Here’s another letter to the very insistent Mr. Nolan McKinney:

Mr. McKinney:

You again insist that “government is duty-bound to protect our companies from subsidized foreign competitors.”

And I again insist that such foreign subsidies, in addition to enriching Americans as a whole, visit no unfairness or injustice on American producers.  The reason is that American producers aren’t entitled to – they have no property right in – any portion of American-consumers’ incomes.

Suppose that Bill earns his living by mowing his neighbors’ lawns in Buffalo.  One day a new competitor, Joe, from Toronto arrives in Bill’s neighborhood.  Joe offers to mow lawns at prices too low for Bill to match.  All of Bill’s customers soon become his former customers.  Joe, it turns out, is subsidized by the Canadian government to mow Americans’ lawns.

You, Mr. McKinney, believe that this subsidized competition inflicts on Bill an injustice that should be corrected by Uncle Sam.  You believe that the U.S. government should – either with its own subsidies or with tariffs – force Bill’s neighbors to continue to pay to Bill at least the same portion of their incomes that they voluntarily paid to Bill before his subsidized foreign rival appeared.

But now change the example a bit.  Suppose that Bill’s new rival isn’t a subsidized Canadian but, instead, is Tom, an American.  Tom’s parents pay fully for all of Tom’s equipment and fuel.  Because Bill has to pay personally for all of his own equipment and fuel, Bill can no more compete successfully against Tom than he could compete successfully against Joe.

Do you, Mr. McKinney, believe that Uncle Sam should protect Bill from Tom’s competition?  Do you believe that Tom (enjoying, as he does, an unearned cost advantage bestowed on him by his parents) inflicts on Bill an injustice by competing against Bill for customers – an injustice that the government “is duty-bound” to correct by forcing Bill’s neighbors to continue to transfer to Bill at least the same portion of their incomes that they voluntarily transferred to Bill before Tom appeared?

I’m confident that you not believe that Bill is entitled to continue to receive a portion of his neighbors’ incomes when his competitor is Tom.  Yet if Bill here has no such entitlement to a portion of his neighbors’ incomes, how, pray tell, does such an entitlement arise simply because those who bestow the unearned cost advantages on Bill’s rival are foreigners rather than fellow Americans?

I submit that foreign-government subsidies paid to rivals of American producers, while these might well damage some American producers economically, visit upon these producers no injustice.  I submit further that an injustice is visited upon American consumers by the U.S. government whenever it “retaliates” against foreign subsidies with subsidies of its own or with higher tariffs.  Such “retaliation” unjustly transfers to American producers a portion of American-consumers’ incomes – a portion of incomes that these producers are not by right entitled to receive.

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 March 27, 2017

in Nanny State, Reality Is Not Optional

… is from page 149 of Richard Epstein’s superb 2003 volume, Skepticism and Freedom:

41kO2TrtDOL._SX331_BO1,204,203,200_Once the state is no longer neutral with respect to preferences, it can intervene on the side of the bad guys just as easily as on the side of the good.

DBx: Those who today give the state power to – or who remain silent when the state seizes power to – punish the peaceful pursuits of some particular preferences had better beware, for such state power will be exerted tomorrow against them.  And if not tomorrow, the day after.  Over the long run, unjust restraints on the liberty of some are unjust restraints on the liberty of all.  This reality holds whether the “some” be persons or types of actions.

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Bonus Quotation of the Day…

by Don Boudreaux on March 26, 2017

in Balance of Payments, Trade

… is from page 15 of my Mercatus Center colleague Dan Griswold’s superb new paper, “Plumbing America’s Balance of Trade” (footnote deleted):

Screen Shot 2017-03-26 at 7.50.34 PMForeign investment in US Treasury bonds prevents the crowding out of private domestic investment.  When the federal government can tap into the global savings pool, it means more of Americans’ domestic savings remains available to invest in housing, business expansion, and education.  As the Economist magazine put it, “Globalized capital breaks the tie between saving and investment.”  And that is especially good for Americans because the size of the investment opportunities in the United States is so much greater than the amount of savings available only from Americans.  Without a net inflow of capital year after year, the number of investment opportunities in America that could be seized or created by investors would be limited by the size of Americans’ savings, depriving the American economy of investment that enhances its current and future productivity.

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Here’s yet another letter to my prolific correspondent Nolan McKinney:

Mr. McKinney:

Subsidies given by foreign governments to foreign rivals of American producers do not (contrary to your argument) “in ethics justify retaliation by our government to protect our producers from that unfair competition.”

All arguments that protectionism be used to combat alleged “unfair competition” rest on the risible presumption that domestic producers have a conditional property right in the incomes of consumers.  ‘If foreign widget exporters enjoy an unearned advantage over domestic widget producers,’ so insists the presumption, ‘then domestic consumers of widgets are obliged to spend enough of their incomes on domestic widgets to keep domestic widget producers not only in business but also operating at levels that domestic widget producers assert are “fair.”

I reject the argument that any producer has any property right, or should be given any property right, in consumers’ incomes.  And I reject this argument in all circumstances, including when foreign governments illegitimately grant to foreign producers property rights in a portion of the incomes of foreign consumers.  Foreign-governments’ unjust violations of their citizens’ property rights do not “in ethics justify” Uncle Sam matching this foreign injustice with a domestic injustice.

The injustice of subsidies and other privileges granted by foreign governments to foreign producers is done only to – and suffered only by – foreigners who are thereby forced to pay more taxes and higher prices.  Because no American producer has any right or entitlement to any portion of my and other Americans’ incomes, subsidies and other privileges granted by foreign governments to foreign producers that prompt Americans to spend less money buying domestically produced import-competing goods visit no injustice or “unfairness” on American producers.

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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Arnold Kling nicely summarizes the cultural roots of America’s health-care problems.  Here’s my favorite passage:

Americans, and especially health care providers, do not want to think of health care as a commodity. The providers want to be paid, but they do not want to think of themselves as selling their services, so the payment comes from third parties and the price is hidden to consumers.

(Arnold here identifies a common tactic used by many people who oppose markets: these people declare with much self-righteousness that “X is not a commodity!” and thereby fancy that this incantation is sufficient to exempt X from the laws of demand and supply.)

Speaking of health care in the U.S., Sheldon Richman identifies a critical inconsistency in many conservatives’ proposed health-care plans.

Bob Higgs asks if government is necessary for national defense.

Also from Bob Higgs is this truthful gem from his Facebook page:

According to an old saw, the road to hell is paved with good intentions. Insofar as politics is concerned, I have great doubt. I’ve been following politics more or less closely and studying parts of it carefully since the 1960s. And insofar as we have in mind stated political intentions, I would judge that the statements are nearly all false, and known to be false and intended to mislead by those who make them. These charlatans know full well that, for example, the public interest they claim to serve is nothing but a rhetorical cloak for the benefits they seek to channel at public expense to their friends and supporters. In short, the road to hell is paved with political bullshit. Good intentions are so rare as to verge on nonexistent.

David Henderson reviews a new biography of Richard Posner.

Here’s Mario Rizzo on Peter Boettke on Israel Kirzner.

Shikha Dalmia reveals the welfare state’s divisive logic.

Rek LeCounte, of the Institute for Justice, recounts yet another appalling use of civil forfeiture.

David Friedman identifies an especially egregious case of fake news.

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… is from pages 171-172 of Liberty Fund’s forthcoming new and expanded English-language edition, expertly edited by David Hart, of Frédéric Bastiat’s brilliant Economic Sophisms and “What Is Seen and What Is Not Seen”; specifically, this passage is from the new translation of Bastiat’s January 1846 essay “Theft by Subsidy” (“Le vol à la prime”) (original emphasis):

Unknown“Whosoever has fraudulently taken something that does not belong to him is guilty of theft” (Penal Code, Article 379).

To steal: To take something furtively or by force (The Dictionary of the Academy).

Thief: A person who exacts more than is due to him (Ditto).

Well, is not a monopolist who, through a law he has drafted, obliges me to pay him 20 fr. for something I can buy elsewhere for 15, fraudulently taking away 5 fr. that belongs to me?

Is he not taking it furtively or by force?

Is he not exacting more than is due to him?

He withdraws, takes, or exacts, people will say, but not furtively or by force, which is what characterizes theft.

When our tax forms show a charge of 5 fr. for the subsidy that is withdrawn, taken, or exacted by the monopolist, what can be more furtive, since so few of us suspect it?  And for those who are not taken in by it, what can be more forced, since at the first refusal we have the bailiffs at our heels?

DBx: Nearly all scholars, pundits, and people generally regard using words such as “theft,” “steal,” and “robbery” as out-of-bounds when describing the activities of the state.  This attitude is common even among classical-liberal and libertarian scholars and pundits.  The same person who wouldn’t hesitate to describe a merchant who personally robs a lone customer at gunpoint a “thief” wouldn’t stoop to using such ideologically biased language when describing a group of merchants who persuade a group of politicians to use the physical force at these politicians’ disposal to compel many customers to pay excessively high prices for these merchants’ wares.

In polite, refined, and reasonable circles the latter variety of compulsion is not theft or robbery.  No.  It’s “public policy.”  It might be unwise public policy, but it’s nevertheless public policy.  Only free-market ideologues who are incapable of making fine distinctions equate tariffs and state-granted subsidies with theft.  And only the most feral and blinkered of these ideologues actually commit the ridiculous act of calling tariffs and subsidies “theft” or “robbery.”

Sensible people with sound judgment – adults whose responses are unfailingly measured and reasonable – understand that the likes of tariffs and subsidies are not theft.  Such policies cannot possibly be theft, at least not in our great country where the People rule, because these policies are carried out lawfully.  That is, these policies are chosen and enforced by representatives of the People in accordance with proper, constitutional procedures which guarantee that all that is done by the state is the People’s will.  Just as an individual cannot steal from himself, the People cannot steal from themselves.

Yep.  That’s the attitude.  Those with this attitude – be it genuinely held or worn as a mask – unquestionably have a louder voice in public affairs.  Being thought reasonable, these people are much more likely to have more widespread public voices than are those of us who cannot see any substantive difference between, for example, U.S. steel producers who join together to hire the local mafia to forcibly transfer money from the pockets of the public into the coffers of these companies, and U.S. steel producers who join together to entice Uncle Sam to forcibly transfer money from the pockets of the public into the coffers of these companies.

But words matter.  As long as even most market-oriented scholars and pundits refrain, out of fear of being regarded as too extreme, from calling tariffs and subsidies “theft” and “robbery,” the public discussion will be biased in favor of the rent-seekers thieves and their politician-agents thugs who tax rob the larger public for public-policy purposes their own narrow benefit.

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Here’s a letter to the Wall Street Journal:

Clyde Prestowitz’s defense of Peter Navarro’s hysteria over trade deficits (Letters, March 24) reveals that Prestowitz is as misinformed about trade deficits as is Navarro.  Here are two examples.

First, Prestowitz insists that trade deficits are debts that must be “repaid.”  Not so.  For example, most of the nearly $7 billion that BMW invested over the past quarter century in its Greer, SC, operations is part of America’s trade deficit, yet none of this investment is debt.  It’s equity.  Americans are not obliged to repay one cent of these funds.

It’s true that BMW’s owners, as Prestowitz correctly says about investors generally, “expect a return on their investment.”  But no equity investors, foreign or domestic, receive returns unless they use their equity productively – that is, unless their equity is used to produce value that would otherwise not exist.  Therefore, any returns received by successful foreign equity investors are created by these investors’ own vision, efforts, and risk-taking.  Contrary to Prestowitz’s implication, these returns are not resources taken from Americans, for these returns would not exist absent the particular productive uses to which the foreign investments are put.

This misunderstanding is repeated when Prestowitz writes that “At least some of that return is repatriated to the home countries of the investors….  That repatriation constitutes a net outflow of wealth.”  Again, the wealth to which Prestowitz refers is created by the foreign investors.  It may “flow” out of the U.S., but it exists in the first place only because of the entrepreneurial vision and risk-taking of the foreign investors who earn it.

The second example of Prestowitz’s error arises from his failure to understand what happens when foreigners “repatriate” wealth earned in America.  Returns on investments in America are earned in dollars.  When BMW repatriates its U.S. returns to Germany, it converts those dollars into euros – and the sellers of euros who accept BMW’s dollars will either spend or invest those dollars in the U.S.  Prestowitz’s is mistaken to suggest that repatriation of foreign returns causes a leakage of demand from the U.S. economy.

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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Don’t Blame Trade

by Don Boudreaux on March 25, 2017

in Trade

Below the fold is an expanded version of a comment that I left on this EconLog post by David Henderson.

Read the full post →

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Many are the posts on this blog that challenge, from different angles, the common habit of calling or classifying the loss of particular jobs to imports as a “cost” of trade.  (Here’s just one example.  And here’s a second.)  Because the loss of particular jobs typically occurs whenever consumers change the ways in which they spend their money – and because consumers often change the ways in which they spend their money by buying more imports – the loss of particular jobs is indeed an effect of trade (or, more precisely, an effect of economic competition).  But it is not legitimate to call or to classify such job losses as a cost of trade.

If you doubt me – or if you think that I make too much of the language that we use here – answer this question: Does my habit of not intentionally and routinely breaking my neighbors’ legs have as a “cost” the jobs that are thereby not created in my community’s health-care sector?  No one can doubt that if, say, every nine months I were to break the legs of a dozen of my neighbors, my neighbors would increase their demands for medical treatment.  Jobs or wages (or both) in the Fairfax health-care market would increase.

And yet, I do not break any of my neighbors’ legs, ever.  Chalk up my inaction to ethics, or to the fact that I simply don’t wish to be imprisoned, or to the reality that I fear that my neighbors would likely kill or maim me in their self-defense were I to attempt to break their legs.  Chalk up my inaction to whatever you like.  The fact is, something prevents me from routinely breaking my neighbors’ legs – which means that something prevents as many jobs as otherwise from being created in my local health-care market.

So when calculating the costs and benefits of an ethic of civility and peace (an ethic that makes us horrified even at the thought of breaking other people’s legs), or of successful law-enforcement efforts to prevent violence, or of people’s ability and right to defend themselves against aggressive others, do you – would you – list on the “cost” side of the ledger “fewer jobs in medical care.”  I suspect that you wouldn’t.  And you’d be correct not to do so.  The same logic and assessment of each our rights and obligations toward each other should, then, also prevent you from listing job losses as a cost of trade.  No one had a right to those additional health-care jobs to begin with or, more to the point of a post on economics, no one had any legitimate expectation of landing those additional jobs.

If you think the above example too extreme, let’s change it just a bit.  I do not routinely break my own legs.  And you do not routinely break your own legs.  Does, therefore, the “cost” of our habit of not breaking our own legs include the jobs in the health-care sector that we thereby do not create?  Is there some number of such jobs that were it sufficiently high – or some level of wages paid to nurses and physicians who set broken bones that were it sufficiently high – would cause you to say “Well, cost-benefit analysis leads me to conclude that more of us should routinely break our own legs”?

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Quotation of the Day…

by Don Boudreaux on March 25, 2017

in Seen and Unseen, Trade

… is from page 227 of Liberty Fund’s soon-to-be released new and expanded English-language edition, expertly edited by David Hart, of Frédéric Bastiat’s Economic Sophisms and “What Is Seen and What Is Not Seen”; specifically, this passage is from the new translation of Bastiat’s March 1847 essay “Something Else” (“Autre chose”) (original emphasis):

518M4Yiav-L._SX331_BO1,204,203,200_“What is the term that is common to both restriction and prohibition?”

“Protection.”

“What is the final effect of protection?”

“To require a greater amount of work from men for the same result.”

“Why are people so attached to protectionist regimes?”

“Because freedom is bound to provide the same result for less work, this apparent reduction in work terrifies them.”

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