are available for the people of a town who cut themselves off from trading with the people of other towns – and, yes, it, too, must also be true that yet greater riches are available for the people of a household who cut themselves off from trading with the people of other households.  Of course, almost no one believes that households or towns are enriched by household or town protectionism scarcityism.  Yet a large number of people mysteriously believe that nations are enriched by national scarcityism.

Add a Comment    Share Share    Print    Email

Scarcityism Is a Tool of Cronyists

by Don Boudreaux on April 25, 2017

in Crony Capitalism, Trade

Here’s a letter to the Wall Street Journal:

Uncle Sam’s scheme to punitively tax Americans who buy low-priced lumber from Canada is yet another instance of what is commonly called “protectionism.”  The term, of course, refers to the protection from foreign competition that tariffs and other import restrictions bestow upon politically powerful domestic producers.  Yet “protectionism” – with the sweet sound of the verb “to protect” – is far too kind and inaccurate a word for this policy.

It’s too kind because it masks the reality that the protection given to domestic producers is an attack on domestic consumers.  To protect with trade barriers the incomes of some of its subjects, government preys upon the incomes of other of its subjects.  (And, by the way, economics is clear that the total value of the incomes lost to such government predation exceeds the total value of the incomes that are protected.)

The word “protectionism” is too inaccurate because it hides the scheme’s illogic.  If “protectionism” worked as its champions claim, it enriches nearly everyone in the domestic economy not by increasing people’s access to goods and services, but by decreasing this access.  Protectionism is the theory that people are made richer when the flow of goods and services available for their consumption is artificially slowed or when the cost of acquiring goods and services for their consumption is artificially raised.  Protectionism is the bizarre notion that government-induced scarcity is really government-induced abundance.

So let’s make the language honest and more revealing.  George Mason University economics doctoral student Jon Murphy proposes that we replace the misleading words “protectionism” and “protectionists” with the words “scarcityism” and “scarcityists” – words that better expose the true nature of government-erected obstacles to people’s access to goods and services.

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

Add a Comment    Share Share    Print    Email

Remembering My Father

by Don Boudreaux on April 25, 2017

in Civil Society

Today is the eighth anniversary of my father’s death.  Each year on this date I link to this remembrance of my dad that I wrote soon after he died.

As I’ve intellectually matured over the years to appreciate the genuine importance of ideas in shaping society – the importance not only (not even mainly) of ideas expressed in books and by intellectuals, but also of ideas held tacitly and revealed, and communicated, largely in the fine details of our actions and reactions – I realize more and more, with each passing year, what an enormous treasure of inheritance was left to my brothers, Ryan and Shannon, and to my sister, Mary, – and to me – by our late parents.

Add a Comment    Share Share    Print    Email

Some Links

by Don Boudreaux on April 25, 2017

in Crony Capitalism, Economics, Education, Environment, Trade, War

Here’s Henry Hazlitt’s 1956 remembrance of H.L. Mencken.  (HT Warren Smith)

Doug Bandow makes the case against U.S. intervention in Syria.

Elaine Schwartz reviews the connection between economic growth and pollution.

The Wall Street Journal interviewed Stanford University’s Dave Donaldson, the recent winner of the prestigious John Bates Clark Award for young economists.  A slice:

I have always believed strongly that the study of trade should not, and our interest in trade as citizens and policy makers should not, just be focused on international trade. There’s nothing fundamentally, at all different between California trading with China and California trading with Colorado. It’s all just trade.

Marian Tupy ponders recent African history.

Richard Rahn laments the rise of campus authoritarianism.

John Tamny exposes the folly of Trump’s “Buy American, Hire American” scheme.

Speaking of costly Trump schemes, my Mercatus Center colleague Dan Griswold reveals the deceitfulness and cronyism behind protection of U.S. steel producers.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on April 25, 2017

in Myths and Fallacies, Regulation

… is from page 20 of Christopher Achen’s and Larry Bartels’s 2016 book, Democracy for Realists:

41pMvN6EaEL._SX327_BO1,204,203,200_The history of political thought – including much contemporary political science – is marked by an addiction to romantic theories.

DBx: Indeed so.  And yet countless are the economists even today who, with their eyes peeled for every possible deviation of real-world markets from textbook ideals, are blind not only to possible ways in which government might fail but also to the many actual ways in which government makes matters worse.

Add a Comment    Share Share    Print    Email

… is from page 4 of the manuscript of University of Arizona philosopher David Schmidtz’s contribution to the forthcoming (2018) book, Markets in Education; this book is part of Oxford University Press’s Debating series; (the philosopher contributing the essay with a viewpoint different from Dave’s is Harry Brighouse) (original emphasis):

imagesWhen people relate only by consent, they are treating each other as self-owners, that is, as beings with a right to say no.  Respecting persons – treating them as persons – starts with respecting their right to say no.  Sellers show up, looking for opportunities to be of service, when showing up is safe – that is, when they expect their right to say no to be respected.  That measure of security is a key to human progress.

DBx: Many of today’s self-described “progressives” of course wish the state to force individuals into various transactions and relationships.  These so-called “progressives” routinely call upon the state to deny to individuals the right to say no.  For example, in the United States, you must help to fund the U.S. Export-Import Bank – you must annually fork over a chunk of your earnings to the Social Security Administration – you must school your children in ways formally approved by the state – you must help to fund government schools.  If you insist on saying “no” to any such requirement – and even if such insistence is your only offense – you’ll be caged like an animal.

This policy is the exact opposite of any policy deserving the name “progressive” or “liberal.”

Add a Comment    Share Share    Print    Email