Quotation of the Day…

by Don Boudreaux on February 28, 2014

in Reality Is Not Optional, Seen and Unseen, Work

… is from page 65 of the manuscript of Deirdre McCloskey‘s forthcoming volume, The Treasured Bourgeoisie: How Markets and Improvement Became Virtuous, 1600-1848, and Then Suspect:

Stopping people from taking terrible jobs – through prohibitions or protections or minimums, justified by the warm if mistaken feeling over one’s second cappuccino that one is thereby being generous to the poor – takes away from the poor what the poor themselves regard as a bettering option.  It’s theft from the poor of deals the poor want to make.

Indeed so.  Minimum-wage legislation and similar interventions rob the poorest people in society of options; these interventions steal from the poorest people in society the very opportunities to earn income and to gain work experience that these people need most.  No amount of seminar-room theorizing about monopsony power – especially as such theorizing is done almost exclusively by tweedy and self-righteous academics who refuse to put their money where their mouths are on this matter – justifies this injustice.

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An Open Letter to a D.C. Lobbyist

by Don Boudreaux on February 27, 2014

in Civil Society

Mr. Jack Burkman
Burkman LLC
Washington, DC

Dear Mr. Burkman:

Your P.R. firms just e-mailed to me the announcement of your endorsement of the so-called “American Decency Act of 2014” – a piece of legislation that, if passed, would ban the National Football League from employing players who are openly gay.

I’ve got an idea for a better Act: “The Mind Your Own Business Act of 2014.”  If passed, private citizens - including, of course, N.F.L. owners, coaches, and players - would be authorized to ignore you and other busybodies.  Under my Act, private adults would be free to hire, fire, marry, live with, play with, play against, and generally to associate with whomever they choose on whatever terms they find mutually agreeable without having to worry that their voluntary interactions will be disrupted by the indecent pestering and obstructiveness of presumptuous intermeddlers such as yourself.

My Act, in short, would promote genuine decency in America.

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 February 27, 2014

in Growth, History, Myths and Fallacies, Science, Standard of Living

… is from pages 11-12 of 2006 Nobel laureate Edmund Phelps’s 2013 book, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change; by “scientism,” Phelps here means the belief that science (or “Science”) is the chief cause of the industrial revolution and of continued economic progress – “mass flourishing” – for ordinary men and women:

Any important new piece of scientific knowledge is accessible in scholarly publications at little or no cost – it is for this reason that it is called a public good.  Scientific knowledge, therefore, tends to be roughly equalized across countries.  So if we were to accept advances in scientific knowledge as the major explanation of the huge increases in economic knowledge in the take-off nations [that is Great Britain, the U.S., and other 'first-world' countries], it would then be very hard to explain the mounting disparities (starting from rough equality in 1820) in economic knowledge over the 19th century – the Great Divergence as it has been dubbed.  It would be necessary to string together a half dozen ad hoc explanations to account for Britain’s early, unsustainable lead, followed by America’s durable lead, Belgium’s and France’s advances, and Germany’s progress late in the game.  It would be necessary to explain from the perspective of scientism how America left France in the dust, then blew past Belgium and finally overtook Britain, when America was the country least schooled in science and, being exceptionally far geographically from the others, had least access to scientific discoveries.  It would be an even greater challenge to explain how the Netherlands and Italy remained at the starting gate, despite their sophistication in science.

The industrial revolution – mass flourishing – widespread and growing prosperity for ordinary people – was not and is not caused by scientific advances.

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Some Links

by Don Boudreaux on February 26, 2014

in Books, Civil Asset Forfeiture, Civil Society, Growth, Myths and Fallacies, Politics, Reality Is Not Optional, Standard of Living, Wal-Mart, Work

Arnold Kling reviews Diane Coyle’s GDP.  Here are Arnold’s concluding paragraphs:

As Coyle points out, an increase in the variety of goods also produces gains in welfare that are not included in GDP. Again, think about this from the standpoint of consumer surplus. If you and I go to a food court with many restaurants, then I will choose the meal that gives me the most consumer surplus, and you will choose the meal that gives you the most consumer surplus. Each of us will get more consumer surplus than if we had been forced to get food from the same restaurant.

Overall, one arrives at a mixed verdict on GDP. On the one hand, it is the best way that we have to measure economic capability. On the other hand, because it fails to account for consumer surplus, GDP statistics lead us to take an overly pessimistic view of the economy. There is no Great Stagnation. There is only a widening gap between the rate of economic improvement and our ability to measure that improvement.

In my most recent column in the Pittsburgh Tribune-Review I recall the time I was invited by the Bush II White House to be nominated for a position on the Council of Economic Advisors.  I refused the invitation.  A slice:

Third and most importantly, my conscience prevents me from taking such a position. I don’t judge others who took, or will take, such a post. But I could not have done the job that the administration invited me to do. That job is principally not to give economic advice. That job, instead, is to give credibility to political maneuvers.

Sure, on matters that aren’t politically charged, a president might sincerely seek and follow the advice of an academic “expert.” But being the U.S. president is a political job. And the chief talent and ultimate goal of all expert politicians is to win votes. At the end of the day, it’s the far-too-rare successful politician who will do what is right if doing what is right differs from what is most popular.

In the 30 seconds that I spent envisioning myself on the Council of Economic Advisers, I saw myself ricocheting between offering advice in private that would be ignored and being asked to defend in public many policies that I believe to be wrongheaded or even immoral. Such a job repulses me.

Richard Epstein isn’t fooled by minimum-wage hype.  (HT Warren Smith)  A slice:

Thus it is neither here nor there that the real value of the minimum wage peaked in 1968 and has declined since that time. If the minimum wage law is a structural mistake, then 1968 represents the low point in the cycle, not the high point. Indeed, it is worth noting that the most rapid decline in the real value of the minimum wage took place during the Reagan years, when labor markets continued to gain strength. The relevant baseline is not historic demands of the minimum wage law; it is what workers earn. We have very low labor market participation today. If an increased minimum wage will make it harder for low-skills persons, minorities, and teenagers to gain a toehold in the labor market, why support it?

Nor is the case for a higher minimum wage advanced by insisting, as the White House does, that “paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive.” Indeed, these considerations cut exactly the opposite way. If increased wages alone increased productivity, there would be no need for federal intervention: Employers would have all the incentive they need to raise wages voluntarily. That is how markets work.

The Washington Post‘s Radley Balko explains that the drug war really is awful.

My colleague Bryan Caplan uses economics to explain why one familiar trope used against Wal-Mart has matters backwards.  (Bryan does better here what I did less-well in this post from 2004.)

 

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Quotation of the Day…

by Don Boudreaux on February 26, 2014

in Adam Smith, Competition, Trade

… is from pages 127 of Alexander Cairncross’s 1976 essay “The Market and the State,” which is chapter 4 in the 1976 collection The Market and the State: Essays in Honour of Adam Smith (Thomas Wilson and Andrew S. Skinner, eds.):

The forces of decentralization are reinforced by the international character of the market as opposed to the national character of the state.  So long as the domestic market is open to competitive influences from outside, a limit is set to monopoly powers of all kinds: whether exercised by groups of producers or groups of workers, whole industries or individual firms.  It was this aspect of international trade that particularly appealed to Adam Smith.

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Wealth Is Ready Access to the Minds and Efforts of Millions of Creative and Productive People

by Don Boudreaux on February 25, 2014

in Complexity & Emergence, Intervention, Prices, Reality Is Not Optional

Here’s a letter to NPR reporter David Greene:

Mr. David Greene
NPR

Dear Mr. Greene:

You and reporter Girish Gupta, who you spoke to this morning from Caracas, both seem mystified that Venezuela is in what you describe as an “economic mess” – with its people suffering massive shortages of staple goods – even though that country is rich in oil (“Opposition Blocks Traffic In Venezuelan Capital Caracas“).  As you asked Mr. Gupta, “Why isn’t the oil money in Venezuela actually helping to make people better off?”

The answer is simple: people cannot eat, drink, clothe, shelter, educate, or medicate themselves with oil or money as such.  Oil can be transformed into a few useful goods and, like money, also exchanged for other useful goods and services.  These transformations and exchanges, however, require decentralized markets and uncontrolled prices - two economic institutions quashed by Venezuela’s socialist policies.

Without the incentives created by markets and the information transmitted minute-to-minute by market prices, even the most mundane outputs such as toilet paper, bread, and coffee do not get produced in sufficient quantities.  And the few supplies that are produced are not reliably transported to where they are in highest demand.  Even if all Venezuelans were knee-deep in oil with their wallets stuffed with money they would continue to be poor as long as their government sticks to its policy of suppressing markets.

Crude oil and cash are of no use if there is nothing to exchange them for - and without markets there is, indeed, nothing to exchange them for.

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 February 25, 2014

in Reality Is Not Optional, Seen and Unseen, State of Macro

… is from page 131 of Kenneth Boulding’s “Review of The Pure Theory of Capital by Friedrich A. Hayek,” which appeared in the February 1942 issue of the Journal of Political Economy; I found this quotation on page xxxi of my colleague Larry White’s “Editor’s Introduction” to the 2007 edition of Hayek’s 1941 volume, The Pure Theory of Capital:

Mr. Keynes’ economics of surprise, like Hitler’s, may be admirable in producing spectacular immediate success.  But we need Puritan economists like Dr. Hayek to point out the future penalties of spendthrift pleasures and to dangle us over the hellfire of the long run.

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Quotation of the Day…

by Don Boudreaux on February 24, 2014

in Growth, Property Rights

… is from page 1 of Nobel laureate Douglass North‘s 2005 book, Understanding the Process of Economic Change:

Because various kinds of markets (political as well as economic) have different margins at which competition can be played out, the consequence of the structure we impose will be to determine whether the competitive structure induces increasing economic efficiency or stagnation.

Competition (like cooperation) is a given.  It will occur.  The only question is how – on what ‘margins’ – and, hence, what will be the results.  A profit-seeing business that can gain that profit only by successfully competing for customers with lower prices and higher-quality products contributes to widespread economic growth.  In contrast, a profit-seeking business that can gain that profit by persuading government to bestow on it subsidies, tariffs, or other special privileges will compete less for customer approval and more for the approval of politicians.  The latter sort of competition undermines economic growth.

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Some Links

by Don Boudreaux on February 24, 2014

in Books, Crony Capitalism, Energy, Property Rights, Seen and Unseen, Trade, Work

My colleague Bryan Caplan gives us – in this inspired blog post over at EconLog – the economics behind Peter Thiel’s recent “second-best” argument in favor of raising the minimum wage.  Here’s Bryan’s conclusion (but please do read the entire post):

I have great respect for Peter Thiel, but his concession to minimum wage advocates is confused.  While some inefficient policies can offset the effects of other inefficient policies, the minimum wage is not such a policy.  It doesn’t matter if welfare is high, low, or non-existent.  The minimum wage causes unemployment by making marginal workers unprofitable to employ.

Speaking of the minimum wage, Washington Post columnist Robert Samuelson isn’t impressed by White House economists Jason Furman’s and Betsey Stevenson’s dismissal of recent CBO findings that the proposed hike in the minimum wage will indeed reduce the number of jobs available to low-skilled workers.  Here’s Samuelson:

Choices exist. On some, the White House has voted against job creation. Naturally, it tries to obscure this. Concerning the minimum wage, it predictably assailed the estimated job losses. These don’t reflect the “consensus view of economists . . . that raising the minimum wage has little or no negative effect on employment,” wrote Jason Furman and Betsey Stevenson of the White House Council of Economic Advisers.

How convenient. Conflicts vanish. The decision is a no-brainer. So say the studies.

This is fairy-tale economics. Many studies find negative job effects. The CBO didn’t make them up. As important, the CBO shows — and this is its real contribution — why many recent studies may not be relevant to today’s proposal. The reason: The proposed increase is much “larger than most of the increases that have been studied.” Even after inflation, it would likely be about a third. Moreover, the minimum would be indexed to inflation, rising automatically with prices. This, too, is new.

All these differences suggest larger job effects, says the CBO.

My colleague Tyler Cowen reviews, in the Washington Post, new books by Diane Coyle and by Zachary Karabell.  (I’ve read Coyle’s book - GDP – and, like Tyler, recommend it.)

Shawn Regan explains, in this new report from PERC, how government policies keep Native Americans poor.

Over at Carpe Diem, Mark Perry rightly ridicules several U.S. businesses for being both cronyish and hypocritical.

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Who Should We Revere?

by Don Boudreaux on February 23, 2014

in Civil Society

EconLog guest blogger James Schneider properly laments that far too many public memorials and parks glorify politicians (and, I’d add, generals and admirals).  Ditto for (especially U.S.) coins and currency.  I, too, have noticed this sad fact.  I’d rename and rededicate 99 percent of these memorials and parks to historical figures who were generally productive.  Ditto for redoing coins and currency.  Just off of the top of my head – meaning, I reserve the right to change my list in the future – here’s my proposed redoing of U.S. currency and coins; I limit my list here to Americans – a limit that I’m not sure is appropriate:

$1 bill: George Washington.  For all of his flaws, Washington was not as mad for power as is the typical politician.  That character trait was enormously beneficial to the early American republic.

$2 bill: Henry Ford, for being such a pioneering and innovative producer.

$5 bill: John D. Rockefeller, Sr., for being such a pioneering and innovative producer.

$10 bill: Gustavus Swift, for being such a pioneering and innovative producer.

$20 bill: Norman Borlaug, for saving countless millions of people from starvation.

$50 bill: Sam Walton, for being such a pioneering and innovative retailer.

$100 bill: Benjamin Franklin, for his scientific achievements and his bourgeois wisdom.

One-cent coin: Richard Sears, for being such a pioneering and innovative retailer.

Five-cent coin: Steve Jobs, for being such a pioneering and innovative producer.

ten-cent coin: John Bogle, for inventing the indexed mutual fund.

25-cent coin: Milton Friedman, for teaching not only the general public, but fellow economists, economics.

50-cent coin: Gail Borden, for being such a pioneering and innovative producer.

$1 coin: Andrew Mellon, a productive financial genius.

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