Here’s a letter to a first-time correspondent:

Mr. Gavin Berry

Mr. Berry:

In your e-mail you argue that protectionism is justified because ordinary people have “a strong sense of community” that “leads them to look out for each other.”

Like you, I applaud those who have a strong sense of community; like you, I admire people who look out for their friends and neighbors.  But I disagree that protectionism is a manifestation of such neighborliness and community spirit.

It’s true that protectionism prevents Jones from losing his current job – yet it does so by preventing Smith from spending her money as she sees fit.  Jones uses state coercion to prevent Smith from buying outputs that compete with outputs supplied by Jones.  Jones’s use of coercion against Smith reduces the value of Smith’s income by denying to her some economic options that she would otherwise choose.  Jones’s coercion is anything but neighborly.

Jones, of course, wants us to think that protectionism is neighborly.  He points out, correctly, that the higher prices that neighbor Smith pays are a benefit to him (Jones).  But Jones is cold-bloodedly indifferent to protectionism’s reduction in neighbor Smith’s real income, as well as to protectionism’s denial of the better economic opportunity that neighbor Johnson would enjoy were not Smith forced to pay artificially high prices to support Jones.

Good neighbors join voluntarily and peacefully with each other to improve their communities; they don’t coerce and impoverish some of their members in order to artificially enrich other of their members.

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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Bonus Quotation of the Day…

by Don Boudreaux on December 9, 2017

in Philosophy of Freedom

… is from Deirdre McCloskey’s essay – “Against Capitalism” – in the January 2018 issue of Reason:

Give people liberty and you give them life.

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George Leef asks if baking cakes and arranging flowers raise First-amendment issues.

Also from George Leef is this report on yet another ugly manifestation of the banana-republic practice of civil asset forfeiture.

George Selgin discusses Janet Yellen’s defense of interest on reserves.

My intrepid Mercatus Center colleague Veronique de Rugy again writes compellingly about tax reform.

My GMU Econ colleague Bryan Caplan reads Ronald Reagan’s Farewell U.S. Presidential address.

Also from Bryan Caplan – this time in The Atlantic – is this thought-provoking excerpt from his new book, The Case Against Education.

Tariffs make solar panels excessively expensive.

Shikha Dalmia sings America’s praises.

California’s minimum wage plays a large role in causing a long-established company to shut down a major branch of its operations..  (HT Greg Alder)

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Power Corrupts

by Don Boudreaux on December 9, 2017

in Hubris and humility, Politics

Here’s a letter to The Hill:

You report on “Congress reeling from sexual harassment deluge” (Dec. 9).  Of course, all decent people are grateful whenever those who shove themselves unwanted, to satisfy their own lusts, into other people’s personal spaces are exposed and punished for their offensive intrusions.

But let’s be clear: politicians at all levels typically shove themselves unwanted, to satisfy their own lusts, into other people’s personal spaces.  With trade barriers politicians harass – to satisfy their lust for reelection – innocent people who wish to import sugar, clothing, tires, and many other goods.  With civil asset forfeiture they harass – to satisfy their lust for power – innocent people who use cash and recreational drugs.  With occupational-licensing restrictions they harass – to satisfy their lust for the support of their cronies – willing buyers and willing sellers who seek only to peacefully do business with each other.  And with taxes they harass – to satisfy their lust for lucre – those who create wealth.

That these professional harassers harass others also in more carnal ways should surprise no one.

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 December 9, 2017

in Competition, Myths and Fallacies, Trade

… is from page 39 of Melvin Reder’s 1947 book, Studies in the Theory of Welfare Economics:

But, to many critics, “free” competition – or any other kind – has no particular virtues, and the economist has had – and still has – to wage a vigorous battle in its defense.

DBx: By “‘free’ competition” Reder here means open competition, the sort that naturally exists without artificial barriers to entry into, and to exit from, industries and occupations, as well as with widespread freedom of consumers to spend their incomes as they see fit.

Two ugly monuments to the dislike of competition mentioned by Reder are occupational-licensing restrictions and trade restraints.  Many who support such restrictions and restraints do not realize that they oppose competition.  They say – often, although by no means always, sincerely – that they aim merely to ensure that consumers are protected from unsafe products and services (as is claimed for occupational-licensing restrictions) or that workers are protected from losing their jobs (as is claimed for trade restraints).  But even though these proponents of restrictions and restraints do not realize it, what they really oppose is competition.

Especially in the case of trade restraints, nearly every economic argument that protectionists offer as a good reason for such restraints would, if valid, be a good reason for restraints on competition generally.  There is nothing at all unique about competition that comes from across a political border; such competition has all of the upsides and downsides of competition that is exclusively home-grown.  Yet protectionists continue to miss this important reality.  Protectionists do not realize that, if their arguments against imports are valid, then not only must increased trade with foreigners be stopped; in addition, increased trade with any set of particular producers, regardless of these producers’ physical locations, must be stopped.

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… is from page 58 of the first volume (“Rules and Order,” 1973) of F.A. Hayek’s brilliant Law, Legislation, and Liberty – a volume that has done more than any other single book to affect my worldview:

That we should foreswear all principles or “isms” in order to achieve greater mastery over fate is even now proclaimed as the new wisdom of our age….  If I am not mistaken, this fashionable contempt for “ideology” or for all general principles or “isms” is a characteristic attitude of disillusioned socialists who, because they have been forced by the inherent contradictions of their own ideology to discard it, have concluded that all ideologies must be erroneous and that in order to be rational one must do without one.

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Is Free Trade Unethical?

by Don Boudreaux on December 8, 2017

in Myths and Fallacies, Trade

Here’s a letter to a high-school senior:

Mr. Kimbrough:

Your teacher is mistaken to assert that, because “free trade causes innocent people to lose jobs,” the case for free trade “is sound economics, but ethically is questionable.”  In making this assertion, your teacher overlooks several key features of trade generally and of a policy of free trade specifically.  Here’s are just two:

First, in the U.S., the number of layoffs and discharges each month that results from imports is a tiny fraction of the total number of layoffs and discharges.  Consider this telling comparison.  Earlier this year the trade skeptics at the Center for Economic and Policy Research estimated that the number of American jobs destroyed each year by imports from 2001 through 2007 was, on average, 620,000 – or 3.72 million over the full six-year period.  Let’s not question the CEPR’s figure – a figure that that organization has every interest in making as large as possible – and compare it to total layoffs and discharges in the U.S.  The month of September 2017 alone saw 1.7 million layoffs and discharges.  This monthly figure is typical.  Therefore, in each two-month period today in the U.S. the total number of jobs destroyed is about the same as the number of jobs destroyed by imports over the entire six-year period 2001-2007.

These facts imply that the vast majority of job destruction is caused by improvements in technology, shifts in consumers’ tastes, and other economic changes that have little or nothing to do with imports.  And so if your teacher really believes that an economic process is ethically questionable if it causes job losses, he or she should oppose not just international trade but all economic competition and change.

Second, ask your teacher what is so ethical about a relatively small handful of existing domestic producers persuading the state to punitively tax fellow citizens whose only offense is to spend their own money in ways that they judge are best for them and their families.  If student interest in majoring in economics were to decline, would your teacher think me to be ethically justified if I – a professor of economics – persuaded the state to punitively tax all students who choose to major in subjects other than economics?  My guess is that he would not.  If my guess is correct, then to be consistent your teacher should also see that it is quite unethical for the state more generally to artificially obstruct consumers’ attempts to spend their money as they – rather than as politically powerful suppliers – see fit.

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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Some Links

by Don Boudreaux on December 8, 2017

in Crony Capitalism, Hayek, Monetary Policy, Podcast, Prices, Regulation, Subsidies, Taxes, Trade

In this podcast, Jonah Goldberg talks trade with Scott Lincicome.

My new Mercatus Center colleague Christine McDaniel, writing in today’s Wall Street Journal, argues for tearing down even the tiniest tariff wall.

Thanks to Robert Wenzel for sharing this short video of Hayek discussing misconceptions about economics.

Sheldon Richman makes the case for ending so-called ‘net neutrality.

Naturally, I’m delighted that Mark Perry made one of his famous Venn diagrams out of a recent Cafe Hayek post.

My colleague Larry White writes about Hayek on central banking and moral hazard.

With this new study, Jacob Bundrick and Thomas Snyder give us reason to doubt the stimulative effects of government subsidies to businesses.

George Will riffs insightfully on the ‘tax reform’ pending in Washington.  A slice:

The Democrats’ denunciation of the Republicans’ tax cuts because they especially benefit the wealthy is a recyclable denunciation of any significant tax cut. The top 1 percent of earners supply 39 percent of income tax revenue, the top 10 percent supply 70 percent, the bottom 50 percent supply 3 percent, 60 percent of households pay either no income taxes (45 percent) or less than 5 percent of their income, and 62 percent of Americans pay more in payroll taxes than in income taxes. So, any tax cut significant to macroeconomic policy — any that might change incentives sufficiently to substantially change businesses’ and individuals’ behaviors — must be primarily a cut for the affluent.

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Russ Roberts asks – and goes some long way toward answering – this question in this new, superb video.

You can find more here.

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… is from page 117 of my late Nobel-laureate colleague Jim Buchanan’s paper in the October 1987 issue of Ethics, “The Economizing Element in Knight’s Ethical Critique of Capitalist Order,” as this paper is reprinted in Economic Inquiry and Its Logic (2000), which is volume 12 of the Collected Works of James M. Buchanan:

[T]here is no social value scale, as such, established in market exchange.  The price vector that does emerge becomes a commonly shared constraint to which all persons adjust independently in their efforts to maximize their own subjectively determined scales of value.  It is conceptually meaningless to think of “the economy” as “economizing” on the use of resources.  Only individuals “economize,” given their resource endowments and the constraints that they face, constraints that embody the economizing-maximizing behavior of other participants in the whole exchange nexus.

DBx: No obstacle to clear thought about economic activity looms larger than the notion that the economy is an organization with a single hierarchy of ends – ends the achievement of which each of us, as resource owners (including owners of labor services) and as consumers, does or should behave to promote.  While the economy no less than the household, the firm, and the government is subject to, and governed by, the basic laws of economics and features of reality, unlike the household, the firm, and the government, the economy is not an organization for satisfying any particular goals.  Instead, the economy is that complex of human exchanges – mostly, but not always, mediated with money – that emerges as each individual, each household, each firm, and each government acts in ways to best achieve its individual ends.

An economy ‘works’ to the extent that it enables each of the individuals to achieve as many of his or her ends as possible.  But the achieving of these individually chosen ends is not, and ought not be thought of as, itself a means to some higher end such as “national economic growth” or “global economic prosperity.”  A nation’s measured economy might indeed grow as a result of individuals achieving many of their individually chosen and pursued ends.  And measured global economic prosperity might also rise for the same reason.  Yet these happy outcomes are not ends pursued by the millions or billions of individuals each of whom acts in ways that bring about these outcomes.  No one intends to bring about these outcomes, and attempts to engineer such aggregate outcomes can only stifle individuals’ abilities to achieve as many of their ends as possible.

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