Cafe Hayek — where orders emerge

Whose Business?

by Don Boudreaux on February 26, 2015

in Nanny State, Other People's Money, Politics

In Montgomery County, MD, (where Russ lives), the personal possession and discharge of firecrackers and other fireworks is prohibited. (It’s “unlawful.”) In bordering Fairfax County, VA, (where I live), the personal possession and discharge of firecrackers and other small fireworks is not prohibited. (It’s “lawful.”)

Suppose that some officious Montgomery County residents were to drive, with their guns, into Fairfax County to demand that we Fairfaxians follow the same fireworks rules that the Montgomerians follow – or that some officious Fairfax County residents were to drive, with their guns, into Montgomery County to demand that Montgomerians follow the same fireworks rules that we Fairfaxians follow.

I suspect that most people – whether “Progressive,” conservative, libertarian, apolitical, even socialist – would regard such unilateral interference of some people into the business of other people to be morally offensive. Were any such cross-county interference to be attempted, it would be condemned and resisted as an unwarranted intrusion of some people into the affairs of other people – other people who have the freedom, ability, and ethical authority to decide for themselves what sorts of policies they will follow when it comes to the personal possession and use of small fireworks. Montgomerians have no legitimate basis, moral or otherwise, to dictate which rules Fairfaxians will follow, and Fairfaxians have no legitimate basis, moral or otherwise, to dictate which rules Montgomerians will follow.

So why is it that in national elections Montgomerians get to vote for candidates who promise to implement policies that will affect not only people in Montgomery County but also people in Fairfax County (and in every other county and parish in the United States)? A similar question, of course, can be asked about Fairfaxians voting in national elections. If in one political-institutional setting Montgomerians and Fairfaxians have no business butting into each other’s business, why do they get such a business in another political-institutional setting?

One (naive) answer to the above question is that national elections deal only with issues that unavoidably affect everyone in the nation (while at the county level there are in play politically only issues that are confined to people within each county). But while some issues might be of this nation-wide nature, the vast majority of issues are certainly not.

The minimal amount that I save for my retirement is no more obviously a national issue than it is a state issue – or a county issue, or a local issue, or (as I in fact believe it to be) a strictly family or personal issue. Yet because of Social Security it is treated as a national issue: Montgomerians and Fairfaxians each get to have a unilateral say into each others’ retirement-savings matters. Ditto for countless other issues, such as pharmaceutical regulations, trade restrictions, immigration restrictions, consumer-credit regulations, telecommunications regulations, and on and on and on.

….

We should be less gullible and more thoughtful about accepting who comprises the relevant “we.” Too many people fail to see that politics – including democratic politics – is a procedure that not only allows, but encourages, people to butt into each other’s business. Too many people who naturally reject A butting into B’s business when A and B are contemplated in one way (“A lives in a different political jurisdiction than does B”) celebrate, or at least unthinkingly tolerate, A butting into B’s business when A and B are contemplated in a different way (“A lives in the same political jurisdiction as does B”).

Return to the hypothetical at the top of this post: if political elders in Fairfax and Montgomery County choose to merge their two counties into one larger county, what about such a merger would make matters that were before the political merger none of the other people’s business suddenly, after the political merger, the perfectly acceptable business of the other people? My answer is: nothing; nothing at all.

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Market Power, Multiple Margins, and Competition

by Don Boudreaux on February 26, 2015

in Competition, Complexity & Emergence, Curious Task, Myths and Fallacies, Seen and Unseen, Work

This post is inspired by some comments at this EconLog post by David Henderson.

…..

Money prices set by market forces play a uniquely important role in directing and disciplining economic actions. This role is both so central to an economy’s health, as well as so deeply ignored or misunderstood by the vast majority of people, that economics, as a discipline, has devoted huge amounts of effort to the task of explaining the formation of prices and to explaining prices’ role. Indeed, another, now a bit old-fashioned, name for microeconomics is “price theory” – a name that reveals the importance that economists (correctly) attach to the role of prices in a market economy. Read the full post →

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Quotation of the Day…

by Don Boudreaux on February 26, 2015

in Curious Task, Economics, Man of System, Science, Scientism, Seen and Unseen

… is from page 423 of Robert Bork’s masterful 1978 volume, The Antitrust Paradox:

When an ideology is institutionalized it becomes, paradoxically, less visible – even to those who implement it. The basic ideas are no longer apprehended or controverted, and hence it becomes easier to move further along the lines implied by those ideas. Particular developments in the movement may be disliked and resisted, but our capacity to resist effectively is diminished if we fail to recognize that the trouble lies at the source.

One of the several errors committed by people who insist that government policy be guided only by “science” or by “the facts” is that such people mistakenly assume that the particular goals that policy should serve are widely agreed upon. Another, closely related error is that such people either forget that trade-offs must be made in the pursuit of these goals or such people assume that consensus agreement exists also on just how to strike each of these countless trade-offs.

A third common error committed by such people is their failure to realize that ideology inevitably sculpts our conception of what are and what are not the relevant “facts” of the social sciences.

This belief that disputes over public policy can be settled by science or by “the facts” reflects, in part, social-scientists’ failure to adequately ponder branches of social science outside of their own – for example, the typical economist’s failure to study carefully history, philosophy, jurisprudence, and other branches of inquiries into human social connections. Such a mistaken belief reflects also an ideology that regards the individual as being merely a pixel in the great mural that is presumed to be (often unthinkingly) the collective (with the collective usually defined as the nation-state).

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David Henderson Applauds Deirdre McCloskey’s Brilliant Review of Piketty

by Don Boudreaux on February 25, 2015

in Books, Inequality

Here.

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Smith on Slavery

by Don Boudreaux on February 25, 2015

in Adam Smith, History, Myths and Fallacies

Ten years ago today the Pittsburgh Tribune-Review published the first of my twice-monthly columns for that paper – a column that I’m still thrilled to write.

In light of the subject of this first of my columns – slavery and capitalism – consider this editors’ footnote on page 388 of the 1981 Liberty Fund edition of Adam Smith’s 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations; in this footnote, which appears in a section of the book where Smith argues that slave labor is very inefficient, the editors reference an early draft (“ED”) of The Wealth of Nations:

In ED … Smith argued that the colonies dealing in sugar and tobacco could only afford slave labour because of the ‘exhorbitancy of their profites’ [sic] arising from the monopoly of the fro trades. He added that ‘the planter in the more northern colonies, cultivating chiefly wheat and Indian corn, by which they expect no such exhorbitant returns, find it not for their interest to employ many slaves, and yet Pennsilvania, the Jerseys and some of the Provinces of New England are much richer and more populous than Virginia, notwithstanding that tobacco is, by its ordinary high price a more profitable cultivation.’

So – insofar as Smith is here correct – slavery thrived because of restrictions on free markets and was not itself a fuel for free markets.

(This editors’ footnote does not appear in the on-line version of The Wealth of Nations linked to here.)

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Some Links

by Don Boudreaux on February 25, 2015

in Civil Asset Forfeiture, Competition, Immigration, Seen and Unseen

My former students Sam Wilson and Alex Nowrasteh examine the political assimilation of immigrants and their descendants. Here’s their introductory paragraph (footnote excluded):

Many skeptics of immigration reform claim that immigrants and their descendants will not politically assimilate and will consistently vote for bigger government for generations. Political survey data suggest that this fear is unwarranted, as the political differences between immigrants and native-born Americans are small and, in most cases, so small that they are statistically insignificant. In the cases where the differences are significant, the descendants of immigrants rapidly assimilate into America’s political culture by adopting mainstream ideologies, political party identifications, and policy positions held by longer-settled Americans. The policy and political views of immigrants and their descendants are mostly indistinguishable from Americans whose families have been here for at least four generations. As a result of these small differences in opinion and the subsequent rapid assimilation of immigrants, they and their descendants are unlikely to alter America’s aggregate political attitudes.

Speaking of immigrants, Shikha Dalmia explains that Pres. Obama is neither a friend of Latino immigrants nor a principled champion of civil liberties.

In my latest column in the Pittsburgh Tribune-Review, I remember the late Henry Manne. (By the way, this coming April will be the 50th anniversary of the publication of Henry’s brilliant and influential article “Mergers and the Market for Corporate Control.”)

Bob Higgs asks if China’s ruling elites are more pro-market than are America’s ruling elites.

Dick Carpenter and Larry Salzman, in this new publication from the Institute for Justice, explain how the I.R.S. helps to fuel in the U.S. the uncivilized banana-republic terror that is civil asset forfeiture.

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Quotation of the Day…

by Don Boudreaux on February 25, 2015

in Cleaned by Capitalism, Growth, History, Innovation, Seen and Unseen, Technology

… is from page 305 of Daniel Boorstin’s splendid 1973 book, The Americans: The Democratic Experience:

The old tricks of the miracle maker, the witch, and the magician became commonplace. Foods were preserved out of season, water poured from bottomless indoor containers, men flew up into space and landed out of the sky, past events were conjured up again, the living images and resounding voices of the dead were made audible, and the present moment was packaged for future use.

When man could accomplish miracles he began to lose his sense of the miraculous.

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Comparing Riches Over Time

by Don Boudreaux on February 24, 2015

in Growth, Standard of Living

According to this analysis, George Washington was the richest – in inflation-adjusted money terms – of all the U.S. presidents. Bill Clinton, by comparison (worth now about $60 million) is only ninth on this list.

But how meaningful are such comparisons? Was George Washington really, in any meaningful or sensible use of the term, richer than Bill Clinton – or even richer than any randomly chosen middle-class American today? I believe that the answer is no.

To see why I believe that George Washington’s personal wealth was in fact among the lowest of all American presidents (when the comparison is done across the full span of the 226 years of the U.S. presidency), ask yourself if you’d prefer to have a net worth of $525 million (of 2015 dollars) in the United States of the 1790s or a net worth of a mere $1 million (of 2015 dollars) in the United States of 2015. I know that, for me at least, answering this question is quite easy: I’ll definitely and without the slightest hesitation take the $1M today. Indeed, my answer would be the same even if the sum in play for 2015 were a mere $100,000 – and, likely, even if it were only a paltry $0.

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Quotation of the Day…

by Don Boudreaux on February 24, 2015

in Economics

… is from page 57 of William H. Hutt’s 1936 essay “On the Decline of Authority of Economists,” as reprinted as Chapter 4 of Daniel B. Klein, ed., What Do Economists Contribute? (1999) (original emphases):

Moreover, the swamping of economic treatises with mathematics has not only tended to drive away the layman, but has diverted attention from fundamentals to points of analytical interest, and incidentally thereby led to some actual corruption or unjustifiable weakening of basic tenets. It cannot be argued, of course, that the mathematical method, building on valid and complete hypotheses, can lead to anything but correct results. Neither can it be contended that this method has not proved, indirectly, of immense value in the development and refinement of the logical framework of the science. But its intricacies appear to have caused some of those practicing it to lose their continuous intimacy with certain broad unquestionable elements of reality which ought always to dominate in applied theory. Whilst not actually inducing generalizations from special cases, some economists seem to have given undue stress to curiosa in a manner that has tended to distort their judgment and weaken the authority of economists generally. And they appear frequently to have shown a lack of judgment or an unregarded hastiness in framing generalizations from unrealistic premises.

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Beating A Horse That Should Have Expired Long Ago….

by Don Boudreaux on February 23, 2015

in Seen and Unseen, Taxes, Work

Here’s a letter to a new correspondent from my hometown of New Orleans:

Mr. Marion Ellis

Dear Mr. Ellis:

You say that your “instincts” tell you that “minimum wage increases don’t kill jobs for poor workers.” And you are “staggered” that my “instincts” tell me differently. You “simply can’t imagine” that raising the minimum hourly wage by $2.85 (from $7.25 to $10.10) “will trigger businesses to hire less workers.” You say that you also are “convinced” by the “abundant research” that “finds the minimum wage causes no loss of jobs.”

My “instincts” (as you call them) are largely the product of my training in economics. So it’s really my understanding of economics that tells me that minimum-wage legislation harms the very workers that it is ostensibly supposed to help.

But let me test your instincts with a question posed by the economist Mark Perry:* Do you believe that imposing a tax on employers for every low-skilled worker that they hire would not reduce the number of low-skilled workers hired? Do you believe that requiring employers to pay a tax of $2.85 per hour for every low-skilled worker on their payrolls would not prompt employers over time to employ fewer such workers? Do you suppose that firms are so inattentive to their bottom lines or so unable to figure out how to operate profitably with fewer worker that such a tax - which would be about $5,700 annually for each and every low-skilled worker employed full-time - would not reduce low-skilled workers’ employment options?

If you answer “yes” to these questions, then your instincts do indeed differ greatly and irreconcilably from my own.

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

P.S. And no: no one pays me to express my opposition to minimum-wage legislation. I don’t suspect for a moment that someone is paying you to express to me your support for such legislation, so why would you suspect that someone is paying me to express my opposition to the same?

* http://www.aei.org/publication/15-per-hour-minimumliving-wage-7-25-per-hour-100-tax-employers/