… is from page 304 of the final (2016) volume – Bourgeois Equality – of Deirdre N. McCloskey’s pioneering trilogy on the essence of bourgeois values, on their transmission, and on their essential role in modern life (original emphasis):

The central error of comprehensive socialism or the regulatory impulse is to suppose that betterment does not need to be tested by trade, that no discoveries are to be made by performing cash tests on millions of individual and idiosyncratic people about what they value, that we already know everything we need to know to satisfy and protect the consumers.  Therefore it seems right  and proper to hand over the regulation of the economy to the state – that is, for the state to act, in John Kenneth Galbraith’s brilliant rhetoric of 1952 (which installed the notion in the minds of American Democrats) as a “countervailing power,” a perfectly unbiased referee, between unions and businesses.

The point is that the prejudices against the middleman, the boss, the banker – vile things – if it gets beyond cheap talk, and it often does, can stop cold all discovery, betterment, and creative destruction.

“Progressives” mistake as “science” their habit of lumping countless idiosyncratic individuals and things, each always in an ever-changing set of deeply nuanced circumstances, into catch-all categories (such as “consumers,” “labor,” “government,” “the environment,” “the health-care sector,” “the money supply,” “the unemployment rate,” “the capital stock,” and “imports”) and then theorizing about how these big blobs of people and things interact with each other, and how these interactions can be ‘improved’ by an apolitical, loving, intelligent, ever-diligent scientific guiding hand.  That professors and their graduate students can assemble data on each of these big blobs of people and things, can write intricate equations describing mathematically how the professors and their graduate students imagine these blobs interacting with each other, and use the gathered data and sophisticated software to “test” the equation-ladened “models” seems oh-so-objective and truly scientific.

Yet most such exercises are b.s.  Far too many of these exercises, when done by economists, are done in utter disregard of the meaningful, if impossible to observe from afar, differences that separate from each other each of the individuals and things that comprise each constructed blob.  Far too many of these exercise are done by people whose impressive, deep, and vast knowledge of econometric techniques does not begin to compensate for their innocence of price theory, of history, and of formal and informal institutions.

Correctly taught and understood, economics reveals that reality is vastly more complex than the economically untutored mind realizes.  Yet this message of complexity is unwelcome by those who want to rule and command.  The reason is that to understand the reality of reality’s complexities is to understand that ruling and commanding – the actions of the “man of system” – can only worsen most individuals’ lives.  Ruling and commanding of the sort that “men – and women – of system” itch to do can only disrupt for the worse, and not improve for the better, the spontaneous forces of society.

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… is from page 4 of Garrett Barden’s and Tim Murphy’s 2010 Oxford University Press book, Law and Justice in Community (footnotes excluded):

The living law is the set of communally accepted norms that express how, in certain types of situation, members of the community are obliged to act.  Indeed, in many cases, we simply use the term ‘custom’ to the living or communal law.

The living law of a community is originally unwritten and represents what is generally accepted as a community and what can, in some of its aspects, distinguish it from other communities.  It constitutes the commonly accepted moral rules of the community, some of which, but rarely ever all of which, may be written down.  In any community some norms will be taken to be of greater importance than others; some will be of such significance that failure to act in accord with them will occasion significant disapprobation; others will meet with only mild disapproval or disdain.

The living law, in other words, is a moral tradition: it is the set of those ways of acting that, in a particular community, are admired and thought appropriate to common types of situations.

Indeed so.

Law – as opposed to legislation – is never consciously designed.  Like language, law evolves undesigned from countless interpersonal interactions.  Like language recorded in dictionaries and in books of grammar, law can be recorded and codified.  But such recordation and codification no more create law than does the publication of a dictionary and a book of grammar create language.  And just as arrogant codifiers of a language, were they sufficiently powerful, might be imagined to send out armed troops to prohibit certain common uses of verbs and to demand certain uncommon uses of nouns, arrogant codifiers of the law, when sufficiently powerful, actually do send out armed troops to prohibit certain common lawful practices (such as paying low-skilled workers wages below the dictated minimum) and to demand the performance of certain uncommon unlawful practices (such as paying to armed goons punitive fees for the ‘offense’ of buying goods sold by foreign merchants).

The widespread mystical belief that the state is the source of law is one of the largest barriers remaining to a more accurate and true understanding of social reality.  The state can, in the best of remotely possible circumstances, enforce law (although law enforcement does not require the state); the state can also – and also only under the best of circumstances – codify law into legislation (although not without great risks).  But the state can no more make law than it can make language or market prices.  That it frequently pretends to make such phenomena is merely imperious pretense.

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More Silly Arguments About Walmart

by Don Boudreaux on September 19, 2016

in Myths and Fallacies, Wal-Mart, Work

Here’s a letter to a new and quite insistent correspondent.  This correspondent tells me that he’s a college student, but he’s yet to say what college he attends.  (One thing is certain: he’s no GMU Econ student.)

Mr. Jared Jordan

Mr. Jordan:

Thanks for your follow-up e-mail challenging me to “rebut” what you describe as your professor’s “air tight argument that Walmart imposes costs on taxpayers” because “it [Walmart] refuses to pay its workers enough for them to break out of welfare.”

This argument is completely nonsensical; no competent economist gives it any credence.  (You don’t say what this professor of yours teaches.  If it’s economics, you deserve a tuition refund.)  As it happens I’ve addressed this argument several times; see the links below.*  But because this argument is distressingly widespread among non-economists I offer here a few words beyond pointing out what should be (but seemingly isn’t) obvious – namely, this argument implies that workers have no desire for wages above those that are minimally necessary for them and their families to survive.  The fact that the vast majority of workers in the industrialized world – including most Walmart workers – earn wages much higher than subsistence is itself powerful evidence against this silly argument.

Yet you and your professor condemn Walmart because, you allege, it can “afford” to pay its workers more.  How do you know?  How do you know that if Walmart arbitrarily raises its workers’ wages that its rate of return won’t fall so low that shareholders and other investors flee and, thus, eventually force that company into bankruptcy?

You, in fact, don’t know what you presume to know.  You likely suppose that because most Walmart shareholders live well above subsistence that they are blameworthy for not dipping into some of their ‘excess’ wealth in order to pay Walmart workers arbitrarily higher wages.  But if this supposition is valid, then why are only Walmart shareholders blameworthy?  Why isn’t your professor also blameworthy?  I’m quite sure that he lives well above subsistence and, therefore, can afford to share some of his wealth with Walmart workers.  Ask your professor when he last went to his local Walmart to hand out arbitrary sums of his own money to the workers there.  (They would certainly appreciate the gesture.)  If your professor is honest, he’ll confess that he has never done so.  So when he makes this confession, ask him if he believes that his failure to give more of his money to Walmart workers means that he, too, is blameworthy for failing to prevent some people from receiving taxpayer-funded welfare.

Do let me know your professor’s answers.

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

hereherehere, and here

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Some Links

by Don Boudreaux on September 19, 2016

in Crony Capitalism, Economics, Financial Markets, Immigration, Regulation, Trade

My intrepid Mercatus Center colleague Veronique de Rugy exposes the latest scheme to breathe even more life into that great geyser of cronyism, the U.S. Export-Import Bank.

Kevin Williamson is rightly stressed over the secretive manner by which Uncle Sam now regulates financial institutions.  (HT Warren Smith)

Speaking of financial-market regulation, Greg Mankiw points us to evidence that this regulation hasn’t made bank stocks less risky than they were before the financial crisis.

Jeffrey Tucker draws lessons from the works of the late Edward Albee.

GMU Econ alum Abby Hall Blanco shares her thoughts on Colin Kaepernick and the U.S. national anthem.  A slice:

Quite frankly, I don’t care that Kaepernick chooses to sit during the national anthem, regardless of his motives—good, bad, or indifferent. He has absolutely every right to do so. My response to the argument that it’s “offensive” is the same response I give every time someone “argues” with the adult of equivalent of “it hurts my feelings.”

Go kick rocks.

I agree with GMU Econ alum Wayne Crews that the Federal Communications Commission should disappear.

James Pethokoukis points out that one policy that will promote the 4 percent annual rate of economic growth that Donald Trump says he wants to achieve for the U.S. is massively increased immigration into the U.S.

John Tamny highlights some of the lousy economic advice that Peter Navarro dispenses to Donald Trump.

Finally, this 2002 essay on trade by Barry Loberfeld is still worth reading.

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… is from page 6 of the first chapter of the 3rd edition (1972) of what is regarded by many (including me) to be the greatest economics textbook ever written, University Economics by Armen Alchian and William Allen:

Although many of us solve our personal problems, we may still be grossly ignorant about how our actions and laws affect the rest of society.  Comprehension of these larger effects requires economic theory, even if virtually none is required to for individual decisions.  We can be sure, as we shall see later, that economic analysis is ignored when the following incorrect assertions are proposed: the rationale of the capitalistic system requires a “harmony of interests”; customers must take what producers offer them; minimum-wage laws help the unskilled; discrimination can be stopped; pollution of air and water unquestionably should be stopped; automation reduces available jobs; tariffs protect domestic wage earners from foreign labor; our otherwise unlimited productive capacity is curtailed by monopolistic capitalists who arbitrarily set prices high; unions protect workers from greedy employers; inflation hurts the wage earner and benefits the employer; private firms serve private interests while publicly owned agencies serve public interests; used-book markets must reduce the royalties of textbook authors; social conscience and civic sensitivity are or should be the guides to business corporate behavior; unemployment occurs because not enough jobs are available or because some people are shiftless and lazy; or American agriculture produces a surplus of wheat because it is so productive.  And that’s only a tiny sample!

This passage begins with the important insight that success at achieving personal goals, including earning profit by running a private business firm, does not imply that the successful person understands economics.  He or she might understand economics, but such understanding does not come from success or experience in business.  The two kinds of knowledge – knowledge of how to successfully carry out one’s plans, on one hand, and, on the other hand, knowledge of how the disparate plans of millions or billions of strangers interact with one another and are led, or not, by prices or by politicians into complex patterns of mutual coordination – are very different from each other.

This passage from Alchian & Allen – written nearly a half-century ago – lists economic misunderstandings that were prevalent in that era.  Not all such misunderstandings are as prevalent today.  For example, the John Kenneth Galbraith obsession with private corporations foisting on consumers products that consumers really don’t want at extortionately high prices isn’t quite as prominent today as it was back then.  (Although a gussied-up version of this obsession has recently emerged.)  But it’s striking how many of the fallacies that were prominent in the late 1960s and early 1970s remain with us today – such as the belief that minimum wages are an effective means of helping all low-skilled workers, or that tariffs protect domestic workers from falling into poverty due to the competition of lower-paid foreign workers, or that the optimal level of industrial emissions into the air and water is zero.

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As with the Kristen Bell video that I riffed on in this earlier post, several people have sent me the link to this recent NPR report on the alleged shadiness of “middlemen.”  My goal here is neither to address the issue of middlemen in full nor to justify every aspect of the particular re-selling that is featured in this NPR report.  Rather, my point is simply to say a kind word about the middleman and middlemen.

Middlemen are woefully misunderstood and, hence, condemned – as revealed, for example, by this question asked by NPR reporter Stacey Vanek Smith to someone who was buying a product from its producer at one price and reselling it to consumers at a higher price:

Did you ever feel like we’re not actually doing anything? You know what I mean? Like, you’re not adding anything to the product. Did you feel weird about that?

But middlemen do add something to the product: greater accessibility.  This greater accessibility can be geographic – as when supermarkets collect tens of thousands of different grocery items from around the world into retail stores, each located a short distance from most consumers’ homes.  This greater accessibility can come in the form of more peace of mind for consumers – as when supermarkets warrant, both formally and informally, the products that they sell: if you buy from your local supermarket a gallon of milk that’s sour, you can return it to your local supermarket and get your money back or a gallon of fresh milk.  This greater accessibility can come in the form of more information – as when a supermarket discovers some grocery item that you’ve never heard of and brings it to your attention (say, by displaying it prominently) when you visit the supermarket.

Each consumer is free, on his or her own, to visit farms and factories and processing plants in order to purchase items directly from producers.  But, of course, such visits would be enormously time consuming and would cost quite a lot in airfare and other travel expenses.  We know that retailers and other middlemen perform valuable services because we observe consumers, everyday, voluntarily paying for these services.

Here’s an ode to middlemen that I wrote a few years ago.

…..

As for the particular middleman service featured in the NPR report, I will here say one word about it.  One might conclude that buying from the producer product X at $40 and reselling product X to consumers for $60 is a means of ripping-off consumers.  But before you reach this conclusion, ask: why do consumers pay this higher price?  It must be because, not only do they value this good by at least as high as $60, they also are unaware of the availability of this product at the lower price.  We can all agree that it’s unfortunate that consumers don’t have perfect – or at least fuller – knowledge of prices  Were consumers better informed of prices, the middlemen who buy on-line at $40 and then resell on-line at $60 would have to find some other line of work, because consumers would themselves buy directly on-line at $40.  Yet, obviously, many consumers in fact don’t know of the product’s availability at the lower price.  That’s the reality, however unfortunate it might be.

The middlemen who buy the product at $40 and then offer to resell it to consumers at $60 must have some better means than do the product’s manufacturer of alerting consumers to the availability of this product, for otherwise consumers would buy it on-line directly from the manufacturer at the manufacturer’s lower price.  So the markup that the resellers get by reselling this product at the higher price is the return to these resellers of being more successful than is the product’s manufacturer of making consumers aware of the availability of this product.  This awareness is what the resellers add to this product.  And it is valuable.

 

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Here’s a video starring actress Kristen Bell.  This video is intended to be a parody that raises our consciousness about the fact that the average pay of women in America is lower than is the average pay of men.  Yet as each of the many people who have sent this video to me point out, this video actually, if unintentionally, makes an important and correct point about this pay gap – namely, if this pay gap really does reflect widespread underpayment of women, then this pay gap is a huge profit opportunity for entrepreneurs of the fictional sort whose company is featured in this video.

Of course, the actual producers of this video – and, presumably, also Ms. Bell – do not understand that the sort of fictional entrepreneurial business featured in this video is precisely what would arise if women were generally underpaid (that is, if women were generally paid wages less than the value of their marginal products).  Like most economically uninformed people, the actual producers of this video likely conclude that women are underpaid merely from the fact that women’s average pay is less than men’s average pay.  Yet, of course, this conclusion makes no more economic sense than would the conclusion that, because the average pay of teenagers is less than the average pay of people older than 19 years, teenagers are underpaid.  Or the conclusion that, because the average pay of N.F.L. quarterbacks is higher than is the average pay of N.F.L. punters, that punters in the N.F.L. are underpaid.

The fact that the real-world economy does not have a for-profit business such as “Pinksourcing” – the video’s fictional company that connects profit-hungry firms to underpaid women workers – is strong evidence that women are not generally underpaid.  In reality, women workers themselves have strong incentives to quit jobs at which they are underpaid and move to higher-paying jobs.  In reality, each business person – including each businessman – has strong incentives to search for, and to compete to hire, workers, men and women, who are currently underpaid.  This competition raises women’s pay up to the value of their marginal products no less than does competition raise the pay of men up to the value of their marginal products.

“Progressives,” alas, stubbornly deny that market forces work in this way and toward this happy effect.  But why should we pay any attention to those who insist that profit opportunities abound in the real world yet who themselves never do anything beyond such self-righteous, cheap insisting?

If women are generally underpaid – if low-skilled workers are generally underpaid – if non-unionized workers are generally underpaid – if legions of college graduates are generally underpaid – if military veterans are generally underpaid – if blacks are generally underpaid – if all workers generally are underpaid – then profit opportunities abound!  Because for most jobs there are no government prohibitions on entrepreneurs hiring more women (or more low-skilled, or non-unionized, or black, or whatever) workers, anyone who insists that women (or low-skilled, or non-unionized, or black, or whatever) workers are so chronically underpaid that coercive government intervention is necessary to remedy the problem should be required to put his or her own skin in the game before we buy his or her assessment of reality and his or her accompanying policy recommendations.

“Progressives” nearly all balk at the above challenge.  “We are academics!” they confess, as if such an admission of ineptness and inexperience excuses their butting into the lives of strangers in ways that, should these officious intruders’ social experiments fail, the costs will be borne exclusively by the strangers.  I conclude from the arrogance of such “Progressives” and other interventionists that they are far more interested in greedily satisfying their own lust to lord it over others, either directly or as advisors to the lords, than in actually helping the people who they say – and who perhaps they have convinced themselves – they wish to help.

….

(I thank the many people who sent to me a link to the above video.)

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Quotation of the Day…

by Don Boudreaux on September 18, 2016

in Complexity & Emergence, Hubris and humility, War

… is from pages 215-216 of the 2016 re-issue of my late colleague Don Lavoie’s superb 1985 volume National Economic Planning: What Is Left?:

The libertarian Left was opposed to the intervention by any government into the lives of anyone, domestic or foreign.  Thus, it combined an adamant opposition to international interventionism with an equally adamant aversion to domestic economic intervention into the market process.  Unrestrained trade and migration, domestically and internationally, are, they understood, perfectly compatible with economic and cultural development.  Noninterventionism at home and abroad was the consistent principle of the radical liberals.  Any ambition to plan society’s development was rejected as nothing more than a return to the society of status, power, and privilege.

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Here’s a passage from pages 84-85 of Arnold Kling’s hot-off-the-press – and superb – new book, Specialization and Trade: A Re-introduction to Economics:

Many people believe intuitively that it saves resources to “buy local.”  Surely, we think, cheese and vegetables from a local farm must save on the energy required for transportation.  However, if the grocery store sells cheaper produce that comes from hundreds of miles away, some factor must offset the higher transportation costs.  Chances are, the land elsewhere is more suited to growing crops, so that fewer acres are used to produce a given amount of output.  The local land might be better used for housing or as wilderness.

Water or other resources may be used more heavily locally than on distant farms.  Whenever produce from distant farms is cheaper than locally grown produce, the price system is telling us that “buying local” wastes resources.

Some of my friends respond to the above argument by insisting that the case for buying local rests on the fact that locally grown and locally butchered foods taste better than, or are more nutritious than, ‘distantly’ grown and slaughtered foods.  This fact might well be true; indeed, I’m sure that it’s true in some cases.  And when it is true, it makes economic sense for someone to pay the higher prices for these tastier and more nutritious local foods if that someone values the better taste or higher nutrition by more than he or she values whatever it is that he or she gives up by spending more money on these local foods.

I myself, for example, typically pay a premium for better tasting foods and wines.

But this case for buying local is misleading, for at least two reasons.

First, this case is not really one for “buying local”; instead, it’s a case for “buying tastier” or “buying healthier.”  Why conflate one’s understandable desire for better taste and better nutrition with a desire to buy local?  “Buy tastier” or “buy healthier” fully capture the goal of the consumer.  Calling it “buy local” only confuses the issue.

It won’t do to respond that “buy local” is nevertheless a good goal and guide because the taste and nutritional quality of locally grown and slaughtered foods are so generally superior to ‘distantly’ grown and slaughtered foods that “buy local” suffices to describe an economically sensible action.  This response would be true only if its premise were true.  But the premise – namely, that locally grown and slaughtered foods typically taste better than, or are more nutritious than, ‘distantly’ grown and slaughtered food – strikes me as false.  Locally grown corn, tomatoes, eggplant, and strawberries are, to my taste, often better than ones bought from supermarkets.  But are locally grown bell peppers, chili peppers, pineapples, apples, oranges, ornamental pumpkins, cherries, peaches, cranberries, cauliflower, broccoli, and onions better than ‘distantly’ grown ones?  If so, my taste buds are too incompetent to detect this difference when they’ve tried.  (In some cases, they’ve never tried: living all my life east of the Mississippi,* but never in Florida, I’ve never tasted a locally grown – as in, for example, a Louisiana or Virginia grown – orange or pineapple.)

Likewise, my taste buds detect no difference between high-quality ‘distant’ meats and fish bought at supermarkets and ‘local’ meats and fish bought at farmers’ markets.

Second, and according to the logic of the environmentalist creed that often is inextricably intertwined with the buy-local movement, to buy local because locally produced foods taste better is to selfishly damage the environment.  The lower prices of ‘distantly’ grown foods sold in supermarkets mean that their production and distribution consumes fewer resources than do their locally grown alternatives.  That is, supplying these lower-priced ‘distantly’ grown foods is better for the environment than is supplying their locally grown alternatives.  Because of this fact, environmentalists should condemn as greedy, thoughtless, and environmentally careless anyone who pays a premium for foods simply because such foods taste better!

Please understand that I don’t share this typical environmentalist arrogance: if you so value the better taste of some locally grown kumquat or a locally slaughtered pig over the tastes of their ‘distantly’ supplied alternatives, the fact that more resources are required to produce these tastier local foods does not mean that such resource use is wasteful or otherwise to be condemned.  But the (il)logic and arrogance that is at the heart of the typical modern environmentalist’s assessment of food production and distribution should lead these environmentalists to be in the front lines of those who criticize people who, simply for taste reasons, buy higher-priced local foods.

….

I remind readers that the single best book on the many myths and illogical turns of reasoning of the ‘buy local’ movement is Pierre Desrochers and Hiroko Shimizu 2012 volume, The Locavore’s Dilemma.

…..

* Well, technically, from the ages of 4 to 22 I lived practically on the western bank of the Mississippi – in Jefferson Parish, immediately across the river from New Orleans.  It was only about about three miles from being east of the Mississippi.  So close enough.

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My GMU Econ colleague Bryan Caplan rightly sings the praises of my GMU Econ colleague Dan Klein.

Here’s George Selgin again on the great Richard Timberlake’s book Constitutional Money: A Review of the Supreme Court’s Monetary Decisions.

My Mercatus Center colleague Dan Griswold reports on one of many instances of costly cronyism buoyed by widespread ignorance of the nature of international trade.

Bryan Riley explains how Americans benefit from trade.  A slice:

We know how to increase farm jobs—just outlaw tractors. And we know how to increase manufacturing jobs—just require everyone to work with one hand tied behind his back.

Alan Reynolds corrects David Autor, et al.’s, finding on the number of jobs allegedly lost in America due to trade with China.

Paul Rahe helps to deflate the overinflated myth of Woodrow Wilson’s goodness.

Kevin Grier pleads for divided government.

Ron Bailey – with insights from Leda Cosmides, John Tooby, and Jonathan Haidt – concludes that

Our evolved psychological programs may more readily succumb to romantic socialism, but as Cosmides, Tooby, and Haidt remind us, there are other brain apps that can turn humanity toward liberty and prosperity. Let’s figure out how to activate them more frequently and to use them better.

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