As I suggested yesterday, and – on a different matter – as Bob Murphy suggests elsewhere, Robert Reich’s knowledge of economics is no better than is a teenaged shoe-salesman’s knowledge of cardiology.

Speaking of former U.S. Secretary of Labor Robert Reich, Bob Hessen just sent to me Jonathan Rauch’s 1997 Slate review of Reich’s book Locked in the Cabinet.

Ilya Somin, my GMU colleague from over in the law school, addresses Pres. Obama’s support for mandatory voting.

John Cochrane rightly condemns government-imposed restrictions on the supply of medical care.  Here’s his opening paragraph:

In my view, health care supply restrictions are more important than the insurance or demand features that dominate public discussion. If you are spending your own money, yes, you shop for a good deal. But spending your own money in the face of restricted supply is like hailing a cab to LaGuardia at 5 o’clock on a rainy pre-Uber Friday afternoon. We need to free up innovative, disruptive health-care supply. Let the Southwest Airlines, Walmarts, Amazons and Apples in.

In the same vein, see Chris Conover.

Thomas MaCurdy’s study of the effects of minimum-wage legislation on output prices is now out; it’s in the April 2015 issue of the Journal of Political Economy.

Things at that great geyser of cronyism, the U.S. Export-Import Bank, are getting sleazy.  Tim Carney explains.

Norbert Michel exposes the ways that Dodd-Frank restricts competition among financial firms.

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Quotation of the Day…

by Don Boudreaux on March 24, 2015

in Complexity & Emergence, Prices, Property Rights

… is from page 601 of volume 2 of The Collected Works of Armen A. Alchian (2006); specifically, it’s from Alchian‘s 1977 essay “Economic Laws and Political Legislation”:

Capitalization of all foreseen future consequences into the present market price for some good, with the change in present value being borne by that private property owner [of that good], is an essence of capitalism.  Capitalization into the present price is the crux of the connotation of the word “capitalist” in the term “capitalist system.”  It is not some presence of capital goods or equipment.  It is not that capitalists (who are simply people who have private property entitlements) control the economic system.  They (we) do, of course, by making bids and offers in the market.  Since we all are capitalists (at least we own our own labor), we all affect the economic system and its outcome.

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Here’s a letter to the editor of Alternet:

In what is a prime candidate for the most economically mistaken essay ever penned, Robert Reich calls a future in which technology makes ever-more high-quality goods and services widely available at virtually zero cost “horrifying” (“In Our Horrifying Future, Very Few People Will Have Work or Make Money,” March 17).

Where to start?  Perhaps with the fact that the history of such Luddite fear-mongering is as long (at least 200 years) as its batting record is low (.000%).  Or maybe with the illogical worry about the unemployment created by an imaginary device that Dr. Reich uses to scare your readers - a device “capable of producing everything you could possibly desire, a modern day Aladdin’s lamp.”  In fact, in a future filled with such devices unemployment wouldn’t be a problem because no one would have to work in order to acquire the means to consume lavishly.  (Indeed, in such a future there would technically be no unemployment because no one would want to work.)

But Dr. Reich’s most wrongheaded claim is this one: “when more and more can be done by fewer and fewer people, the profits go to an ever-smaller circle of executives and owners-investors.”  This claim is exactly backwards.  By far the greatest part of the gains from entrepreneurial-driven advances in technology are, as they have always been, widely dispersed to the masses in the form of more and better consumption options available at lower and lower prices.  Examples include the factory production of textiles that clothed the masses, the mechanization of agriculture that saved the masses from famine, the assembly line that brought the likes of automobiles, kitchen appliances, telephony, and air travel to even the modern-world’s ‘poor,’ and the technology revolution that enables those yearning to read Dr. Reich’s economically uninformed commentary to satisfy their demands 24/7/365 by using their smartphones while sipping lattes and attending protests against the predations of the one percent.

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

Reich himself, in listing some modern devices (that he uses as evidence of the coming calamity of abundance), unwittingly gives examples against his proposition that all of the gains of labor-saving technological advances are captured by ‘the few.’

Indeed, even if one focuses exclusively and literally on the profits from entrepreneur-driven technological advances (rather than, more broadly, on the gains from such advances), they, too, are not destined to go to fewer and fewer people.  Higher profits spark competition which, in turn, drives profits down to ‘normal’ rates.  It’s this very process of competition that causes the gains from technological advances to be shared with the masses: the entrepreneurs might all like to keep their profits without sharing them, but competition obliges them to share those profits with the public, in the form of lower prices and improved product quality.  And with technology advancing as fast as Reich fears (and I applaud), the ability of entrepreneurs to compete against each other will only intensify.  If technology makes the production of the likes of clothes and cups of coffee cheap, easy, and fast, so, too, does technology make the production of other machines for use in competing in the production and sale of consumer goods cheap, easy, and fast.

UPDATE: Regular Cafe patron W.E. Heasley sent the following note to me by e-mail:

Is it not poetic justice that Reich managed to post his argument on a platform that uses little manpower, plenty of technology, and is distributed on mass? Shouldn’t Robert have had his essay hand delivered to each and everyone interested?

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Quotation of the Day…

by Don Boudreaux on March 23, 2015

in Growth, History

… is from page 97 of the late Stanley Lebergott’s indispensable 1984 volume, The Americans: An Economic Record; specifically, it’s from a discussion of late-18th and early- and mid-19th century America, in a chapter entitled “Transportation”:

Three alternatives faced the developing nation then as they face others today.  First, the nation could do without transport advance.  Unthinkable.  Second, the investment could be made by the government, which would tax its own people or borrow from Europeans.  Third, the investment could be made by private individuals.

Each investment route was tried, depending on the period and the transport method, but unquestionably the primary source was private investment.

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Quotation of the Day…

by Don Boudreaux on March 22, 2015

in Adam Smith, Prices, Seen and Unseen

… is from pages 533-534 of the especially brilliant Book IV, Chapter 5 of the 1981 Liberty Fund edition of Adam Smith’s 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations:

But if a merchant ever buys up corn, either going to a particular market or in a particular market, in order to sell it again soon after in the same market, it must be because he judges that the market cannot be so liberally supplied through the whole season as upon that particular occasion, and that the price, therefore, must soon rise.  If he judges wrong in this, and if the price does not rise, he not only loses the whole profit of the stock which he employs in this manner, but a part of the stock itself, by the expence and loss which necessarily attend the storing and keeping of corn.  He hurts himself, therefore, much more essentially than he can hurt even the particular people whom he may hinder from supplying themselves upon that particular market day, because they may afterwards supply themselves just as cheap upon any other market day.  If he judges right, instead of hurting the great body of the people, he renders them a most important service.  By making them feel the inconveniencies of a dearth somewhat earlier than they otherwise might do, he prevents their feeling them afterwards so severely as they certainly would do, if the cheapness of price encouraged them to consume faster than suited the real scarcity of the season.  When the scarcity is real, the best thing that can be done for the people is to divide the inconveniencies of it as equally as possible through all the different months, and weeks, and days of the year.  The interest of the corn merchant makes him study to do this as exactly as he can: and as no other person can have either the same interest, or the same knowledge, or the same abilities to do it so exactly as he, this most important operation of commerce ought to be trusted entirely to him; or, in other words, the corn trade, so far at least as concerns the supply of the home market, ought to be left perfectly free.

In short, speculators perform a vital function.  This reality is true not only for those who speculate in grain (“corn”) and other foodstuffs, but for any product or even service the marginal values of which vary over time (whether because of changes in supply or in demand or in both).

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My Mercatus Center colleagues Veronique de Rugy and Tad DeHaven have a wonderfully radical proposal for improving infrastructure in the United States: reduce Uncle Sam’s role in building and maintaining it.

Bob Higgs inquires into the size of government in the U.S.  A slice:

According to Wayne Crews, who makes an annual estimate of the cost of compliance with federal regulations alone, “Costs for Americans to comply with federal regulations reached $1.863 trillion in 2013”—which is equivalent to more than 13 percent of national income. Compliance with state and local government regulations surely adds a large amount to Crews’s estimate for federal compliance alone. No one needs to tell Americans, however, how onerous and exasperating the entire mass of government regulations and related red tape has become. Virtually every part of economic and social life now bears these heavy burdens, and any truly meaningful appraisal of the size of government today must take them into consideration along with the amounts the various governments are spending.

Nick Gillespie is rightly unimpressed by Marco Rubio’s and Mike Lee’s budget proposal.

Tim Carney is rightly unimpressed with Scott Walker.  A slice:

Walker’s tendency to buckle under to “our guys” shows us how he’ll behave when the subsidy-sucklers come calling. He will say “buzz off” to Planned Parenthood and the government unions, and good for him. But when the Wall Street lobbyists ask for special favors, or the manufacturers demand their subsidies — what do you think Walker will do?

In this new study from the Fraser Institute, Philip Cross asks if slow growth is the new normal for Canada.

Randy Holcombe identifies the public-choice explanation for the creation and persistence of the costly ethanol mandate.

What George Selgin says.

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… is from a 2003 talk delivered in San Francisco by the late novelist Michael Crichton, and as relayed this past Monday by the Wall Street Journal:

Today, one of the most powerful religions in the Western World is environmentalism.  Environmentalism seems to be the religion of choice for urban atheists.  Why do I say it’s a religion?  Well, just look at the beliefs.  If you look carefully, you see that environmentalism is in fact a perfect 21st century remapping of traditional Judeo-Christian beliefs and myths.

There’s an initial Eden, a paradise, a state of grace and unity with nature, there’s a fall from grace into a state of pollution as a result of eating from the tree of knowledge, and as a result of our actions there is a judgment day coming for us all.  We are all energy sinners, doomed to die, unless we seek salvation, which is now called sustainability.  Sustainability is salvation in the church of the environment.  Just as organic food is its communion, that pesticide-free wafer that the right people with the right beliefs, imbibe. . . .

There is no Eden.  There never was.  What was that Eden of the wonderful mythic past?  Is it the time when infant mortality was 80%, when four children in five died of disease before the age of five?  When one woman in six died in childbirth?  When the average lifespan was 40, as it was in America a century ago.  When plagues swept across the planet, killing millions in a stroke.  Was it when millions starved to death?  Is that when it was Eden?

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Quotation of the Day…

by Don Boudreaux on March 20, 2015

in Adam Smith, Hubris and humility, Nanny State

… is from Book IV, Chapter 5 – on page 531, Vol. I, of the 1981 Liberty Fund edition – of Adam Smith’s 1776 masterwork, An Inquiry Into the Nature and Causes of the Wealth of Nations:

But the law ought always to trust people with the care of their own interest, as in their local situations they must generally be able to judge better of it than the legislator can do.

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Exports are Great! (Except When They’re Not)

by Don Boudreaux on March 19, 2015

in Adam Smith, Energy, Trade

Here’s a letter to the Wall Street Journal:

To the letter writers (March 17) who demand that Uncle Sam continue the 40-year-old folly of banning the export of oil, Adam Smith would have had something to say: “The prohibition of exportation limits the improvement and cultivation of the country to what the supply of its own inhabitants requires. The freedom of exportation enables it to extend cultivation for the supply of foreign nations.”*

In other words, Holman Jenkins is correct: the oil-export ban keeps the American oil industry less efficient – and, hence, less productive – than it would be without the ban. The growth in the prosperity of people around the globe, including Americans, is thereby slowed.

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

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1981 [1776]), Book IV, Ch. 5, p. 537.

….

It would be amusing if it weren’t so destructive of prosperity and such an assault on freedom that protectionists routinely, if absurdly, insist that there’s something especially desirable about exports yet also, as in this case, occasionally – and with equal absurdity – insist that the country is made poorer by certain exports.

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Quotation of the Day…

by Don Boudreaux on March 19, 2015

in Hubris and humility, Myths and Fallacies

… is from page 350 of Robert Cooter’s 2000 book, The Strategic Constitution:

Many social critics believe that decision makers frequently rely on false signals that reflect social stereotypes, not accurate averages.  Competition can teach a sharp lesson to businesses that rely on false signals.  Decision makers whose prosperity depends on the accuracy of their perceptions are better situated than social critics or legislators to penetrate myths.

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