… is from pages 37 of Lionel Robbins‘s 1934 volume, The Great Depression; here Robbins describes some of the economic consequences of interest rates made artificially low by too-easy monetary policy:

The new money will flow to those parts of the economic system most affected by the rate of interest.  There will be an increased demand for what we have called capital-goods.  There will be a boom in the construction industries and in the industries producing raw materials.  Producers in these industries, on the strength of the new demands, will be able to bid away from other industries factors of production common to both.  The new labour supply will go into these industries rather than elsewhere.  Raw materials, such as coal, pig iron, and timber, will tend to be used in greater proportions in these parts of the economic system.  The production of “producers’ goods” and durable consumption goods, such as houses, will increase.

See this related 2008 paper by my colleague Larry White.

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Coyote Blog’s Warren Meyer beats the drum soundly and appropriately.  (Looks as though austerity, such as it was, might have worked better in the U.S. than was predicted by Paul Krugman and others who march to the Keynesian beat.)

Mike Munger writes wisely and well about police brutality and the criminal-justice system.

Writing in the New York Times, Jonathan Tepper explains why the U.S. government’s taxing requirements have led him to give up his U.S. passport.

Competitive Enterprise Institute president (and sometimes kilt model) Lawson Bader writes about my great colleague Walter Williams.

Why lookee here!  Here’s more empirical evidence to suggest that raising the minimum wage really does destroy jobs for some low-skilled workers.  (HT Tyler Cowen)  (Again: keep in mind that any empirical studies done today on changes in the minimum wage are unavoidably biased against finding the full magnitude of the negative effect of forcibly raising employers’ costs of employing low-skilled workers and the employment prospects of such workers.  Given the long-time existence – along with the almost certain continued existence – of minimum-wage legislation, firms and employment practices over time evolve over time to deal with this reality by creating fewer jobs than otherwise for low-skilled workers.  So any marginal hikes in the minimum wage will not detect the (literally if not figuratively) countless entry-level jobs that were never created to begin with because of the existence of minimum-wage legislation.)

George Will (inspired in part by Joel Kotkin) warns against the hubris of “Progressive” government.

It’s time to abolish the protectionist Jones Act.

Back to police brutality and the criminal-justice system: here’s Tim Carney.  (I disagree, though, with Tim’s claim that “we have no choice” but to use government-funded and organized police.  Private provision of such services is not only widely used – ever hear of private security guards? – but would likely improve matters if such provision completely replaced government-supplied policing.)

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The Goal Is to Change Minds

by Don Boudreaux on December 8, 2014

in Myths and Fallacies, Politics

A very smart, very wise, and very market-oriented friend asked by e-mail, after reading my letter to Virginia state senator Dave Marsden, if I vote.  I answered “no.”  My friend then asked what incentive Sen. Marsden has to pay attention to my letter.  The point of my friend’s follow-up question is to suggest that, because I don’t vote, Sen. Marsden has no incentive to pay attention to my opinions.

I respectfully disagree with my friend’s suggestion.  Although the local state senate district represented in Richmond by Dave Marsden has a much smaller population than does the entire United States, or even the entire state of Virginia, it’s still a large-population district.  It’s in the densely populated northern Virginia suburbs of Washington, DC.  Dave Marsden surely knows that even if I did regularly vote, the chances of my one vote determining the election are practically zero.  (If Dave doesn’t understand this simple mathematical reality, then we have larger problems on hand than him ignoring the opinion of a non-voting constituent.)  Therefore, whether I vote or not is itself irrelevant in affecting his narrow self-interested political calculation of whether it’s worth his political while to heed my opinion or to ignore it.

More generally, voting is not the only way to exercise political voice.  Indeed, from the perspective of each individual, voting is perhaps the least effective way of affecting political outcomes.

Time and effort are scarce – including, of course, the time and effort spent to vote, and the time and effort spent to write and blog.  Jones (like every other person on the planet) must choose how best to allocate his or her time.  This choice involves not only deciding how much time and effort to devote to political and policy matters, but also deciding the particular ways to spend whatever time and effort are devoted to political and policy matters.

Suppose that Jones votes regularly.  But that’s all that Jones does politically.  He or she spends little time discussing politics and policy matters with others; Jones never writes anything for public consumption; indeed, Jones seldom even reads any sections of newspapers and websites beyond those parts devoted to sports and entertainment.  But, again, Jones does vote.

Jones’s neighbor, Smith, is very different than Jones.  Smith never, ever votes – and he make it credibly known (even to politicians) that he never votes and has no intention of ever doing so.  Yet Smith talks about political and policy matters constantly, both privately with family, friends, and co-workers, as well as in public talks.  Smith also writes and blogs a lot about political and policy matters.  And Smith spends a great deal of time pondering the relevant issues.

If you were a candidate for political office, which of these two people in your district, Jones or Smith, do you believe will be more influential in determining your prospects of being elected or of winning re-election?  Surely it’s Smith.  No matter how absolutely small are Smith’s prospects of swinging the election with his public advocacy, those prospects are much larger than are Jones’s prospects of swinging the election with his lone vote.

Because speaking and writing about political and policy matters can potentially change the minds of multiple voters, it’s quite likely that someone who truly wishes to maximize his or her personal impact on electoral outcomes can better achieve that outcome by taking whatever time and effort he or she would spend voting and reallocating that time and effort to speaking and writing for public consumption.

….

The above says nothing about the morality or immorality of voting versus not voting.  The above is instead merely an exercise in positive economics: the marginal impact on political outcomes of spending time v voting is almost surely smaller than is the marginal impact of instead spending that v amount time writing or speaking to the public about political and policy matters.  Therefore, it’s odd that so many people believe that Jones has a greater ‘right’ or sturdier moral standing than does Smith to express opinions on political matters.  Why is voting considered to be the chief, or even the only, legitimate way for a citizen to exercise his or her political voice?  Why do so many people think that the Joneses of the world have earned a right superior to the Smiths to complain about or to applaud or otherwise to opine on political matters?

In my view, changing tomorrow’s minds is more important than changing today’s vote count.

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Quotation of the Day…

by Don Boudreaux on December 8, 2014

in Great Depression, Myths and Fallacies

… is from page 248 of Burton Folsom, Jr.’s 2008 volume, New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America:

Other nations recovered from the Great Depression more quickly than did the United States.  During the late 1930s, the League of Nations collected statistics from the United States and from many other nations on industrial recovery.  Much of that data supports [sic*] the idea that Roosevelt’s New Deal created economic uncertainty and was in fact uniquely unsuccessful as a recovery program.

Yep.  Robert Higgs has the details.  (See also here.)

* “Data” is plural, not singular.

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In this 1994 interview with C-SPAN’s Brian Lamb, Milton Friedman discusses, among other topics, Hayek’s Road to Serfdom:

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Amy Chen – a high-school senior in Oakland – e-mails me:

My teacher gave my group and I the assignment of debating another group that will take the side that government should stop sellers from raising prices when earthquakes and big natural disasters happen. My dad likes your blog and suggested I ask for your advice.

I sent Ms. Chen a link to Hugh Rockoff’s Concise Encyclopedia essay entitled “Price Controls,” as well as a link to Art Carden’s 2011 Forbes essay “Price Gouging Laws Hurt Storm Victims.”  I also offered to talk with Ms. Chen by phone about this matter, as there’s much to say beyond pointing out that price ceilings will cause shortages of the very goods and services that the legislation is ostensibly aimed at making more readily available.  But here’s my summary of (some of) what I will say to her if she calls:

- price ceilings (on, say, plywood) cause the quantities of plywood that buyers want to buy to be higher than the quantities that sellers are willing to sell; the result is a shortage of plywood;

- the shortage of plywood means that some means of rationing are necessary to determine who gets the available supplies of plywood;

- a common means of rationing is queuing; queuing is costly; the people waiting in long lines are spending valuable time in an effort to increase their prospects of being among the lucky ones who actually get some plywood; so the actual cost to plywood buyers is not the government-mandated price; rather, it’s that price plus the value of the time and effort that was spent to get the plywood;

- another means of rationing is to distribute the good according to political, professional, and personal connections; a hardware-store manager is more likely, with price controls in place, to hold several sheets of plywood aside to be given as gifts, or sold, to his brother, to the mayor of the town, or to building contractor who this hardware-store manager hopes to hire at a good price to refurbish his kitchen;

- price controls spawn black markets; the hardware-store owner might, instead of holding some sheets of plywood aside for his brother (who wants to rebuild a doghouse destroyed by the earthquake), sell plywood on the black market at prices above not only the state-mandated maximum, but above what would be the high market price in the absence of price controls;

- price controls also cause the quality of goods and services to fall; sellers with more buyers than they can possibly serve at existing prices are under less competitive pressure to maintain the quality of the products they sell and the services they offer;

- price controls, by reducing the quantities of plywood actually brought to market, reduce the quantities of plywood that people in this market actually get – reduce it relative to the amount of plywood they would get in the absence of price controls;

- price controls, by reducing the quantities of plywood actually brought to market, raise the market value of each sheet of plywood to levels higher than it would be without price controls; without price controls the market value of each sheet of plywood would be the equilibrium price, but with price controls, the market value of each sheet of plywood is made to be higher than that equilibrium price;

- the amount that people are willing to pay to acquire plywood is shown by the market value of plywood; because a price ceiling on plywood causes the market value of plywood to rise to heights above what the explicit, market price of plywood would be without price controls, price controls cause the total value of resources that people spend to acquire each sheet of available plywood to be greater than they would spend per sheet without price controls – that is, price controls actually raise the price of plywood;

- prices set on markets reflect underlying economic realities; price controls – such as price ceilings on plywood and minimum wages imposed statutorily – are government mandates that force prices to lie about underlying economic realities; rather than lower the cost and increase the availability of plywood, price controls on plywood raise the cost and decrease the availability of plywood by sending out false reports about the true state of the availability and value of plywood; a price ceiling on plywood no more makes plywood less costly for consumers than does a king’s order to kill the messenger change the truth of the messenger’s message that the king’s army suffered a crushing defeat on the battlefield;

- those who complain about higher prices seldom do anything other than complain about higher prices (save, in many cases, actually contributing to the rising prices by being among the consumers seeking to buy the good or service in question); however dastardly it might be for a hardware-store owner to raise the prices he charges for plywood, he at least is doing something to bring a much-needed product to consumers, while the complainers are doing absolutely nothing constructive to bring plywood to consumers; the complainers aren’t willing to supply plywood to consumers even at prices well above the prices that the complainers insist are ‘unfairly’ high;

- rising prices are no more caused, in any meaningful or relevant sense, by “greed” or self-interest than is the death of someone who falls from the top floor of the Empire State Building caused by gravity; the relevant cause must be something that changed; rising prices are caused by either rising consumer demand or falling supplies or by some combination of both – and, in the immediate aftermaths of natural disasters, there is both a significant rise in demand and a fall in supplies (in part because of disruption of supply lines);

- if anyone nevertheless childishly insists on blaming rising prices on “greed,” then greedy consumers even more than greedy merchants should be blamed for rising prices; hardware stores that, after an earthquake strikes, double or triple the prices they charge for plywood do so only because lots of consumers are willing to pay those much-higher prices; so each consumer who, when buying higher-priced sheets of plywood, complains about the “greed” of others ought to look past the merchants who sell the plywood – those who complain should look to the other consumers who are “greedily” offering to pay lots more for plywood, thus enabling hardware-store owners to successfully raise the prices they charge for plywood; without those “greedy” consumers whose gluttony for plywood is so great that they’re willing to pay very high prices for it, the prices of plywood would not rise.

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Quotation of the Day…

by Don Boudreaux on December 7, 2014

in Self-deception

… is from page 118 of H.L. Mencken’s,  A Second Mencken Chrestomathy (1995); it’s reprinted from an article that Mencken wrote for the July 21st, 1935, edition of Manchester, England’s Sunday Chronicle:

The human race detests thrift as it detests intelligence.  The man who accumulates more than he needs and saves the surplus is disliked by all who either can’t or won’t follow his example, and that means the great majority of his fellow men.  He makes them ashamed of themselves and they resent it.

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Last week I linked to my friend Bob Gelfond’s complaint – quite justified, in my view – of the unscientific nature of much of the work on the Keynesian multiplier.  Here’s a link to a website for a project that Bob launched for the purpose of assessing (as the site says)

how well economists have demonstrated that the spending multiplier is greater than one. Specifically, we are seeking an “out-of-sample” (“OS”) test performed successfully. More on the importance of this form of testing can be found here.

At this site, you can also propose wagers, on this matter, with Bob.

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Quotation of the Day…

by Don Boudreaux on December 6, 2014

in Immigration

… is from my colleague Bryan Caplan’s recent EconLog post entitled “Krugman’s Cursory Case Against Open Borders” (links original):

What the history of immigration restrictions shows, however, is that decent folk should nevertheless be deeply uncomfortable with democracy.  Why?  Because most voters are nationalists, and nationalist voters consistently do to foreigners what low-income voters almost never do to the rich: Strip them en masse of their basic rights to work, reside, and travel.  Why?  For the flimsiest of reasons.  Flimsy reasons like: Trapping millions of foreigners in dire poverty and bloody repression probably makes our safety net somewhat stronger.

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Here’s a letter to a former neighbor of mine who now holds a seat in the state senate of Virginia:

Sen. Dave Marsden (D-Burke)
Virginia Senate
Richmond, VA

Dear Dave:

I hear that you’re spearheading an effort in the Virginia General Assembly to raise Virginia’s minimum wage.  Please, please reconsider.

The economic reasons against raising the minimum wage are too many to rehearse in a short letter.  So bear with me as I focus on what I believe is the most important of the reasons: raising the minimum wage will harm the very people who I know you seek to help.

Employers of minimum-wage workers almost all operate in highly competitive industries, such as retail food service, cleaning services, and lawn-care services.  These industries have at least three characteristics that make a minimum-wage hike not only especially unlikely to result in higher incomes for low-skilled workers, but actually to reduce to zero the incomes of workers who can least afford to suffer such an economic calamity.

First, profit margins in the industries that use lots of low-skilled workers generally are razor thin.  So there’s no way that mandated higher labor costs can be absorbed by these employers – that is, there is no way that the costs of a higher minimum wage will be paid for exclusively, or even largely, by employers.

Second, many of the tasks performed by low-skilled workers are manual and rote and, hence, are especially easy to mechanize.  Third, many of these tasks are of such low value to consumers that they are readily avoided if the cost of their performance rises significantly.  The incidence of such mechanization and avoidance will increase with the costs of employing human workers.  For example, some fast-food restaurants are now experimenting with computers that allow customers to place orders and pay without the assistance of cashiers.  And just a few weeks ago I stayed at a hotel in Manhattan that gives extra awards points to guests who stay for multiple nights and who agree to forgo daily maid service.

The result of this reality is that a government-enforced hike in the cost of employing low-skilled workers will cast many of the lowest-skilled workers indefinitely into unemployment lines.  These workers’ pay will fall to $0. Worse, they will be denied opportunities to gain work experience.  The ranks of people lacking skills and experience – and hope – will swell.

I know, Dave, that you mean well.  I know also that some ‘experts’ assure you that studies exist that contradict the economic analysis that I summarize above.  But for every empirical study that denies the negative consequences of minimum-wage legislation, I can show you several top-flight studies that confirm that these negative consequences are real.

So in light of the dueling empirics on this matter, I suggest that common sense combined with human decency counsel against raising the minimum wage.  If (as is the case) the empirical evidence drawn from a multi-trillion-dollar, complex, and ever-changing economy doesn’t overwhelmingly contradict the fundamental economic proposition that raising employers’ cost of hiring low-skilled workers will prompt employers to more strictly economize on the number of such workers they hire, then to nevertheless forcibly increase employers’ costs of hiring low-skilled workers is to unjustifiably put in greater peril the most economically vulnerable people in our society.

I would be happy to testify, in Richmond, in much more detail on both the theoretical and empirical case against raising the minimum wage.  Such a policy is, despite its fine-sounding name and the excellent intentions of you and many other of its proponents, profoundly if invisibly anti-poor and anti-minority.

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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