My Mercatus Center colleague Veronique de Rugy remembers the principled and entrepreneurial Whitney Ball.

Starting at 2:00pm on Thursday, September 3, on George Mason University’s Fairfax campus, there’ll be a panel discussion on Ed Stringham’s new book, Private Governance.  Do attend if you can!

Chelsea German exposes the errors of those who mark “Overshoot Day.”

Sandy Ikeda explains that market-driven automation is a boon for humanity.  Here’s Sandy’s conclusion:

If using robots raises the productivity of labor, increases output, and expands the amount, quality, and variety of goods each of us can consume — and also lowers the hours we have to work — what’s wrong with that? What’s wrong with working less and having the time to promote the well-being of ourselves and of others?

In a system where people are free to innovate and to adjust to innovation, there will always be enough jobs for whoever wants one; we just won’t need to work as hard in them.

Ilya Somin, a GMU colleague from over in the law school, explains that immigration restrictions do not a nation make.

My GMU Econ colleague Bryan Caplan argues that patriotism is among the oldest and most reason-resistant form of political correctness.

Over at his Facebook page, the great Bob Higgs wonders about Bernie Sanders’s supporters.  Here’s Bob’s full post:

I went to the post office this afternoon to resolve a problem with our mail deliveries — to wit, many packages addressed to our house are not being delivered there. At the office, I stood in a line with 10 or 12 other unfortunates for about ten minutes before being “helped.” The man who helped me had been summoned to his station after the only other clerk on duty had disappeared for at least five minutes, leaving all of us unfortunates standing there in an abandoned facility wondering whether everyone had simply gone home. In any case, my clerk dragged his sorry ass to the front looking for all the world as if he was a man who’d had bad luck and misfortune throughout his entire life, and helping me was only the latest insult to his gravely wounded existence. He did find the package I sought, but he referred me to the post mistress to ask my questions about the nondeliveries. After two tries, the mistress spoke to me, heard my complaint, wrote a note for the carrier who delivers mail on our rural route, and promised to speak to her. Somehow I came away full of doubt that she’ll ever have the talk she promised with our carrier.

On the way home, I couldn’t help thinking about all of those enthusiastic followers of Bernie Sanders. One must presume that by supporting the election of an avowed socialist as president they yearn to have all their goods and services provided by people with the same competence and dedication to serving the consumer that we now observe at the post office and the department of motor vehicles. Bizarre.

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… is from page 190 of Deirdre N. McCloskey’s 2006 book, The Bourgeois Virtues; this quotation is from a profound chapter entitled “Humility and Truth” (links added):

Among the contending schools of economic science there is one which does at least theoretically recommend humility, listening, really listening, scientifically speaking – not certainly the Marxism I started with, nor the Harvard Samuelsonian I was trained in, nor the Good Old Chicago School I then practiced, but the NYU-Auburn-George-Mason-University Austrian economics that [the late Don] Lavoie discovered young as a student of computer science and improved in his work.  Austrian economists are the free-market followers of the literal, ethnic Austrians Menger (1840-1921), Mises (1881-1973), and Hayek (1899-1992).  They have for about a century been explaining to us other economists that the economic scientist cannot expect to outguess the businessperson.

Writing as someone who studied economics at both NYU and at Auburn, and who has served proudly on George Mason University’s Economic faculty now for a total of 18 years (and counting) – and, also, as someone who overlapped as a fellow student at NYU with Don Lavoie, and later was Don’s colleague at GMU Econ – I, of course, applaud this quotation from Deirdre with special warmth and enthusiasm.

So yes, if I must be labeled as being certain kind of economist, that label must be ‘Austrian.’  I wear it proudly.  Yet I have a tad more affection in this respect for the Good Old Chicago School than does Deirdre.  Much of what I learned from the writings of honest-to-goodness Chicago economists – as from the Austrians – is precisely that the economic scientist cannot expect to outguess the businessperson.

Such appropriate – because scientifically well-grounded – humility is emphatically not possessed by many of today’s economists outside of Fairfax.  The second-guessing that the typical economist does today of both the businessperson and of the consumer spending his or her own money is an exhibition of hubris and pride so over-bearing and unjustified that it would shame Satan himself.  “Look here!” demands the typical modern economist.  “I have, in addition to an authentic PhD, my simultaneous-equations model of an economy along with marvelously intricate econometric studies featuring statistically significant results!  All you have, you businessperson you, is your experience, your own money at stake, and intimate knowledge of details that Hayek says are both important and largely unobservable to people distant from where the actual economic action occurs.  But why should we take Hayek seriously?  He was an ideologue who used little math.  Indeed, I can’t think of a single econometric study that he published.  No scientist he!”

Yet the humility so central to Austrian economists appears, productively, also in the works of Milton Friedman, Aaron Director, Frank Knight, Ronald Coase, Harold Demsetz, Robert Fogel, Sam Peltzman, and even Gary Becker, George Stigler, and Donald McCloskey.  Not always – at least not as consistently as it appears in the works of the likes of Mises, Hayek, Machlup, Lachmann, Kirzner, Garrison, Higgs, Rizzo, Lavoie, Boettke, and Selgin.  But I do find in much ‘Chicago’ scholarship such humility.

Maybe I’m being too generous to the Chicagoans.  Or maybe I’m allowing my almost-boundless admiration for the late Armen Alchian (Stanford, UCLA – never Chicago), whose work is closely aligned with that of Chicago economists, to color my impression of Chicago economics, broadly defined.*  But when put alongside work done in the Samuelsonian tradition – and alongside scientific and policy claims issued by economists such as Paul Krugman and Joseph Stiglitz (who work in the Samuelsonian tradition in which the economy is modeled so simplistically that it appears to be a machine capable of being engineered) – Good Old School Chicagoans seem to me to be nearly as humble, as wise, and as insightful as do the Austrians.


* Susan Woodward has just written a beautiful and insightful remembrance of Alchian.  (HT Pete Boettke)

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Here’s a letter to a Cafe patron whose brother just read Thomas Piketty’s Capital in the Twenty-First Century:

Mr. Tyler Stewart

Dear Mr. Stewart:

Thanks for your e-mail.

I commend your brother Wallace for having carefully read Thomas Piketty’s Capital in the Twenty-First Century.

You say that Piketty convinced Wallace “fully” that a fundamental feature of capitalism is that returns to owners of capital “are destined to grow quicker than worker pay.”  I’m afraid that I cannot in a letter cover the many problems that I have with Piketty’s analysis.  Let me instead recommend to you – and to Wallace – two of my favorite reviews of Piketty: that of Deirdre McCloskey, and that of my colleague Garett Jones.

If Deirdre’s and Garett’s reviews do not dent Wallace’s confidence in Piketty’s thesis, I suggest that you then advise Wallace to put his convictions into action by becoming a capitalist.  I know that he’s still in college, but if Wallace really believes that the value of capital is destined to grow so handsomely and assuredly, he should invest every spare cent that he can come by in shares of stock.  It’s easy to do.

Indeed, if the main reason Wallace is in college is to enhance the income that he’ll earn over his lifetime, he should immediately quit college in order to invest in stocks, business start-ups, and other tradeable assets all the money that he’ll save by having no tuition bills to pay.  If Wallace’s belief about capitalism is correct, he’ll see the folly of spending so much time and treasure on enhancing his skills as a worker (since workers are doomed to be dominated by capitalists).  Wallace should instead become one of those capitalist by immediately commencing work full-time on starting businesses as well as on investing in stocks and other financial assets.

I quickly add that I beg you not to actually implore Wallace to quit college.  Such a move would be foolish.  But your brother should understand that a principal reason why such a move would be foolish is precisely that Piketty’s thesis is flawed: no investments that Wallace (or anyone else) makes today in businesses and financial assets are “destined” even to grow at all in value, and they are certainly not “destined” to grow faster than is the value of Wallace’s labor.  The very fact that Wallace is now in college likely testifies to his wise failure really to take Piketty seriously.

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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Some Links

by Don Boudreaux on August 20, 2015

in Data, Immigration, Myths and Fallacies, Seen and Unseen, Trade

Scott Lincicome explains how Trumponomics benefits political elites at the expense of people less politically powerful.

The great Mary Anastasia O’Grady explores, in the Wall Street Journal, Donald Trump’s defective economics.  (gated)  A slice:

Mr. Trump may be impressed by devaluation as a policy tool because Mexico—whose politicians in his eyes are among the cleverest and most “cunning”—practiced it for many years. Yet slashing the value of currency to achieve prosperity is preposterous, as generations of Latin Americans, not only Mexicans, can attest. If “competitive devaluation” worked, Argentina would be the national equivalent of Donald Trump. That means very, very rich, in case you somehow missed the Donald’s constant assertion about his net worth.

Mark Perry exposes Donald Trump’s hypocrisy.

Kevin Williamson explains (some of) what Donald Trump does not understand about trade.

James Sherk reveals a foundational flaw in Hillary Clinton’s assertion that worker pay hasn’t kept pace wit worker productivity.

Jeff Jacoby reflects on Sesame Street’s move to HBO.

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… is from pages 476-477 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

At one time, it was believed that importing more than was exported impoverished a nation because the difference between import and exports had to be paid in gold, and the loss of gold was seen as a loss of national wealth.  However, as early as 1776, Adam Smith’s classic The Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.

Too many people have yet to grasp the full implications of that, even in the twenty-first century.  If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a “deficit or a “surplus” in the international balance of trade.

Yes.  And it matters not how Americans (or, more generally, how denizens of whatever country is considered to be the ‘domestic’ one) gain greater access to goods and services produced globally.

If the Chinese become zealous devotees of a religion whose doctrine requires that they serve Americans by shipping to Americans goods and services free of charge, then Americans are made better off.  If the Chinese innovate in ways that lower their costs of production – and distribution and, thus, enable them to sell goods and services to Americans at lower prices – then Americans are made better off.  If the Chinese invent new products and offer to sell these new products to Americans at prices that Americans find attractive, Americans are made better off.  If the forces of international competition oblige Chinese producers to lower their export prices to levels closer to their costs of production, then Americans are made better off.  If the Chinese government forces Chinese citizens to subsidize the production of goods and services sold to Americans so that Americans can purchase these goods and services at artificially low prices, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).  If the Chinese monetary authority buys U.S. dollars with newly created yuan in order to (of necessity temporarily) make Chinese exports artificially inexpensive for Americans to buy, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).

The above reality is missed by people, such as Donald Trump (but hardly limited to him) who judge trade to be ‘successful’ only if the jobs and businesses that it visibly – that is, directly – creates in the domestic economy are perceived as being greater than the number of jobs and businesses that it visibly destroys.  This error is among the oldest and most difficult to kill in economics – not only because this error is serviceable to domestic producers who greedily seek protection from competition, but also because it appeals to people who refuse to think beyond what is immediately and blindingly obvious.

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Over at Alt-M, George Selgin corrects some myths about the gold standard and about price-level fluctuations.

Steve Horwitz explains the huge economic, health, and wealth benefits of the automobile.  A slice:

The omnipresence of horses meant that 19th-century houses were built with “boot scrapers” outside so that people could get the manure off their boots before entering a home. The waste was also a source of disease, as were the dead horses in the streets. Disposing of the horses and their by-products was costly, and as historian Stephen Davies observed in an earlier Freeman column, there were many debates about how society would deal with the even larger amount of manure the future held if the then-current growth rate in the use of horses continued.

The car eliminated that worry by dramatically reducing the use of horses and replacing them and their waste products with the much cleaner automobile.

Tim Worstall explains why Trumponomics is simply a modern version of nutty ages-old mercantilist myths.

David Boaz concludes that we Americans live now in a libertarianish era.

James Pethokoukis points us to a new study out of the New York Fed casting further doubt (as if much doubt remained among sensible people) on the popular myth that irrational or bigoted discrimination is responsible for differences in men’s and women’s pay.

Elaine Schwartz warns against the unintended ill-consequences of government-mandated maternity leave. A slice:

According to a recent study from an economist at Cornell, generous parental leave policies could jeopardize all women’s chances for promotion. Looking at the impact on women, the study indicated that women hired after the Family and Medical Leave Act was passed were “five percent more likely to remain employed but eight percent less likely to be promoted than those who were hired before” it was enacted. The reason? Perhaps employers hesitate to invest in women if there is a chance they will take long periods of time away from work.

Similarly, research on the impact of generous maternity policies in Europe indicates that women are less likely to become managers or to occupy high-powered positions. In Chile, a child care mandate for working mothers led to a decrease in starting salaries for all women.

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Another Open Letter to Donald Trump

by Don Boudreaux on August 19, 2015

in Myths and Fallacies, Trade

Dear Mr. Trump:

You insist that we Americans are harmed whenever foreigners take actions that result in us getting more imports in exchange for our exports.  I ask that you, with your own money, prove that you really believe the economic principle that lies at the root of your insistence.

If you’re correct that people are impoverished when they pay lower prices, and are enriched when they pay higher prices, then you can easily augment your personal fortune by demanding that the suppliers from whom you purchase the steel, cement, and other materials used to construct Trump buildings raise the prices they charge you for their merchandise.  The higher they raise the prices they charge you to carry out your economic affairs, the wealthier you’ll become because you’ll be increasingly reluctant to purchase their offerings.  In the limit they can charge you prices so high that you’ll buy nothing from them!  How great would that be?!  And the possibilities don’t end there!  You can even further expand the Trump treasure by lowering the prices – even to $0 – that you charge your customers for hotel rooms and the other goods and services that you supply.

Just think of the additional wealth that will come your way by your being, as a buyer, dissuaded by high prices from purchasing goods and services from people not named ‘Donald Trump,’ and, as a seller, by the hordes of customers who will demand to consume almost limitless quantities of the wares that you make available at prices of $0.

Who knew that getting rich is so easy?!

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 August 19, 2015

in Prices, Reality Is Not Optional, Seen and Unseen

… is from page 120 of Introducing Market Forces Into “Public” Services, which is volume 4 in the 2004 Liberty Fund series The Collected Works of Arthur Seldon (original emphasis):

A price is better thought of not as a barrier but as its opposite – a link between buyer and seller.

Government force (or the threat of such) used to cause prices as revealed in money to be something other than prices would be on the market breaks vital links between buyers and sellers.  Some buyers who would otherwise buy, and some sellers who would otherwise sell, are left disconnected to each other because of the government-imposed price control.  As a result, uncountable numbers of mutually advantageous voluntary exchanges that would have occurred do not occur.  This reality holds for government-imposed price floors (such a minimum wage) and government-imposed price ceilings (such as rent control).  In both instances, the amounts of the price-controled good or service that actually find their way from willing sellers to willing buyers are less than are the amounts of these good or services that would have found their way from willing sellers to willing buyers in the absence of the price controls.

People who believe that a government-imposed price floor makes all sellers better off, and people who believe that a government-imposed price ceiling makes all buyers better off, are no more realistic than are people who believe, say, that a meddlesome mechanic who rigs the thermometer on a thermostat to cause that thermometer never to register a room temperature higher than 65°F successfully ensures that the temperature in that room will in fact never, regardless of how much heat is being pumped into that room, exceed 65°F.

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Here’s a letter to the Wall Street Journal:

Brian Collins asks “Do you truly believe that absent any increase in the minimum wage that Wendy’s or any other business will suspend efforts to develop and implement new forms of automation that promise to reduce staff levels?” (Letters, August 18).

The answer is ‘no.’  Contrary to Mr. Collins’s implication, however, this fact does nothing to excuse raising the minimum wage.

Even in a world in which market forces naturally promote automation, raising the minimum wage has two pernicious effects.  First, it causes the rate of automation to be faster than it would be if the minimum wage were not raised.  That is, raising the minimum wage results in automation being introduced at a rate that is too fast given the size of the low-skilled labor force.  Second, raising the minimum wage destroys incentives for entrepreneurs and businesses to find ways to profitably employ workers whose limited skills prevent them from producing hourly outputs valued at least as high as the minimum wage.  The first effect throws some low-skilled workers out of jobs that they would otherwise retain, while the second effect ensures that no one has incentives to find ways to profitably employ these and other low-skilled workers.

If it is inhumane to outlaw the profitable employment of those workers whose skills are the least valuable, then the minimum wage is deeply inhumane.

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

If the government instituted a minimum wage of $100 per hour and, therefore, made unlawful the profitable employment of all those people whose skills are too meager to enable them to produce at least $100 worth of output per hour, there would be a national uproar – and rightly so.  Yet when the government implements such a policy but in a way that outlaws the profitable employment only of people whose skill-sets are among the lowest, relatively few people object and many people – especially “Progressives” – applaud the policy as humane.  How sad.  And how especially sad that many economists today, who above all should know better, lend their authority to such an inhumane policy.

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George Leef rightly explains that eminent domain is unjustified even if, by some metrics, it “works.

John Cochrane brilliantly and wisely takes apart Larry Summers’s recent case for the minimum wage – and, in doing so, Cochrane demonstrates beautifully the fact that the best service that good economists perform is to ask probing questions.

Donald Trump is a hypocrite.  (Stuart Anderson explains.)

Katie Allen, writing in The Guardian, helps to calm the fears of Luddites and others who worry that technological advances are ruining life for ordinary people.  (HT Amir Weitmann)

Speaking of technological improvements, Mark Perry has more good news.

Recent GMU Econ PhD Abby Hall explains that “a growing body of literature is illustrating that private forms of governance have been, and continue to be, an important way of organizing human behavior.

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