Here’s a letter to the Wall Street Journal:

Professors David Autor, David Dorn, and Gordon Hanson defend their finding that U.S. trade with China from 1990 to 2007 was unusually disruptive (Letters, April 13).  Yet even if – contrary to other evidence – their finding is correct, it doesn’t justify their conclusion that government should temper such trade in the future.

Trade that is unusually disruptive for some workers is trade that is unusually beneficial for consumers and other workers.  Abnormally large and widespread price cuts in domestic industries that compete with imports mean both abnormally large gains for consumers of those products and the release of resources for the creation of new industries and jobs elsewhere in the domestic economy.

The years covered by professors Autor’s, Dorn’s, and Hanson’s study were among the most economically dynamic in American history.  For example, they witnessed the birth of companies such as Google, Facebook, and Netflix, and the revival of Apple.  Supermarkets stocked wider assortments of foods and dry goods.  The quality and variety of beer and wine exploded.  Ditto for coffee and tea.  Fracking took off.  Cellular telephony went from rare to ubiquitous.  Commercial airfares fell by about a third while safety rose.  These and other advances require the release of resources from older industries – a release made possible by expanded trade.

Economists’ greatest service is to help the public see economic consequences that otherwise remain unseen.  It is, therefore, especially regrettable that economics professors Autor, Dorn, and Hanson themselves seem to be blind to the full benefits of trade.

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 April 14, 2017

in Risk and Safety

… is from page 126 of Cass Sunstein’s superb 2005 volume, Laws of Fear:

51dJgZ30UrL._SX322_BO1,204,203,200_[E]lected officials ordinarily face strong incentives to respond to excessive fear, perhaps by enacting legislation that cannot be justified by any kind of rational accounting.

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… is from pages 26-27 of the 2009 Revised Edition of Thomas Sowell’s Applied Economics: Thinking Beyond Stage One:

41m94VQK5YL._SX322_BO1,204,203,200_Nothing is easier than for third parties to take lofty a moral position that when minimum wage laws, for example, result in a reduction of low-paying jobs, it is nothing to regret, as some politicians and journalists have done.  Having wage rates set by third parties’ notion of workers’ “essential needs” would be a radical departure from having wages set by supply and demand – and it is by no means clear how either the allocation of resources in the economy or the interests of the workers themselves would be better served in this way.  These workers may well feel that their most “essential need” is a job.  Reducing the number of jobs available by pricing inexperienced young workers out of the market solves no problem for these workers.  The only clear beneficiaries would be those who acquire such arbitrary powers over their fellow human beings, and are thus able to feel both important and noble, while in fact leaving havoc in their wake.

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Quotation of the Day…

by Don Boudreaux on April 12, 2017

in Reality Is Not Optional

… is from page 158 of the 1996 Liberty Fund collection of Frank Meyer’s essays, In Defense of Freedom (William C. Dennis, ed.); specifically, it’s from Meyer’s September 25, 1962, National Review article “Why Freedom”:

UnknownIf the state is endowed with the power to enforce virtue, the men who hold that power will enforce their own concepts as virtuous.

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On Trump Voters

by Don Boudreaux on April 12, 2017

in Myths and Fallacies

In my latest column in the Pittsburgh Tribune-Review, I defend some Trump voters against trumped-up charges of inconsistency or irrationality.  A slice:

Progressives like to remind us there’s more to life than dollars and cents — that people do not simply crave ever more consumption but instead want lives filled with meaning, dignity, beauty and love. In this matter, progressives are right (though wrong to presume free-market advocates do not also understand this). But progressives’ tune changes when government doles out the dollars and cents. They seem genuinely unable to grasp why many poor and working-class people do not value government handouts above all else.

Coming from a working-class family that was never fond of big government, perhaps I can help my progressive friends to better understand such voters.

First, many understand that accepting government handouts conflicts with the pursuit of dignity in making one’s own way in life — in overcoming hardship, not being an object of charity. I proudly recall my parents refusing to apply for food stamps when my pipefitter father was laid off. Being on the dole would have drained them of their dignity. They overcame hardship without handouts.

Self-reliance was more important to them than profiting materially from government.

Second, many ideologically oppose certain government programs. You might disagree with some voters’ opposition to, say, programs to reduce domestic violence or retrain workers. But surely voters who stick to their principles are admirable even when — indeed, especially when — doing so runs counter to their narrow material interests.

There are plenty of good reasons to object to Trump’s policies, but the fact that some [of these policies] reduce government funding to Trump supporters is not among them.

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Quotation of the Day…

by Don Boudreaux on April 11, 2017

in Adam Smith, Standard of Living, Trade

… is from pages 115-116 of Ludwig von Mises’s Introduction to the 1953 Henry Regnery Co. edition of Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations, as it is reprinted in the original edition of Mises, Economic Freedom and Interventionism, Bettina Bien Greaves, ed. (1990):

51gzwSSWDNL._SX327_BO1,204,203,200_Smith’s books did not lay the foundation stone, but the keystone, of a marvelous system of ideas.  Their eminence is to be seen precisely in the fact that they integrated the main body of these ideas into a systematic whole.  They presented the essence of the ideology of freedom, individualism, and prosperity, with admirable clarity and in an impeccable literary form.

It was this ideology that blew up institutional barriers to the display of the individual citizen’s initiative and thereby to economic improvement.  It paved the way for the unprecedented achievements of laissez faire capitalism.  The practical application of liberal principles multiplied population figures and, in the countries committed to the policies of economic freedom, secured even to less capable and less industrious people a standard of living higher than that of the well-to-do of the “good old” days.  The average American wage-earner would not like to dwell in the dirty, badly lighted, and poorly heated palatial houses, in which the members of the privileged English and French aristocracy lived 200 years ago, or to do without those products of capitalist big business that render his life comfortable.

The ideas that found their classical expression in the two books of Adam Smith demolished the traditional philosophy of Mercantilism and opened the way for capitalist mass production for the needs of the masses.  Under capitalism the common man is the much-talked-about customer who “is always right.”

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… is from page 187 of the 2016 Mercatus Center re-issue of my late colleague Don Lavoie’s deep, excellent, and still-relevant 1985 volume National Economic Planning: What Is Left?:

UnknownIt is indicative of a peculiar view of society when the (voluntary) actions of millions of market participants are dismissed as inaction merely because active (coercive) involvement by the government is minimized.

DBx: To offer the counsel “Let the market handle it” is not, contrary to what many people mistakenly suppose, advice that is simplistic and pollyannaish.  Quite the opposite.  To let the market handle matters is to allow as many creative minds as are willing to put their own efforts and resources on the line in their quests to address whatever problems exist, and it is to use the most effective and reliable of tests – market competition – to judge and to monitor the efforts.  What is simplistic and pollyannaish is to say “Let the government handle it.”

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… is from page 37 of the hot-off-the-press new volume by my colleagues Matt Mitchell and Pete Boettke, Applied Mainline Economics: Bridging the Gap between Theory and Public Policy (footnotes deleted):

419GH4q3qYL._SX320_BO1,204,203,200_Entrepreneurs are alert to unrecognized opportunities for mutual gain.  By seizing these opportunities, they earn profits, and the mutual learning from the discovery of gains from exchange moves the market to a more efficient allocation of resources.  In addition, the lure of profit continually prods entrepreneurs to seek innovations that increase productive capacity.  For the entrepreneur who recognizes the opportunity, today’s imperfections represent tomorrow’s profits.

DBx: Yes.

At each and every moment in time real-world markets are full of ‘failures.’  (Let us not forget, though, that at each and every moment in time real-world markets are full also of successes.)  Each and every instance of some consumer not currently being served as well as he or she could be served might be called a “market failure.”  The market is a process of entrepreneurial discovery of such failures and entrepreneurial creative effort to profit by ‘solving’ the ‘failures.’

Some of these market ‘failures’ are so commonly recognized as being solved by ordinary market processes that they are not classified as failures.  If the price of coffee is currently below its market-clearing level, even the most conventional of neoclassical economic textbooks explains that market forces will push the price upward and thereby bring the quantity of coffee demanded into equilibrium with the quantity of coffee supplied.

But other market ‘failures’ are not recognized by the typical economist today as being subject to the same corrective market process.  If, say, in a section of town many low-skilled workers are in fact currently paid wages less than the value of their marginal product, the typical economist quickly leaps to the conclusion that employers there have monopsony power – monopsony power perhaps due to these workers’ lack of information about other, better job opportunities.  This typical economist then concludes that the market has failed and will continue to fail.  This typical economist recommends government intervention; in this case, the recommended intervention is a government-imposed minimum wage.

This typical economist is blind to the profit incentive that such a market ‘failure’ offers to entrepreneurs – which is to say that this typical economist does not really understand how real-world markets work.  Nor does this typical economist understand how real-world policy-making works, for implicit in this typical-economist’s recommendation of government intervention is (1) the faith-based belief that politicians, bureaucrats, and college professors are more likely than are entrepreneurs to recognize the existing problem, and (2) the faith-based belief that the government interventions will generally be done apolitically and expertly.

The typical economist is offended by such descriptions of him or her.  He or she fancies that his or her diploma and ability to describe a system of general competitive equilibrium using truly impressive mathematics – or his or her mastery of the latest econometric techniques – necessarily means that he or she is a competent economist.  Yet while such abilities are indeed impressive and useful, they alone do not an economist make.

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Quotation of the Day…

by Don Boudreaux on April 9, 2017

in Civil Society, Cooperation

… is from pages 43-44 of Nathan Oman’s 2016 book, The Dignity of Commerce:

51OnLrlFcWL._SX331_BO1,204,203,200_Nevertheless, the doux commerce tradition was correct that markets breed virtues that support a liberal polity.  Markets require that one consider the point of view of others and alter one’s behavior to satisfy their desires.  This disposition supports three liberal virtues.  The first is deliberation, the ability to consider an opposing viewpoint.  The other two virtues are negative.  Markets weaken loyalty to tribe and family, cultivating the ability to relate to strangers according to impersonal criteria.  Finally, markets break down aristocratic habits, encouraging people to relate peaceably as equals.

DBx: See also this 2011 paper by Omar Al-Ubaydli, Dan Houser, John Nye, Maria Pia Paganelli, and Xiaofei Pan.

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Bonus Quotation of the Day…

by Don Boudreaux on April 8, 2017

in Economics, Growth, Trade

… is from page 24 of Columbia University economist Charles Calomiris’s 2002 monograph, A Globalist Manifesto for Public Policy:

416F22V868L._SX300_BO1,204,203,200_It is fair to say, then, that although the most prominent proponents of free trade have been optimistic about its tendency to promote wealth, peace, individual opportunity and individual freedom, they did not claim that globalisation, by itself, would necessarily eliminate poverty or oppression in most or all poor countries.  It is quite appropriate for eminent historians like David Landes to upbraid today’s economists for their ignorance about the cultural and institutional constraints that have limited economic development in many countries over the past millennium.  But the most famous advocates of globalisation shared Landes’s appreciation for the many institutional and cultural preconditions for successful economic development.

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