F&#$ Fifteen!

by Don Boudreaux on July 22, 2016

in Reality Is Not Optional, Seen and Unseen, Video, Work

Trigger warning: This video has adult language (and great content).

One of the many wrong-headed arguments made by proponents of minimum wages is that employers can simply raise the prices of their outputs in order to cover the higher labor costs they must bear due to legislated minimum wages.  People who offer this argument never pause to ask: when the prices of outputs made with disproportionately large numbers of low-skilled workers rise relative to the prices other outputs, what happens to the quantities of those outputs bought by consumers?  The answer, of course, is that the quantities of those outputs bought by consumers fall – a reality that reduces employers’ demand for minimum-wage workers.

Despite lots of wishful thinking (often buoyed by naïve empirical analyses), there is no escaping economic reality even when the economic reality that people wish to escape bears upon low-skilled workers.

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Calvin Coolidge for President

by Don Boudreaux on July 22, 2016

in Politics

Brooke

(HT Perry Eidelbus for alerting me to this Menckenesque cartoon by Brooke McEldowney)

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Quotation of the Day…

by Don Boudreaux on July 22, 2016

in Hubris and humility

… is from page 7 of Thomas Leonard’s 2016 book, Illiberal Reformers (footnote deleted):

The longstanding emphasis on politics and reform professionals was itself a progressive legacy.  The earlier accounts of Progressivism, written by such historians as Benjamin Parke DeWitt, were self-portraits.  They painted ordinary people into the background as passive victims of the rough winds of economic change.  The progressives filled the foreground, a vanguard of selfless scholars and activists leading the People – if not any recognizable people – in a crusade against wealth and privilege.

Every wannabe savior – whether, in America, a Republican Führer or a Democratic czarina – needs victims who need saving.  What is especially discouraging is the number of people who, scared by the phantasms that these saviors insist loom as imminent dangers, cravenly bleat for such saving.

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… is from page 119 of my teacher Leland Yeager’s, and of his co-author David Tuerck’s, still-relevant 1966 volume, Trade Policy and the Price System:

Wanting import barriers to remedy unemployment shows poor understanding of what causes and cures recessions.  Imagine – trying to become prosperous by getting rid of goods worth more than those you get!  As J.M. Keynes once suggested, a tariff can do nothing against unemployment that an earthquake could not do better.

In this matter, Keynes was correct.  Yet the difference between Keynes (and those who accept his nostrums) and sensible economists is that Keynes came to believe – as many Keynesians today believe – that tariffs and natural disasters (and terrorist attacks) are alike in that both are effective means of making people richer during recessions while sensible economists understand that tariffs and natural disasters are alike in that both are effective means of making people even poorer during recessions.

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Bonus Quotation of the Day…

by Don Boudreaux on July 20, 2016

in Hayek, Prices

… is from page 153 of F.A. Hayek’s 1939 essay “Prices versus Rationing,” which is reprinted as chapter five of the 1997 collection, edited by Bruce Caldwell, Socialism and War (footnote excluded):

Where it is a question, not of a momentary emergency, but of obtaining the largest supplies over a period and at the least sacrifice of other production, the price mechanism is infinitely superior to any other method.  A rise of prices not only forces people to use the commodity sparingly in every possible use, including myriads of uses which the cleverest planner could scarcely think of.  It also encourages the use of substitutes wherever such can be found, gives people an incentive to draw on their stocks and utilize scrap, and thus draws supplies from every nook and corner, engaging the ingenuity of all who have anything to do with the commodity to find means of economizing it with a thoroughness which no central regulation could possibly imitate.

Indeed.  This quotation is a lovely summary of some of the important, useful, yet too-often-neglected roles that market-determined prices play in society.

But I pick a tiny nit with Hayek’s wording: a rise of prices doesn’t force “people to use the commodity sparingly.”  Instead, a rise of prices encourages people to use the commodity sparingly.  Rising prices of, say, steel are not guns to the head of steel consumers, demanding that consumers cut back on their consumption of steel.  Instead, rising steel prices are incentives that encourage consumers to cut back on their consumption of steel.  And precisely because each individual is free to respond or not, and free to respond however strongly or weakly, to such an incentive, the consumers who will be least reluctant to cut back on their consumption are the consumers whose demands for the now-higher-priced commodity are least intense.

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Put Me Into a Coma Come Jan. 20th.

by Don Boudreaux on July 20, 2016

in Politics

I can understand and appreciate why some people believe that Donald Trump would be a less-dangerous president than would Hillary Clinton.  (Although I no longer hold that view, I once did.  And I concede that my current reckoning of the relative risks might be mistaken.)  But I cannot understand why any sensible person believes that a Pres. Trump would serve any good purpose (beyond a Pres. Trump preventing there being a Pres. H. Clinton).  I cannot understand why any sensible person thinks that a Pres. Trump will diminish rent-seeking and otherwise make the U.S. government less hostile than it currently is to Americans’ freedoms and prosperity.

Pres. Trump’s politically incorrect harrumphing and mad verbal ejaculations will no doubt give heartburn to “Progressive” academics with offices on the Charles and to “Progressive” editorialists with offices in Manhattan.  But so what?  Is a man such as Trump – a man so ignorant of civics, so boastfully boorish, so openly contemptuous of the rule of law, so flamingly ignorant of economics, so nastily bullying, so full of nativist fallacies, so fond of (and skilled at) rousing the rabble, and so megalomaniacal – likely to be someone who does positive good does not do great harm?  Uh-uh.

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As the Wall Street Journal correctly notes, Julian Simon would not be surprised by this example of human ingenuity in response to increased scarcity of resources.  (HT David Feith)

Here’s the abstract of a new paper by Zorina Khan on the industrial revolution:

Endogenous growth models raise fundamental questions about the nature of human creativity, and the sorts of resources, skills, and knowledge inputs that shift the frontier of technology and production possibilities. Many argue that the nature of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to British industrialization, by assessing the backgrounds, education and inventive activity of the major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the British great inventors, and their contributions remained unspecialized until very late in the nineteenth century. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for prevailing domestic conditions.

My intrepid Mercatus Center colleague Veronique de Rugy calls out many Republicans for the cronyists that they are.

Peter Calcagno and Ed López get to the roots of today’s fiscal imprudence.

Mark Perry unearths an important distinction made by Milton Friedman between “fair” and “free.

When I teach I emphasize to my students the enormous amount of highly specialized capital equipment that workers in the global economy work with.  This equipment is key to making these workers as productive as they are – and, hence, key to making these workers as highly paid as they are and key to making humanity as wealthy as it is today.  Here’s a video showing the production of modern tennis balls.  (HT my old friend John Kunze)

Like Joey Clark, I, too, would be appalled were my son to pursue political office.

Las Vegas is not my favorite place on earth, but whenever I’m there I – like Steve Horwitz – marvel at the human ingenuity and creativity manifested in that city.

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Trade Is Not War

by Don Boudreaux on July 20, 2016

in Myths and Fallacies, Trade, Video

In this short video, Johan Norberg explains that – contrary to bloviating-ignoramus politicians and to antediluvian mercantilist superstitions – trade is not war (and China is not “killing us”).

By the way, Johan’s 2003 book, In Defense of Global Capitalism, is one of the very best books ever written on trade and globalization.

….

The full set of Johan’s splendid “Dead Wrong” videos is available for free here.

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Quotation of the Day…

by Don Boudreaux on July 20, 2016

in Other People's Money, Politics

… is from page 331 of the 1996 Johns Hopkins University Press edition of H.L. Mencken’s 1956 collection, On Politics: A Carnival of Buncombe; specifically, it’s from Mencken’s October 26, 1936, article – published just before the national election pitting incumbent president Franklin Roosevelt against challenger Alf Landon – “Sham Battle”:

The state – or, to make the matter more concrete, the government – consists of a gang of men exactly like you and me.  They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office.  Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them.  Nine times out of ten that promise is worth nothing.  The tenth time it is made good by looting A to satisfy B.  In other words, government is a broker in pillage, and every election is a sort of advance auction sale of stolen goods.

Perhaps showing how much longer and more expansive the reach of government has become over the past 80 years, I suspect that were Mencken writing these words today he’d change nothing save to note both that lots more women have gotten into the looting-through-government business, and that the percentage of electoral promises made good by looting A to satisfy B has risen to well above the ten percent that Mencken estimated it to be on the eve of F.D.R.’s first re-election as U.S. president.

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Every summer since 2011 I’ve taught an intro economics course for undergraduate interns brought to D.C. by my dear friends at the Fund for American Studies.  (Since 2013, this course has been offered through my home institution, George Mason University.)  Almost all of the students are Americans who study at American colleges and universities.  The majority of these students are aspiring journalists.

As always, near the end of the course I cover foundational public-choice economics – including an introduction to Arrow’s Impossibility Theorem.  Summarizing the conclusions of this literature as succinctly as my meager writing skills permit, Arrow’s theorem – made famous by Nobel laureate economist Kenneth Arrow (and often explained using examples from the work of the Scotsman Duncan Black) – says that it is impossible for any collective decision-making mechanism or procedure to generate outcomes that reflect only the preferences of the choosers.  The outcomes of all collective decision-making mechanisms or procedures – including majoritarian voting – necessarily are determined in part by the manner in which those mechanisms or procedures are used to settle upon outcomes.  Put differently, Arrow proved that it is impossible to devise any collective decision-making mechanism or procedure that generates results free of the influence of arbitrary factors (that is, factors that reasonable people believe should not play a role in determining the outcomes of decision-making procedures).

The short conclusion for majoritarian voting is this: the preferences of the voters are not the only factors that determine the outcomes of elections.  If the manner in which the vote in conducted is changed, the outcome of an election will change even if no voter’s preferences change.

Put even more succinctly: in almost all elections, there isn’t only one correct outcome.  There isn’t one outcome that reflects the individual-voters’ collective “preference” better or more accurately than some other possible outcomes.  Stated differently, in almost all collective-decision-making settings, there is no “will of the people.”  It’s a mistake to anthropomorphize a group of people.  Each individual has preferences; a collection of individuals has only a collection of individual preferences and not a separate and determinate group preference.

This material is pretty heady stuff, for an understanding of it drains away much of the foolish romance that many people have about ‘the people’s will’ being discovered and implemented through non-corrupt democratic voting.  (And when the work of other public-choice-oriented scholars such as Jim Buchanan, Gordon Tullock, Mancur Olson, Anthony Downs, Bob Tollison, Bruce Yandle, Charlie Goetz, Charlie Plott, Dwight Lee, Roger Meiners, Fred McChesney, Bob Higgs, Geoff Brennan, Loren Lomasky, Bill Shughart, Randy Holcombe, Sam Peltzman, Mark Crain, Viktor Vanberg, Russ Sobel, Roger Congleton, and George Stigler – along with many of my current colleagues, including Dick Wagner, Bryan Caplan, Thomas Stratmann, and Alex Tabarrok – are added to the mix, the notion that the government consistently acts to promote some identifiable ‘public welfare’ becomes downright laughable.)

After running this evening in class through a few examples of Arrow’s Impossibility Theorem, a young woman raised her hand to ask me: “What year did you say Professor Arrow won the Nobel Prize?”

1972,” I replied.

“How come, then, we’ve never heard of him until just now, in your class?” she sensibly and earnestly inquired.  “Why haven’t we been taught this material until now?”

Good – great! – question.  I don’t know the answer.  I do know, however, that it’s appalling that the typical college student today is ‘taught’ only the unscientific, romantic view of democratic government and is never exposed – save at schools such as GMU – to the science of public choice.

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