Calling Mark Perry

by Don Boudreaux on November 30, 2016

in Myths and Fallacies, Politics

In this comment on Steve Landsburg’s recent post “Why She Lost,” David H. (who I’m quite certain isn’t EconLog’s David Henderson) writes about Hillary Clinton:

Her tax proposals on short term capital gains would be subject to a spirited debate in the House and Senate, but most economists believe the downside of increasing taxes would be offset by the upside of starting to combat “quarterly capitalism.”

I don’t know if David H. is correct in his claim about what a majority of economists believe.  (He might well be correct, for in recent years the ability of the typical economist to wisely assess policy has plummeted.)  Either way, assertions of the reign of “quarterly capitalism” are common, especially on the political left.  Also common on the political left are assertions that First Amendment protections for political speech – such as were upheld in Citizens United – are used by corporations to affect political outcomes in ways that are beneficial to corporations but baneful to the general public.  Indeed, Hillary Clinton herself wants to amend the U.S. Constitution to overturn Citizens United.

Yet the simultaneous holding of these two beliefs reveals inconsistency.  Whether or not unregulated campaign financing harms society, the benefits that corporations reasonably expect to reap from their campaign expenditures do not materialize in the same quarter in which those expenditures are made.

First, many political campaigns span, not a few months, but a year or more  Each U.S. presidential campaign these days invariably spans more than a year.

Second, the actual securing of pro-corporate legislation and bureaucratic rule-making typically, or at least often, takes more than three months.

Third and most importantly, the increased stream of profits from such legislation and diktats typically, or at least often, takes even longer to start arriving in corporations’ coffers, and the full stream invariably takes longer than three months to arrive.

Those who worry about “quarterly capitalism” are not permitted here to point out the correct fact that the anticipation today of increased streams of future profits from favorable policies are reflected today in increased corporate share prices.  The very nature of “quarterly capitalism” is that corporate decision-makers, including shareholders, care about nothing beyond the next quarterly reports and that investors and other market actors do not capitalize today, in the prices of corporate shares, the anticipated value of costs to be incurred, and benefits to be received, beyond the end of the quarter.

As Mark Perry might say, those who worry that Citizens United is a green light for corporations to spend in ways that reap corporate benefits at the expense of society and who worry also that corporate decision-makers are so myopic that “quarterly capitalism” is real do not have a strong need for intellectual consistency.

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Marginal Analysis

by Don Boudreaux on November 30, 2016

in Growth, Myths and Fallacies, Work

Here’s a letter to National Review (link added):

Given Edward Conard’s generally sound instincts, it’s regrettable that he gets some important details about economics wrong (“A Trade Policy That Wouldn’t Leave Low-Wage Workers Behind,” Dec. 5).  For example, Mr. Conard evinces confusion when he writes that: “An increase in low-skilled workers spreads constrained resources – talented supervision, for example – over a greater number of workers.  This slows productivity and wage growth, because low-skilled workers don’t add to constrained resources in proportion to the demands they place on them.”

Whenever the proportion of one kind of input (say, “talented supervision”) falls relative to another kind of input (say, “low-skilled workers”), the productivity of an additional unit of the first kind of input rises.  Competition then drives up the price or wage of that input.  Because the supply of “talented supervision” isn’t fixed, the rising pay of talented supervisors attracts more people into that line of work.  This result, in turn, increases the productivity of the second input.

It won’t do to object that the supply of talented supervisors is more “constrained” – economists say “more inelastic” – than that of low-skilled workers.  Throughout history the supplies of some inputs, including “talented supervision,” have been more “constrained” than the supplies of other inputs, including low-skilled workers.  Yet this reality has not prevented spectacular economic growth in societies that, steeped in bourgeois values, accept the economic change that is inseparable from free, dynamic, innovative markets.

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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Quotation of the Day…

by Don Boudreaux on November 30, 2016

in Crony Capitalism, Regulation, Seen and Unseen

… is from page 230 of Frank M. Machovec’s superb 1995 volume, Perfect Competition and the Transformation of Economics (original emphasis):

51k3m0xtpgl-_sx373_bo1204203200_Finally, it should be noted that the regulatory apparatus of the state offers numerous ‘contrivances’ … to neutralize the threats of competitors.  For example, large, established firms whose personnel budgets liberally fund, say, on-site employee child-care centres, will likely support women’s rights groups in their quest for new federal labour regulations that mandate such benefits for all firms.  The adoption of such a rule would have no impact on the incumbents’ costs, yet it would boost potential rivals’ costs, thereby reducing (or eliminating) a potential advantage of new entrants who would prefer not to provide child care for their employees.

See also Bruce Yandle.

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Mr. Jared Bernstein
Center on Budget and Policy Priorities

Mr. Bernstein:

In your Washington Post essay “A proposal to the incoming administration to lower the trade deficit” (Nov. 28) you simply assert that the U.S. trade deficit is “a significant drag on growth and manufacturing jobs.”  Because you devote not a single word to explain why you believe this assertion to be correct, you clearly suppose that it is too obvious for words that the U.S. trade deficit harms the American economy.  Yet as you must know, for America to run a trade deficit with non-Americans is for America to receive a net inflow of capital from non-Americans.  In light of this reality, I’ve a few questions for you about a number of transactions, each of which causes the U.S. trade deficit to swell:

– Does the building of stores throughout America by Ikea, Sony, and other non-American companies impose “a significant drag on growth” in the U.S.?  If so, how?

– Did the $7.1 billion spent by Shuanghui International to buy Smithfield Foods impose “a significant drag on growth” in the U.S.?  If so, how?

– Was the $15.6 billion that the British-Swedish firm AstraZeneca paid a decade ago for Maryland-based MedImmune “a significant drag on growth” in the U.S.?  If so, how?

– When Japan-based Softbank bought the ailing Kansas-based Sprint for $21.6 billion, was there a resulting “significant drag on growth” in the U.S.?  If so, why?

– According to a June 2014 report from Brookings, “Jobs in FOE’s [foreign-owned enterprises in America] are relatively concentrated in manufacturing and advanced industries.”  How do you square this fact with your implication that such investments are “a significant drag on growth and manufacturing jobs” in the U.S.?

Some final questions: If non-Americans come to be led, as you wish, by U.S. Government policy to invest less in America, do you believe that the resulting decline in the value of U.S. corporate shares, the decline in the value of American real estate, and the decreased sharing by non-Americans of the burden of financing Uncle Sam’s budget deficits will enrich Americans and cause American economic growth to accelerate?  If so, why?

Unless and until you can plausibly answer questions such as these – questions the significance of which, frankly, you seem to be unaware – you should stop offering advice about trade policy.

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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To patrons of Cafe Hayek:

images-1Every year as the holidays and the New Year approach I impose on your generosity by asking you to consider including George Mason University Economics in your end-of-year giving plans.  A financial contribution to GMU Economics – through the Mercatus Center at GMU – helps not only to maintain, but to strengthen, the great bastion of sound economic thinking, teaching, research, scholarship, and public outreach that is uniquely GMU Econ in close partnership with the Mercatus Center at GMU.

We rely heavily, and with gratitude, upon your generosity.

More than 90 percent of all the funding for our graduate-student scholarships and stipends – and almost 100 percent of the funding for faculty and grad-student research expenses – comes from annual private donations rather than from the state.  Mercatus now supports a total of 225 students, 85 of whom are GMU Econ students (69 graduate students and 16 undergraduates).

And I’m thrilled to report that among the 2016 of first-year GMU Econ PhD students is long-time Cafe Hayek commenter Jon Murphy (who blogs at A Force for Good).

Also funded privately are:

– our weekly Philosophy, Politics, & Economics Workshop which brings scholars from other institutions to visit GMU throughout the academic year to mix with our faculty and students.  Among the scholars who participated in 2016 in this Workshop are Israel Kirzner, Deirdre McCloskey, David Schmidtz, Barry Weingast, Arjo Klamer, Claudia Williamson, and Anton Howes.

– the Adam Smith Fellows Program, in which students from institutions other than George Mason University meet regularly over extended weekends with GMU Econ and Mercatus Center faculty in order to discuss Austrian economics, public-choice economics, and the Bloomington School of economics funded by the late Nobel laureate Elinor Ostrom.  Because student interest in this program has grow so promisingly, 2016 saw the expansion of this Program to sites other than GMU: in addition to multiple weekend seminars near our Fairfax campus, we also now do some of these seminars in Arizona and in London.

Other privately funded ventures at GMU Econ, often in partnership with the Mercatus Center and the Institute for Humane Studies, include MRUniversity, Learn Liberty, outreach efforts to policymakers in government, and of course our blogging – blogging not only at Café Hayek, but also at Alt-M, Coordination Problem, EconLog, Marginal Revolution, and Overcoming Bias.  (Not all of these blogs, I point out, are housed at GMU or Mercatus, but each is one at which some of my colleagues are regular contributors.)  Just FYI, almost all of the work that my colleagues and I do on these projects is uncompensated; we do this work as part of our way of contributing to the causes of sound economic education and a free society.  And I hardly need add – but I will – that none of these efforts receives a cent of government aid.

Last year in this spot I mentioned Liya Palagashvili, a 2015 GMU Econ PhD who is now an assistant professor of economics at SUNY-Purchase.  Liya is a great example of the kind of scholar who was helped by Mercatus Center funding during her time as a student and who continues to be helped now that she’s graduated.  In addition to presenting her paper “Disrupting the Employee and Contractor Laws” at the University of Chicago, Liya and I wrote a paper, published by Mercatus earlier this year, on the many economic problems with the Obama administration’s new overtime-pay rule.  With Mercatus’s help, we were also able this past April to publish this op-ed, drawn from the paper, in the Wall Street Journal.  This op-ed led to Liya appearing on Stossel to discuss the overtime-pay regulation.  (Happily, a federal judge recently put a hold on the implementation of his abominable regulation.)

Not surprisingly, in January 2016 Liya was named by Forbes as one among the “Top 30 Under 30 in Law and Policy.”

Many of our current students have both the potential and the drive to be as successful and as influential as Liya.

On the program side, of particular interest to me is Mercatus’s new Program on the American Economy and Globalization (PAEG – pronounced “page”).  This past June we lured Dan Griswold, whom some of you will remember from his productive days at the Cato Institute, back into the policy world so that he and I can co-direct PAEG.  Dan’s focuses on international trade and immigration; he brings to these topics wide learning, impressive attention to detail, a passion for research and for public outreach, and a principled commitment to freedom.  With economic nationalism again on the rise, the work that we do through PAEG will be especially timely and important.  (I urge you to check out Dan’s superb blog, Mad About Trade, which bears the title of his great 2009 book on trade.)


GMU Econ is decidedly outside of the mainstream of modern economics, despite the fact that two of our faculty members won the Nobel Prize over the past 30 years – the late Jim Buchanan in 1986 and Vernon Smith, now emeritus at George Mason (and currently teaching at Chapman University), in 2002.  The reason we are outside of the mainstream is that we do not approach economics as if it is a branch of applied mathematics or a training ground for social engineering.  We also reject the increasingly common claim (among economists) that the best economic knowledge is that which is gotten through empirical studies.  While our students are trained in appropriate mathematical and econometric methods, we at GMU Econ understand that economics is much more than those techniques.

The typical GMU economist – Arnold Kling calls us “Masonomists” – is a student of society.  He or she knows not only cutting-edge economic research, but also the full tradition of economics dating back to before the time of Adam Smith.  (We even have an entire field of specialization in the economics of Adam Smith, in which students and faculty members – including me – study carefully and discuss critically large swathes of Smith’s writings.)  The GMU economist – unlike the typical modern economist – is thoroughly steeped in history, jurisprudence, political science, and philosophy.  This broader understanding of society promotes skepticism of the social-engineering schemes that are forever pouring out of towers of ivory and from buildings of marble.  Simultaneously, it promotes also a great appreciation of – indeed, a sense of wonder at – the stupendous coordinating and creative powers of free markets and free people.

Economics at George Mason University is intellectually alive and exciting.  The world’s finest students, such as Liya Palagashvili, who want to study economics in the rich tradition that is still honored at GMU Econ apply every year to our program; they apply either for entry into our PhD program or our Masters program.  We accommodate many of them, but (resources being scarce!) we can’t accommodate all.

images-2A contribution from you will increase our capacity to teach and mentor more students.  It will also help us to better serve the cause of sound economic education in other ways, such as by enabling us to extend summer funding to more undergrad students who wish to work with our faculty between academic years, and by enabling us to more fruitfully experiment with alternative media as we search for ways to communicate both with other scholars and with the general public about economics.

This last point is especially important.  No other economics program is as active in the public discussion and debate as is GMU Econ; certainly no other program is as staunch a champion of free and depoliticized markets as is GMU Econ.  Our faculty includes some of the world’s top economics bloggers, such as Peter Boettke, Bryan Caplan, Tyler Cowen, Robin Hanson, and Alex Tabarrok.  These and other Masonomists – including, of course, the great Walter Williams – also frequently write in the pages of the New York Times, the Wall Street Journal, USA Today, and other popular outlets.  And we are also often interviewed on radio and television and in podcasts.  It’s our passion not only to better understand the logic and the workings of the economy, but to explain to non-economists the countless unseen or underappreciated ways that free markets coordinate human activities peacefully and productively.

If you like what you read here at Cafe Hayek, please consider helping the larger effort of which this blog is a part – that larger effort is better economic education.  You can do so by making a tax-deductible contribution to GMU Econ through the Mercatus Center.  (Those of you who contribute by mailing in a check might mention Cafe Hayek in a cover note.  That snailmail address is the one available at the link or: Donald J. Boudreaux, Department of Economics, 114 Mason Hall, George Mason University, Fairfax, VA 22030)

Russ and I thank you all for honoring us by reading our blog.  We wish you the happiest of holidays and a 2017 that is filled to the brim with prosperity, peace, freedom, and a reinvigorated invisible hand.

Many thanks!


P.S. This new video that we just produced explains how my late GMU Econ colleague Don Lavoie’s work influenced the debate over central planning.

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Some Links

by Don Boudreaux on November 29, 2016

in Budget Issues, Cuba, Inequality, Monetary Policy, Other People's Money, Trade

Here’s a new and excellent essay by Deirdre McCloskey.  A slice:

The mechanism seems to be that, when a sensitive adolescent in a nonslave society first notices that some people are much poorer than her family, she is likely to conclude that the best remedy is to open Daddy’s wallet. (It is not an efficacious plan, because redistribution can give to the poor the mere 20 percent or so of the national income now in the hands of the wretchedly rich, and one time only, whereas trade-tested betterment under private property has given the poor, 1800 to the present, underestimated in the available measures, fully 3,000 percent, collected every year in now well-to-do countries filled with descendants of poor people.)

From 1998 is this wonderful essay by Ball State University economists Cecil Bohanon and T. Norman Van Cott comparing the economic consequences of two Cubans: Roberto Goizueta (late CEO of Coca-Cola) and Fidel Castro.  A slice:

Creating wealth entails expanding the network of voluntary exchanges in the marketplace. Roberto Goizueta never forced anyone to drink a Coke, never expropriated anyone’s assets, and never forcibly drafted anyone into Coca-Cola’s service. Rather, he was a talented wealth creator who shared his wealth among many.

My Mercatus Center colleague Dan Griswold calls for an end to Uncle Sam’s counterproductive embargo on Cuba.

My colleague Bryan Caplan draws an important connection between attitudes toward the late and not-lamented Fidel Castro and the still-lamentably-alive minimum wage.

Dan Mitchell reflects on Will Wilkinson’s reflection on “Wagner’s Law.”  (This ‘law,’ by the way, is named after the late German economist Adolph Wagner.)

Here’s my colleague Larry White on India’s latest currency shenanigans.

George Will ponders Castro’s terrible legacy.  A slice:

Socialism is bountiful only of slogans, and a Castro favorite was “socialism or death.” The latter came to him decades after the former had made Cuba into a gray museum for a dead utopianism.

If John Allison does become U.S. Secretary of the Treasury, he will be the best such Secretary since the great Andrew Mellon.

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Quotation of the Day…

by Don Boudreaux on November 29, 2016

in Growth, Innovation, Myths and Fallacies, Work

… is from page 498 of the final (2016) volume – Bourgeois Equality – of Deirdre McCloskey‘s brilliant trilogy on the essence of bourgeois values, on their transmission, and on their essential role in modern life:

imagesThe work we do will be more and more about decisions and persuading others to agree, changing minds, and less and less about implementation by hand.  The reason so many intelligent economists have feared technological unemployment is that they do not put persuasion in the national product.  But the economy does.

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Quotation of the Day…

by Don Boudreaux on November 28, 2016

in Politics

… is from page 157 of my colleague Bryan Caplan’s pioneering 2007 book, The Myth of the Rational Voter:

5193q3aklyl-_sx328_bo1204203200_Good intentions are ubiquitous in politics; what is scarce is accurate beliefs.

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Bonus Quotation of the Day…

by Don Boudreaux on November 27, 2016

in Myths and Fallacies, Seen and Unseen, Trade

is from Steve Horwitz’s new essay busting many of the myths that prompt people who do not think deeply about economics to become enchanted with the notion of “buying local”:

imagesThe moral and economic cases against buying local are intertwined. Consider the argument that buying local is better because buying from Walmart or Target doesn’t keep money and jobs in the local community. This argument ignores that the average Walmart Supercenter employs around 400 people and the numbers are similar for Target. Those jobs continue to exist because people shop at those stores. The hundreds employed at any given big box store are just as much members of the local community as are the owners of the small business that compete with the big boxes.

To the extent that the prices at the big box stores are cheaper, they enable those who shop there to have income left over to spend on other goods and services, including things from locally-owned businesses, creating jobs that would not exist otherwise. If we only shopped from locally-owned businesses, we would be paying higher prices and overall employment and incomes would be lower. Plus, consumers would not have access to the variety of goods available at chain and big box stores, forcing them to not only spend more but get less value for it.

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Perverted Perspective

by Don Boudreaux on November 27, 2016

in Cuba, Current Affairs

NYU history professor Greg Grandin, writing in The Nation, concludes: “In all his goodness and badness, Castro was a full man of the Enlightenment.”  (Earlier in the essay, Grandin suggests that Fidel Castro was a better man than Donald Trump.  Now as readers of this blog know, I’m emphatically no fan of Trump.  But to suggest that Trump is a worse human being, and will be a worse “leader,” than Castro is absurd.  What Pres. Trump might do remains to be seen; what El Presidente Castro did do is a matter of historical record.)

Admittedly, Grandin is extreme.  But even many pundits in the mainstream media treat Castro as if his trumpeted good intentions (that is, expressed intentions that warm the hearts of “Progressives”) and fake ‘achievements’ (such as the imaginary creation of a world-class health-care system for the Cuban people) render Castro something other than the murderous monster that he was.

For socialists and “Progressives,” a business person who lobbies against carbon taxes, or who employs workers at wages lower than the socialists and “Progressives” think “fair,” or who offers for sale fat-filled fast food, is an anti-social beast who deserves unmitigated derision.  Acting always peacefully, and without attempting to dupe the gullible with grandiose lies about ‘remaking society,’ such a business person gets no respect from what Deirdre McCloskey calls “the clerisy.”  Such a business person is believed by the clerisy to profit dishonestly, and often cruelly, at the expense of others.  Such a business person is held by the clerisy in contempt for his or her alleged small-mindedness, philistinism, and greed.

And yet these same clerisy who see nothing but venality and “social injustice” when they cast their eyes on peaceful market activities see in the violent regimes of fiends such as Castro allegedly good reasons, if not always to fully excuse these fiends of the blood, anguish, and destitution that they cause, at least to ‘weigh’ against these unfortunate realities the alleged “accomplishments” of these dictators.

It is a perverted code of ethics that causes those who fondly remember the “accomplishments” of blood-thirsty brutes such as Fidel Castro to burst into paroxysms of anger over the alleged evil of off-shoring the production of automobile tires or of accumulating unusually large sums of financial wealth by making entrepreneurial advances in retailing.

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