Another Open Letter to Hillary Clinton

by Don Boudreaux on October 12, 2016

in Trade

Ms. Clinton:

In your most-recent debate against Donald Trump you effectively expressed agreement with his ignorant notion that international trade is a zero-sum game.  You did so by promising to prosecute Chinese steel makers who dare to sell to us steel at prices that you, or some bureaucrats, deem to be too low.

Nothing that I or any other economist can say today to challenge your and Mr. Trump’s economic illiteracy is new.  It’s all been said before, countless times – and irrefutably to any and all who think soundly about the matter.  So I content myself here to quote from a speech delivered in 1904 by Winston Churchill at Free Trade Hall in Manchester, England.  I add, in brackets, only a couple of changes to show that Churchill’s words spoken in England more than a century ago remain relevant to the here and now:

Another important source of Lancashire [American] wealth is the manufacture of machinery and the high-grade manufacture of iron and steel of all kinds. You will see for yourselves without any elaboration how necessary a supply of cheap steel is to all those who are engaged in the manufacture of machinery. But Mr. Chamberlain [Ms. Clinton, like Mr. Trump] proposes to shut out the cheap steel that comes in from abroad, and mind you, the cheap steel that comes in from abroad not only comes in itself cheap but it reduces the price of the steel at home, and if you shut out the supplies of cheap steel from abroad you cannot fail to hinder our trade in machinery. And observe that in the iron and steel trade much the most profitable part is the trade in machinery, because it is in the complicated manufactures of iron and steel that labour is most generously rewarded and most varied, and it is in the higher-grade industries that it is most important for an old country like ours to obtain and maintain commercial leadership.

I don’t for a moment expect Churchill’s words to cause you to rethink your hostility to free trade; you crave power, not truth.  But I do want you to know that you and Mr. Trump are merely the latest drum majors in a long, shameful parade of charlatans and scammers who absurdly promise the masses that greater prosperity is to be had if only they’ll agree to pay higher prices for the goods and services they consume.

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


(Ignore Churchill’s closing bit about “commercial leadership”; it’s an economically meaningless term and concept.)

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On the 2016 Economics Nobel Award

by Don Boudreaux on October 12, 2016

in Antitrust, Economics, Science, Scientism

Here’s an e-mail that I sent yesterday to David Henderson:


Nice job – as always – summarizing [in the Wall Street Journal] for a general audience the contributions of the most recent econ Nobelists.

I recall back in the ’80s and early ’90s, when I was still interested in I.O. [industrial organization], I read much of Oliver Hart’s work. (Less of Bengt Holmström’s, but some.) Reading your essay brought back a memory from long-ago: so much of what Hart – and, I gather, also Holmström – says is a fancied-up version of what Alchian, Demsetz, and Yoram Barzel said. I don’t doubt that our newly minted Laureates each made genuine, and genuinely worthwhile, contributions to our understanding of economic forces at work. But I still remain bitter that Alchian never got the Prize – and that Demsetz continues to be overlooked.

Just venting. Thanks.


I might also have added Lester Telser‘s and Donald Dewey‘s names to those of Alchian, Demsetz, and Barzel.  Each of these scholars examined real-world institutions – especially, here, firms and contracts – and refused to join most economists in the mid-20th century in leaping to the conclusion that firm and industrial structures and practices that do not appear in mainstream economic theory are not only manifestations of monopoly power but also arrangements and practices that must be undone or closely superintended by Solonic legislators and judges and administrators who are ever-prepared to apply the latest economic theories to the situations at hand.

Instead, scholars of the caliber of Alchian and Demsetz understood (and understand) that real-world arrangements unfamiliar to economists serve some purposes – and that if there is freedom of entry into industries combined with consumers’ freedom to spend their money largely as they choose, the purposes served by these unfamiliar arrangements are presumably beneficial to society at large.  “What function does this contractual term serve?”  “Why is this retailing arrangement widespread in the clothing or the soap industry?” “Why do so many workers agree to work for these contractually agreed upon terms?”  These and similar questions are asked by wise economists.  These economists saw (and see) their task as using basic economic reasoning to better understand reality rather than using textbook economic theory as a springboard from which to leap to condemn reality and call in the police.

As Arnold Kling explains here, the fact that Alchian, Demsetz (and co.) did not formalize their work in ways that are today de rigueur does not mean that their work was and is less valuable or less advanced than is more formalized work.  Quite the opposite.  Here’s Arnold:

In my view, step 2 [mathematical formalization] is unnecessary. If anything, it tends to get in the way, often creating a barrier to doing step 1 [“Identifying some real-world complexities that affect how businesses operate”] properly, because economists limit themselves to what is mathematically tractable.

The ultimate test of any theory is not how impressive it looks or even how well its predictions are borne out by the quantitative data.  Rather, the ultimate test of any theory is how well it improves our understanding of reality.  By this test, the works of Armen Alchian and of Harold Demsetz are among the most powerful done by any scholars in the past 100 years at improving our understanding of reality.


My colleague Pete Boettke offers his thoughts here on the 2016 Economics Nobel award.

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Quotation of the Day…

by Don Boudreaux on October 12, 2016

in Politics

… is from page xiii of Arthur Seldon’s Preface to the original, 1976 edition of my late colleague Gordon Tullock’s excellent public-choice primer, The Vote Motive:

The real reasons for government policy are rarely stated with the candour that would enable the public to understand them.  Politicians seem to be playing out a public charade in which everything is explained by question-begging terms like ‘fair’, ‘reasonable’, ‘adequate’, ‘just’ and similar.

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Bonus Quotation of the Day…

by Don Boudreaux on October 11, 2016

in Growth, Inequality, Seen and Unseen, Taxes

… is from page 582 of the final volume (2016) – Bourgeois Equality – of Deirdre McCloskey’s brilliant and pioneering trilogy on the essence and role of bourgeois values in modern life (original emphasis):

Supposing our mutual purpose, then, is to help the poor – as in ethics it certainly should be – and considering that the learned cadres of the clerisy are supposed to have sociological imagination, their advocacy for equalizing restrictions and redistributions, and their spurning of growth-inducing liberty can be viewed at best as thoughtless.  Perhaps, considering what economic historians now know about the Great Enrichment, but which the left clerisy, and many of the right clerisy, resists acknowledging, it can even be considered unethical.  Members of the left clerisy, such as Tony Judt or Paul Krugman or Thomas Piketty, who are quite sure that they themselves are taking the ethical high road against the wicked selfishness of Tories or Republicans or La Union pour un Mouvement Populaire, might on such evidence be considered dubiously ethical.  They are obsessed with first-act changes that cannot much help the poor, and often can be shown to damage them grievously, and are obsessed with an angry envy at the consumption of the very rich.  They are willing to stifle, through taxing the earners of high wages or profits, the trade-tested betterments that in the long run have gigantically helped the poor.  It’s an intellectual crime.

Quite so.

It is well past the time when intelligent and thoughtful people should stop applauding those who call for the simple taking – simple taking as can be imagined by any eight-year-old child or schoolyard bully – of resources from the rich for ‘redistribution’ to the poor.  As Deirdre explains, it is an intellectual crime for intelligent and thoughtful people to regard such taking-and-redistribution as either ethical or as the best means of improving the material well-being of the poor.  People who find merit in the ‘redistributionist’ proposals championed by the likes of Krugman and Piketty – or in those offered by politicians such as Bernie Sanders and Hillary Clinton – are shallow, careless, and uncreative thinkers.  They fancy themselves to be “progressive” only because they are apparently too ignorant, too simple-minded, or too lazy to comprehend the world in its full complexity, complete with all its many unintended consequences.  Such people see only the surface.  They hear only the loudest voices shrieking in the foreground.  They are blind and deaf to the depth and complexity of human society.  They are under the delusion that because they use terms such as “Gini coefficient” and “income quintiles” that they are entitled to advise the state to (attempt to) reorder society according to the their fancies.

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Posthumous Nobels

by Don Boudreaux on October 11, 2016

in Economics

My friend Reuvain Borchardt, a lawyer, asks if it’s possible for a Nobel Prize to be awarded posthumously.  My understanding (at least for the economics prize) is the following: a person loses his or her eligibility to win the prize come January 1st of the year following his or her death.  So, for example, someone who dies on September 30th, 2017 will be eligible to win the 2017 Prize, but not in any following years.

My understanding might be mistaken, but I once heard the above explanation from what my memory says was a credible source.  (Also, no Nobel in economics was ever so awarded posthumously, although William Vickrey died very soon after it was announced that he won it in 1996.  He died before the December ceremonies in Stockholm.)

Anyway, Reuvain’s question got me to thinking: What if unlimited posthumous economic Nobel awards were possible?  Who are the ten now-dead, non-laureate economists who I believe would be most deserving.  My idiosyncrasies will be evident in my list:

Adam Smith (of course, and not just because his is the single most famous name in all of economics)

David Ricardo

Carl Menger

Alfred Marshall

Ludwig von Mises

Frank Knight

Aaron Director

Armen Alchian

Gordon Tullock

Julian Simon

The hardest name to leave off of this list of ten is a tie between Joseph Schumpeter and Knut Wicksell; a name that was quite easy to leave off is John Maynard Keynes.

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Some Links

by Don Boudreaux on October 11, 2016

in Economics, Immigration, Politics, Trade

Caroline Baum exposes Donald Trump’s cluelessness about trade.  A slice:

Trade with other countries allows consumers to choose among a wide variety of high-quality goods at the lowest possible price. Trump ignores the effect of tariffs, which would raise the price consumers pay for finished goods and the price producers pay for the crude and intermediate materials used in finished goods. Besides, tariffs are most harmful to the poor, who spend most of their income on consumption goods.

Speaking of Trump’s many economic errors, GMU Econ alum Ben Powell unveils some of Trump’s misunderstandings of immigration.

Also from Ben is this nice op-ed on the benefits of free trade – benefits to which both Trump and H. Clinton seem blind.  A slice:

The increase in manufacturing jobs in the middle of the 20th century was only possible because the increase in agricultural productivity freed people from the farm while still enabling us to fill our bellies. Similarly, increases in manufacturing productivity allow our economy to create more valuable services jobs.

Unfortunately, as a Bloomberg poll indicated early this year, 65 percent of Americans believe the government should restrict trade even more and that this would protect American jobs. Unless we improve economic literacy, demagogues from both major political parties will continue to pander to people’s prejudices.

My Mercatus Center colleague Dan Griswold demonstrates why Charles Murray’s case for stopping the immigration of low-skilled workers to America is deeply flawed.  A slice:

What’s remarkable is the lack of consideration of all the negative knock-on effects from Murray’s drastic proposal. Someone who is solidly in the upper middle class, such as Murray, may have no problem paying the higher price for chicken under his low-skilled immigration ban, but the higher prices will fall hard on the budgets of the low-income workers Murray claims to be defending. Chicken producers in the United States will be squeezed from both ends, from falling consumption and revenue on one side and higher labor costs on the other. Like other labor-intensive industries, chicken processing will shrink, resulting in fewer employment opportunities for immigrant and native workers alike.

Richard Rahn explains the heavy price of political hypocrisy.

Writing in the Wall Street Journal, David Henderson summarizes the contributions of the 2016 Nobel laureates in economics.

George Will lays into Trump hard, honestly, eloquently, and with complete justification.  A slice:

Trump is a marvelously efficient acid bath, stripping away his supporters’ surfaces, exposing their skeletal essences. Consider Mike Pence, a favorite of what Republicans devoutly praise as America’s “faith community.” Some of its representatives, their crucifixes glittering in the television lights, are still earnestly explaining the urgency of giving to Trump, who agreed that his daughter is “a piece of ass,” the task of improving America’s coarsened culture.

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Josiah Quincy on Trade Restrictions

by Don Boudreaux on October 11, 2016

in History, Trade

Filip Jolevski took my Principles of Microeconomics class at George Mason University six years ago.  He was then a freshman and had little idea what economics is.  You’ll pardon me bragging that my class sparked in Filip a deep interest in economics.  He’s now a second-year doctoral student at GMU Economics.  I expect great things from him as a researcher and teacher!

This morning, Filip drew my attention to this speech by Josiah Quincy, probably from 1807, on the embargo that President Thomas Jefferson imposed, in late 1807, on American ships trading in foreign ports.  I agree with Filip that much of what Quincy says is an eloquent brief for unobstructed, free trade.  Here’s a passage:

Every class of men feels it.  Every interest in the nation is affected by it.  The merchant, the farmer, the planter, the mechanic, the laboring poor – all are sinking under its weight.  But there is this that is peculiar to it, that there is no equality in its nature.  It is not like taxation, which raises revenue according to the average of wealth; burdening the rich and letting the poor go free.  But it presses upon the particular classes of society, in an inverse ratio to the capacity of each to bear it.  From those who have much, it takes indeed something.  But from those who have little, it takes all.  For what hope is left to the industrious poor when enterprise, activity, and capital are proscribed their legitimate exercise?  The regulations of society forbid what was once property to be so any longer.  For property depends on circulation, on exchange; on ideal value.  The power of property is all relative.  It depends not merely upon opinion here, but upon opinion in other countries.  If it be cut off from its destined market, much of it is worth nothing, and all of it is worth infinitely less than when circulation is unobstructed.

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… is from page 334 of my late colleague Gordon Tullock’s 1987 essay “Concluding Thoughts on the Politics of Regulation,” which is the final chapter of the important 1987 collection, Public Choice & Regulation: A View from Inside the Federal Trade Commission (Robert J. Mackay, James C. Miller III, and Bruce Yandle, eds.):

If we look over the entire spectrum of government activity, we observe immediately that the creation of monopolies is one of the government’s major preoccupations.  It is traditional to say that the tariff is the “mother of monopolies,” and certainly no one who contemplates the U.S. trade-barrier structure would raise any question about this, except possibly to call attention to the existence of quotas as well.  Agriculture has been thoroughly monopolized by the Department of Agriculture, which not only restricts production, thus raising the price of food, but also uses the taxpayers’ money to subsidize the farmers in return for their agreeing to reduce production.

To anyone who is even passingly familiar with economic and regulatory history, the notion that the state is the – or even a – safeguard against monopolies is laughable.  People who fall for the commonly heard assertion that antitrust and other modes of state intervention play an important role in the process of keeping markets competitive are people who fall for mere words and expressed intentions.  They are not people who know anything about the history of such state interventions.  Nor are they people who possess an adequate understanding of market processes or of political processes.

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You earn $1,000 this week.  You spend $650 on consumption items (rent,* food, gasoline, a new pair of jeans) and save – you admirably prudent person you – $350.  You use this $350 to buy three shares of stock in Apple, Inc. (which are priced today at just over $116 per share).

The rest of the world – the non-you world; the economic entity that we might call the “non-youers” – has, as result of your transactions, a trade deficit with you this week of $350, and you have a trade surplus of exactly the same amount with the non-you world.  You exported to non-youers $350 more of goods and services (that is, of whatever it is you produced to earn your weekly income) than you imported from non-youers.

If mainstream media and most pundits are to be believed, you should be ashamed.  You must be up to no good!  You must be trading unfairly!  You must be stopped!!  Leaders of the non-you world call upon you to mend your frugal ways.  But you, possessing an independent turn of mind, laugh at the non-youers.  “I’ll spend and save as much as I choose,” you defiantly shout back at them across the boundary that separates your household from the non-youers.

The non-yourers are disturbed and worried.  They hold conferences at which prominent experts inform audiences that what the audiences all already think they know is in fact unassailably true: the non-yourers’ trade deficit with you is proof that you’re an unfair trading partner and that the non-youers’ trade deficit with you also is proof that the non-youers must revamp their trade and economic policies in order to prevent this calamity from continuing.

The non-youers – in unison, and behind their bellowing president-elect who campaigned on a platform of making non-youers great again in part by eliminating non-youers’ trade deficit with you – denounce you and erect penalties on all non-youers who trade with you until you credibly commit to stop saving and investing so much in the non-yourers’ economy.

You laugh at the silly and economically ignorant non-youers.  They, swathed in their blanket of economic ignorance, continue to snarl angrily at you for your dastardliness and to penalize themselves for hiring you to produce valuable outputs for the non-youers to consume.


* UPDATE: Although purchases by foreigners of real estate are recorded on the capital account, and thus contribute to a country running a current-account deficit, I above include rent as a personal consumption expenditure (that is, as an expenditure recorded on the current account).  I do so because – although a rented residential apartment is real estate – the renter does not, by paying rent, thereby acquire ownership of that real estate.  But in the end this classification is an accounting convention.  There is no reason why the payment of rent could not, or should not, be classified as an acquisition of title to real estate.  After all, the tenant who pays her rent on time and honors the other terms of the rental contract does acquire the right to occupy and use, according to the terms of the rental contract, her apartment for the duration of the lease.  That is, the tenant’s payment of the rent confers upon her ownership of the right to occupy her apartment.

It is not conventional in Anglo-American law to classify such a contractual right as ownership of the real estate, and I have no problem with this convention.  Yet it does show the economic arbitrariness of fretting about trade deficits.  In my little example above, if rental payments for real estate were recorded on the capital account, then your trade deficit with non-youers would be even larger than $350; it would be $350 plus whatever rent you paid that week.  Of course, any such reclassification would change nothing substantively about the economics of the matter.

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… is from page 568 of the final volume (2016) – Bourgeois Equality – of Deirdre McCloskey’s soaring trilogy on the essence and role of bourgeois values in modern life (original emphasis):

The big and little tragedies of a profit-directed economy are necessary for it to get better.  The same is true in science and art, though not about money profit.  Many experiments fail, and we get the benefit from the better ideas for surgeries and paintings and fish restaurants that succeed because resources have been reallocated to them instead.

Trade-tested betterment is the most altruistic of economic systems, because everything is directed toward satisfying ordinary customers.

Those who would restrict trade – here because the suppliers that customers choose to patronize aren’t members of state-approved guilds, there because the suppliers that customers choose to patronize carry passports issued by an agency different from the agency that issues those customers’ passports, and over yonder because the suppliers that customers choose to patronize charge prices that are deemed by ‘leaders’ to be too low or too high – are insufferably ignorant and arrogant.  They would disrupt the competitive process by substituting their own judgments of how trade should proceed for the judgments of the actual individuals who put their own money and reputations on the line with every trade – namely, consumers spending, and producers and investors risking, their own money.

While towns boasting names such as “Cambridge” and “Palo Alto” and “Washington” have no shortage of residents who can write abstract models that show just how this restriction on trade and that restraint of commerce can, under just the right circumstances, increase social welfare – and while these writers-of-abstract-models frequently fancy themselves as being counsellors and confidants to the Powerful – these writers-of-abstract-models remain not only shockingly naive about the actual motives and actions of the Powerful whom they so pantingly admire, but also distressingly unaware of how real-world economies differ in many crucial ways from their lovely abstract social-engineering models.

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