Quotation of the Day…

by Don Boudreaux on June 28, 2016

in Myths and Fallacies

… is from pages 261-262 of Anthony de Jasay’s remarkable 1998 book, The State (original emphasis; footnotes deleted):

Since economic policy causes prices and factor incomes to be other than what they would be in a policyless capitalist state, and since it may in any case be inherently impossible to “know” the ultimate incidence of the total set of directives, incentives, prohibitions, taxes, tariffs, etc. in force, a subject need not be stupid to be mistaken about where the churning around him really leaves him.

It is in the state’s interest to foster systematic error.  The more people think they are gainers and the fewer who resent this, the cheaper it is – crudely speaking – to split society into two moderately unequal halves and secure the support of the preponderant half.

Government officials lie systematically.  By this claim I do not refer to the well-known exaggerations, lies, half-truths, and cover-ups routinely issued by campaigning politicians; these falsehoods are so common and commonly recognized that they are the subject of jokes.  Indeed, these falsehoods are so common that their very frequency serves in the public mind as reason to excuse politicians’ commission of these falsehoods.

Instead, by the claim that government officials lie systematically I refer to the official lies that are widely regarded to be true.  These official lies range from maddening but only relatively mildly harmful ones (such as that subsidies dispensed by the likes of that great geyser of cronyism, the U.S. Export-Import Bank, strengthen the domestic economy) to cruel and lethal lies (such as that it’s noble and helpful to die “for your country” in whatever skirmishes, battles, or wars the current gaggle of state officials happens to involve “our” military in).

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In popular discourse, America is said to be more “pro-business” than is France.  When people use this term “pro-business” they typically have in mind some vague notion of a government policy made up of low-ish taxes and not a great deal of government regulation.  That is, “pro-business” is commonly used to mean a free, or free-ish, market.

But such language is mistaken.

A true free market is at its core pro-consumer.  In a genuinely free-market economy, businesses are valued only insofar as they serve consumers.  The performance of a genuinely free-market economy is assessed by how well it satisfies, over time, the demands of consumers spending their own money and not by how well it satisfies the demands of business owners and managers.

Obviously, because businesses are a useful – indeed, practically indispensable – means of abundantly satisfying consumers’ demands, government policies that obstruct the smooth operation of these means are undesirable.  But such policies that obstruct or discourage business operations are economically undesirable not because they harm businesses but, rather, because they harm consumers.

Anyway, for all of its faults, American culture and policy are actually much less pro-business than are the culture and policy of France.  If you’re really looking for a government that is deeply pro-business – one that regards the protection of existing businesses as a worthy end in and of itself – one that forcibly transfers resources from taxpayers, consumers, and other non-businesses in order to promote the material interests of existing businesses – look at France.  You’ll find there what you seek.  In France you’ll find one of the most business-friendly policy regimes on the face of the earth.  (HT Chris Meisenzahl)

Pity the French.

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Bob Higgs, over at his indispensable Facebook page, offers a hypothetical the logic of which annihilates the bases on which politicians and pundits of all stripes stand to express their idiotic fears of bilateral trade deficits.  Here it is:

Suppose we all awakened to discover that overnight an agreement had been concluded to join China and the USA into a single nation — let’s call it Chimerica. Otherwise everything remained the same. The same people who had been producing goods in China and exporting them to buyers in the USA were now doing exactly what they had been doing before; and likewise throughout the entire structure of production and related trading relationships between former Chinese and former Americans — now all become Chimericans by virtue of nocturnal diplomacy.

In this case, would all of the Trumposos, Sandersistas, and assorted economic nincompoops under the spell of mercantilist nonsense get over their twisted knickers in regard to the “imbalance of bilateral trade between China and the USA,” an alleged problem from which they had sought unwarranted relief (of their own inability to compete openly) by means of protectionism and other state privileges?

Jeff Jacoby rightly worries about the bizarre and dangerous gun culture that has taken hold of U.S. government bureaucracies.

Speaking of guns, Steve Landsburg has a good question for “Progressives” who support gun control.

Tim Worstall reveals some of the bureaucratic, ‘man-of-system’ foolishness that characterizes the European Union.

My brilliant colleague Bryan Caplan lets us in on his next project.

Today’s “Notable & Quotable” in the Wall Street Journal is a superb line from Barry Goldwater’s 1964 speech accepting the G.O.P.’s nomination as its presidential candidate:

Those who seek absolute power, even though they seek it to do what they regard as good, are simply demanding the right to enforce their own version of heaven on earth. And let me remind you, they are the very ones who always create the most hellish tyrannies. Absolute power does corrupt, and those who seek it must be suspect and must be opposed. Their mistaken course stems from false notions of equality, ladies and gentlemen. Equality, rightly understood, as our founding fathers understood it, leads to liberty and to the emancipation of creative differences. Wrongly understood, as it has been so tragically in our time, it leads first to conformity and then to despotism.

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… is from page 112 of Matt Ridley’s excellent 2015 book, The Evolution of Everything:

You will often hear people say that free markets have been discredited, as they sip cups of coffee while sitting on chairs, wearing clothes, and checking text messages – each of which was supplied by hundreds, thousands of producers whose beautifully coordinated collaboration was unplanned but achieved by ‘market forces’.

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Here’s a letter to a rising high-school senior in New Jersey who plans to major in economics when he goes to college.

Mr. Ben Ercetin

Mr. Ercetin:

Many thanks for your e-mail.  I wish you much good luck in your senior year – and beyond!  Please consider applying to George Mason. 😊

You ask if I “grant [that] rising income inequality is a cost of economic growth” even “if you and I agree that its benefits are more than its costs.”  Your question is excellent.

I grant that rising differences in people’s monetary incomes and wealth are a consequence of economic growth.  I do not, however, regard this outcome as a cost of economic growth.  My reasons are many; I share with you here two of them.

First, because market-driven economic growth, wherever it occurs, dispenses disproportionately larger benefits to the poorest in society (by improving their consumption by far more than it improves the consumption of the richest), the trend in financial measures of well-being is, for me, largely irrelevant.  What I care about is people’s actual, absolute living standards.  If these improve – and especially if the living standards of the poorest improve – then I celebrate the system that brings this improvement.  And if the improvement in the living standards of the poorest is disproportionately greater than is the improvement of the living standards of the richest, then, in my view, that society is becoming economically more, not less, equal regardless of what is happening to the distribution of monetary incomes and wealth.

Second, in a market economy rising monetary inequality is evidence of the expansion of choice and diversity made possible by economic growth.  As society becomes materially richer – that is, as consumption goods become less costly and more abundant even for poor people – individuals enjoy a greater range of options of how to spend their time and lives.  In a desperately poor society, everyone must work to produce as much as possible.  But in a wealthy society such as ours, we all have many options.  Those of us who are highly materialistic have the option of working extra long hours to earn as much money as possible.  Those of us who are less materialistic – those of us, for example, who prefer the non-monetary satisfactions of earning a living by writing poetry over the extra monetary satisfactions earned by working in the financial sector – have the option, in a wealthy society, to live less materialistically than many of our fellow citizens.  One consequence of people exercising these different options is that monetary income and wealth differences grow.  But surely in this case the growing financial inequality is not a cost of economic growth; it is, instead, evidence of some of the benefits of that growth.

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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Washington Post columnist Robert Samuelson reports the findings of Urban Institute economist Stephen Rose who examined changes in Americans’ purchasing power over the years 1979-2014.  Rose found that, yes, the American middle-class is indeed shrinking, but the reason is that most formerly middle-class Americans are becoming richer.  (This happy news, of course, will either be ignored or twisted by most politicians and by many pundits into the myth that most Americans are suffering increased impoverishment – or at best stagnation – while only the 1-percent grow richer.)

I join my colleague Pete Boettke in celebrating the publication of Nick Capaldi’s and Gordon Lloyd’s Liberty and Equality in Political Economy.

While I am much less keen on Republicans than (I suspect) John Goodman is, I agree with much of what Goodman says in this essay.  (HT John B.)  Here’s a slice:

Although Krugman often likes to characterize Republicans as Ayn Rand individualists, the typical Democrat is far more self-interested – in a bad sense of the word. Democratic groups tend to base their loyalty to the party solely on what political favors the party can deliver to the group.

(While I’m not convinced that the typical Democrat is far more self-interested than is the typical Republican, I am convinced that the typical Democrat is not – contrary to popular belief – less self-interested than is the typical Republican.  Seizing resources from others through the use of state force is emphatically a display of greed, even if it be masked with fine words and pretty tales of how it will improve society.  Indeed, Jones’s seizing Smith’s resources is a display of greed that is orders of magnitude greater than is Smith’s merely seeking to prevent his resources from being seized by Jones (or by Jones’s exquisitely titled agents).)

Just say ‘no’.

My Mercatus Center colleague Chris Koopman warns that diktats issued by state and local governments throughout the U.S. are dangers in addition to the diktats issued by Uncle Sam.

Here are verses from the poet Robert Higgs.

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… is from page 235 of the Appendix to the 1991 Liberty Press edition of Bruno Leoni’s 1961 volume, Freedom and the Law; specifically, it’s from an updated version – entitled “Voting Versus the Market” – of Leoni’s 1960 Il Politico essay “Political Decisions and Majority Rule”:

No procedural rule seems able to allow voters to act in the same flexible, independent, consistent, and efficient way as operators employing individual choice in the market.  While it is true that both voting and operating in the market are individual actions, we are compelled, however, to conclude that voting is a kind of individual action that almost inevitably undergoes a kind of distortion in its use.

In short, while each losing voter individually exercises choice when he or she casts ballots for candidates or initiatives that wind up losing in elections to other candidates or initiatives, unlike in markets there is only one outcome per election.  In a majority-rule election, the 49,999,999 people who voted (say) for the candidate who vowed to cut both tax rates and government spending are forced to pay higher taxes and to endure more government spending when 50,000,000 people vote for the candidate promising to raise taxes and government spending.  Although (in this example) nearly half of the people prefer outcome not-X, they do not get not-X; they are forced to suffer X.  And by a convention as misleading as it is familiar, most people – even those in the minority – refer to the victorious electoral outcome as “the people’s choice” or “the people’s will.”  Are not the 49.9999995 percent (in this example) of the population who prefer not-X to X – many of whom probably detest X, and perhaps even regard X to be not only undesirable but downright immoral – not people?  And are they not part of “the people”?

And even if we assume that this election wasn’t rigged and that the franchise is distributed in a way that we all regard as the best possible way for the franchise to be distributed, why count only the order of each voter’s preferences – that is, [X > not-X] or [X < not-X]?  We know from our personal experience that our preferences include not only rank-orderings, such as [not-X > X], but also intensities.  Suzy and Sam might each prefer X to not-X but the intensity of each of their preference might also be small.  Indeed, Suzy and Sam might each be almost indifferent between X and not-X.  In contrast, Sally might not only prefer not-X to X, but do so intensely.  Therefore, in an election in which Suzy, Sam, and Sally are the only voters, X will win a majority of the votes.  But because standard voting does not allow any voter to express the intensity of his or her preference, it is plainly incorrect to leap to the conclusion that X is here the will of the people (even if we are otherwise willing to regard the majority as “the people”).

In markets, minority interests are not forced to suffer the options that the majority chooses, and markets register not only the rank-orderings of consumers’ and suppliers’ preferences but also the intensities with with those preferences are held.  Smith with a relatively rare taste for bitter stout beer can choose and drink bitter stout beer despite the fact that a majority of the population prefer (and choose, and drink) lighter beers such as Coors and Budweiser.

….

The above are only a small handful of the many problems that plague any argument – more typically, simply the assumption – that the imperfections of real-world markets justify corrective actions by democratically elected governments.  The belief that governments – even ones that are democratically elected – can and will in general intervene into markets in ways that improve social welfare rests on the belief in miracles.

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One Who Lives In a Glass House….

by Don Boudreaux on June 25, 2016

in Immigration, Trade

Here’s a letter to the Washington Post:

Jared Bernstein rightly bemoans the hostility to immigrants that is helping to fuel the political rise of Donald Trump (“Brexit and Trump: When politicians light xenophobic fires, everybody gets burned,” June 22).  And Mr. Bernstein correctly blames this hostility of many Americans on “years of conservative rhetoric about how the ‘others’ are ripping them off.”

Yet Mr. Bernstein is in no position to point accusing fingers.  He has a long record of blaming international trade for inflicting economic harm on ordinary Americans – meaning that he himself has been a chief contributor to years of “Progressive” rhetoric about how the ‘others’ are ripping Americans off.

If as Mr. Bernstein seemingly believes (and as I certainly do believe) that we have nothing to fear from goods and services produced by non-Americans living in America to be sold here as domestically produced outputs, why should we fear goods and services produced by non-Americans living abroad to be sold here as imports?

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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Some Links

by Don Boudreaux on June 25, 2016

in Books, Immigration, Standard of Living, Trade

I’m sorry to learn that Mike Flynn has died.  I didn’t know him, but I love this joint work on immigration that he did with Shikha Dalmia.

At Outrun Change, James Ulvog agrees that ordinary Americans in 2016 are materially richer than were billionaire Americans in 1916.

Jon Murphy helps me to better explain why mercantilism is idiotic.

Joshua Hawley isn’t impressed with Michael Graetz’s and Linda Greenhouse’s book on the Warren Court.

Doug Bandow explains that not voting is a powerful form of dissent.  A slice:

Moreover, if those committed to liberty are unable to defeat the cavalcade of big-spending war-mongers, which characterizes most presidents and presidential candidates of late, the best tactic might be withdrawing legitimacy from those who win. The spectacle of a steadily increasing share of the population abstaining from a process which yields choices between Tweedle Dum and Tweedle Dee might spark a conversation more substantive than the designer label on the dress worn by the latest celebrity to appear at the latest red carpet event.

My Mercatus Center colleague Mark Warshawsky reviews Thomas Piketty’s 2014 book, Capital in the Twenty-First Century.  Mark finds this book to be filled with flaws.

Another of my many excellent Mercatus Center colleagues, Veronique de Rugy, offers a better approach for supplying infrastructure.

George Will leaves the Republican Party because of its impending nomination of the “bloviating ignoramus” named Donald Trump.  Good for George Will!

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The Idiocy of Mercantilism

by Don Boudreaux on June 25, 2016

in Myths and Fallacies, Trade

According to the mercantilist dogma held by nearly all politicians and pundits (and, yes, also by the People), the best possible outcome for any country – call it country A – whose government is negotiating a trade deal is the following: the government of A arranges for the maximum possible number of citizens of A to work the maximum possible number of hours producing goods and services of maximum possible value to be exported to the maximum possible number of foreigners whose governments agree to prevent those foreigners from ever sending in return to the people of country A even as much as a single wooden toothpick.

The optimal trade deal for country A – according to mercantilist dogma – is one that commits the people of A to work for foreigners without compensation.  This optimal trade deal, in effect, turns the workers of country A into slaves for foreigners.  (Such a deal would have country A workers paid, in real goods and services, absolutely nothing – which is a wage well below the minimum wage that many of the mercantilist leaders, in other contexts, support!)

According to mercantilist dogma, were the diplomats and ‘leaders’ of country A able to negotiate such an outcome, those diplomats and ‘leaders’ would be hailed has having secured a huge and unconditional trade victory of the sort that history has never before witnessed.  Country A would be renowned worldwide as the greatest “winner” ever in matters of international trade.

According to mercantilist dogma, it is therefore unfortunate for the people of country A that the diplomats and ‘leaders’ of countries B through X are unwilling to grant such splendid terms to A.  The diplomats and ‘leaders’ of countries B through X each would also like to secure such an ideal outcome, as described above, for their countries.  But the necessity of compromise prevents any country from winning such an unalloyed and stupendous victory.  The result of the compromise for all countries is an imperfect trade deal under which each country reluctantly agrees to receive valuable goods and services from foreigners as the price that must be paid for the privilege of sending domestically produced good and services to foreigners.

…..

The above is no parody or even an exaggeration of the express mindset that guides trade policies.  According to that mindset, exports are benefits, while imports are the unfortunate price that “we” must pay to secure these benefits.

Can any mindset about economic matters be more backward, more unrealistic, and more bizarre than mercantilism?  While economists have long seen through and exposed the imbecility of mercantilism, economists have done a poor job of revealing this imbecility to the general public.  Most members of the general public of country A continue – as actual voters if not as actual workers and actual consumers –  to cheer the hours they toil and the resources they use to produce goods and services for shipment to foreigners, and continue to hiss at any goods and services that foreigners manage to successfully ship to country A.

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