… is from page 202 of my late Nobel-laureate colleague Jim Buchanan‘s 1994 paper “Politicized Economies in Limbo” as this paper is reprinted in Ideas, Persons, and Events (2001), which is volume 19 of The Collected Works of James M. Buchanan:

Now, here, is the normative contradiction that does confront anyone who takes a classical liberal position.  Margaret Thatcher, as you recall, was roundly chastized for her statement that there is no society as such.  Her intent in that statement was to suggest that only individuals offer loci of value and evaluation.  But taken literally, there could then exist no national interest, not national purpose, no national vision – whether for Germany, the United States or any other nation-state or group thereof.  Yet almost all commentators – academic and media alike – proceed as if such an aggregate of interest exists, and regardless of their own position on some ideological spectrum.  It’s almost as if we are forced willy-nilly to adopt an organicist conception of society, while simultaneously mouthing individualist norms in our philosophies.

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Some Links

by Don Boudreaux on November 12, 2017

in Data, Housing, Immigration, Myths and Fallacies, Regulation, Seen and Unseen, Taxes, Trade, Work

Shikha Dalmia explains how immigration crackdowns in American screw-up the lives of many Americans.

Lenore Skenazy and Jonathan Haidt explore the causes of the emotional fragility of today’s young people.  A slice:

This magnification of danger and hurt is prevalent on campus today. It no longer matters what a person intended to say, or how a reasonable listener would interpret a statement—what matters is whether any individual feels offended by it. If so, the speaker has committed a “microaggression,” and the offended party’s purely subjective reaction is a sufficient basis for emailing a dean or filing a complaint with the university’s “bias response team.” The net effect is that both professors and students today report that they are walking on eggshells. This interferes with the process of free inquiry and open debate—the active ingredients in a college education.

Also from Jonathan Haidt is this defense of Amy Wax’s defense of bourgeois values.  (Here’s the original op-ed by Amy Wax and Larry Alexander.)

Peter Gordon rightly bemoans the widespread and deep economic ignorance that leads people to support Trump’s destructive trade policies.

Kate Andrews busts some myths about the alleged gender-pay gap in the United Kingdom.

George Will isn’t fond of the G.O.P.’s plan to tax the earnings on some collegiate endowments.

Cathy Reisenwitz explains why more top-down government intervention will not improve the housing market in the United States.  A slice:

A recent statistical analysis from the Cato Institute showed that in 44 out of 50 states, the more land-use regulations on the books, the more homes cost.

Reducing land use regulations is the right move for getting Americans out of poverty and into work.

My great colleague Walter Williams distinguishes ignorance from stupidity.

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Quotation of the Day…

by Don Boudreaux on November 12, 2017

in History, Law

… is from page 19 of Daniel Boorstin’s magnificent 1973 volume, The Americans: The Democratic Experience:

Without benefit of law, ranchers had divided the range among themselves by a system that was informal, that had no standing in court, but was enforced by the cattlemen themselves.

DBx: Boorstin here, discussing post-U.S. Civil War western cattle raising, identifies one of the now-more-famous examples of spontaneous law-making.  My only gripe is with the quotation’s fourth word.  That word should instead be “legislation,” for the rules that the ranchers developed among themselves, without the direction or even the help of the state, are indeed law.  I will insist until my dying day that one of the greatest errors about the nature of society – namely, the fallacy that law is that which the state commands and forbids – is fostered by the mistaken use of “legislation” as synonym for “law.”

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Mr. Walenta:

You read on my blog that I’ll soon defend, in a debate in New York City, the proposition that Americans would be best served by a policy of free trade regardless of whether or not other countries follow such a policy.  In the comments section of my blog you wrote in response that “If actually reciprocal I vote for that any day.  Without reciprocity, I’m just not interested.”

So you believe that as long as other governments keep their peoples poorer than those peoples would otherwise be, Uncle Sam should keep us Americans poorer than we’d otherwise be.  Given your logic, I assume that if your neighbor stubbornly engages in economically imprudent practices – say, spends his money frivolously, or buries all of his earnings in a hole in his backyard – that you, too, will engage in those same insane practices for as long as your neighbor persists in his insanity.  How foolish of you.

You apparently believe that governments that restrict imports or subsidize exports thereby enrich their citizens at the expense of countries that don’t engage in these practices.  But your belief is mistaken.  Governments that restrict imports or subsidize exports not only make their citizens poorer, they often also artificially enrich the citizens of other countries at the expense of their own people.  It therefore makes no sense whatsoever for Uncle Sam to condition his commitment to eliminate the restrictions that he imposes on Americans’ access to resources, goods, and services on other governments doing the same for their citizens.  It is insanity for Uncle Sam to continue to deny to us Americans the greater riches that we’d get from free trade simply because other governments deny to their citizens the greater riches that they, too, would get from free trade.

Donald J. Boudreaux
Professor of Economics
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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SoHo Forum Debate on Trade

by Don Boudreaux on November 11, 2017

in Trade

This Monday (November 13th) I’ll defend free trade against Americans for Limited Government’s Rick Manning at the SoHo Forum in New York City.  Specifically, I’ll defend this proposition:

The U.S. government should unilaterally abolish all tariffs and duties on imports and all subsidies to exports, thereby making all reciprocal trade agreements with other countries unnecessary.

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With Apologies to Bastiat

by Don Boudreaux on November 11, 2017

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

You correctly point out that Pres. Trump’s ignorance of trade leads to policies that reduce American exports (“Trump’s Pacific Trade Tear,” Nov. 11).  But an even deeper problem with such policies is that they reduce American imports.  This truth cannot be too often repeated: exports are costs incurred in order to receive benefits called “imports.”

If Trump were correct that exports are benefits and imports are costs, we Americans could become fabulously wealthy simply by loading all of our production onto ships and then sinking the ships in mid-ocean.  Getting nothing from us, foreigners will send nothing to us.  In fact, of course, as even a six-year-old child would recognize, such a trade policy would ensure our impoverishment.

Yet the trade policy championed by Trump differs from the sink-all-exports-in-mid-ocean policy only in degree and detail and not in kind.  Trump is using his much-ballyhooed bargaining skills to arrange for us Americans to pay more to foreigners and to get less in return.  The American president, in other words, is bargaining hard to make foreigners artificially richer by making Americans artificially poorer.

Donald J. Boudreaux
Professor of Economics
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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… is from pages 9-10 of my late Nobel-laureate colleague Jim Buchanan‘s 1966 paper “Economics and Its Scientific Neighbors,” as this paper is reprinted in Moral Science and Moral Order (2001), Vol. 17 of The Collected Works of James M. Buchanan:

The physical scientist can, I think, learn much from the economist.  Essentially, he can learn humility as he appreciates the limitations of science and scientific method in application to the inordinately complex problems of human relationships.  To the extent that he can learn that, by comparison, his own problems are indeed elementary; despite his great achievements, he becomes both a better scientist and a better citizen.

DBx: Physical scientists’ frequent failure to grasp the nature of the economy and of society leads them to regard the economy and society as entities to be studied in the same way that scientists study phenomena such as the cosmos and chemical reactions.  But such purely physical phenomena are far less complex in their structures and their interrelationships than are social phenomena.  Failure to recognize this reality is furthered by careless labeling that lumps myriad and often conflicting smaller entities into one large and seemingly homogeneous unit (for example, our talk of “the American economy” or of “the business community”).  Social scientists’ own careless – and sometimes downright reckless – use of aggregates (such as the Keynesian notion of “aggregate demand”) only further furthers the failure to recognize the vital details of social interactions and reactions.

All of this failure to correctly understand the complexity of society contributes to the false and dangerous impression that society and the economy are things to be engineered.

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Shikha Dalmia got the outcome that she wanted in last Tuesday’s gubernatorial election in Virginia.

From August 2016, here’s an excellent Forbes article, on creative destruction, by Chelsea Follett and my new Mercatus Center colleague Christine McDaniel.  A slice:

What might be more surprising is that Americans are also better off economically in many ways than their grandparents. The real cost of living in America has declined for most material goods. The best way to measure the cost of something is in terms of a standard that doesn’t change—time at work, or real prices.

Yesterday I ordered Helen Dale’s new novel, Kingdom of the Wicked.  I’m eager to read it.

Scott Sumner writes insightfully about today’s tax-reform politicking in the United States.

Speaking of insightful writing about U.S. tax policy, here’s George Will.  A slice:

Already 62 percent of American households pay more in payroll taxes than in income taxes. The bottom 50 percent of earners supply less than 3 percent of income-tax revenues. Forty-five percent of American households pay no income tax, either because they earn too little or because they qualify for enough exemptions and credits to erase their liability. Sixty percent pay nothing or less than 5 percent of their income. Forty percent of earners are net recipients from the income tax because they qualify for refundable tax credits. All this means that an already large – and, if the Republican bill passes, soon to be larger – American majority has a vanishingly small incentive to restrain the growth of a government that they are not paying for through its largest revenue source.

The great Bruce Yandle asks if tax reform can keep corporations at home.

My GMU colleague from over in the law school, Ilya Somin, asks if libertarian skepticism about majoritarian democracy is a cause of today’s political ills or part of a potential cure.  A slice:

The real sources libertarian concern about democracy are a combination of the knowledge limitations of government planners (Hayek), the susceptibility of democracy to “capture” by special interests and overbearing majorities (Buchanan and other early public choice theorists), and the perverse incentives democracy creates for widespread voter ignorance and bias (Brennan, Caplan, and my own work, among others). As I have explained more fully here, there is a great deal of overlap between these libertarian concerns about democracy and standard left-liberal rationales for limiting the power of political majorities. The key difference is that libertarians extend them to cover the “economic” powers of government as well as “noneconomic” ones. But it’s hard to explain why the former should be any less subject to these pathologies than the latter.

You can now preorder my colleague Bryan Caplan’s new book, The Case Against Education.

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One of the most curious – and most mistaken – arguments that Ian Fletcher made during our debates on trade earlier this week at Hillsdale College occurred repeatedly during discussions of the trade deficit.  One of the facts that I pointed out is that a U.S. trade deficit is good for the U.S. insofar as such a deficit means that capital is flowing into the U.S. and creates new businesses (or bolsters existing businesses).  Think, for example, of BMW’s factory in Greer, South Carolina, or of any of the many Ikea stores across the United States.

In reply, Fletcher agreed that such investment is productive, and even that it’s beneficial for Americans.  “However,” he replied (and here I quote from memory), “it would be even better if those assets were owned by Americans.”

If you watched or listened to the debate you heard my response.  I here want to drive that response home.

The core error in Fletcher’s reply is the assumption that the productive assets that are brought into being by foreign investment would exist in the absence of foreign investment.  Fletcher assumes, for example, that the successful Ikea store in Dale City, Virginia, would exist in the absence of Ikea’s decision to build and operate a store there.  Fletcher assumes, in other words, that the ownership of an asset is economically distinct from the creation of an asset.  But this assumption is plainly mistaken.  Nothing prevented Americans from building a large furniture (or other kind of) store on that very location before Ikea built its store there – nothing, that is, other than the failure of any Americans to have the vision or the willingness to do so.  Ikea’s entrepreneurial vision and willingness to take the risk of building a store in Dale City added to the capital stock in America (and in the world).

Once the store exists, of course it’s child’s play to imagine it now being owned by Americans.  And in a hyper-static view of economic reality, one might even agree that were that store owned by Americans rather than by Swedes then Americans as a group would be richer.  But it is nonsensical to leap from this childish observation to the conclusion that the U.S. trade deficit means that Americans are made worse off.  Again, the reality is that that store would not exist were it not for the foreign investment and entrepreneurship that created it.

One cannot legitimately do what Fletcher here does, namely, separate the existence of the asset from the individuals and the processes that bring that asset into existence.  Assets do not create themselves; assets are not created ‘naturally’ or ‘automatically.’  The creation of each productive assets requires savings, creativity, risk-taking, and actual effort that are unique to that asset.  As I said in my verbal response to Fletcher’s claim, I would be richer if Microsoft were fully owned by me.  (This fact is a matter of mere arithmetic.)  Yet it hardly follows that if Bill Gates and Paul Allen had been prevented from doing what they did to create and successfully launch Microsoft that Microsoft would nevertheless exist for me to own.  Had these entrepreneurs been prevented from creating Microsoft, I’d be poorer today, not richer – for Microsoft products, many of which I use, would not be available for me to use.  And, of course, I would not have created Microsoft.

Put differently, Fletcher implicit assumes that the processes that give rise to the U.S. trade deficit have no effect on the size of the U.S. capital stock.  For Fletcher, this capital stock exists independently of the details of human decision-making.  ‘If Ikea had not built that store, it would have been built instead by Americans, with Americans as a group being richer for owning the store’ – this is among Fletcher’s faulty premises.

Fletcher fails to see that the size, quality, and vital details of the capital stock, as these exist at any moment and as they change through time, are themselves determined by the pattern of international trade and investments that give rise to them.  They are not phenomena independent of the market process.  Therefore, it is illegitimate simply to imagine all of these phenomena as they are except with the pattern of capital ownership being different.

Relatedly, Fletcher doesn’t understand that, because the size and quality of the capital stock aren’t fixed (or, more generally, because they aren’t independent of the particular economic arrangements and individual decisions that give rise to them), when non-Americans successfully invest in America this investment does not mean that Americans’ capital ownership declines correspondingly.  Each individual American remains free to invest as little or as much as he or she pleases.  Ikea’s successful building and operation of retail furniture stores in America doesn’t stop me from investing.  And if I invest successfully, then I’m become wealthier; if I don’t, I don’t.  Ikea’s successful investment in America is not legitimately considered to be any subtraction from or constraint on my, or Fletcher’s, or any other person’s ability to invest in America.

Here’s one final point about this faulty argument by Fletcher: if you accept its premise and logic, then there’s no reason to confine the analysis to America.  Fletcher can just as easily observe, for example, that while it’s true that, say, the Mercedes-Benz factory in Sindelfingen, Germany, is a productive asset, Americans would be even richer were that factory owned exclusively by Americans rather than chiefly by Germans.  So by Fletcher’s poor, nationalist logic, American trade policy ‘fails’ insofar as it doesn’t result in Americans owning every productive asset in the world.

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by Don Boudreaux on November 10, 2017

in Crony Capitalism, Trade

The essence of protectionism is captured nicely in this headline that just appeared at World Trade Online:

Protectionists are masters at frightening economically uninformed people with far-fetched hypotheticals.  ‘What if all of our farmers go bankrupt and we are then left at the mercy of our military enemies to supply us with food?  Do you want to risk that outcome?!’ – is the sort of absurd ‘argument’ that protectionists mistake for serious argument.  This sort of precautionary-principle argument is prevalent when protectionists are trying to persuade people to allow the government to restrict their – the people’s – access to goods and services.

But the true essence of protectionism is captured nicely by this headline about Argentine lemon imports.  No one with any sense can possibly interpret this demand by the U.S. citrus industry as reflecting anything other than an attempt to pick the pockets of consumers by denying to consumers access to imported lemons.

Protectionism in theory is dubious.  Protectionism in practice is cronyist thuggery costumed as “policy.”

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