Some Links

by Don Boudreaux on February 17, 2017

in Balance of Payments, Economics, Environment, Politics, Trade

Michael Strain rightly wonders why Trump believes it to be bad for the American economy for foreigners to invest in the American economy.  (While I agree with nearly all of the content and fully all of the thrust of Mr. Strain’s important essay, I wish that, in it, he would have not committed the common error of describing a U.S. trade deficit both as necessarily raising Americans’ indebtedness and as signifying that “we don’t save enough.”  Neither of these charges is correct.  More on these complaints in a later blog post.)

Mark Perry joins me in thanking, rather than scolding, non-Americans who choose to subsidize Americans’ consumption (and, because most American imports are raw materials or intermediate goods used to expand production in America, also Americans’ production).

Also from Mark Perry is this explanation of why trade with Mexico is great.

Vernon Smith spoke recently at the University of Southern California.

George Leef warns of an educational plague spreading across the land.

Speaking of campus foolishness, here’s Robby Soave on more of it.

Writing in the L.A. Times, Jacob Levy exposes the upside of political hypocrisy.

My colleague Dan Klein reveals the joys of Yiddish and economics.

Finally, students interested in free-market environmentalism will want to check this out.

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Wartime Prosperity?

by Don Boudreaux on February 16, 2017

in Myths and Fallacies, Seen and Unseen, War

Here’s a passage from page 18 of volume 1 of Roger Backhouse’s forthcoming (in May) biography of Paul Samuelson (1915-2009): Founder of Modern Economics: Paul A. Samuelson:

His remark that he could see the Keynesian multiplier at work when he was on the farm [that he often visited as a boy] is clearly a later interpretation, but he claims that he was aware at an early age of wartime prosperity due to high grain and steel prices, and of the sharp post-war recession that preceded the longer boom of the 1920s.

Samuelson here, like many noneconomists, fell victim to the fallacy of composition.  Wars that make certain farmers and industrialists (and their workers and suppliers) more prosperous do not thereby make society more prosperous.  What is true for some in this case is emphatically not true for the group.

The diversion during WWI of resources, including manpower – much of which was literally slaughtered on European battlefields – made Americans (and, of course, also Europeans) at large more impoverished rather than more prosperous.  This reality binds even if it were the case that the war was necessary, noble, and conducted as efficiently as possible.

Converting butter and plowshares into guns and swords makes the bulk of the population poorer, not richer.  There is no such thing, for society writ large, as wartime prosperity.  There is only wartime impoverishment.

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Quotation of the Day…

by Don Boudreaux on February 16, 2017

in Trade

… is from page 119 of my Mercatus Center colleague Dan Griswold’s vital 2009 volume, Mad About Trade:

Unknown-2Tariffs are a tool of centralized government economic planning, whereas trade agreements help protect individual Americans from being manipulated by government planners.  Agreements are not a transfer of sovereignty from the U.S. government to authorities outside the United States but from governments around the world to citizens.  Political power is not transferred abroad but merely curtailed at home.

DBx: For the record (again): free-trade agreements are not ideal, but most such agreements do make trade freer than trade would otherwise be.

My economic and ethical ideal is complete and unconditional free trade globally; my second-best ‘ideal’ is unilateral free trade adopted by each and every government that has the good sense and decency to reject protectionism.  But absent either of these policy outcomes (which are indeed politically impossible, at least in my lifetime), I applaud, with pointed reservations, any and all measures that made trade freer.  And trade agreements generally do so (even if the language used to sell such agreements is mercantilist b.s. that insults thoughtful people’s intelligence).  What Dan – and what I – applaud in trade agreements is not their continuation of the tariffs and other trade restraints that these agreements do not immediately and completely eliminate.  Instead, what Dan – and what I – applaud in trade agreements are the reductions in tariffs and other trade restraints that such agreements do generally achieve and that we believe are unlikely to otherwise be achieved.

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The Bizarro World of Mercantilism

by Don Boudreaux on February 15, 2017

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Regarding your report on the Trump administration’s new scheme to stop alleged “currency manipulation” by the Chinese (“U.S. Eyes New Tactic to Press China,” Feb. 14): how crazily bizarre!  To the extent that currency manipulation is real and works as advertised, it makes the exports of countries that practice it artificially inexpensive for foreigners to buy.  That is, currency manipulation transfers wealth from the citizens of countries that practice it to the citizens of countries fortunate enough to buy the manipulators’ subsidized exports.

And yet it is the governments whose citizens are on the receiving end of these transfers who fussily try to prevent these transfers, while the governments whose citizens are taxed to fund the transfers stubbornly carry on with them.  So with the Trump administration threatening to stop Beijing’s alleged currency manipulation, and Beijing resisting, it’s as if the Trump administration believes itself to be charged with the responsibility of protecting the welfare of the Chinese people at the expense of American citizens, while the government in Beijing plays the role of benefactor of the American people at the expense of Chinese citizens.

Mercantilist myths about trade truly do incite governments to do the darndest things!

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

….

Nearly every tenet of mercantilism is backwards.  Those who fall for this sham mistake benefits for costs and costs for benefits; they interpret wealth destruction as wealth creation and wealth creation as wealth destruction.  If they were a school of mathematics, mercantilists would insist that 2 + 2 = -4, 100 x 20 = 5, and 2<1.

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Bonus Quotation of the Day…

by Don Boudreaux on February 15, 2017

in Myths and Fallacies, Trade

… is from page 3 of Thomas Sowell’s 2008 volume, Economic Facts and Fallacies:

Unknown-2Many individual fallacies in economics are founded on the larger, and usually implicit, fallacious assumption that economic transactions are a zero-sum process, in which what is gained by someone is lost by someone else.  But voluntary economic transactions – whether between employer and employee, tenant and landlord, or international trade – would not continue to take place unless both parties were better off making these transactions than not making them.  Obvious as this may seem, its implications are not always obvious to those who advocate policies to help one party to these transactions.

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In this short video, Johan Norberg clearly exposes myths about spending on infrastructure.

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My GMU Econ colleague Alex Tabarrok is interviewed in the Washington Post on the FDA.

John Tamny rightly bemoans the GOP’s mysterious new fondness for tax hikes.

Here’s what Arnold Kling – sensibly, of course – believes about education.

David Henderson is understandably impressed with the work of Lisa Servon.

Here’s Shikha Dalmia on Medicaid.

Richard Ebeling writes about Karl Marx the man – and what an unsavory man Marx was.

Alex Nowrasteh responds to David French’s criticism of Nicholas Kristof.

My Mercatus Center colleague Omar Al-Ubaydli discusses the alleged tension between technology and trade.

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Quotation of the Day…

by Don Boudreaux on February 15, 2017

in Crony Capitalism, Seen and Unseen, Trade

… is from page 242 of Milton Friedman’s 1962 article “Is a Free Society Stable?” as it appears in Liberty Fund’s 1981 single-volume collection of the New Individualist Review:

Unknown-2The benefits that are alleged to flow from a tariff are clear and obvious.  If a tariff is imposed, a specified group of people, whose names can almost be listed, seem to be benefited in the first instance.  The harm that is wrought by the tariff is borne by people whose names one does not know and who are unlikely themselves to know that they are or will be harmed.  The tariff does most harm to people who have special capacities for producing the exports that would pay for the goods that would be imported in the absence of a tariff.  With a tariff in effect, the potential export industry may never exist and no one will ever know that he might have been employed in it or who would have been.  The indirect harm to consumers via a more inefficient allocation of resources and higher prices for the resulting products are spread even more thinly through the society.

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Calling Mark Perry

by Don Boudreaux on February 14, 2017

in Immigration, Myths and Fallacies, Population

How many are the people who worry both that population growth will impoverish the masses globally (or that immigration will impoverish the masses domestically) and that the advance of trade and labor-saving technologies will destroy most jobs (that is, destroy opportunities for human beings to earn livings by helping each other deal with scarcity)?

I suspect that there are many individuals who simultaneously hold both of these inconsistent beliefs.

I’m quite sure that neither of these beliefs is correct.  But one fact about them is plain: they cannot both be correct.

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Here’s an open letter to a Fox News analyst:

Dr. Keith Ablow
Fox News

Dr. Ablow:

Disturbed by labor-saving techniques such as self-checkout lanes, you wonder why “no one was raising any red flags about the fact that machines had obviously put people out of work” (“Should Trump stop robots from stealing jobs?” Feb. 13).  Your fear of mechanization is so intense that you call on the Trump administration to conduct a study to see if, because of mechanization, “rampant unemployment is likely.”

Such a study – one far more reliable than any that can be conducted by government officials – has been ongoing for quite some time.  It’s called “history.”  Since humans first controlled fire and carved arrows, history is a long tale of the invention and use of labor-saving techniques and devices.  Domestication of oxen and horses.  Pulleys.  Levers.  Irrigation channels.  Metal saws.  The printing press.  Concrete.  The wheel.  All save labor, yet none has led to permanent increases in unemployment.

It’s true that the pace of introducing new labor-saving techniques has magnificently quickened in the past two hundred years.  This fast pace continues today.  Yet still we encounter no evidence that labor-saving techniques permanently increase unemployment.

You’ll reply “This time is different!”  Perhaps, but I doubt it.  And I’m so confident in my prediction that I’ll put $10,000 of my own my money where my mouth is.

I will bet you $10,000, straight up, that in not one of the next 20 years will the annual U.S. labor-force participation rate, as measured by the U.S. Bureau of Labor Statistics, fall below 58.1 percent – which is the lowest rate on record at the Bureau of Labor Statistics.  (The labor-force participation rate hit this post-WWII low in December 1954.  And because the unemployment rate does not count unemployed workers who are so discouraged that they’ve stopped looking for jobs, the labor-force participation rate is more likely than is the unemployment rate to capture any long-term job-destroying effects of technology.)

Because you are so worried about labor-saving technology causing secular job loss that you’re willing to empower government to tamp down the rate of innovation, you should not hesitate to accept my bet.  If your worries are justified, you’ll not only earn $10,000 but also the right to brag that you correctly predicted a first-time-in-millennia change in the historical relationship between technology and jobs.  If instead your worries prove to be unfounded, I’ll not rub it in too hard that you are only the latest in a long, long line of mistaken Luddites.*

Do we have a bet?

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

* Please note that technology can advance so far that the labor-force participation rate falls below 58.1 percent not because technology is impoverishing us but, rather, because it makes so many of us so much richer that lots of us simply choose not to work. If this result occurs, I’ll lose the bet despite the fact that this result will be an especially happy one for humankind. Nevertheless, I remain so confident that, as technology advances, humans will continue discover such a large number of wants and desires to satisfy through economic activities (and that foolish government interference will not stymie these activities) that the annual labor-force participation rate in the U.S. will not fall below 58.1 percent between now and 2037.

(HT Roger Brown for alerting me to Dr. Ablow’s essay.)

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