Richard Rahn is rightly appalled by civil asset forfeiture.

George Will righty applauds the truth that Tim Sandefur emphasizes about the U.S. Constitution and America’s founders.  Here’s Will’s conclusion:

Sandefur says progressivism “inverts America’s constitutional foundations” by holding that the Constitution is “about” democracy, which rejects the framers’ premise that majority rule is legitimate “only within the boundaries” of the individual’s natural rights. These include — indeed, are mostly — unenumerated rights whose existence and importance are affirmed by the Ninth Amendment.

Many conservatives should be discomfited by Sandefur’s analysis, which entails this conclusion: Their indiscriminate denunciations of “judicial activism” inadvertently serve progressivism. The protection of rights, those constitutionally enumerated and others, requires a judiciary actively engaged in enforcing what the Constitution is “basically about,” which is making majority power respect individuals’ rights.

Duke University economist and political scientist Mike Munger explains that we do not need nations, flags, or armies to make us prosperous.  Here’s Mike’s conclusion:

That “feeling of solidarity” is society—voluntary, uncoerced, natural human society. We don’t need nations, and we don’t need flags and armies to make us prosperous. All we need is voluntary private cooperation, and the feeling of solidarity and prosperous interdependence that comes from human creativity unleashed.

James Pethokoukis on taxes.

Richard Epstein brilliantly reflects on “Progressives’” hysteria for so-called “equal pay” legislation.  (HT Steve Pejovich)  A slice:

Our false preoccupation with pay equity is not costless, for it leads to bad labor market regulations that hurt all workers. Employment relationships will only form and endure when the gains from the deal exceed the costs of putting it together. Every time a government regulation imposes some new restriction on the contracting parties, it increases the costs of the deal and reduces the benefits it generates, thereby killing jobs for men and women alike.

Marty Mazorra is unimpressed with Paul Krugman’s discussion of privately financed and built fiber-optic lines.  (Who says, by the way, that infrastructure must be built by government?!)

Megan McArdle discusses the continuing calamity that is Obamacare.

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… is from page 1 of William Baumol’s, Robert Litan’s, and Carl Schramm’s 2007 book, Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity (emphasis added):

The most astonishing thing about the extraordinary outpouring of growth and innovation that the United States and other economies have achieved over the past two centuries is that it does not astonish us.  Throughout most of human history, life expectancy was about half what it now is, or even less.  We could not record voices or speech, so no one knows how Shakespeare sounded or how “to be or not to be” was pronounced.  The streets of the greatest cities were dark every night.  No one traveled on land faster than a horse could gallop. The Battle of New Orleans took place after the peace treaty had been signed in Europe because General Andrew Jackson had no way of knowing this.  In Europe, famines were expected about once a decade and the streets would be littered with corpses, and in American homes, every winter the ink in the inkwells froze.

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Here’s a letter to the producer of MSNBC’s “Morning Joe”:

Producer, Morning Joe
MSNBC

Dear Sir or Madam:

On yesterday’s show Robert Reich proclaimed that “we really do have to spread, seriously, ownership because if most of the gains are coming from stock-rate gains, the whole country ought to be part of that.”

One would think that a former U.S. Secretary of Labor would have heard of the institution called “the stock market.”  Anyone can buy shares of corporate stock there.  The existence of this market and the ready access to it promoted by companies such as Fidelity and eTrade mean that no government action is necessary to enable Americans – even those of modest means – “to be part of” the group of people who own corporate stocks.  Becoming “part of” that group is easy and inexpensive, as a perusal of, say, eTrade‘s website will make plain.  Therefore, the typical American who is today not “part of” the stock market is someone who chooses not to be part of it.  That’s a choice that, unlike Prof. Reich, I respect and have no wish to use government to override.

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​​​

(HT to my colleague Walter Williams for drawing my attention to Reich’s appearance yesterday on Morning Joe.)

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I just ran across this 22-year-old essay by Albert Loan on spontaneous order.  I was in law school when I first read this essay.  I enthusiastically recommended it to several of my classmates.  Sadly, most did not understand Bert’s point, for it challenges directly what is perhaps the strongest implicit presumption of most legal scholars and law students today – namely, that law must be designed and enforced by a sovereign.

Alas, I’d forgotten about Bert’s superb essay until, quite by chance, I ran across it just now while doing a google search.  I recommend it highly.  Here’s his conclusion:

Voluntary institutions such as surety and assurance embody norms of reciprocity, trust, honesty, fellowship, and thrift without which no stable social order is possible. The evidence shows that when these norms are articulated and expressed through voluntary action, they are enhanced and strengthened to everyone’s benefit. Attempts to mimic the invisible-hand process that has generated them will not only fail; they will actively undermine and destroy these norms. Theory and empirical research combine to suggest four things: first, that such norms and institutions are needed for the successful functioning of any society; second, that the more complex the social order, the greater the need for them; third, that such institutions may appear spontaneously but cannot be deliberately created; finally, that much state action will undermine or destroy these norms and institutions, with potentially catastrophic effect.

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“Progressive” Compassion

by Don Boudreaux on April 15, 2014

in Inequality, Myths and Fallacies

(HT Jon Murphy)
image001

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Free to Choose

by Don Boudreaux on April 15, 2014

in Civil Society, Hubris and humility, Video

In this lovely short video from LearnLiberty, Wake Forest University philosopher Jim Otteson (one of my favorite scholars of my generation) explains the moral significance of free will and freedom to choose.

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… is from page 81 of Douglass North‘s 1990 volume, Institutions, Institutional Change and Economic Performance (links added):

We need to read, again, Armen Alchian (1950) to understand this.  In a world of uncertainty, no one knows the correct answer to the problems we confront and no one therefore can, in effect, maximize profits.  The society that permits the maximum generation of trials will be the most likely to solve problems through time (a familiar argument of Hayek, 1960).  Adaptive efficiency, therefore, provides the incentives to encourage the development of decentralized decision-making processes that will allow societies to maximize the efforts required to explore alternative ways of solving problems.

See also Vernon Smith’s 2002 Nobel lecture, “Constructivist and Ecological Rationality in Economics.”

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Warning: Wonky

Gregory Griffin e-mailed to ask me to elaborate on the significance of today’s Quotation of the Day.  This quotation is the one in which George Stigler criticizes economists who (I now paraphrase Stigler) regard markets in which traders are not fully informed as being “imperfect.”  Stigler’s point is that economists should treat information no differently than they treat every other scarce good or service – namely, as a valuable item that is possible to acquire in economically excessive amounts.  At some point, the value (although positive) of additional information is less than is the (also positive) cost of acquiring that additional information.

(There are some trenchant Austrian glosses upon this insight.  Information and knowledge are indeed economically unique in some ways.  Yet the elementary truth and importance of the insight conveyed here by Stigler stand, despite being ignored by too many economists.)

Words and labels matter.  When used carelessly, words and labels can mislead.  Economists routinely build models of markets in which people are assumed to have perfect information (which is to say, models in which all potentially relevant information is acquired costlessly by all people ‘acting’ in the models).  Such ‘perfect-information’ models yield certain predictions about how markets operate and of what the results of those operations will be.  Not surprisingly, these predictions are generally quite agreeable – that is, they satisfy our instincts about what good market operations and outcomes ought to be.

With perfect information, no one gets fooled; no one errs; no one takes unjustified advantage of anyone else; no one fails to seize the most valuable opportunities available to him or her.  The outcomes of perfect-information markets generally seem to be, not surprisingly, ideal or perfect.  Prices are always ‘right.’  No one ever suffers any inconvenience, loss, or other ill consequence of being less than fully (“perfectly”) informed.

But to call such outcomes “perfect” strongly suggests that different, less-ideal outcomes are “imperfect.”  The impression conveyed by such language and theorizing is that the lack of perfect information causes markets to fail in some ways – to come up short – to not perform as well-functioning markets ‘should’ perform (or can, perhaps, perform if only the “imperfection” is gotten rid of).  It’s a short leap for many theorists from this conclusion to the belief that government should do one of three things: (1) intervene in the market to force the market outcomes to be more like what the theorists theorize the outcomes would have been if information were perfect; (2) intervene to encourage or enable market participants to gather more information; or (3) replace these imperfect markets with government-run enterprises or agencies that – because of the “Then a miracle occurs” step – are simply assumed to be able to outperform markets.

Without here denying the theoretical (or even practical) possibility that any one or more of these kinds of government interventions into the economy can make people generally better off, enthusiasm for such interventions is fueled too quickly, too strongly, too voluminously, and mindlessly by the mistaken impression conveyed by talk of “imperfect markets” and “imperfect information.”  In fact, markets that economize on information are no more imperfect than are markets that economize on lumber or lightbulbs.

Market outcomes certainly would be different and better if, say, lumber were free.  More products would be made of wood, and we’d have larger supplies of products made with wood.  The prices of products made with wood – and the prices of non-wood products that compete with wood products – would all be lower.  If lumber were free, we’d all be richer.  Yet no one argues that markets are imperfect because lumber is not free.  No one judges that markets fail because people do not grow, harvest, and use all of the lumber that is physically possible to grow, harvest, and use.  No one suggests that the market’s “failure” to use lumber as if it were free creates a prima facie case for government intervention into markets.  Information should be treated similarly.

Indeed, markets are correctly recognized as being quite effective at economizing efficiently on scarce goods such as lumber.  If the supply of lumber falls, the price of lumber rises and people use plastic and other substitutes for lumber more intensely.  If the price of lumber rises, entrepreneurs are inspired to plant more trees or otherwise invest in ways to increase the supply of lumber.  Economists recognize these responses and applaud them.  Economists should, I think, be more attuned to ways that markets not only economize on information (including by finding ways to make its absence less troublesome) but also inspire and incent entrepreneurial efforts to increase supplies of useful information.

The absence of perfect information is indeed unfortunate – just as the absence of unlimited supplies of lumber or of lightbulbs or of cancer-curing pills is unfortunate.  We do not dwell in Eden.  But the absence of information does not render markets “imperfect,” and economists shouldn’t be so quick to assume that if the information possessed in markets by market participants isn’t perfect, then those markets are “failing” or are appropriate candidates for “correction” by government.

I close this wonky post with a quotation from Armen Alchian.  In footnote 5 of his brilliant 1969 Western Economic Journal article, “Information Costs, Pricing and Resource Unemployment” Alchian wrote (original emphasis):

A “perfect” market would imply a “perfect” world in which all costs of production, even of “exchanges,” were zero.  It is curious that while we economists never formalize our analysis on the basis of an analytical ideal of a perfect world (in the sense of costless production), we have postulated costless information as a formal ideal for analysis.  Why?

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Student Opportunities

by Don Boudreaux on April 14, 2014

in Civil Society, Law, Legal Issues

The Institute for Justice does great work.  Here are some opportunities for students.

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In this video from 1987 – which I just learned of from Libertarianism.org – the late Jim Buchanan and my emeritus colleague Gordon Tullock discuss their pioneering 1962 book, The Calculus of Consent.  Additional commentary is offered by my colleague Dick Wagner.

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