… is from page 33 of Benn Steil’s and Manuel Hinds’s superb 2009 volume, Money, Markets & Sovereignty (original emphasis):

Dubious, however, is the popular notion that modern globalization is new in its challenging of timeless tenets of state sovereignty and authority.  The constructivist methodology that law worthy of the name must be, and must have been, consciously designed to achieve specific ends, which emerged in the seventeenth and eighteenth centuries, has in our time come to dominate popular thinking, and has been bluntly confronted by the spontaneous “unauthorized” emergence of economic and social orders across national legal jurisdictions.

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Cool!

by Don Boudreaux on July 14, 2014

in Cleaned by Capitalism, History, Inequality, Standard of Living

2014 is the centenary of an unusually large number of regrettable events – for example: the start of World War I; the actual setting-up of the Federal Reserve; the enactment of the Clayton Act; the first full year of operation of the current U.S. personal income tax.  Bad news all.  But some good things also happened that year – for example, 1914 saw the first installation in a private residence of air-conditioning.  The residence was the Minneapolis mansion of the then recently deceased tycoon Charles Gilbert Gates.  (Being recently deceased – he died in 1913 – Gates himself no longer required AC to keep cool in hot weather.)  As reported by Popular Mechanics,

[t]he unit in the Minneapolis mansion of Charles Gates is approximately 7 feet high, 6 feet wide, 20 feet long and possibly never used because no one ever lived in the house.

Apart from the curiosity that the first AC in a private residence was installed in the home of a dead man – and a home in, of all places, Minneapolis (rather than, say, in New Orleans, Miami, or even Manhattan) – the fact is that there are people still alive today who were alive before a single human being ever experienced the comfort of living in a home with air conditioning.  Note also what ought not need to be pointed out but that I’ll point out nevertheless: at first, only very rich people (or their estates!) could afford air conditioning.

Now, of course, in the United States AC is almost universal.  (There’s air-conditioning today even in some dog houses.)  When it comes to comfortable indoor atmospheres, we are far more equal today than we were a century ago (when rich people started installing ACs in their mansions or escaped during the summer months to their cool homes on the beach or in the mountains).

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The conversation between Deirdre McCloskey, Joel Mokyr, John Nye, and me continues over at Liberty Matters.

My great colleague Walter Williams spoke recently at FEE’s Irvington-on-Hudson mansion.  Here’s a slice:

The essence of free markets is good-good exchanges, or what I like to think of as seduction. Exchanges of this sort are featured by the proposition: “I’ll do something good for you if you do something good for me.” Game theorists recognize this as a positive-sum game—a transaction where both parties, in their own estimation, are better off as a result. When I go to my grocer and offer him the following proposition: If you do something good for me—give me that gallon of milk—I’ll do something good for you—give you three dollars. As a result, I am better off because I valued the milk more than I valued the three dollars and he is better off because he valued the three dollars more than he valued the gallon of milk.

Of course there’s another type of exchange not typically, voluntarily entered into, namely good-bad exchanges, or what we might call rape. An example of that kind of exchange would be where I approached my grocer with a pistol, telling him that if he didn’t do something good for me (give me that gallon of milk) I’d do something bad to him: blow his brains out. Clearly, I would be better off, but he would be worse off. Game theorists call that a zero-sum game. That’s the case where in order for one person to be better off, of necessity the other must be worse off. Zero-sum games are transactions mostly initiated by thieves and governments, both are involved in what is euphemistically called income redistribution. The only difference is one does it under the color of the law and the other doesn’t.

Larry Kudlow counsels a “just say no” attitude toward that great geyser of corporate welfare and monument to cronyism, the U.S. Export-Import Bank.

Kathryn Shelton and Richard McKenzie explain why the “rich” can grow wealthier faster than the “poor.”  A slice:

Much of the income inequality debate in the United States has focused on “fifths,” “tenths” or “the top 1 percent” of households. Such divisions give the appearance of inequality, but there are far more people and workers in the top income brackets than in the lower ones. Indeed, there are 82 percent more people in the top fifth of households than in the bottom fifth. In 2006, 81 percent of households in the top quintile had two or more workers; but only 13 percent of households in the bottom fifth had two or more workers. In nearly 40 percent of these households, no one was working.

Further, people in different income divisions do not remain at those income levels throughout their lives. The Federal Reserve Bank of San Francisco found that absolute mobility – that is, the extent to which children earn more than their parents – is high:

  • Of all U.S. adults, 67 percent had higher incomes than their parents; and among those born into the lowest income bracket, 83 percent exceeded their parents’ income.
  • About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half the people in the lowest income quintile in 1996 had moved to a higher income bracket by 2005.

Indeed, one study found that a majority of Americans reach the upper income brackets at some point during their lives. Over a 44-year period, 12 percent of 25- to 60-year-olds moved into the top 1 percent for at least one year; 39 percent reached the top 5 percent; over half reached the top 10 percent; and nearly three-fourths were in the top fifth of the income distribution.

Mark Perry has the correct perspective on Uncle Sam’s threat to punitively tax Americans who buy steel pipe from Korea.

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Quotation of the Day…

by Don Boudreaux on July 14, 2014

in Politics

… is from page 31 of H.L. Mencken’s, A Second Mencken Chrestomathy (1995); specifically, it’s reprinted from Mencken’s 1926 book, Notes on Democracy:

He is a man who has lied and dissembled, and a man who has crawled.  He knows the taste of the boot-polish.  He has suffered kicks in the tonneau of his pantaloons.  He has taken orders from his superiors in knavery and he has wooed and flattered his inferiors in sense.  His public life is an endless series of evasions and false pretenses.  He is willing to embrace any issue, however idiotic, that will get him votes, and he is willing to sacrifice any principle, however sound, that will lose them for him.  I do not describe the democratic politician at his inordinate worst; I describe him as he is encountered in the full sunshine of normalcy.  He may be, on the one hand, a cross-roads idler striving to get into the State Legislature by grace of the local mortgage-sharks and evangelical clergy, or he may be, on the other hand, the President of the United States.  It is almost an axiom that no man may make a career in politics in the Republic without stooping to such ignobility.

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Here’s a letter to the Wall Street Journal:

Uncle Sam is closer to imposing punitive taxes on Americans who buy Korean-made steel pipe (“U.S. Slaps Tariffs on Korean Steel Pipe Because of Alleged Unfair Pricing,” July 12).  The stated justification for so taxing these Americans is that they insist on buying steel pipe from Korea at prices that U.S. steelmakers (surprise!) assert are “artificially low.”  Such taxes will indeed be imposed if the U.S. Trade Commission finds that these low prices “hurt American steelmakers.”

The ostensible principle behind Uncle Sam’s action is that we Americans are made poorer when non-Americans act especially vigorously to increase our access to foreign-made products.  But this principle is economically insane.  People grow prosperous, not by rejecting, but by embracing enhanced access to goods and services, regardless of the sources of this enhanced access.

If the principle that motivates Uncle Sam to tax Americans who buy inexpensive imports were valid, then, for example, my household would be made poorer whenever I buy - rather than make myself - my own furniture and clothing.  After all, Ethan Allen and Nordstrom charge prices so low that they not only “hurt,” they destroy, my capacity to make for myself the goods that they offer for sale.  Should I perhaps, in my quest to grow more prosperous, hire my neighbor to threaten to shoot me whenever I seek out merchants willing to sell to me especially low-priced sofas and shirts?

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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Brandolini’s Law.  (HT Guillaume Nicoulaud)

In my latest column in the Pittsburgh Tribune-Review, I address yet another flaw in Thomas Piketty’s Capital in the Twenty-First Century.  A slice:

It’s simply untrue that when government repays its creditors with money devalued by inflation, taxes aren’t raised. Taxes are raised. But in this case the burden of the higher taxes falls disproportionately and unfairly on government’s creditors.

Seth Lipsky (citing David Bernstein, my GMU colleague over in the law school) exposes some of the Left’s dangerous thinking that was uncorked by the Hobby Lobby ruling.

In a new study just released by the Mercatus Center at GMU, economists Russell Sobel and Rachel Graefe-Anderson explore the connection between political connections and the performance of industries and firms.  Here’s the abstract:

The US federal government’s response to the financial crisis was an unprecedented increase in government subsidies, grants, and contracts given directly to specific private businesses. The terms “crony capitalism” and “cronyism” are now widely used to describe the modern relationship between government and private business. Cronyism is a system in which success in business is determined by political connections rather than market forces. In this paper we estimate the extent to which industry-level and firm-level performance is determined by political connections rather than normal market forces. Our results suggest that corporate political activity is positively correlated with executive compensation measures, but not robustly with firm performance and profitability measures. This suggests that political connections have no significant effect on the performance of firms or particular industries in most cases, but that company executives do indeed benefit from having closer ties with the political process.

Here are two especially good book reviews in the latest issue of Public Choice.  (Unfortunately, both are securely behind pay walls.)  Randy Holcombe reviews Thomas Piketty’s Capital in the Twenty-First Century, and GMU Econ doctoral student Rosolino Candela reviews Edmund Phelps’s Mass Flourishing.

George Selgin is leaving the University of Georgia after a productive 25-years stint there.  George is coming to DC to join the Cato Institute (and also with an affiliation with GMU Econ and the Mercatus Center).  Not least because George is one of my dearest personal friends, I’m thrilled!  (But I will miss George’s lovely home in Athens, which is pictured at the top of George’s post.  Many are the happy evenings that I spent at that home, especially when I was at Clemson University.)

Towson University economist (and GMU Econ PhD) Howie Baetjer celebrates Uber – and warns against the zeal to have government regulate that consumer-friendly transportation service.  Here’s Howie’s conclusion:

The markets for city rides should be set free. It is unfair to taxicab companies for Uber to charge market prices while taxis must charge what regulators decree. But the sensible response to this unfairness is not to burden Uber the way taxis are burdened, but to unburden the taxis and leave all ride services free to compete.

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… is from page 220 of my colleague Tyler Cowen’s 2007 book, Discover Your Inner Economist:

Markets are not just about the steam engine, iron foundries, or today’s silicon-chip factories.  Markets also supported Shakespeare, Haydn, and the modern book superstore.  The rise of oil painting, classical music, and print culture were all part of the same broad social and economic developments, namely the rise of capitalism, modern technology, rule of law, and consumer society.  The Renaissance occurred when growing cities and reopened trade routes created enough wealth to stimulate demand for beautiful art.  Beethoven gave music lessons and concerts to a rising middle class and later sold them sheet music; his rise required the printing press, the affordable piano, and ready travel around Europe.

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Quotation of the Day…

by Don Boudreaux on July 12, 2014

in Economics, Hayek, State of Macro

… is from page 238 of Vol. 9 (Contra Keynes and Cambridge [1995]) of Hayek’s Collected Works – and in particular from Hayek’s contribution to a symposium entitled “Symposium on Keynes: Why?” featured in the September 11, 1959, edition of the Christian Science Monitor:

Yet it [Keynes's General Theory] was based on assumptions even more unrealistic that those Keynes ascribed to what he called classical economics.  If it was a defect of the latter that it assumed for a first approach that there existed no reserves of unused resources, Keynes was even more unrealistic in assuming that there existed always ample reserves of all resources.

In short he assumed away that scarcity of resources which is the root of all our economic problems.  In consequence, while of doubtful application even in times of depression, his original theory is entirely inapplicable in times of prosperity.

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Good for the Goose AND Gander Sort of Thing

by Don Boudreaux on July 11, 2014

in Civil Society

Here’s a letter to KCBS-TV in San Francisco:

You report that “[t]he San Francisco Giants organization is in the final steps of adopting a policy to ban fans from wearing ‘culturally-insensitive’ attire at AT&T Park” (“San Francisco Giants May Ban ‘Culturally Insensitive’ Attire At AT&T Park,” July 9).

Because the Giants and Major League Baseball are private organizations, I believe that they should have the right to ban from their premises whatever customers they wish for whatever reasons strike their corporate fancies.  But I can’t help but ask: How many San Franciscans applaud as enlightened and civilized the banning of “culturally insensitive attire” at baseball games, but also moralize indignantly at the closed-mindedness and petty tyrannies of conservatives who wish to ban displays at museums of the likes of Andres Serrano’s “Piss Christ” or Robert Mapplethorpe’s explicit homoerotic photos?  I hope that the number is small, but I fear that it is, in fact, quite large.

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​​​​​​

I thank Neal Phenes for the pointer.

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Quotidian Libertarianism

by Don Boudreaux on July 10, 2014

in Civil Society, Seen and Unseen

The comment of one “JA” on this EconLog post by Bryan Caplan got me thinking.  Specifically, JA writes, at the start of his or her comment:

I’ve heard that objection to libertarianism: how come there is no present day libertarian country?

This objection is indeed one that is often made.  But for a variety of reasons, it’s weak.  One reason: a society without the murder of innocent people is clearly desirable.  Yet the fact that no such society has ever existed does not mean that the goal is unworthy.

But here’s another reason why this objection is weak: its premise is questionable.  It’s true that nearly all societies that we identify by nation- (or city-) state names have now, and have had in the past, governments or rulers that almost always intruded in non-libertarian ways into people’s lives.  ”The United States of America” and “Great Britain” and “Russia” and “Venice” and “Byzantium” and “Egypt” (and on and on and on with the names of current and past sovereignties) were never libertarian societies.  (Some of these societies, of course, are and were closer to the libertarian ideal than others.  The less murder a society has, the better it is even though it might remain far from achieving the ideal of having no murder at all.)

But in modern bourgeois societies, libertarianism is the norm for most sub-national social arrangements among strangers.  Visit an American supermarket.  Look around.  You’ll see property rights being respected.  You’ll see contracts being made, followed, and enforced.  You’ll see voluntary exchanges galore.  You’ll find no one taking it upon himself or herself (or colluding with other shoppers or cashiers) to prohibit shopper Suzy from buying as many cans of soda as she wishes, or to demand that shopper Sam buy packages of condoms that he would prefer not to buy.  You’ll find no one – again, either acting alone or in concert with others – ‘redistributing’ wealth from the purse of shopper Sally to the wallet of shopper Steve.  You’ll see no one conscripting some young shoppers into a military battalion to be unleashed on a rival supermarket.  You’ll find people minding their own business and, while being civil and polite to others, never officiously attempting to boss each other around.  (I say “officiously” because of course it’s true that store managers do “boss” store employees, but only according to the terms of the employment contracts.)  You’ll see people spontaneously creating and following law (such as, for example, the law of not leaving your shopping cart in a position to block an aisle).

Libertarianism is the default arrangement among most groups of strangers in modern bourgeois societies.

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