Forget the MBA!

by Don Boudreaux on July 22, 2015

in Not from the Onion

Here’s a letter to the Wall Street Journal:

In your report on Pres. Obama’s proposal to force more workers to accept as part of their employment contracts greater eligibility for overtime pay, you quote Sloan School of Management professor Thomas Kochan saying that such a government-imposed mandate “helps drive up productivity” by leading “management to look for more efficient ways of doing their business” (“Overtime Rules Send Bosses Scrambling,” July 21).

Wow.  One wonders what’s being taught at business schools such as Sloan.  If Prof. Kochan is correct that managers throughout the country must be coerced by government – which is manned chiefly by people with J.D.s and not MBAs – to run their firms more efficiently, the value of a business-school education must be quite low.  Do such schools teach their students even less about how to efficiently run businesses than is taught to students in law schools?  Apparently so.

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

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David Henderson explains that wages – like all prices – are not arbitrary terms of exchange that can be altered at will by government without unleashing consequences that well-meaning people regard as regrettable.  (The fact that Pres. Obama, like the great majority of people in government, do not understand this reality is powerful evidence that he and others who share his economic-policy views are totally unscientific about economics and not members of a reality-based community.)

A nice complement to David’s blog post is this report in yesterday’s Wall Street Journal.  (gated)  A slice:

At Famous Toastery, a restaurant chain with six locations in North Carolina and South Carolina, some jobs are changing [in response to government’s new overtime rules] to ensure the company doesn’t face runaway labor costs. The chain is moving managers from salaried to hourly pay, and asking employees to perform new duties.

In my most recent column in the Pittsburgh Tribune-Review, I highlight some of the work of the great scholar Bob Higgs.  A slice:

As summarized by the late Nobel laureate economist Robert Fogel in his review of Bob’s book [Competition and Coercion (1977)], “Those who seized control of the state machinery not only disenfranchised the blacks, but used their political power to transfer income from blacks to whites, to restrict blacks’ access to such public institutions as schools and hospitals, to restrict the occupational mobility of blacks, and to bar them from certain occupations…. While such coercion restricted the rate of black economic progress, it did not prevent it. Higgs concludes that the forces of competition proved strong enough to check the forces of coercion and made possible a fairly rapid rate of economic improvement.”

Competition in the market is the best friend that disfavored people can have. Not so the state.

On Facebook, David Boaz understandably questions my description of Competition and Coercion as being Bob’s first major work.  David notes that Bob’s 1971 book – I believe his first – was on David’s reading list at Vanderbilt in the mid-1970s.  That book is The Transformation of the American Economy.

Writing in Forbes, Bob McTeer weighs in on the question of whether or not productivity is really slowing down.  A slice:

Inventions and innovations in the industrial age drastically reduced the labor component of output and chalked up substantial productivity statistics. That isn’t necessarily true for the products of Silicon Valley even though there’s no doubt that they are making our lives easier, more efficient, and more fun. But not necessarily more productive in the traditional way we measure it.

If I were more social, I would invite friends over—preferably young friends—for an app party. Everyone would bring his favorite app and show us how it works. During the past week I got two new “free” apps that are already making my life easier. When I use them, it won’t add to GDP. Only the development of those apps did that. This may be a shortcoming in the way we measure things, but it really isn’t a legitimate criticism of productivity as traditionally defined. To do so is a bit like criticizing an orange for not being an apple or criticizing GDP for not measuring happiness.

Last week in the Wall Street Journal, Roger Pilon of the Cato Institute asked what is becoming of freedom of religion.  (gated)  Here’s his conclusion:

No one enjoys the sting of discrimination or rejection. But neither does anyone like to be forced into uncomfortable situations, especially those that offend deeply held religious beliefs. In the end, who here is forcing whom? A society that cannot tolerate differing views—and respect the live-and-let-live principle—will not long be free.

Mark Perry discusses yet another of the many ways that the Institute for Justice truly works for justice.

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Quotation of the Day…

by Don Boudreaux on July 22, 2015

in Hubris and humility

… is from page 82 of Thomas Sowell’s 2009 volume Intellectuals and Society:

Ironically, many of those who emphasize the complexities of real-world problems and issues nevertheless often also regard people with opposing views of those problems and issues as either intellectually or morally unworthy.  In other words, despite an emphasis on the complexities involved, these problems or issue are not regarded as being so complex that a different person could weigh the various probabilities or values differently and legitimately arrive at a different conclusion.

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Available here is the audio of Bob Higgs’s talk upon his receipt of the 2015 Murray N. Rothbard Medal of Freedom.

Norbert Michel is unimpressed with the achievements of Dodd-Frank.

Timothy Taylor discusses the new Viscusi-Gayer paper on behavioral economics as applied to government officials.

My colleague Pete Boettke discusses the meaning and importance of sound economic reasoning.  Here’s Pete’s conclusion:

Sound economic reasoning teaches many things, but perhaps the most important lesson is about the importance of the instituitonal framework for marshalling the self-interest of individuals into publicly desirable outcomes by enabling the judicous negotiation of trade-offs so that the gains from trade and the gains from innovation are realized.  Some instituitonal environments promote productive specialization and peaceful social cooperation among individuals, others don’t.  Economic reasoning is essentially discursive reasoning in comparative institutional analysis.   As you prepare yourself for the fall term of teaching in a contemporary context full of examples of popular fallacies perpetuated by politicians and pundits, and methodological blind-spots causing professional apathy on the one hand, and professional malpractice on the other, think of Hayek’s examples of “clear-sighted economists” such as Cannan and Mises (and Hayek and Friedman; and Buchanan and Coase; and Rothbard and Stringham/Leeson/Skarbek; and Higgs and Coyne/Powell, etc.).  Economists can, and must, do a lot of common good by teaching to their students and the public the results that the science has to offer that emanate from sound economic reasoning about scarcity, self-interest, and spontaneous order.  Ruthless consistency in the economic way of thinking is not a vice, it is a virtue.

In this hot-off-the-press study published by the Mercatus Center at George Mason University, Steve Horwitz explains three ways that state and local governments can truly help the poor.

In U.S. News & World Report, Ben Zycher unmasks the inconvenient truth about climate-change policy.

Jason Brennan on some flawed thinking of socialists.

My colleague Alex Tabarrok – using the Happy Meal Fallacy – explains why mandated worker benefits in fact are mandate worker detriments.

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This morning I had an interesting e-mail exchange about technology and the future with an historian.  I don’t know this man (whose first name is Marc); he was e-troduced to me by radio host Bob Harden.  Anyway, at one point in our e-mail exchange Marc suggested that the reason why technology in the future might prove to be economically worse for humans than it has proven to be in the past is that, in the past, technology replaced human muscle while today it replaces human brains.

Here’s a slightly edited and expanded version of my reply to Marc on this point:

It’s untrue that technology until now has replaced only our muscles; there has always been innovation that replaced our brains.  Think of Grecian auditoria that allowed the voice of one speaker to reach many more people than could be reached before such structures were devised.  (The microphone, radio, television, the Internet, etc., have, of course, only amplified this effect.)  Think of the telegraph and the telephone, each of which allowed people to share knowledge and information across great distances at low cost and, hence, reduced the need for people to keep handy, either in their own brains or in the brains of people within earshot, certain kinds of information and knowledge.  Likewise – and even more so and more obviously – think of the printing press, which enabled knowledge to be stored inexpensively with paper and ink rather than requiring that that knowledge be toted around in human brains.

Think of the abacus; think of printed multiplication tables; think of the calculus (which is a clear net-saver of brain power).  Think of the cash register.  Think of money itself, which eliminates the need to learn of the precise identities and locations of trading partners who both have the goods and services that you want and want the good or service that you are willing to exchange.

Think of roads (which embody knowledge of direction and, thus, require of travelers far less knowledge than they would otherwise require of how to get from point A to point B).  Think of paper road maps.  Think of the sextant.

Indeed, think of the division of labor itself, which dramatically reduces the range of knowledge that a person must possess in order simply to survive.  (Each of my grandfathers – both born and raised in the United States – knew how to raise, slaughter, and pluck chickens [and my paternal grandfather knew also how to milk cows and how to raise and slaughter hogs]; they each knew how to repair car engines; they each knew how to do household repairs that are an utter mystery to me and that fewer and fewer Americans know how to do.  And I’m quite certain that the range of knowledge that my grandfathers’ grandfathers possessed and used routinely was even greater than was that of my grandfathers.)

As these latter examples (of my grandfathers) make especially clear, the distinction between technologies that replace muscle-power and technologies that replace brainpower is ultimately rather vague, anyway.  At the end of the day, technology is useful if it allows human being to get more desirable outcomes with less human effort and sacrifice.

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My Mercatus Center colleague Rob Raffety sent to me this link with pictures of people years ago performing jobs that have been destroyed by technology.  (The only one of these jobs that I’m old enough to remember, but only just barely, is milkman.  This job was rapidly disappearing when I was a child in the 1960s, a decade in which household refrigerators had become quite common throughout the United States, even in working-class households of the sort that I grew up in.)

Fears of technology destroying most opportunities for gainful employment are, of course, ancient.  Yesterday I offered one reason why I am quite confident that such fears are unwarranted – a reason that can be summarized by saying that, unless and until technology eliminates scarcity, technology will not eliminate the possibility of human beings working gainfully for each other (and, alternatively, if technology does eliminate scarcity, then we’ll have heaven on earth and there will be neither a need for paid human work nor a willingness of anyone to perform such work).

(It’s interesting that many religious people long to spend eternity in a place without scarcity and, hence, without the need for labor; that sublime place is commonly called “heaven.”  Yet many of these same people also believe that technology now threatens to so reduce scarcity here on earth that there will no longer be a need for labor; that prospect is considered to be hell.)

Technology, as Deirdre McCloskey reminds us, is not only what we moderns think of as “technology.”  A wheel embodies technology.  So, too, do hand-held shovels and hoes.  So does a bucket.  So do working animals such as horses, mules, and shepherding dogs.  So does a bridle.  So do cement and bricks.  So does a 15th-century printing press.  So do levers and wedges.  So does a hand-held saw.  So do roads made even just of dirt.  So does a candle.  So do salting and pickling.  Each of these innovations destroyed some jobs that would otherwise be performed by human beings.

Such job destruction has been going on since Adam first succumbed to the deliciousness of Eve’s apple.  And while it’s certainly true that the pace of technological innovation has increased in the past few centuries – and while it might also be true that the pace of technological innovation has further increased in the past few decades – what’s also certainly true is that the quality of life for ordinary human beings continues to improve without causing any subsidence in the demands of us billions of humans for yet further improvements in our standards of living.

…..

As the wise Charley Hooper e-mailed me yesterday, in response to this post:

Her [my e-mail correspondent Louise Lauderdale’s] fear [of technology] seems reasonable at first blush and, if she were queen for a day, who knows what kind of counterproductive laws should would impose. But then, when economic logic is applied, her fear seems silly.

The danger we face is not market-driven innovations and advances in technology; it is instead the hubris and poor analyses of those who would exercise sovereign power to suppress human creativity or to divert it from its market-driven pathways.

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Quotation of the Day…

by Don Boudreaux on July 21, 2015

in Hubris and humility

… is from page 164 of the 1991 Liberty Fund edition of Bruno Leoni’s brilliant 1961 volume, Freedom and the Law:

Everyone knows his personal situation and is probably in a better position that is anybody else to make decisions about many questions related to it.  Everyone probably has more to gain from a system in which his decisions would not be interfered with by the decisions of other people than he has to lose by the fact that he could not interfere in turn with other people’s decisions.

The only exceptions to the rule identified here by Leoni are those people who have an excess supply of arrogance and officiousness – people who get great personal gratification from ordering their fellow human beings about.  And while such people are precisely the sort who, above all, are least to be trusted to control the levers of state power, such people are also the sort who are most intent on doing whatever it takes to grab hold of, and to maintain tight and greedy grips, on those levers.

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Here’s a letter to a home-schooling mom in Colorado (who e-mailed me to object to the Per Bylund article that I linked to earlier today at Some Links):

Ms. Louise Lauderdale

Dear Ms. Lauderdale:

Thanks for your e-mail.

You wonder why I don’t share your “fear that robots and technology will make only the 1% richer and make the rest of us poor by wiping out all the jobs….  [If technology continues to advance at this pace] there won’t be a thing left for human workers to do.”

Your fear, which is widely shared, makes no sense when you think about it.  A society in which most people are poor and yet is also a society that contains no opportunities for people to engage in productive, gainful work for each other is difficult even to conceive, and in reality is an impossibility.

The essence of being poor is having an unusually large number of unmet economic needs and wants.  Poor people suffer the likes of too little clothing, cramped and poorly furnished housing, transportation vehicles that are dangerous and frequently break down, untreated illnesses – the list is long.  So a society with many poor people is a society with an especially large number of jobs to be done rather than one with not “a thing left for human workers to do.”

Now you’ll interject here by saying “Yes, but all those jobs will be done by robots and other technologies” – to which I respond: If all of those jobs can indeed be done by robots and other technologies at prices that everyone can afford, then everyone is very rich and no one is poor.  The reason is that, by your assumption, everyone can afford to use robots and other technologies to satisfy all of their economic needs and wants.  There are no jobs for humans in this fantastic world only because robots and other technologies are the most affordable options for every person to use to satisfy each and every one of his or her economic desires.  In contrast, if all of those jobs cannot be done by robots and other technologies at prices that everyone can afford, then the robots and other technologies have not achieved what your scenario assumes they achieve, namely, the wiping out of all opportunities for humans to work gainfully for each other.

In short, a society in which robots and other technologies are so advanced and inexpensive to use that they are the least-costly way to satisfy all human economic desires cannot possibly also be a society with lots of poor people (that is, a society with lots people who cannot afford to satisfy many of their economic needs).

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, personally, would love to live in such a fantastical world of “post-scarcity” – a world, by the way, in which (contrary to Ms. Lauderdale’s fears) there would be no economic inequality whatsoever.  Alas, though, I’m quite confident that such a fantasy world will never be achieved.  We might continue to approach it, as we’ve been doing now for a couple of centuries at an especially rapid pace.  But I doubt seriously that we’ll ever actually reach that worldly heaven (although I sincerely hope that I’m wrong in this prediction).  Human society will continue forever, I fear, to suffer the constraints and trade-offs required by the reality of scarcity – which means that human society will always have members who are relatively rich, those who are relatively middlin’, and those who are relatively poor, even if (as is the case today in America) nearly everyone is astonishingly rich in comparison with ordinary people of a few generations earlier.

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Writing in today’s Wall Street Journal, Rep. Jeb Hensarling (R-TX) explains that Dodd-Frank – which turns five-years-old tomorrow – has failed to improve the economy.  (gated)  Hensarling cites this 2013 from my Mercatus Center colleague Patrick McLaughlin (co-authored with Robert Greene) showing that the 2008 financial crisis was emphatically not caused by deregulation.  A slice from Hensarling’s essay:

Before Dodd-Frank’s passage, former Sen. Chris Dodd said that “no one will know until this is actually in place how it works.” Today we know. The law he co-wrote with former Rep. Barney Frank is gradually turning America’s largest financial institutions into functional utilities and taking the power to allocate capital—the lifeblood of the U.S. economy—away from the free market and delivering it to political actors in Washington.

Also in today’s Wall Street Journal is John Tamny’s explanation that politicians who target CEO pay reveal their economic ignorance or their shameful willingness to play on the economic ignorance or envy of voters.  (gated)

Baylor University’s Per Bylund explains that robots will indeed destroy more and more jobs currently performed by humans and that such progress is today, and will be tomorrow, a great blessing – just as it has been in the past.  (HT Warren Smith)  A slice:

Automation also leads to greater efficiency and abundance that raises living standards for all of us. Sticking with the example of agriculture, technological advancement has led to an unprecedented abundance and diverse selection of foods. According to a United Nations report, “the number of hungry people decline[d] globally by more than 100 million over the last decade and by 209 million since 1990-92.”

James Pethokoukis very nicely summarizes the main competing hypotheses for the fall in measured productivity increases.

Also from Pethokoukis is this nice response to a new proposal by Nick Hanauer and David Rolf to allegedly make workers better off in the ‘gig economy.‘  (Nick Hanauer seems to be in a competition with Pope Francis to prove who of the two is the most economically ignorant.  I’m unsure who is now ahead in this unseemly race.)

Bart Hinkle explores the bizarro and unintellectual world of political correctness at Virginia Tech.  (HT David Boaz – who, e-mailing me, notes that it’s likely good that Gordon Tullock, who served for many years on Virginia Tech’s faculty, did not live to witness this nonsense in Blacksburg.)

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Quotation of the Day…

by Don Boudreaux on July 20, 2015

in Politics

… is from page 125 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, Minority Report:

The only way that democracy can be made bearable is by developing and cherishing a class of men sufficiently honest and disinterested to challenge the prevailing quacks.  No such class has ever appeared in strength in the United States.  Thus the business of harassing the quacks devolves upon the newspapers.  When they fail in their duty, which is usually, we are at the quacks’ mercy.

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