Stuff for Smiles

by Don Boudreaux on January 12, 2017

in Trade

In this post of a few days ago I argued that Americans would be greatly enriched if non-Americans were to become so fond of images of smiling Americans that they – the non-Americans – became eager to give valuable good and services to us in exchange for nothing but photos of our smiling American faces.  To which the economist Wilson Mixon replied to me, by e-mail:

UnknownOf course, Hollywood does precisely what you say. Well, maybe not quite: the”serious” films show sullen or frowning faces.

DBx: Indeed, Hollywood movies are popular with many foreign audiences: we send them moving pictures of beautiful smiling Americans such as Scarlett Johansson and George Clooney and they – the non-Americans – send us in return lots of valuable goods and services. It’s a win-win (as voluntary trade always is).

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Some Links

by Don Boudreaux on January 12, 2017

in Crime, Economics, FDA, History, Regulation, Taxes, The Economy, Trade, War, Work

David Henderson is properly skeptical of Trump’s trade triumvirate of Robert Lighthizer, Peter Navarro, and Wilbur Ross – each of whom, like their bloviating new boss, is on record with many statements revealing a complete misunderstanding of trade.  A slice from David’s post:

One of President-elect Trump’s most sincerely held views is that free trade is suspect. He buys into virtually every mercantilist myth, even claiming in a recent tweet, “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade.”

This goes way beyond mercantilism into incoherence. No trade can be a little one-sided, let alone “totally one-sided.” The reason is that when you trade, you give something up and get something in return. Trade is necessarily two-sided. Even more flabbergastingly, Trump is not complaining that Americans don’t get enough from China in return. He’s complaining that it gets too much! This massive amount of wealth that he thinks China is taking from America is, mysteriously, in the form of goods that we Americans buy from China at low prices. What nerve those Chinese people and firms have, selling us things at low prices when, Trump seems to be saying, we should prefer to buy them at high prices.

Steve Forbes rightly warns against the GOP’s dangerous “border-adjustability tax” proposal.  (HT Dan Griswold)  A slice:

Why are the Republicans doing this? They say the revenue raised will help finance a huge tax tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy. But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world.

My Mercatus Center colleague Dan Griswold grades the performance of the American economy while it was on Pres. Obama’s watch.

Vincent Geloso discusses his favorite recent works in economic history.

Elaine Schwartz draws appropriate lessons from some recent empirical studies that show – surprise! – that minimum wages might well indeed cast some of the lowest-skilled workers into the ranks of the unemployed.

Derek Scissors summarizes foreign investment during 2016 by the Chinese.  (See also this related data source.)

My colleague Alex Tabarrok highlights one example of crappy FDA regulation.

Jeff Jacoby explains that hateful (and hate-filled) opinions are not – and ought not be treated as if they are – criminal.  His conclusion, with which I fully agree:

Society has a duty to punish a criminal’s evil deeds. But there is never a duty to punish a criminal’s thoughts, no matter how evil they may be.

George Will looks back on Alan Sokal’s good deed of 1996.

John Glaser argues – correctly, I believe – that Uncle Sam’s role as world cop is very costly indeed.

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… is from page 316 of UCLA economist William R. Allen’s 1989 collection of the transcripts of his marvelous radio addresses, The Midnight Economist; Allen often couched his addresses as a conversation between two mice, Adam and Karl – and the source of today’s quotation is one such conversation; specifically, it’s Allen’s October 1988 address “Mouse Wisdom: Foreign Investment in America”:

“We are losing control of our economic destiny,” growled Karl.  “Americans are becoming dependent on foreign landlords and foreign employers – and vulnerable to their diabolical whims.”

images“Foreign investors have little of either power or incentive to harm us,” corrected Adam.  “Indeed, foreigners are staking their wealth on American workers and customers and their productivity and prosperity.  If foreign-owned buildings are not to lose money, they must be rented to American tenants.  If foreign-owned firms are to flourish, they must hire American workers and sell to American consumers.  This is mutual dependence for mutual benefit.”

“I understand the interdependence,” said Karl thoughtfully, “but I don’t see the mutual benefit.”

“Foreign direct investment invigorates our economy with new investment, technology, and management.  We obtain more goods and services, more jobs, and more income.  And foreign investors obtain a higher return on their investments.”

DBx: I offer, for clarification, one small correction (that I’m certain Bill Allen will agree with): foreign direct investment in the U.S. enables Americans to obtain better, rather than more, jobs.  Or, alternatively, foreign direct investment in America offers Americans more job options.  Foreign investment – as with market-driven competition in general and with imports in particular – does not change the number of overall jobs in the economy; it simply improves these jobs over time.

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30 Years of Improvement

by Don Boudreaux on January 12, 2017

in Growth, Innovation, Standard of Living

In my latest Pittsburgh Tribune-Review column, I note some of the very many ways that ordinary Americans’ standard of living in 2017 is much higher than it was in 1987.  A slice:

Yet ironically, Americans’ immense prosperity in 2017 is revealed most vividly in riches that are difficult to see if you aren’t looking for them. Most of what makes Americans today materially far richer than Americans of 1987 are things that are so familiar now that we take them for granted. Consider just some of the goods and services that were unavailable to ordinary Americans 30 years ago: individual-serve coffee-makers (“Keurigs”), high-definition televisions, downloadable and streaming music, movies and TV shows, Lasik surgery, Viagra, smartphones, GPS navigation, laptop computers, the Internet.

Each of these items was attention-grabbing when first introduced. But they all became so widespread so quickly that they are today part of our landscape.

Even more hidden from view are smaller innovations that were either nonexistent or very rare 30 years ago. One of my favorites is plastic garbage bags, each with its own internal drawstring.

(To be clear: plastic garbage bags were widely available and used in the U.S. in 1987, but each such bag did not commonly have its own convenient, internal drawstring.)

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… is from page 4 of Simeon Djankov’s, Rafael La Porta’s, Florencio Lopez-de-Silanes’s, and Andrei Shleifer’s February 2002 article in the Quarterly Journal of Economics, titled “The Regulation of Entry” (link added):

buchananIn a cross section of countries, we do not find that stricter regulation of entry is associated with higher quality products, better pollution records or health outcomes, or keener competition.  But stricter regulation of entry is associated with sharply higher levels of corruption, and a greater relative size of the unoffcial economy.  This evidence favors public choice over the public interest theories of regulation.

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Here’s a letter to First Things:

Robert P. Cummins rightly calls for tax and regulatory relief (“My Orange Juice Came from Brazil,” Jan. 5).  But his essay is severely marred by his lengthy discussion of comparative advantage.  According to Mr. Cummins, comparative advantage is now “obsolete,” it having been “erased” by globalization and technological innovation.  Mr. Cummins’s is deeply mistaken.

If comparative advantage didn’t exist – exist either naturally or (as Adam Smith would have it) as the result of specialization itself – there would be no trade, including none of the trade that Mr. Cummins today finds to be both prevalent and worrisome.  Without comparative advantage, no one would benefit from buying any goods or services from others, or from producing any goods or services for sale to others.  Each individual would be self-sufficient.  Society as we know it would not exist.

The reason is that the absence of comparative advantage means that each individual confronts the same cost of producing each and every good or services as is confronted by every other individual.  In the (barely imaginable) world of no comparative advantage, I could grow the corn that I eat just as efficiently as could anyone else.  Ditto for weaving the cloth that I wear, building the automobiles that I drive, transporting myself to Paris, and performing surgery on myself.  And what would be true for me would be true for every other person.  Only in such a bizarre world would there be no comparative advantage and, hence, no trade.

Put differently, the only economic reason for trade is that each of us produces some goods or services at costs lower than the costs that our trading partners would incur to produce those same goods or services.  That is, each of us has a comparative advantage in supplying the goods or services that we sell to others, and a comparative disadvantage in supplying each of the many goods and services that we buy from others.  Therefore, because we humans continue to specialize and trade – and especially because global trade today is so vast and growing (as Mr. Cummins’s himself admits) – comparative advantage has not been “erased” or made “obsolete.”  Quite the contrary.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

(I thank P.J. Hill and Jeff Ankrom for alerting me to Mr. Cummins’s essay.)  Other errors mar Mr. Cummins’s essay, but the comparative-advantage error is the most egregious.

Here’s a comparatively passable introduction to comparative advantage.

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In this short video, Johan Norberg busts the myth that U.S. manufacturing is in decline and that the decline in U.S. manufacturing employment is the result of trade.

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… is from page 188 of the 2016 Mercatus Center re-issue of my late colleague Don Lavoie’s superb and still-relevant 1985 volume National Economic Planning: What Is Left? (original emphasis):

unknown-2The case for the free market does not rest on any sort of belief that market forces bring the economy to some ideal equilibrium state of full adjustment.  It argues that market forces drive a process of plan coordination in which full coordination can never be attained, but which uses more knowledge than any single agent or organization can command.

DBx: Indeed so.  And for this reason – because the market is an on-going process of discovery, change, creation, and adjustment – any supposed revelation by some professor, pundit, or politician of a market ‘imperfection’ (say, monopsony ‘power’ in today’s market for low-skilled workers in northeastern Nebraska or southwestern New Jersey) creates no good case for government intervention.  Not only is there a much-better-than-even chance that this professor, pundit, or politician is mistaken (for such people are almost never actual participants in the markets on whose details they presume to pronounce) – and not only are the ‘remedies’ offered by such people ones that, being imposed by force, distort future market processes – the likelihood that alert and creative entrepreneurs will discover whatever correctible problems exist today and launch courses of action, often in competition with each other, to address these problems in the best manner possible (that is, without political influence, and with more knowledge than can be mustered by government regulators) is high.

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Ilya Somin, a colleague over in GMU’s Antonin Scalia Law School, has penned a splendid essay on why the Senate should prevent Jeff Sessions from becoming the next Attorney General of the United States.  A slice:

I don’t expect any president — Democrat or Republican — to appoint an attorney general as libertarian as I would ideally prefer. Far from it. But libertarians and others who care about federalism and limiting government power can reasonably expect someone with a less terrible record than Sessions. His divergence from mainstream views on so many issues does not by by itself prove that he is wrong. But it does make him potentially vulnerable.

I am not the only right-of-center commentator with grave concerns about Sessions. George Will, the Wall Street Journal editorial page and Michael Tanner (writing in National Review) have done so, as well, among others. As Tanner puts it, Sessions “has a record that ought to worry believers in small government and individual liberty.”

My Mercatus Center colleague Dan Griswold is appropriately skeptical of Steve Moore’s defense of the GOP’s proposed “border-adjustable” tax scheme.

I agree with Tyler Cowen on “Black Lives Matter.”  A slice:

“Black Lives Matter” is a large movement, if that is the proper word for it, and you can find many objectionable statements, alliances, and political views within it.  I don’t mean to endorse those, but at its essence I see this as a libertarian idea to be admired and promoted.

I enjoyed the movie Hidden Figures – and also this write-up of it by Charley Locke.  (HT Manny Klausner)

Kevin Williamson notes a pattern in Paul Krugman’s attitude toward government budget deficits.  And here’s Scott Sumner on the same issue.

The Competitive Enterprise Institute’s Wayne Crews – a GMU Econ alum – wisely argues that we should fear politicians rather than labor-saving innovations.

Here’s Nick Cowan’s excellent Introduction to a symposium celebrating the five-year anniversary of the publication of Mark Pennington’s remarkable 2011 volume, Robust Political Economy.  (HT Walter Grinder)

George Selgin has just posted part 9 of his excellent “Monetary Policy Primer.

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Here I continue my correspondence with Mr. Vince Vogel:

Mr. Vince Vogel

Mr. Vogel:

You “celebrate” Donald Trump’s tweet threatening Toyota with a “big border tax” if it produces America-bound Corollas in Mexico rather than in the United States.  You “find refreshing … our President-elect getting tough on corporations which take and don’t give to America.”

Are you serious?  How is Toyota not ‘giving’ to us Americans when it offers to sell automobiles to us at prices that we find attractive?  Do Americans who voluntarily buy such cars not benefit?  Of course they do.  And do other Americans who, because of Toyota’s competition, pay lower prices for American-assembled cars not also benefit?  Of course they do.  That you fail to see that an increased flow of goods and services made available to Americans – especially at prices that reflect production costs as low as possible – raises Americans’ standard of living means that you fail to understand the most basic facts of economics.

You also fail to understand the nature of Trump’s bullying threats.  First, Trump threatened not only Toyota; he threatened also Americans who would purchase Mexican-assembled Corollas.  Mr. Trump’s “big border tax” would oblige these Americans to pay higher prices.

Second, suppose that Trump learns that in 2017 Americans intend to eat more meals prepared at home and fewer meals prepared at restaurants.  Would you “celebrate” if, in response, Trump tweets to every American household “NO WAY!  Eat at restaurants or pay big home-cooked-meal tax”?  Both cases – the home-cooked-meals case and the Toyota-in-Mexico case – feature actions that destroy or fail to create some specific jobs in an identifiable American industry.  Both cases feature outcomes that depend upon the voluntary actions of American consumers.  Both cases, in short, are economically identical.  Yet I suspect that you would be appalled at any tweet threatening Americans who choose to eat more home-cooked meals.  If I’m correct, you should be equally appalled at Trump’s tweet about Toyota producing cars in Mexico.

Donald J. Boudreaux
Professor of Economics
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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