Quotation of the Day…

by Don Boudreaux on May 21, 2015

in Hubris and humility, Man of System

… is from page 312 of NYU’s great economic-development economist William Easterly’s superb 2006 book, The White Man’s Burden – a book that explores the differences between economic development that is designed and imposed by “Planners” and economic development that is undesigned and generated by “Searchers”; in summary, “Planners” are ‘men-(and-women)-of-system’ who aim to improve whole societies with their consciously constructed plans imposed without competition from on top and, hence, without reliable feedback from the affected parties below; “Searchers” are entrepreneurs, investors, and other individuals who, constrained by the rules of private property, attempt – in competition with each other and without the ability to compel anyone to follow their leads – to improve only those relatively small parts of the economy or society that can be reasonably comprehended by any individual, in large part because their efforts are informed by reliable feedback (original emphasis):

If it were not for the U.S. Army trying to promote economic development [in places such as Afghanistan and Iraq], it would seem presumptuous for me as an economist to comment on military interventions.  Yet even without recent rhetoric [such as from Niall Ferguson about how the Pentagon should spend more resources “making the world safe for capitalism and democracy”], military intervention is too perfect an example of what this book argues you should not do – have the West operate on other societies with virtually no feedback or accountability.  The military is even more insulated from the interests of the poor than aid agencies are.  People don’t give reliable feedback at gunpoint.  Invading soldiers and covert destabilization are not great ways to ascertain local peoples’ interests.  The poor on the receiving end have few votes on whether they want the Americans to save them.  Military interventionists are inherently Planners; armies do not have Searchers.

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I generally (and with my nose held tightly) support trade deals such as the TPP.  I generally (and with my nose held tightly) support trade deals such as the TPP not because they make trade free.  They never do.  I generally support trade deals because, given political realities, they make trade freer.  Such deals usually are better than the alternative, which is even less liberalization of trade.  Genuine and full free trade – which is unambiguously good – requires simply that the domestic government remove all extra taxes and other artificial obstacles that it has in the past put in the way of its citizens who wish to buy from, and sell to, foreigners.  In order to achieve true free trade, no deal with any foreign country or organization is required.

True free trade is best achieved – and (were it not for political realities) easily achieved – unilaterally.  Nevertheless, again, in practice trade deals generally do make trade freer than otherwise – at least, that’s my take on the historical record.

That said, trade deals are economically surreal.  If people bought and sold cars the way governments negotiate trade deals, the negotiations in the auto dealerships would go something like the following:

Buyer: Although it would greatly improve my family’s standard of living, I don’t really want that new car you have for sale.  But my spouse – who wants you to hire her – is pressing me to buy it from you.  So I’ll give you $300,000 for it.

Dealer: Are you kidding?  I wouldn’t sell this car for anything more than $100.

Buyer: I know you slick sales types. You’re constantly trying to swindle buyers like me into paying less money and then foisting an even greater quantity of stuff on us than we bargained for.  But I’m on to you, buddy.  I’ll not pay less than $250,000 for this piece of junk – and only for this piece of junk!

Dealer: Piece of junk?!  This car is the finest you can find anywhere on the globe!  And before you accuse me of being a swindler, you oughta look in the mirror.  You people come in here all the time, high’n’mighty, trying to give us way too much in exchange for our cars.  You can’t fool me, sir.  But, in the spirit of cooperation, I’ll be a good neighbor and raise my asking price to $1,000 if you also agree to take a second new car from our dealership for free.

Buyer: Ha!  $1,000!  Is that all?  And an additional car to boot?!!  Do you see “FOOL” written across my forehead, ’cause I don’t!  Look, I’m doing you a favor by being willing to buy a car – but just one car – from you in the first place.  Why don’t you acknowledge my self-sacrifice?  I demand that you accept no less from me than $100,000 for this one car.  I won’t pay a penny less for this car and just this car.

Dealer: Look, Mac.  It’s just business.  It’s nothing personal, you gotta understand that.  And I don’t make the rules.  To close the deal, my manager might be willing to forget demanding that you take the second car for free, but he absolutely won’t let me sell this baby at any price higher than $5,000 – well, maybe $6,000 (he’s feeling generous today).  And he, too, is under pressure from our company’s shareholders: if he lets this car go at a price higher than, okay, $7,500, he’ll get fired.  You really gotta put yourself in his shoes.

Buyer: I don’t give a *bleep* about his shoes.  I, too, have a budget that demands my careful attention.  If I pay less than $75,000 for this car, my family will think I’m a fool – and they’d be right!  And my wife would probably divorce me.  But, you’re correct: we both are rational people trying to strike a mutually advantageous arms-length deal.  Tell you what: $50,000 – bottom offer, nothing less.

Dealer: Maacccc!  $50,000?  Do you want to bankrupt our company?  Seriously, mister.  I can’t sell this car at such an absurdly high price.  $40,000, tops.  Absolutely not a cent higher.

Buyer: Come on, dude.  Really?  Look, my wife is really impatient for me to do you the favor of buying this car from you so that you’ll hire her.  And I want to keep my lady happy.  So I’m going to make a personal sacrifice and lower my buying price to $45,000 – and not a cent lower.  Not. A. Cent. Lower.

Dealer (sighing in clear frustration): Ok.  Gimme a minute with my manager.

Forty-five minutes later the salesman walks back gamely to the buyer, forcing a smile, and congratulates the buyer on landing a new car at such a ridiculously high price.  They then sign the sales agreement and shake hands, each wondering silently to himself if he got screwed in the deal.

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… is from page 127 of volume III (“The Political Order of a Free People,” 1979) of Hayek’s Law, Legislation, and Liberty:

Current methods of taxation have been shaped largely by the endeavor to raise funds in such a manner as to cause the least resistance or resentment on the part of the majority who had to approve the expenditure.  They certainly were not designed to assure responsible decisions on expenditure, but on the contrary to produce the feeling that somebody else would pay for it….  The theory and practice of public finance has been shaped almost entirely by the endeavor to disguise as far as possible the burden imposed, and to make those who will ultimately have to bear it as little aware of it as possible.  It is probable that the whole complexity of the tax structure we have built up is largely the result of the efforts to persuade citizens to give the government more than they would knowingly consent to do so.

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Here’s a letter to the Washington Post:

Your recent photo-essay entitled “Humans’ staggering effect on Earth” – featuring pictures of the likes of crowded cities, debris in an ocean wave, and factory emissions – is from a new book entitled “Overdevelopment Overpopulation Overshoot.”  The intent, as revealed by the caption to the first of your series of photos, is to frighten viewers into believing that we are pointlessly destroying the environment with “materialism, consumption, pollution, fossil fuels and carbon footprints.”

This photo-essay is all emotion and no perspective.

Never mind that nearly half of the photos are from countries such as Brazil, Ghana, and Russia with poor records of protecting property rights and encouraging market activities that promote the modern industry, trade, and economic growth that the publishers of this book think are harmful.  Instead, consider running a follow-up photo-essay entitled “Industrialization’s staggering effect on humans.”  This photo-essay would feature full-color, hi-def pictures of benefits that would not exist without modern industrialization and global trade.  Photos, for example, of

– grandparents in Arizona smiling to reveal their own straight and gleaming white teeth (as opposed to the toothless gums of pre-industrial grandparents);

– the hard roof and solid floor of a middle-class home in London (as opposed to the dirt floors and thatched roofs of the flimsy huts that were the norm for most of human history);

– one of the central-heating ducts in that London home (as opposed to the sheep and goats that slept in pre-industrial families’ huts in order to help supply warmth for the family);

– a flush toilet in Marseilles (as opposed to a hole in the ground);

– antibiotic pills (as opposed to the dead bodies of children who were routinely killed by pneumonia or even by infections from simple cuts);

– an ordinary woman standing erect in jeans and a fashionable blouse in Vancouver (as opposed to a pre-industrial woman made stooped and hunched by malnutrition and dressed in drab and filthy homespun);

– a modern washing machine in Stockholm (as opposed to women carrying buckets of water from streams in order to do the laundry);

– a mother and father in Brooklyn surrounded by their three happy and healthy children (as opposed to the pre-industrial family in which the wife died while giving birth, one of the three children died of dysentery, and the still-surviving children with faces scarred by smallpox).

Such a list can be greatly extended.  Its point is to make clear that while economic growth isn’t costless, its benefits are easy to overlook precisely because they are today so common.

Donald J. Boudreaux
Professor of Economics
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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Over at Alt-M, George Selgin rightly criticizes most modern graduate training in economics.  (Apart from GMU Econ and handful of other programs, most such training today is aimed at churning out good researchers, with almost zero attention paid to the formation of good scholars.  One unfortunate and ironic consequence of this scientistic narrow-mindededness is that far too many PhD economists today excel neither at scholarship nor research – although, being poor scholars, these economists are unaware of their shortcomings.)  Here’s a slice from George’s essay:

I offer his [an unnamed PhD economist] presentation as an example of the all-too common tendency for otherwise competent monetary economists (and our economist is in fact very accomplished) to misread the historical record regarding potential alternatives to central banking and to otherwise give such alternatives short shrift.

This unfortunate tendency rests in part on the fact that most economics graduate programs stopped teaching any sort of economic history decades ago (our economist earned his PhD in the early 1990s), while burdening their students with enough mathematics and statistics to all but guarantee that they never so much as crack open a book on the subject.  But the trouble isn’t just that many monetary economists don’t know their monetary history: it’s that they know, and teach, monetary history that ain’t so.  That’s what our economist did when he lectured a roomful of teachers on the merits of central banks and “Alternative Monetary Systems.”

My brilliant GMU Econ colleagues Bryan Caplan and Dan Klein disagree with each other over the desirability of ‘designer babies.

David Henderson ably corrects a misimpression potentially created by a recent remark by Bill Gates on the connection between tax rates and economic growth.

John Tamny explains the virtues of free trade – virtues that, alas, are largely unappreciated, or even denied, by those who benefit from free trade.  A slice:

One of the exciting aspects of free trade … is that when our borders are fully open to the world’s plenty, it means we have the most talented people in the world vying to serve our needs. Even better, those same talented people are competing with one another to give us the best deal. Those who love bargains intuitively love free trade.

Scott Sumner highlights, in a fun EconLog post, one of the many ways that data on income differences can be seriously misconstrued.

Tim Carney documents just how shallow and wrongheaded is Barack Obama’s understanding of markets and society.

Obama, however – as the great Radley Balko explains in the Washington Post – does deserve some praise for moving to scale back the militarization of police forces throughout the United States.

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… is from the great economic historian Joel Mokyr; specifically, it’s from pages 124-125 of the interview with Mokyr that appears in  Arnold Kling’s and Nick Schulz’s excellent 2009 book, From Poverty to Prosperity:

We didn’t create the laws of nature.  That God may have done.  But we use them, and we change the environment, and we change the way species look.  We did that long before we knew genetic engineering, you know.  God didn’t create poodles; we did.  But I see these arguments being made [for example, against genetic engineering].  They’re being made from a religious point of view – we shouldn’t be playing God – and they are being made from a populist point of view, which is that these new technologies will take people out of jobs and disrupt communities.  When people domesticated animals and went to organized agriculture, they disrupted the communities of hunters and gatherers.  These communities were hopelessly disrupted.  It wasn’t good for the guys who wanted to keep those communities, but that’s what technological progress is all about.  The Industrial Revolution disrupted communities like nothing before.

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Many are the times that I’ve said that the two finest public speakers that I’ve ever seen are (I list them here in alphabetical order) Steve Davies and Tom Palmer.  Here’s a talk that Tom gave recently.  (Tom, although trained formally as a philosopher, is a far better economist than are most of today’s formally trained economists.)  Enjoy!

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Quotation of the Day…

by Don Boudreaux on May 18, 2015

in Myths and Fallacies, Politics

… 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”:

Only voters ranking in winning majorities (if for instance the voting rule is by majority) are comparable to people who operate on the market.  Those people ranking in losing minorities are not comparable with even the weakest operators on the market, who at least under the divisibility of goods (which is the most frequent case) can always find something to choose and to get, provided that they pay its price.  Legislation is a result of an all-or-nothing decision.  Either you win and get exactly what you want, or you lose and get exactly nothing.  Even worse, you get something that you do not want and you have to pay for it just as if you had wanted it.

Insightful words (although even Leoni is here too optimistic about what those in winning majorities get; for a variety of now well-known reasons, they almost surely do not get exactly what they want).

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It’s trite and true to observe that economics differs (or should differ) in its scientific method and in its aspirations from other sciences such as physics and chemistry.  Of all the physical, or non-social, sciences, biology is the science that is most like economics: central to both biology and to economics is the quest to understand the logic of undesigned order, and to interpret observed real-world phenomena in light of that understanding.

Read the full post →

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Quotation of the Day…

by Don Boudreaux on May 17, 2015

in Complexity & Emergence, Law

… is from page 56 of Henry Hazlitt’s posthumously published 1997 volume, Is Politics Insoluble? (original emphasis):

We should not take or judge an action in accordance with what we think would be its consequences considered as an isolated act.  Not only can we never be certain what such consequences would be, but with such a moral code (or lack of code) we would never be able to depend on each other’s conduct, and we would fall far short of that social cooperation by which we most fully promote our own and each other’s ends.  Moral action, for the most part, is action in accordance with accepted principles or rules.  It is only when each of us can be depended upon to act consistently in accordance with such principles or rules that we can depend on each other.  It is only when we can rely on each other to keep promises, to tell the truth, to refrain from theft, fraud, and violence, and to help each other in emergencies, that we can best promote that social cooperation so essential to attaining our individual ends.

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