Bonus Quotation of the Day…

by Don Boudreaux on April 17, 2018

in Crony Capitalism, Trade

… is from page 261 of 2014 Economics Nobel laureate Jean Tirole’s 2017 book, Economics for the Common Good:

Protectionism takes away the benefits of international specialization, and it removes the stimulus of competition, which pushes companies to improve themselves rather than profit from captive consumers.

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Here’s a letter to the Wall Street Journal:

Nancy McLernon correctly notes that allowing foreign dredgers to compete in the United States would open U.S. harbors and ports wider – and do so at lower costs (“Protecting U.S. Dredgers Kills Jobs,” April 17).  Alas, making our ports more accessible to ocean-going cargo ships runs counter to the Trump administration’s protectionism.  As economists too numerous to name have pointed out over the centuries, tariffs are economically identical to clogged harbors and ports.

Mr. Trump and his trade advisors would protest that they want to keep U.S. harbors and ports unobstructed so that Americans can load onto cargo ships ever-increasing quantities of goods for export.  They want to obstruct only imports.  But they do not understand that, just as poorly dredged harbors obstruct equally the passage of both outgoing and incoming ships, protective tariffs have the same dual effect.  By reducing the dollars that foreigners earn on their imports to us, tariffs reduce the dollars that foreigners spend buying exports from us.

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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The Dangerous Militarization of Policing

by Don Boudreaux on April 17, 2018

in Crime, Seen and Unseen, Video, War

In this excellent, short video, my GMU Econ colleague Chris Coyne, and GMU Econ alum Abby Hall, discuss the dangerous militarization of policing in the United States.  (By the way, do read Chris’s and Abby’s superb new book on this topic, Tyranny Comes Home.)

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My second op-ed in the Washington Times appeared on page A21 of the October 6, 1995, edition, and was inspired by my happening across a truly awful freshman-level American-history book used then at, among many other schools, the University of Georgia.  (I do not know if this textbook is still widely used.  I’d not be surprised if it is.)  My op-ed is below the fold.

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Quotation of the Day…

by Don Boudreaux on April 17, 2018

in Competition, Economics, Work

… is from Greg Mankiw’s August 29, 2006, blog post titled “How are wages and productivity related?“:

Economic theory says that the wage a worker earns, measured in units of output, equals the amount of output the worker can produce.  Otherwise, competitive firms would have an incentive to alter the number of workers they hire, and these adjustments would bring wages and productivity in line.  If the wage were below productivity, firms would find it profitable to hire more workers.  This would put upward pressure on wages and, because of diminishing returns, downward pressure on productivity.  Conversely, if the wage were above productivity, firms would find it profitable to shed labor, putting downward pressure on wages and upward pressure on productivity.  The equilibrium requires the wage of a worker equaling what that worker can produce.

DBx: A point repeated often here at Cafe Hayek is that economists are at their most productive – for society – when they ask probing questions.  Yet to productively ask probing questions requires a good sense of baselines: warranted presumptions about what we ‘should’ expect to observe in reality against which we can compare that which we observe or think that we observe.

My favorite example of a probing question premised on a poor baseline is “What causes poverty?”  As I long ago heard the late Peter Bauer somewhere point out, “Poverty has no causes.  Wealth has causes.”  Poverty is humanity’s default mode.  If we do nothing, we are poor.  Nothing must occur to cause poverty.  So asking “What causes poverty?” is to slip in the presumption that wealth – widespread prosperity – is somehow more natural than is poverty and that, therefore, poverty must be the result of some cause – that if only we can identify that ’cause’ and eliminate it, then poverty would disappear.

While I don’t deny that the question “What causes poverty?” can be bundled with accompanying explanations to make that question genuinely meaningful and useful, I nevertheless believe that the better question is always “What causes wealth?”  To ask this latter question is to start with a baseline more appropriate to human reality.

And so it is with questions of lesser grandeur in economics, such as “What determines wage rates?”  The appropriate question, for the economist, is not “Why do observed wages track worker productivity?”  Instead, the appropriate question is “Why might observed wages not track worker productivity?”  (In the link above, Mankiw offers some answers to this latter question.)

The above distinction isn’t academic.  Among the seemingly intelligent games played by people who know only something about economics (as opposed actually to knowing economics) – and by some poor economists – is the childish sport of pointing out that reality differs from theory and then immediately and triumphantly leaping to the conclusion that economic theory is a useless, or even misleading, guide to reality.  I am the first to admit that economics has its share of misleading theories, but neither this fact nor the reality that no theory is a description of any reality justifies the rejection of economic theory as a guide to reality.  Without a solid grasp of good economic theory – by which I mean largely the insights learned in a good undergraduate curriculum in economics – economic reality cannot be usefully understood.

And among the unsung benefits of a solid grasp of economic theory is that such a grasp supplies the wisdom to distinguish appropriate from inappropriate baselines against which observed reality is to be judged.

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As part of my attempt to catalog here at Cafe Hayek as many as possible of my past writings, here’s the first op-ed of mine to appear in the Washington Times (the link is gated); it ran on page A21 of the March 3rd, 1995, edition.  It’s below the fold.

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Kristian Niemietz powerfully explains what’s wrong with the recent round of calls for socialism.  (HT David Levey)  A slice:

Socialists usually react with genuine irritation when a political opponent mentions an earlier, failed socialist project. They cannot see this is anything other than a straw man, and a cheap shot. As a result, they refuse to address the question why those attempts have turned out the way they did. According to contemporary socialists, previous socialist leaders simply did not really try, and that is all there is to know.

They are wrong. The Austro-British economist Friedrich Hayek already showed in 1944 why socialism must always lead to an extreme concentration of power in the hands of the state, and why the idea that this concentrated power could be democratically controlled was an illusion. Were Hayek to come back from the dead today, he would probably struggle a bit with the iPhone, Deliveroo and social media – but he would instantly grasp the situation in Venezuela.

Jonah Goldberg is right that consumers will be wronged by more government regulation of Facebook.

John Tamny argues – correctly – that economic growth for the Chinese people means economic growth for the American people.  A slice:

It’s a reminder that conservative belief in limited government and free trade is rather situational; very apparent when a Democrat is in the White House, much less so when a Republican occupies 1600 Pennsylvania.

Bob Higgs asks Americans to ask what’s in it for them when Uncle Sam flexes his mighty – if also mighty cumbersome – military muscles.

Walter Stahr discusses two books on one of my favorite American jurists of all time, U.S. Supreme Court Associate Justice Stephen Field (who was appointed to the Supreme Court by Abraham Lincoln).

Jeff Jacoby likes the new movie Little Pink House, which is based on real-life events involving innocent property owners, a rapacious government and its cronies, a U.S. Supreme Court that failed to uphold the Constitution, and the ever-admirable Institute for Justice.

My intrepid Mercatus Center colleague Veronique de Rugy writes about the insolvency of Social Security.

Here’s GMU Econ alum Mark Perry on Equal Occupational Fatality Day.

The Wall Street Journal‘s Weekend Interview is with my GMU Econ colleague Bryan Caplan.  A slice:

The irrational actor in this whole drama, Mr. Caplan says, is the voter, who almost without exception wants to keep the tax money flowing. “Only about 5% of Americans say that we should spend less on education,” he says. Even among self-identified “strong Republicans,” the figure is a mere 12%. In this regard, Mr. Caplan is quite the nonconformist. In the new book [The Case Against Education[, he says his ideal would be a complete “separation of school and state,” a position he describes as “crazy extremism.”

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Here’s a letter to the Wall Street Journal:

White House trade advisor Peter Navarro’s “China’s Faux Comparative Advantage” (April 16) is a cavalcade of confusions.  Among Mr. Navarro’s many mistakes is his assertion that “Contrary to the textbook model, whereby currency adjustments help rebalance trade, the U.S. trade deficit with China has been persistent.”

I challenge Mr. Navarro to find in any reputable economics textbook a model that shows that currency adjustments eliminate bilateral trade deficits, such as that between the U.S. and China.

He’ll not find any such model, for two reasons.  First, in a world of more than two countries, there is simply no reason – none – to expect any pair of countries to export to each other the same amount that they import from each other.  Trade is global, not bilateral.

Second, in official trade statistics the recorded value of each export is the full price that it fetches from the importing country.  But because today the typical exported good contains inputs from many different countries (including, often, from the country to which the good is exported), the reported value of one country’s exports to any other country is not an accurate measure of the amount of value contributed to that good by the exporting country.  This reality lead Robert Feenstra and Alan Taylor – authors of a leading textbook, International Economics – to describe the concept of bilateral trade deficits and surpluses as “slippery.”

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

…………

Addendum: I go further than Feenstra and Taylor and call the the concept of bilateral trade deficits and surpluses not merely “slippery” but completely meaningless.

……

If Trump’s personal physicians were as skilled at medicine as his trade advisors are at economics, Trump’s medical treatments would involve little more than leeches, voodoo dolls, and magical crystals.

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Quotation of the Day…

by Don Boudreaux on April 16, 2018

in Seen and Unseen, Trade

… is from pages 152-153 of my great teacher Leland Yeager’s, and David Tuerck’s, superb and still-relevant 1966 book, Trade Policy and the Price System:

The more persistently and dependably foreigners engage in dumping, the more the United States benefits.

DBx: Protectionists, of course, deny the truth of this claim.  Motivated by the thoroughly mistaken notion that an economy that supplies maximum opportunity for a handful of politically visible existing producers to reap wages and profits as high as possible, protectionists despise greater abundance that prevents this reaping – and they therefore interpret any foreign-government actions that create additional abundance in their – the protectionists’ – country as damage inflicted on their country rather than as benefits bestowed.

Protectionists see only a tiny fraction of the economic picture.  Ignorant of the most basic of economic principles – and, indeed, also of the universal application of the laws of arithmetic – protectionists are blind to three groups of people in their own country: (1) all consumers who benefit from greater abundance, no matter its source; (2) the many existing domestic producers – including workers – who, as producers, are benefitted by greater abundance, no matter its source; and (3) future producers whose establishment and successful operations tomorrow – and their hiring and employing future workers at wages higher than would be paid otherwise – are made possible by greater abundance, no matter its source, today and tomorrow.

And making matters worse, protectionists mistake their own blindness as a source of a scientific discovery.  “If I can’t see it, then it must not be real!” proclaims the typical protectionist.  Protectionists, in summary, are not only blinded by their economic ignorance, they are made arrogant by it.

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Here’s a letter to Cafe Hayek reader Earl Gross:

Thanks for your e-mail.

Referencing my recent blog-post on conscription, you write – in apparent disagreement with my opposition to conscription – “Nothing is free.  Freedom comes with a price the protected will never know.”

I agree that the provision of military services is not free – which is one reason why I oppose conscription.  Conscription imposes a disproportionate share of the costs of military preparedness and operation on conscripts, thereby allowing citizens as taxpayers to free ride on whatever services conscripts are forced to render.  This arrangement is unfair to conscripts.  Worse, because conscription helps to shield taxpayers from the full costs of the uses of their military, it encourages the careless and excessive use of the military – carelessness and excess that increases the prospects of all men and women in uniform being injured or killed in battle.

And I do not doubt for a moment that the experience of being in battle is a high and horrible price that, as you say, “the protected will never know.”  But nor do I doubt that justice is offended and mocked by forcing young men and women to pay that price with a policy – conscription – that relieves “the protected” of the responsibility of paying to the men and women in the military salaries sufficient to entice them to join and serve voluntarily.

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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