… is from page 284 of the eminent Harvard historian Richard Pipes’s wonderful 1999 volume, Property and Freedom (footnote excluded):

The trend of modern times appears to indicate that citizens of democracies are willing heedlessly to surrender their freedoms to purchase social equality (along with economic security), apparently oblivious of the consequences.  And the consequences are that their ability to hold on to and use what they earn and own, to hire and fire at will, to enter freely into contracts, and even to speak their mind is steadily being eroded by governments bent on redistributing private assets and subordinating individual rights to group rights.  The entire concept of the welfare state as it has evolved in the second half of the twentieth century is incompatible with individual liberty, for it allows various groups with common needs to combine and claim the right to satisfy them at the expense of society at large, in the process steadily enhancing the power of the state which acts on their behalf.

Yes.  And, again, this obliviousness to the freedom-crushing features of the obsession with economic inequality and ‘redistribution’ has as part of its foundation the strange “Progressive” notion that the desire to keep what one owns and has earned is illiberal, ungenerous, anachronistic, and greedy, while the desire to take what others own and have earned is liberal, generous, enlightened, and selfless.  As I say, it’s a strange notion, but one that – because it is repeated so often in so many ways and in so many different venues – strikes most people today as being not only normal but right.

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Some Links

by Don Boudreaux on October 22, 2014

in Antitrust, Environment, Nanny State, Other People's Money, Seen and Unseen

Over at EconLog, Alberto Mingardi weighs in on Paul Krugman’s strange if unsurprising hostility toward Amazon.

In my latest column in the Pittsburgh Tribune-Review I remember two people who played especially important roles in my life: Michelle Bailliet and Leonard Liggio.  A slice:

Also great was Leonard Liggio, a man who did more than any other individual over the past half-century to build the libertarian intellectual movement. A lifelong bachelor, Leonard attended seemingly every significant conference, anywhere on Earth, at which ideas related to free markets and limited government were discussed. Not only did Leonard speak at these conferences, he networked brilliantly. He met everyone in the libertarian movement and tirelessly introduced to each other people he suspected would work together productively. Leonard’s goal was never to affect the outcome of the next election. He correctly understood that society is made more free or less free by the ideas that prevail in society. Electoral outcomes are consequences of ideas, not causes. So, what matters most is getting the ideas right.

George Leef is unimpressed – and rightly sometimes frightened – by government-sponsored research.   (See also Judge Napolitano.)

Jonah Goldberg productively ponders environmental complexities and trade-offs.

A former GMU student of mine, Romina Boccia, makes a case for reducing Uncle Sam’s girth and reach.

Thomas Sowell rightly criticizes the predatory politics that feeds in part on opposition to pay-day lending.

Shikha Dalmia on “The Left’s Creeping Totalitarianism on Affirmative [Sexual] Consent.”  Here’s Shikha’s concluding paragraph:

Throwing sons and brothers under the bus for crimes they haven’t committed in a utopian quest to protect women from their lovers perverts justice, and reminds us that utopianism and totalitarianism are often two sides of the same coin.

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Paul Krugman’s recent New York Times column on Amazon’s alleged market power reads like countless pro-antitrust articles, essays, and court opinions from the mid-20th century.  Here’s the thrust of the dominant narrative from many decades ago about antitrust :

A currently big, successful, and well-known company that admittedly has pioneered great efficiency-enhancing production or distribution procedures – procedures that have, in turn, increased consumers’ choices and lowered the prices of those choices – is continuing to be an intrepid competitor.  This firm (as Krugman himself admits about Amazon) “has not tried to exploit consumers” – yet.  But don’t let it fool you!  The firm will one day turn on consumers unless the government breaks it up or otherwise restricts its ability to engage in consensual capitalist acts with other firms, including its suppliers.

There are many problems with the above narrative, not least of which is the fact that such warnings have almost never proven correct, even in those many instances when the government refused to unleash the vigorous interventions that those who warn of the coming monopoly monsters insist are necessary to slay the monsters before they turn on consumers.  (Indeed, I likely do not need to qualify the previous claim with the word “almost.”)

I’ve not now the time to write a post outlining the specifics of all that is wrong with the above narrative.  We can all be grateful, though, that this narrative – while still popular with pundits, politicians, and professors who are insufficiently knowledgeable of economic history and the history of antitrust – is no longer the dominant narrative among antitrust scholars.  Not even close.  It was the dominant narrative until sometime in the 1970s.  Then, the “new learning” revealed this narrative to be historically uninformed and theoretically weak.  (The “new learning” on antitrust came mostly from scholarship produced at the University of Chicago and at U.C.L.A., but the Austrians also were on the same job.  The brilliant work of the late Donald Dewey, at Duke then Columbia, must also be mentioned, as must that of Ken Elzinga and the late Bill Breit at the University of Virginia, and Oliver Williamson at Penn, Yale, and Berkeley.)  Krugman’s column reads as if he is utterly unaware of this revolution in antitrust.  It’s fine if he doesn’t accept its conclusions – many people don’t – but Krugman writes about such matters as if he fell asleep in 1960 and awakened only in 2014.

….

One substantive issue: Tyler Cowen likes Krugman’s point about how sales at Amazon help create “buzz” for a book.  I agree with Tyler that this point is relevant.  But I disagree with Krugman that Amazon’s unusual capacity to create buzz for a book is a good reason for government to intervene into Amazon’s dealings with publishers.  It’s true that a book that Amazon refuses to carry, or carries only on terms less favorable to its publisher than are terms given to other books, will be less likely to get the important Amazonian “buzz.”  But riddle me this: to whom does the buzz belong?  Or asked a bit differently: to whom does the buzz-making capacity belong?

My answer is: Amazon.  Amazon’s capacity to create or to amplify buzz for a book did not descend upon it by happenstance, like rain falling from the sky upon a pedestrian unprepared with an umbrella or raincoat.  The very buzz that Amazon generates for books is a product of Amazon’s own entrepreneurial efforts – its creativity, its risk-taking, its investments, its skill at staying on top of the modern retailing world, its success at building enormous trust with consumers over the past couple of decades.  Krugman, while conceding Amazon’s entrepreneurial innovativeness, nevertheless treats the capacity to create that buzz as something that somehow belongs, not to Amazon, but to the public – or to any book publisher who believes that it is being mistreated by Amazon.

Even if we ignore the immorality of forcing a company to supply on terms that it thinks unattractive a valuable good or service (here, the capacity to generate buzz) that admittedly would not exist were it not for that company’s entrepreneurial efforts, there remains the reality that such government interventions will (1) reduce Amazon’s ability to maintain its buzz-generating capacity, and (2) dampen similar entrepreneurial efforts, by other firms, in the future.

Paul Krugman apparently believes that his academic credentials and perch at the New York Times enable him to detect which business practices are and which are not best, or at least acceptable, over the long-run for consumers.  But in fact Krugman is no more able to successfully assess such matters than he is able to successfully perform cardiovascular surgery or to rebuild the transmission in my car.  He knows next to nothing about any of the all-important details of this market.  Ditto for politicians, antitrust bureaucrats, judges, juries, and even antitrust scholars – and ditto for me, too: none of these people has enough knowledge to successfully second-guess the actual outcomes of the process of actual voluntary contracting in markets.

A final word about the careless and misleading use of the word “power” when discussing the actions of successful firms.  Amazon has no power of the sort that any government has.  Amazon does not coerce anyone to deal with it.  Amazon’s so-called “power” is in reality its unusually great capacity to bestow economic benefits on consumers and on suppliers.

Consider an analogy: Smith invests ten billion dollars in a very risky venture to find a cure for cancer.  He succeeds.  He invents a pill that, taken once, cures cancer and protects against any future occurrence of any kind of cancer.  The pill has no ill side effects.  Once the costly work of figuring out the chemistry of the pill is completed, producing the pill for market costs a mere $1.00 per 1,000 pills produced and distributed.  And even if Smith doesn’t patent his pill, it is so complex that he is correctly confident that it’ll be at least ten years before anyone else succeeds in developing a competitive product.

No one was prevented by any man-made force from doing what Smith did – either before he did it, while he was doing it, or after he succeeded in discovering the formula for a pill that cures cancer.

Smith, seeking to make as much money as possible, sells his pill at a price of $10,000 each.  He refuses all entreaties from newspaper columnists, professors, preachers, and politicians to lower his price.  Does Smith have “too much power”?  Should Smith be forced to sell his pill on terms that Nobel laureate economists or government officials think are appropriate even when Smith thinks those terms to be inappropriate?  Only someone with severe myopia and the ethics of an armed robber would answer yes.

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Quotation of the Day…

by Don Boudreaux on October 22, 2014

in Civil Society, Nanny State

… is from page 94 of my late Nobel-laureate colleague James M. Buchanan‘s 2005 book, Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism:

To be free to choose implies acceptance of the results of choices made, which means, in turn, that there should be no assignment of blame to others, including the state, if these choices turn out to have been wrong.

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… is from page 35 of the manuscript of Deirdre McCloskey‘s new, extensive, and brilliant review of Thomas Piketty’s Capital in the Twenty-First Century; (quoted here with Deirdre’s kind permission):

It is important in thinking about the issues Piketty so energetically raises to keep straight what exactly is unequal.  Physical capital and the paper claims to it are unequally owned, of course, although pension funds and the like do compensate to some degree.  The yield on such portions of the nation’s capital stock is the income of the rich, especially the rich-by-inheritance whom Piketty worries most about.  But if capital is more comprehensively measured, to include increasingly important human capital such as engineering degrees and increasingly important commonly-owned capital such as public parks and modern knowledge (think: the internet), the income yield on the capital is less unequally owned, I have noted, than are paper claims to physical capital.

Earlier in her review, Deirdre quite rightly criticizes Piketty for excluding the value of human capital from his [Piketty's] measure of nations’ capital stocks.  Such an exclusion is akin to, say, the decision of a scholar whose goal is to measure the number of automobiles owned by Americans to exclude SUVs and pick-up trucks from the class of vehicles classified as “automobiles.”

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Standard Myth

by Don Boudreaux on October 21, 2014

in Antitrust, Competition, History, Myths and Fallacies

Here’s a letter to the New York Times:

Paul Krugman’s allegation that Amazon has harmful monopsony power misses many a mark, not least of which is Mr. Krugman’s mistaken account of John. D. Rockefeller’s Standard Oil as a monopoly that “had too much power” (“Amazon’s Monopsony Is Not O.K.,” Oct. 20).

Serious students of Standard’s practices during the late 19th and early 20th centuries understand that complaints against that company came overwhelmingly from other refiners who couldn’t match Standard’s great efficiencies.  Yet no complaints came from consumers.  Standard made them overwhelmingly better off – which is compelling evidence that Standard did not have monopoly power.

Here’s the noted antitrust historian D.T. Armentano: “Standard Oil’s efficiency made the company extremely successful: it kept its costs low and was able to sell more and more of its refined product, usually at a lower and lower price, in the open marketplace.  Prices for kerosene [Standard’s principal output] fell from 30 cents a gallon in 1869 to 9 cents in 1880, 7.4 cents in 1890, and 5.9 cents in 1897.  Most important, this feat was accomplished in a market open to competitors, the number and organizational size of which increased greatly after 1890.  Indeed, competitors grew so quickly in the years preceding the federal antitrust case that Standard’s market share in petroleum refining declined from roughly 85 percent in 1890 to 64 percent in 1911.  In 1911, at least 147 refining companies were competing with Standard, including such large firms as Gulf, Texaco, Union, Pure, Associated Oil and Gas, and Shell.”*

Nobel laureate economists should not parrot potted economic histories.

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

* D.T. Armentano, Antitrust Policy (Washington, DC: Cato Institute, 1986), pp. 24-25.

Here’s Tyler Cowen’s take on Amazon’s alleged monopsony power (and on Krugman’s column on it).  I’ll likely blog later on this particular angle.

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Quotation of the Day…

by Don Boudreaux on October 21, 2014

in Seen and Unseen, Work

… is from pages 43-44 of my colleague Walter Williams’s splendid 1999 collection, More Liberty Means Less Government; specifically, it’s from Walter’s April 1995 essay “Free Markets and Blacks”:

Setting minimum wages is one of the most effective tools in the arsenal of racists everywhere.  South Africa’s racist Mine Workers Union discovered that years ago, saying, “When the minimum wage is introduced we believe that most of the difficulties in regard to the colored question will automatically drop out.”  Of course the motivation for the minimum wage in the U.S. is different but effects are identical – unemployment for the least skilled and least preferred worker.

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From the Wall Street Journal is this account of the Cato Institute’s important new Center for Monetary and Financial Alternatives, headed by my close friend George Selgin (and with the assistance of my colleague Larry White).  A slice:

Criticism of the Fed, Mr. Selgin acknowledged, has come not just from serious economists but also conspiracy theorists with outlandish and often-distasteful ideas.

“One of my goals, as the director of the center, is to be in charge of damage control. That consists of making sure our work isn’t tainted by this kind of amateur stuff,” Mr. Selgin said. “We need to keep ourselves pure in terms of our writing being as scholarly as it can be. If we do that, we can make a strong case against holding the Federal Reserve to be the best of all possible monetary systems.”

The center boasts some heavy hitters in the economics world. Its academic advisers include two Nobel laureates, New York University’s Thomas J. Sargent and Chapman University’s Vernon L. Smith, as well as Stanford University economist John B. Taylor and others.

Two former Fed policy makers are involved: former St. Louis Fed President William Poole will be a senior fellow, and former Cleveland Fed President Jerry Jordan will be an adjunct scholar.

My intrepid Mercatus Center colleague Veronique de Rugy makes again the important case to kill that great geyser of cronyism, the U.S. Export-Import Bank.

Charles Murray writes about Ayn Rand.  (HT Greg Mankiw and my colleague Alex Tabarrok)  Here’s the concluding paragraph:

Ayn Rand never dwelt on her Russian childhood, preferring to think of herself as wholly American. Rightly so. The huge truths she apprehended and expressed were as American as apple pie. I suppose hardcore Objectivists will consider what I’m about to say heresy, but hardcore Objectivists are not competent to judge. The novels are what make Ayn Rand important. Better than any other American novelist, she captured the magic of what life in America is supposed to be. The utopia of her novels is not a utopia of greed. It is not a utopia of Nietzschean supermen. It is a utopia of human beings living together in Jeffersonian freedom.

I would not bet against my colleague Bryan Caplan on the Ebola issue.

Fed Chairwoman Janet Yellen joins the chorus of people chanting that middle-class living standards in America have stagnated over the past few decades.  James Pethokoukis helps to set her straight.

Citizens arrest!  (HT Reuvain Borchardt)

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Quotation of the Day…

by Don Boudreaux on October 20, 2014

in Myths and Fallacies, Seen and Unseen

… is from page 60 of the 1990 Liberty Fund edition of Vera Smith’s superb 1936 volume, The Rationale of Central Banking and the Free Banking Alternative:

The public mind entertained exaggerated hopes as to the power of banking.  It was a widespread belief that all that was necessary to relieve a scarcity of capital was an elastic note issue, and the issue of notes was still thought to possess something akin to a magic power of transforming poverty into wealth.

Here Smith is speaking of mid-19th-century German states, but the magical thinking she describes is, of course, among the most common fallacies to be found across time and space.  People frequently mistake money for prosperity.  The veil of money is, for such people, a curtain hiding from their view all that is real and most relevant.

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Protectionism’s Essence

by Don Boudreaux on October 19, 2014

in Trade

Here’s a letter to a college student in New Jersey:

Dear Mr. Sloan:

Thanks for writing.

You ask if my support of free trade is “too simplistic.”  Aren’t there “conditional situations and details” that I overlook when I oppose protectionist arguments?  Fair questions.  My answer, though, is that while I agree that reality is unavoidably more complex than are any human accounts of it, the unconditional case against protectionism is as sound as is, say, the unconditional case against armed robbery.

Suppose your next-door neighbor grows tomatoes and offers to sell some to you.  You reject his offer and instead buy tomatoes from a seller who lives further down the street.  Your next-door neighbor’s prices might be higher than are those charged by the more-distant seller or the quality of his tomatoes not quite to your liking.  Whatever the reasons, you don’t buy tomatoes from your neighbor.

Now suppose that your neighbor responds by pointing a gun at your head to demand that you hand over to him a dollar for every pound of tomatoes that you buy from the seller down the street.  Would you think that your neighbor’s actions are justified?  Of course not.

But what if your neighbor tells you, as he stares at you down the barrel of his gun, that he really needs the extra income that he’ll get if you buy his tomatoes?  Or what if your neighbor insists that the seller down the street is selling tomatoes at prices that are unfairly low?  (“His uncle subsidizes his tomato growing!”)  Or suppose your neighbor asserts that he’s a more reliable supplier of tomatoes for the neighborhood than is the seller down the street?  Would any of these “situations and details” justify your neighbor threatening violence against you if you don’t pay to him a fee whenever you buy tomatoes from someone else?  Of course not - and this conclusion wouldn’t change if your neighbor outsourced to a criminal gang the task of collecting from you the fees your neighbor demands for your patronizing another seller.

Protectionism of the sort practiced by sovereign governments is similarly unconditionally unjustified, for it differs in no relevant ways from the armed robbery described above.

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

….

I could have added to the letter many other conditions, each equally unsuccessful in justifying the next-door neighbor’s threats of violence.  For example, if a majority of the adults in the immediate vicinity of your house vote to permit your next-door neighbor to threaten violence against you for your not buying his tomatoes, such use of force remains utterly unjustified.

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