Quotation of the Day…

by Don Boudreaux on September 25, 2014

in Myths and Fallacies, Seen and Unseen, Trade, Video

… is from page 173 of the hot-off-the-press – and excellent – murder mystery by Marshall JevonsThe Mystery of the Invisible Hand:

If you want to speak of competition today, think of competition between brands and technologies that are global in their character – not between countries.  If it didn’t sound flippant, I would think of something as ‘Made on Earth’ rather than ‘Made in the USA’ of ‘Made in China.’


Henry Spearman, the economist hero of the novel, spoke these words to an audience that he addressed at the fictional Monte Vista University in San Antonio.  Prof. Spearman is perhaps influenced by Cato’s Dan Ikenson or by Nick Gillespie and the good folks at Reason.TV  :)

Of course, even if – contrary to fact today – some good (or, yes, service) could unambiguously and with legitimacy be said to be ‘made in America’ (or in some other particular locale on this globe), that fact would do absolutely nothing to create economic or moral legitimacy for policies that obstruct consumers’ freedom to spend their money as they see fit.  Yet it’s still important to understand that very few goods or services today are the products of inputs and human efforts that come exclusively (or even largely) from one particular country.

(“Marshall Jevons,” by the way, is the pen name for the team of Ken Elzinga and the late and much-missed Bill Breit.)

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Podcast With Piketty

by Don Boudreaux on September 24, 2014

in Inequality, Podcast

Here’s Russ’s EconTalk podcast with Thomas Piketty.  Savourer!

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Quotation of the Day…

by Don Boudreaux on September 24, 2014

in Myths and Fallacies, Seen and Unseen, Subsidies, Trade

… is from pages 173-174 of Richard McKenzie’s 1985 volume, Competing Visions​:

While foreign industrial subsidies may cause the contraction of several U.S. industries, it does not follow that American employment opportunities are, on balance, destroyed.  Again, trade is a two-way street.  If Americans buy subsidized foreign products, then more American products will be purchased by foreigners who will have dollars obtained from their subsidized exports….

Through foreign subsidies on exports, some U.S. industries are harmed, but others are helped.  The net effect of the subsidies is an increase in the real aggregate income of the United States (and a reduction in the real aggregate income of Japan and any other country that provides industrial subsidies).  As opposed to discouraging the subsidization of foreign industries, the United States should look upon such subsidies as an opportunity to improve the welfare of Americans.  The subsidization of foreign exports enables Americans to tap into the income bases of foreign countries and impose a tax on foreigners every time a subsidized product is imported into this country.  Communist China, for example, would never consider allowing the U.S. government to tax its one billion citizens directly; nevertheless, that is what China permits indirectly through the subsidies it gives its exporting industries, for example, textiles.  The tax is realized in terms of higher prices and lower real incomes in China and lower prices and higher real incomes in the United States.

Yes, yes, yes.  In theory it’s possible that, over the very long run, foreign subsidies – by so distorting the global economy - make even the consumers who pay lower prices today as a result of the subsidies worse off.  (The range of theoretical possibilities is vast.  One mark of a sensible person is an ability – a capacity to exercise sound judgment – to distinguish what’s plausible from what’s merely possible, and then to distinguish what’s probable from what’s plausible.)  Yet the practical likelihood is nil that governments will enrich their subjects by using countervailing tariffs, offsetting subsidies, and other interventions meant to counteract subsidies and trade restrictions used by foreign governments.

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Bad Arguments for Good Policies

by Don Boudreaux on September 23, 2014

in Economics, Myths and Fallacies, Trade

In my latest column for the Pittsburgh Tribune-Review, I flag some frequently encountered bad arguments for policies that I regard as sound.  A slice:

One bad argument is that high tariffs and other forms of protectionism decrease the number of jobs in the home market.

In fact, protectionism does not decrease employment. Nor, however, does protectionism increase employment. What protectionism does is shift workers from jobs that are more productive into jobs that are less productive.

The number of jobs in an economy is determined by the size of that economy’s labor force and by conditions in the domestic labor market. For example, government policies, such as ObamaCare, that artificially raise firms’ costs of employing workers will result in fewer domestic jobs.

But preventing consumers from buying foreign-made products neither causes workers to leave the workforce nor raises firms’ costs of hiring workers. Such protectionist policies merely increase demand for workers in the protected industries. But these workers are drawn to these protected industries from other domestic industries.

The bottom line is that the case for free trade is harmed, not helped, whenever champions of free trade assert that protectionist policies mean fewer jobs.

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Sustainability Series

by Don Boudreaux on September 23, 2014

in Cleaned by Capitalism, Environment, Seen and Unseen

The Cafe is launching a new series, for now titled “Made More Sustainable by Markets.”  (I’m not wedded to this title; perhaps I’ll change it in the future.)

The idea occurred to me when I received an e-mail today from my former GMU Econ student Zenon Zygmont, now a professor of economics at Western Oregon University.  I recently sent Zenon birthday wishes.  (He’s ten days younger than me.)  Here’s part of Zenon’s reply:

Did a tour of the Coors plant in Golden and learned that the company invented the recyclable aluminum can in 1959. I thought the capitalists were supposed to despoil the environment!

Zenon’s e-mail reminded me of one of the best talks that I ever heard.  It was by former Coca-Cola executive Harry Teasley, and delivered at the 1991 regional meeting of the Mont Pelerin Society in Bozeman, MT.  Harry explained how Coke, constantly driven to keep its costs as low as possible, spent tons of money and time to incessantly lighten the packaging of their products.  One effect, of course, was lower packaging costs – and a happier bottom line – for Coke.  Yet an another, less-intended effect was less resource use per unit of packaged-product sold.  The profit motive drove Coke to act more (I dislike the word) “sustainably.”


So here’s what this new series is about: you send me, as you encounter them, instances of how the profit motive within private-property markets leads entrepreneurs and firms to conserve resources.

I realize that this effort isn’t novel.  I realize also that the number of such instances is huge.  Many are mundane; others not.  I’ll not post all, but I will post, from time to time, the instances that I believe to be most interesting and telling.

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by Don Boudreaux on September 23, 2014

in Reality Is Not Optional, Seen and Unseen, Terrorism, War

I’m now re-reading Arthur Ekirch’s superb volume The Civilian and the Military: A History of the American Antimilitarist Tradition.  I wish that more conservatives would read this volume.  If they would do so, many might abandon their strange belief that, while government interventions said to be aimed at improving the economy are typically rapacious, ill-considered, officious, arrogant, and fraught with ill unintended consequences, government interventions said to be aimed at protecting Americans from the threat of violence inflicted by foreigners are altruistic, wise, appropriate, essential, well-measured, and destined to achieve their stated goals (as long as, that is, sissy and cowardly Democrats and libertarians don’t undermine the government’s glorious crusade).

I always wonder what miracle occurs to transform the venal, myopic, hubris-slathered, office-greedy, often-corrupt, chronically uninformed, and interest-group-beholden politicians who cannot be trusted to spend taxpayer money on the likes of green-energy projects and farm subsidies into wise and highly informed Solons when they proclaim that their goal is to protect Americans from foreign threats.

Short of reading Ekirch’s volume, perhaps conservatives who trust the war-making state will read:

Sheldon Richman, or

Anthony Gregory, or

Chris Coyne and Abigail Hall, or

Bruce Fein, or

Jacob Hornberger.

Better yet, read them all.  Study them all.

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Some Links

by Don Boudreaux on September 23, 2014

in Environment, Great Depression, Health, Science, Seen and Unseen, War

Ben Zycher wonders why the U.N. – along with the likes of Leonardo DiCaprio, Al Gore, and Barack Obama – are denying the findings of science (and science by the IPCC, no less!).

I agree with much of what David Stockman says about Obama’s plan to bomb ISIS operatives.  (HT Gene Epstein)  A slice:

And let’s be clear. The President’s so-called “counter-terrorism” campaign—-that special kind of violent eruption which isn’t a “war”—-is not really about punishing some barbarians who have beheaded two innocent Americans and who have also recruited perhaps a dozen not so innocent Americans to join their blood-thirsty ranks. Civilized adults just do not start a war on the other side of the world on account of such thin gruel, as horrific as the actions involved might be.

Indeed, based on his stated reasons for war—beheadings and venomous rhetoric—Obama is on the same slippery slope that Woodrow Wilson stood on when he sent two million American GIs into the senseless slaughterhouse of northern France. It was to vindicate the freedom of Americans to sail into war zones, even on armed belligerent ships, he said.

In the cold light of history, Wilson’s misbegotten crusade in behalf of an utterly untenable principle accomplished nothing more than to prolong a war which was already over in the spring of 1917 due to the mutual exhaustion and bankruptcy of both sides; and in so doing, he spawned the Bolshevik tyranny in Russia,  the punitive peace treaty of Versailles, the revanchist evil of Nazi Germany and the world wars and cold wars which followed.

David Henderson ponders some unintended consequences of Obamacare.

Spurious correlations.  (HT Greg Mankiw)

Steve Moore is – rightly – less impressed than is Ken Burns with FDR and the New Deal.  A slice:

Almost everything FDR did to jump-start growth retarded it. The rise in the minimum wage kept unemployment intolerably high. (Are you listening, Nancy Pelosi?) Roosevelt’s work programs like the Works Progress Administration, National Recovery Administration and the Agricultural Adjustment Administration were so bureaucratic as to have minimal impact on jobs. Raising tax rates to nearly 80 percent on the rich stalled the economy. Social Security is and always was from the start a Madoff-style Ponzi scheme that will eventually sink into bankruptcy unless reformed.

The most alarming story of economic ignorance surrounding this New Deal era was the tax increases while the economy was faltering. According to economist Burt Folsom, FDR signed one of the most financially devastating taxes: “On April 27, 1942, he signed an executive order taxing all personal income above $25,000 [rich back then] at 100 percent. Congress balked at that idea and later lowered it to 90 percent at the top level.” The New Dealers completely ignored the lessons of the 1920s tax cuts, which just a decade before had unfurled an age of super-growth.

GMU Econ PhD candidate Abigail Hall explains how foreign intervention means more domestic intervention.  (And she points us to important work on this topic that she’s doing with my colleague Chris Coyne.)  Here’s her conclusion:

Governments often utilize rhetoric of freedom and liberty to justify foreign interventions. This supposed commitment to higher ideals is indicated by the names the U.S. government has assigned to recent foreign military interventions—Operation Enduring Freedom, Operation Iraqi Freedom, Operation Falcon Freedom, and so on. Despite this rhetoric, it may be the case that foreign interventions do more harm to freedom than good. Foreign interventions change the fundamental structure of the system intended to protect us from government suppression. These changes are likely to erode, not protect, our liberties.

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Quotation of the Day…

by Don Boudreaux on September 23, 2014

in Complexity & Emergence, Growth, Trade

… is from page 350 of Matt Ridley’s superb 2010 book, The Rational Optimist (emphasis added):

Somewhere in Africa more than 100,000 years ago, a phenomenon new to the planet was born.  A Species began to add to its habits, generation by generation, without (much) changing its genes.  What made this possible was exchange, the swapping of things and services between individuals.  This gave the Species an external, collective intelligence far greater than anything it could hold it its admittedly capacious brain.  Two individuals could each have two tools or two ideas while each knowing how to make only one.  Ten individuals could know between them ten things, while each understanding one.  In this way exchange encouraged specialisation, which further increased the number of different habits the Species could have, while shrinking the number of things that each individual knew how to make.  Consumption could grow more diversified, while production grew more specialised.

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In this video, Reason’s Nick Gillespie warns against rash U.S. government warring against ISIS.  (HT Gene Epstein)

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Here’s an essay that I was asked to write for the blog at Library of Law & Liberty.  Specifically, this essay – motivated by Peter Thiel’s recent piece in the Wall Street Journal - explains that what we economists still formally call “competition” is not a very competitive situation, and what we call “monopoly” often is a situation of intense competition.

Here’s a slice:

The fact that almost no actual competition takes place in perfectly competitive markets doesn’t stop people, most of whom are unfamiliar with the theory, from supposing that what economists (the experts!) call “perfect competition” must be a condition of the most intense and ideal kind of competition—that any deviation from this condition must mean diminished consumer wellbeing and a weaker economy. Likewise, the existence of anything labeled “monopoly power” must mean that the general public is being harmed.

But such suppositions are incorrect. As Thiel (like Schumpeter long ago, and like Deirdre McCloskey today) explains, innovation is key to modern economic growth, and innovation is made possible only by the lure of large “above-normal” profits—profits that economists misleadingly call “monopoly profits.”

Genuine monopoly—that is, a market condition genuinely worthy of that ominous name—involves government erecting barriers to entry. Only governmentally created and enforced barriers can stop innovative entrepreneurs from vying with each other to tempt consumers with lower prices and better, or even completely different, products.

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