Trump Keeps a Key Campaign Promise

by Don Boudreaux on November 23, 2016

in Crony Capitalism, Trade

Here’s a letter to the Wall Street Journal:

Many people are distressed that Donald Trump is failing to assure us that he will refrain from using the power of the presidency to create special privileges for his private companies (“Donald Trump Raises Prospects of Keeping Ties to His Firms,” Nov. 23).  Yet in fact, Trump is simply delivering on a key campaign promise.

Central to Trump’s political message is the assertion that prosperity for ordinary Americans requires government creation of special privileges for existing, private firms – special privileges, such as tariffs, that artificially inflate the sales and profits of these firms.  (And those who eagerly bought into this message include not only Trump’s supporters but also those who cheered Bernie Sanders and those who voted for Hillary Clinton.)  Therefore, if using special privileges to artificially inflate the sales and profits of existing American firms is indeed the key to ‘shared prosperity,’ there’s no reason why Trump should not begin this glorious process of national enrichment by granting special privileges to his own Trump Organization, Inc.

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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… is from page 5 of Fred Foldvary’s and my colleague Dan Klein’s wisdom-filled “Introduction” to their superb 2003 collection, The Half-Life of Policy Rationales (original emphasis; footnote deleted; link added):

41if6jycrfl-_sx327_bo1204203200_Technology’s heightening of society’s complexity outstrips its heightening of the social planner’s informational capabilities.  Hayek, like [Adam] Smith, drew a lesson for policy: Except in the most clear-cut cases of systemic harm, like air pollution, the supposition that government officials can figure out how to improve the results of decentralized (i.e., voluntary) decision making becomes more and more outlandish.  In his Nobel lecture, Hayek called that supposition the pretense of knowledge. As intellectuals who ponder the complex workings of the social world, we really know little aside from one hardy fact: If those who participate in an activity do so voluntarily, each is probably bettering his or her own condition.  The more complex the system is, the more skeptical we ought to be about claims to knowledge that go beyond and against that hardy fact.

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Some Links

by Don Boudreaux on November 23, 2016

in Books, Civil Society, Crony Capitalism, Inequality, Regulation, Trade

My Mercatus Center colleague Veronique de Rugy argues that freedom of association should be more fashionable.

Ryan Young offers advice on how to shrink the gusher of midnight regulations.

Here’s an interesting passage from my colleague Tyler Cowen’s forthcoming book, The Complacent Class.

The Cato Institute’s Dan Ikenson is understandably upset – although not surprised – that mercantilists are being appointed to Trump’s trade team.

From earlier this year, here’s George Smith on Ayn Rand on fascism.  (HT Fee.org)

Iain Murray and Daniel Cody explain how the sharing economy awakens dormant capital.

A marriage made in hell.

Here are Arnold Kling’s favorite books of 2016.

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Wall-y World

by Don Boudreaux on November 22, 2016

in Crony Capitalism, Immigration, Seen and Unseen, Trade

In my latest column in the Pittsburgh Tribune-Review I advise, unsolicited (of course), the president-elect not to build the walls that he and his fans wrongly believe will help to improve America.  A slice:

Sure, there are gains to the workers and firms protected by tariff walls from their fellow Americans’ ability to trade freely with foreigners. But these protected firms’ resulting higher outputs are produced with resources from elsewhere in the economy. Output and opportunity in other parts of the economy shrink. American firms diverted by tariff walls into producing, say, more steel, rejoice. But this rejoicing ignores the jobs that these tariff walls destroy elsewhere in America and the loss of output from other domestic industries.

It’s easy to rejoice when a wall, literal or figurative, enriches you. And it’s even easier when the destruction wrought elsewhere by that wall is invisible. When a tariff wall causes people in Louisiana and Oregon to pay higher prices for steel made in Pittsburgh, no one can know how they would otherwise have used the extra funds they now pay to Pennsylvania steel producers. But those funds must be diverted from somewhere.

Yet because those somewheres are many, no one domestic industry suffers any great loss from higher steel tariffs. The destruction wrought by tariff walls is dispersed and, hence, invisible. But the sum of the losses is greater than the gain to domestic steel producers.

Americans on the whole are made poorer.

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Bonus Quotation of the Day…

by Don Boudreaux on November 22, 2016

in Myths and Fallacies, Trade

is David Henderson’s response – in the Comments section of this EconLog post – to the oft-made claim that trade agreements, such as NAFTA, are instruments of “managed trade”:

I’ve heard that line a lot and I’ve never understood it. Can you explain? So, for example, in the NAFTA agreement, there are substantial cuts in tariff rates. Is the fact that the rate doesn’t fall to zero what makes it “managed trade?”

I am – as I suspect David is – a proponent of unilateral free trade.  No trade agreement is necessary for a government to adopt this ideal policy.  And because real-world trade agreements universally fail to achieve complete free trade, real-world trade agreements are universally less than ideal.  Each such agreement can and should be criticized for failing to achieve an ideal that is economically not only possible, but easily economically possible and immensely beneficial.

But political realities being unavoidable – and freer trade being superior to not-freer trade – freer trade is an acceptable real-world outcome.  In my assessment (as in the assessment of many others), most so-called free-trade agreements make trade freer.  (A more-accurate name for them would be “freer-trade agreements.”)  And for this reason such agreements deserve the support of proponents of free markets if the only plausible option is the status quo of not-freer trade.

For free-market proponents to oppose freer trade because it isn’t fully free trade is akin to opposing cuts in marginal tax rates because the proposed cuts don’t eliminate taxes altogether.  It’s akin to opposing legalization of marijuana if not all drugs are legalized.  Or akin to a refusal to join with, or to support, those who oppose raising the minimum wage on the grounds that those opponents aren’t actively working for a complete abolition of minimum wages.

It is true that NAFTA, WTO agreements, TPP, and other such bilateral and multilateral freer-trade agreements leave in place many trade barriers and specify the always-too-slow timing of tariff reductions.  But these arrangements are no more instruments of “managed trade” than are government policies that prohibit the sale of some drugs, sex, and body organs – and impose taxes on the sales of all other goods, – instruments of “managed consumption.”  While I argue for eliminating all of these promotions and taxes, if such elimination isn’t politically feasible, then any move to reduce the number of prohibitions and the rate of taxation will make market freer and, hence, worthy of the support of proponents of free markets.

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A Challenge to Mercantilists

by Don Boudreaux on November 22, 2016

in Trade

David Henderson’s excellent post today, at EconLog, on the zombie-like character of mercantilism prompts me to issue the following challenge to any protectionist/mercantilist/economic-nationalist who might wish to take it on: Identify one plausible economic problem caused by free trade that is unique to trade that spans political borders.  Just one.  That is, identify a problem with free trade that arises when people are free to buy and sell internationally but that does not arise when people are free to buy and sell intranationally.

The identified problem must be real – that is, the alleged effect must be likely to occur in reality when trade in free, and likely to create net economic harm for domestic citizens.

By confining the acceptable set of problems to those that are legitimately labeled “economic,” I mean to exclude problems, be they real or imaginary, that are better described as cultural, political, or related to national defense.  For example, the following answer is not acceptable: “Free trade creates problems because if we have a comparative disadvantage in the production of aluminum, then if a shooting war breaks out we’ll be dependent upon possible enemies for an essential war material.”

By excluding all non-economic answers I do not mean to suggest that I believe that asserted cultural, political, and national-defense rationales for protectionism are generally valid.  In fact, I believe quite the opposite.  But free international trade can indeed have cultural, political, and national-defense effects that differ fundamentally from any such effects that might be caused, or avoided, by free intranational trade.  In contrast, I can think of not a single asserted negative economic effect of international trade that is not also an effect that is likely to occur within a large and vibrant domestic market whose denizens are free to innovate and to trade with each other but not with foreigners.

But perhaps my imagination is weak and my knowledge of economic history shallow.  Perhaps you can identify one or more such negative economic effects that are likely to be caused by free international trade but that are unlikely to arise when trade is internally free but not externally free.

…..

Let me here help those who aren’t steeped in the international-economics literature by providing a list of the economic problems that are typically (or at least sometimes) alleged to justify protectionism:

– free trade destroys some particular jobs
– free trade leads to permanent joblessness of some particular workers
– free trade permanently increases the rate of joblessness in free-trading countries
– free trade destroys some particular industries or sectors (such as manufacturing)
– free trade economically devastates particular geographic regions within free-trading countries
– free trade lowers the pay of workers in high-wage countries
– free trade lowers the pay of workers in low-wage countries
– free trade leads to “trade imbalances”
– free trade promotes destructive financial speculation
– free trade leads to excessive consumer indebtedness
– free trade leads to excessive government indebtedness
– free trade promotes excessive materialism
– free trade increases economic insecurity among those whose livelihoods might be destroyed by imports
– free trade harms the environment
– free trade raises the costs of some domestic resources
– free trade promotes income or wealth inequality
– free trade allows rich countries to harmfully exploit poor people in poor countries

You can, undoubtedly, imagine still other economic problems allegedly caused by free international trade.  What are these problems?  And are these other problems, or any or all of the ones listed above, unique to free international trade?

My challenge isn’t rhetorical – or, rather, it’s not fully rhetorical.  My strong suspicion is that no one will successfully identify an economic problem that is unique to free international trade.  But I am sincere when I say that I might be proven wrong.  If so, I will admit my error.  But even in the face of such a unique problem, the case against free trade would remain as yet unestablished, for the magnitude and likelihood of that problem (whatever it might be) would then have to be weighed against the enormous and nearly 100-percent-likely benefits of free international trade.

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Who’s Responsible for Whom?

by Don Boudreaux on November 22, 2016

in Civil Society, Nanny State, Risk and Safety

Here’s a letter to a long-time correspondent:

Mr. L. ____

Mr. L. ____:

Thanks as always for your e-mail.

In response to my call to abolish nanny-state ‘protections,’ you write that “there is a practical problem: When individuals make poor decisions, the rest of us are compelled to bail them out.  When Smith ingests whatever substances he wishes and is near death, shall we let him die?”

I’ve a three-part answer:

First, who are “we”?  Individuals relate to each other in a rich variety of different voluntary associations such as families, friendships, clubs, and neighbors.  For their members, these associations offer privileges as well as carry responsibilities.  For example, I certainly would not let my son die even if he were irresponsibly overdosing on a drug, be it a legal one such as alcohol, or an illegal one such as heroin.  So, yes, of course we have responsibilities to each other – even to those among us who are foolish – but we have only those responsibilities that we voluntarily choose to have within the institutions of civil society.  “We” are not obliged to use the state to force each other to ‘care’ indiscriminately for each other.

Second, anyone, such as yourself, who values the ideal of a society of free and responsible individuals should steadfastly resist the use of state power to protect individuals from the consequences of their own choices – especially when the exercise of that power restricts responsible-individuals’ freedom to pursue peaceful activities that are pursued also by a subset of irresponsible individuals.

Third, your question presumes that legalizing all drugs will make drug use more hazardous.  I dispute this presumption.  Not only will legalization encourage reputable, peaceful suppliers to displace the violent criminals who now supply prohibited drugs – not only will legalization diminish abusers’ reluctance to reveal their addictions to friends and physicians – not only will legalization permit legal recourse against those who supply drugs more dangerous or toxic than their buyers had reason to suspect – legalization will also, by ridding suppliers of the need to conceal their products from the authorities, reduce the potency of drugs, thus reducing the risks of accidental overdosing.

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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Quotation of the Day…

by Don Boudreaux on November 22, 2016

in Hayek, Hubris and humility

… is from page 18 of Ronald Coase‘s and Ning Wang’s superb 2012 book, How China Became Capitalist (footnote deleted):

51z4z9-znol-_sx345_bo1204203200_The tragedy of the Great Leap Forward illustrates that the differences between a command and a market economy reflect a deep difference in mentality and attitude.  A market economy can only be tolerated when no one is confident enough to claim omniscience.  A point stressed by Hayek, the far-reaching implications of which have yet to be fully recognized, is that the most critical advantage of a market lies less in its allocative efficiency, and more in its free flow of information….  A market economy assumes two deep epistemic commitments: acknowledgement of ignorance and tolerance of uncertainty.

DBx: Yes.  Of course, few politicians, professors, or pundits claim to possess actual omniscience.  No matter.  Many do claim to possess – or to possess an always-mysterious means of divining –  knowledge that is more full and superior to that of individuals on the ground.  FDA officials claim to know better than you and me and our neighbor Smith what level of risks you and me and our neighbor Smith each should be permitted to incur in our medical treatments.  Antitrust officials claim to be able to outguess the competitive market on which particular industrial structures are acceptable and which are harmful.  Bureaucrats and law professors claim to know better than you and me and our neighbor Smith how our eating habits and our retirement plans should be arranged.  Uniformed bureaucrats in the Department of Defense and business-suit-wearing bureaucrats in the Department of State claim to have special knowledge of how to ‘build nations’ abroad.  Experts in econometrics claim to possess expertise in knowing whether or not individual employees ought to be permitted to agree to work at wages below some government-enforced minimum.  Bureaucrats who spend only other people’s money through that great geyser of cronyism, the U.S. Export-Import Bank, claim to know better than any of tens of thousands of investors worldwide – all of whom spend only their own money or money voluntarily entrusted to them – which particular businesses outside of the United States should, and which should not, receive loans in order to efficiently survive in competitive markets.  Politicians and bureaucrats almost everywhere pose as possessors of some special knowledge of optimal land-use patterns.

The list of such arrogance is long and depressing.

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Here’s some useful myth-busting about health-care from John Graham.  A slice:

As I’ve previously written, I agree utterly with the Commonwealth Fund scholars that health care in the United States is delivered inefficiently and over bureaucratized. Nevertheless, the suggestion that U.S. health care is the worst overall is not consistent with the data.

Adam Ozimek is shocked – shocked! – that Paul Krugman has recently changed his tune on the merits of discounting the long-run costs of inefficient spending relative to the alleged short-run benefits of such spending.  A slice:

I have expected some inconsistency for pundits now that the country’s most prominent Keynesian is a vulgar, bullying, xenophobic Republican. But I expected stagnationists like Krugman would get their complaints out, demand hard bargaining, but accept in the end we should bite the bullet. The extent of the pivot is really something to behold.

Writing in the Washington Post, Bjorn Lomborg says that “Trump’s climate plan might not be so bad after all.”  A slice:

The Organization for Economic Co-operation and Development analyzed almost all aid from the United States and other rich nations and found that about one-third is climate-related aid.

This is immoral when 2 billion people suffer from malnutrition, 700 million live in extreme poverty and 2.4 billion are without clean drinking water and sanitation. These problems can be tackled effectively today, helping many more people more dramatically than “climate aid” could.

Richard Epstein identifies the source of California’s needless housing crisis.

Russ Roberts’s latest EconTalk podcast is with the University of Chicago’s Erik Hurst.

Here’s sound advice from Warren Meyer.

Jeffrey Tucker reports from Brazil.

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Bonus Quotation of the Day…

by Don Boudreaux on November 21, 2016

in Myths and Fallacies

… is from page 243 of Michael Huemer’s great 2013 book, The Problem of Political Authority (original emphasis):

41vbnfveokl-_sx322_bo1204203200_Granted, the ideal system is one in which people serve justice for the right reasons.  But … government is unlikely be that system.  If one must choose between a system in which people serve self-interest in the name of justice and one in which people serve justice in the name of self-interest, surely we must prefer the latter.  To prefer a system that hands people the tools to exploit others for selfish ends while assuring them that they are supposed to serve justice, over a system that makes justice profitable and allows people to choose their own course, would be to repose a utopian faith in the power of supposition.

DBx: Indeed so.  And yet overwhelmingly large remains the number of people who, while fancying themselves rational, scientific, clear-headed, and “reality-based,” cling fervently and unquestioningly to this utopian faith.

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