Diktats are Not Rules

by Don Boudreaux on July 24, 2014

in Trade

Here’s a letter to the Wall Street Journal:

Pleading for punitive taxes on Americans who buy imported steel, Thomas Gibson of the American Iron and Steel Institute insists that we all should follow the rules of trade (Letters, July 24).  Mr. Gibson is right about following rules, but his interpretation of those rules is fundamentally flawed.

The most foundational rule of trade is that consumers get to spend their money as they see fit and, hence, that only those producers who best satisfy consumers (as judged exclusively by consumers) get to stay in business.  Period.  Mr. Gibson, lobbying for tariffs on consumers who spend their money as they see fit, flips the rule around.  According to him, consumers’ spending choices are legitimate only if such spending conforms to regulations imposed by government (which is always beholden, to one degree or another, to powerful producers such as Mr. Gibson’s employers).

Contrary to what Mr. Gibson would have us believe, the “rules” that he demands be enforced are in fact government regulations that break the rules of trade - regulations premised on the impoverishing notion that trade’s purpose is to enrich existing domestic producers rather than to give consumers maximum possible scope to enrich their lives as they choose.

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 July 24, 2014

in Civil Society, Hubris and humility

… is from page 118 of H.L. Mencken’s, A Second Mencken Chrestomathy (1995); specifically, it’s reprinted from a piece that Mencken wrote for the June 1920 Smart Set:

It is not materialism that is the chief curse of the world, but idealism.  Men get into trouble by taking all their gaudy visions and hallucinations seriously.

I would amend the above nugget of indispensable wisdom only by pointing out that there is good idealism, one that projects no gaudy visions or hallucinations because it is grounded in realism about human nature and, hence, recognizes the limits of the human mind, the weakness of the human will, and the impossibility of human beings to care for strangers as deeply as they care for themselves, their families, and their close friends – namely, the idealism that yearns for a world in which power is decentralized sufficiently to allow individuals to lead their lives as they choose, rather than along lines enforced by some Leader or collective – the realism that sees all calls for ‘great leaders’ as insanity, and all belief that collectives have wills as baseless and dangerous anthropomorphism – the idealism that springs from an appreciation for, even a celebration of, bourgeois virtues – the idealism whose champions understand that social engineering (either writ large, as in Soviet Russia and Maoist China, or writ smaller, as in Obamacare and minimum-wage legislation) is stupidity and evil masquerading as wisdom and goodness – the idealism that understands that true peace (as opposed to mere cease-fires) is best assured by commerce and toleration rather than by guns and diktats – the idealism that rejects nationality as defining who ‘we’ are and, instead, judges and treasures everyone according to the content of their character and not by the color of their passports – the idealism that seeks maximum scope for capitalist acts among consenting adults and (hence) ever-shrinking scope for political demands by the politically powerful upon the politically impotent.  In short, it is an idealism that rejects any and all forms of collective or social engineering, regardless of the actual or ostensible motives – and of the school names on the diplomas – of the wannabe engineers.

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John Blundell, 1952-2014

by Don Boudreaux on July 23, 2014

in Civil Society

This news is so, so sad.

I learned last night, from an e-mail sent by Walter Grinder, that John died earlier in the day yesterday.  As I read Walter’s e-mail, a deep sadness descended upon me (as, I know, it descended upon many others) – sadness not only for John’s wife Christine and their two sons, Miles and James, but for John’s many friends who will never again enjoy his charm, good humor, and dry wit.  And sadness, too, for the liberal cause.  John was that rare person who combined extraordinary organizational, managerial, and fund-raising skills with a profound knowledge of – and devotion to the principles of – classical liberalism and libertarianism.

I first met John and Christine 30 years ago when I spent the summer of 1984 at the Institute for Humane Studies’s (IHS’s) headquarters in Menlo Park, CA.  (Miles was, I think, then only 2; James wasn’t yet born.)  John, Walter Grinder, and then-president Leonard Liggio were great leaders of IHS in those days.

Just over a year later, in August of 1985, IHS moved from Menlo Park to Fairfax, when it affiliated with George Mason University.  August 1985 is also the month that George Selgin and I each launched our careers as assistant professors of economics at GMU.  I recall vividly one late August evening, standing in the parking lot of Tallwood House on GMU’s Fairfax campus (the first GMU home for IHS), talking with John and George.  A huge moving van was still in the lot.  (I think that other people were there, too, but I don’t recall just who they were.)  The conversation was interrupted by barrages of mosquitoes attacking through molasses-thick layers of sticky, muggy, humid air.  Yet it was a joyful evening for me knowing that John and IHS were, along with George and I, joining the exciting goings-on centered around GMU Economics.

John is the person who introduced me to Deirdre McCloskey.  McCloskey was visiting GMU (I think it was sometime in the Spring of 1986 – but perhaps 1987) and John invited George and me to join a small group for an IHS-sponsored dinner, at a local restaurant in Fairfax, with the great economic historian.  We leapt at the invitation.

John later took the presidential reins at IHS, then at Atlas, and then – for 16 years – at the IEA in London.

He wrote several books, including the 2011 volume, Ladies for Liberty.

The loss of John is an especially difficult one.

UPDATE: David Hart sends a reminder that John wrote the lead essay for the November 2013 “Liberty Matters”.

2nd UPDATE: Dan Klein reminds me of this fine essay by John on Rose Friedman.

3rd UPDATE: David Henderson remembers John, and links again to John’s recent recollection of important Austrian economics conferences in the 1970s.  (Do read John’s paper.  Even if you couldn’t care less about the history of Austrian economics, the Sudha Shenoy – Gerry O’Driscoll story alone makes reading the paper well worth the effort.  Also, I recall Roger Garrison in the early 1980s giving the same account of the rain on W.H. Hutt’s bed.)

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by Don Boudreaux on July 23, 2014

in Health, Reality Is Not Optional

Responding to my report that Ms. Molly Mills e-mailed me to claim that (original emphasis)

[a]ll sick people should have access to drugs at affordable prices!!!!!

the great University of Virginia economics teacher – and antitrust scholar (and economics-mystery writer) – Ken Elzinga asks via e-mail to me:

One wonders if people like these own a home – and would ever think that “everyone deserves a home at affordable prices” and would therefore part with their home on terms way below the market value.

Of course you can safely bet your pension that the answer is no.

Similarly, I wonder if people with Ms. Mills’s sentiments believe that employees of pharmaceutical companies – not only the top-level executives, but also the researchers, the accountants, the secretaries, the security guards, and the janitors – should be forced to work at below-market wages in order to help reduce the final selling prices of drugs.  And should pharmacists and cashiers at Walgreen’s, CVS, and other drug stores also be forced to work at below-market wages to further reduce drug prices?

I wonder also if such people as Ms. Mills, when investing, would – in order to help keep drug prices down – voluntarily and knowingly and regularly buy corporate stocks Ph that promise a real risk-adjusted rate of return lower than the real risk-adjusted rate of return that these investors could earn by buying stocks Ap and Wm.

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… is from page 127 of Deirdre McCloskey’s lovely 1996 book, The Vices of Economists – The Virtues of the Bourgeoisie:

Virginia Woolf wrote famously, “About December 1910 human nature changed.”  Well, one doubts it.  What did change, and has been changing all through the closing decades of the 19th century, is that the intelligentsia became increasingly alienated from the bourgeois world from which it sprung, and wished to become something Higher.  It wished to make novels difficult and technical – think of Woolf or Joyce – to keep them out of the hands of the uneducated and to elevate the intelligentsia to a new clerisy, a new aristocracy of the spirit.  Similarly in painting, music, and philosophy.  It wished to make everything difficult and technical, and it succeeded.  [Economists Lawrence] Klein, [Paul] Samuelson, and [Jan] Tinbergen were middle-period modernists.

The vices of modernism come from the master vice of Pride, the vice so characteristic of an actual or wannabe aristocracy.  It is prideful overreaching to think that social engineering can work, that a smart lad at a blackboard can outwit the wisdom of the world or the ages, that a piece of machinery like statistical significance can tell you how big or small a number is.

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Some Links

by Don Boudreaux on July 23, 2014

in Health, History, Immigration, Legal Issues, Standard of Living, Taxes

Michael Cannon explains the good that will come from yesterday’s ruling in Halbig v. Burwell.

And Michael (who, along with Jonathan Adler, played an important role in motivating this case) has more on Halbig.

Here’s one of Jonathan Adler’s posts on the Halbig ruling.  (And here’s Jonathan’s post on the other ruling on this matter yesterday – this one from the U.S Court of Appeals for the 4th Circuit - King v. Burwell.)

Ilya Shapiro explains that the Halbig ruling is the only one that makes sense in a sane world in which legislation is supposed to mean what its plain language says.  Here’s the bulk of Ilya’s post:

The D.C. Circuit ruled today that the government isn’t Humpty Dumpty and so statutory text doesn’t mean whatever the government says it means.  The provision at issue, which grants tax credits for people to buy health insurance, only applies to people buying policies through “exchanges established by the State”–which in any sane world can’t apply to exchanges established by the federal government. The fact that the vast majority of states have declined the federal government’s offer to establish exchanges–the list grows daily as initially supportive states’ exchanges fail–and that the resulting system thus doesn’t function as Obamacare’s supporters hoped is of no moment.

The government would have the IRS and courts rewrite the law to fix its massive structural weaknesses. But neither executive-agency bureaucrats nor judges can change the text of the Affordable Care Act, after-the-fact legal rationalizing notwithstanding. Today’s ruling shows that Obamacare, a cynical political bargain that lacked popular support from day one, simply doesn’t work as conceived. It’s time to repeal this Frankenstein’s monster and instead pass market-based health care reform that lowers costs, expands choice, and increases quality-all while respecting the rule of law.

Enough for now about about recent court rulings that end in v. Burwell ….  Here are three other, unrelated items:

Over at the New York Times‘s “Room for Debate,” Tim Worstall - as well as Chris Edwards - weigh in sensibly on corporate “inversion” deals (that is, on attempts by corporations to protect themselves from the greedy, taxing hand of government).

Marian Tupy points us to knowledge on what life was like in Britain on the eve of WWI.

Over at EconLog, Art Carden features a scary image of border insecurity.

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Halbig v. Burwell

by Don Boudreaux on July 22, 2014

in Health, Law, Legal Issues

The Wall Street Journal has a very good summary of today’s two different, and conflicting, court rulings on the lawfulness of the Obama administration’s efforts to violate the clear language of the Obamacare legislation.  A slice:

In Halbig v. Burwell, the D.C. Circuit Court of Appeals held that the Administration violated the Affordable Care Act by expanding subsidies to the 36 insurance exchanges run by the federal government. The plain statutory language of ObamaCare repeatedly stipulates that these credits shall flow only through “an Exchange established by the State.” The 2-1 panel majority thus did not “strike down” part of ObamaCare, as liberals and the media claim. Using straightforward textual construction, the court upheld the law the President signed but it vacated the illegitimate federal-exchange subsidies he tried to sneak in via regulation.

Distinguishing between state and federal exchanges was no glitch or drafting error. In 2010 Democrats assumed that the unpopularity of ObamaCare would melt away and all states would run their own exchanges. Conditioning the subsidies was meant to pressure Governors to participate. To evade this language, the Internal Revenue Service simply pumped out a rule in 2012 dispensing the subsidies to all. The taxmen did not elaborate on niceties such as legal justification.

The courts usually defer to executive interpretation when statutes are ambiguous, but Mr. Obama’s lawyers argued that the law unambiguously means the opposite of the words its drafters used. Judge Thomas Griffith knocked this argument away by noting in his ruling that, “After all, the federal government is not a ‘State,’” and therefore “a federal Exchange is not an ‘Exchange established by the State.’”

The White House also argued that the court should ignore the law’s literal words because Congress intended all along to subsidize everybody, calling the contrary conclusion an “absurd result.” Yet this is merely ex post facto regret for the recklessness and improvisation of the way ObamaCare became law, when no trick was too dirty after Democrats lost their 60-vote Senate supermajority. Nancy Pelosi said we had to pass the bill to find out what’s in it. Now we know.

Judge Griffith, a George W. Bush appointee known as a moderate, writes that he and Judge Ray Randolph reached their conclusion “frankly, with reluctance,” given the practical consequences. “But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process.”

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Here’s a letter to an e-mail correspondent (whose name is used here with her kind permission):

Ms. Molly Mills

Dear Ms. Mills:

Thanks for alerting me to Joe Nocera’s article on the cystic-fibrosis wonder drug Kalydeco - a drug that now costs each patient more than $300,000 annually (“The $300,000 Drug,” July 18).  You ask how my “free market principles justify a private business charging sick people this extortionate price.”

While admitting that this price is unusually high - and with mentioning here in passing that Mr. Nocera himself notes that Kalydeco’s maker, Vertex, “provides the drug for free” to uninsured patients - let me answer your question by first asking some of my own.

How much would each person suffering from cystic fibrosis have to pay you to devote the time and resources necessary for you to supply him or her with a drug such as Kalydeco?  Are you prepared to supply such a drug to each patient at an annual price of, say, only $5,000 or $500 or $50?  Indeed, are you prepared to supply such a drug to each patient even at an annual price of $300,000?  I suspect not.  I suspect also that, unlike Vertex, you spend no time working to invent and supply life-saving drugs, and that - also unlike Vertex - you are unwilling to supply people with a drug such as Kalydeco even if you are offered a price twice that now charged by Vertex.

Moralizing is easy, cheap, and fun.  You and Mr. Nocera excel at it.  But I ask you and him to please think twice before either of you - who do absolutely ​nothing to relieve the suffering of cystic-fibrosis patients - upbraid others (the owners of Vertex) for doing at least something to relieve such suffering.

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

P.S. I believe that intellectual-property statutes in the U.S. now provide patent rights that are too broad and too long-lived.  But your complaint isn’t premised on faulty intellectual-property regulation.

Ms. Mills ended her e-mail to me by asserting that ”[a]ll sick people should have access to drugs at affordable prices!!!!!

Also, I just discovered that the Wall Street Journal‘s James Taranto has here his own response to Nocera’s uninformed moralizing.

UPDATE: My friend Frank Stephenson e-mails the following sensible point in response:

You might also ask her what she does to have the FDA streamline its approval process thereby reducing costs and barriers for creators of new drugs.

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My Mercatus Center colleague Veronique de Rugy explains that the U.S. Export Bank is inefficient and immoral.

Speaking of which, Vero is properly unimpressed by Sen. Elizabeth Warren’s economically uninformed support for the Ex-Im Bank.  A slice:

The biggest Ex-Im beneficiaries are U.S. giant corporations like Boeing, GE, and Caterpillar and their very wealthy foreign buyers. These companies don’t need the bank, but they love it. It allows a select number of U.S. exporters to increase their profits and transfer onto taxpayers risk that the companies should be shouldering. The foreign companies love it because, while they do have access to capital without the bank, Ex-Im loans come much cheaper, giving them a U.S. government-sponsored edge over their competitors — including all their American competitors.

Meanwhile, the mega-banks that Warren always complains about are some of the biggest beneficiaries of Ex-Im. They get to extend billions of dollars in loans, collect large fees and interest rates, without shouldering most of the risk involved. This is exactly the kind of favoritism for Wall Street she says she opposes.

And speaking of economically ignorant officious women who are mad for political power, James Pethokoukis is properly unimpressed with Hillary Clinton’s command of recent economic history.

Ira Stoll, writing in the New York Sun, is properly unimpressed by New York governor Andrew Cuomo’s arrogant expenditure of $135 million of other people’s money to assist General Electric.  A slice:

If Messrs. Obama and Cuomo want to be high-technology investors, there are plenty of well-paid opportunities awaiting them in the private sector following their stints in public service. Right now, they are investing while in office, using money that we taxpayers could be investing better on our own. If I want to invest in GE or Cree or IBM or John Deere, I’d rather do it through a stockbroker than through President Obama or Governor Cuomo. America and New York have enough problems to solve without the president and the governor taking on side jobs as high-tech speculators.

(It is an astonishing fact that “Progressives” praise those who force others to invest in projects that those others choose on their own not to invest in, while condemning those who successfully invest only their own money in projects of their own choosing.)

John Tamny is properly unimpressed by Dinesh D’Souza.

Tyler Cowen points us to a study that should (but won’t) give opponents of Wal-Mart and other big retailers pause before launching into their typical and tiresome complaints about how such retailers hurt workers.

Here’s an interview with the wise and interesting Christina Hoff Sommers.

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… is from pages 411-412 of Kevin Dowd‘s 1994 essay “Free Banking,” which is chapter 59 in The Elgar Companion to Austrian Economics (Peter J. Boettke, ed., 1994; links added):

Another point that stands out [in a review of the empirical evidence] is the high degree of stability of free banking systems.  Overissues of currency were corrected rapidly by the banks’ clearing system operating on the basis of the commodity standard (White, 1984; Selgin, 1988).  There is evidence that interest rates were more stable under free banking, and the less regulated banking systems of Scotland and Canada were apparently better able to weather shocks than their more regulated counterparts in England and the USA.  There is also evidence that shocks tended to originate in the more regulated systems and spread to the less regulated ones, rather than the other way round.  Banks typically observed high capital ratios by modern standards and, in the absence of ‘official’ regulation, bank management was monitored by the market.  The evidence seems to confirm that banks that were not considered sufficiently sound would lose their market share, and competition for market share would force banks to maintain the margins of safety and soundness that their customers desired (see, for example, Kaufman, 1988).  But perhaps the most striking evidence is that, in the absence of any ‘official’ lender of last resort or deposit insurance, banks only rarely faced runs, and the runs that did occur were typically confined to small numbers of banks, and often only a single bank, which had suffered some shock (such as the revelation of loan losses) which led their customers to doubt their soundness.

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