Some Links

by Don Boudreaux on April 27, 2016

in Competition, Health, Politics, Trade, Video

John Tamny gets to the heart of Donald Trump’s (and Bernie Sanders’s – and their fans’) unmitigated ignorance about international trade.  A slice:

Thanks to free trade within these fifty states, the companies that fail to best serve the needs of their customers don’t last very long. That trade is wholly free within the U.S. is precisely what attracts a great deal of job-creating domestic and foreign investment, simply because lousy business concepts are allowed to fail so that good businesses can quickly replace them. In short, it’s the constant destruction of jobs in the U.S. that enables the fast creation of much better ones.

Applied to the foreign competition that Trump decries, the happy fact that the U.S. is largely open to foreign production is similarly what makes the U.S. such an attractive destination for investment. Figure foreign competition, just like domestic, forces the very economic evolution that appeals so much to investors. Absent foreign trade, the U.S. economy would be quite a bit more depressed as a result of many more proverbial Blockbusters existing at the expense of more capable replacements like Netflix.

So often we hear about Americans “battered” by “foreign trade,” but the certain truth about imports – whether from across the street or from around the world – is that they’re the surest sign of a growing economy. As logic dictates, the fact that so many businesses – domestic and foreign – compete to serve U.S. consumers is the best indicator that open trade has been brilliant for the American people. If it weren’t, we Americans wouldn’t have the world’s talented so aggressively working to serve our needs.

Speaking of trade, in my latest column in the Pittsburgh Tribune-Review I attempt to tackle yet another misunderstanding about trade.  A slice:

“Fair trade” is code for “unfree trade.”

Of course, no one endorses trade that is genuinely unfair. The crucial questions, however, are just what is unfair trade and what is the best way to deal with it. Protectionists in America want you to think that any imports whose producers receive any assistance at all from foreign governments are unfair. They want you also to uncritically accept their assumption that the best way to deal with unfair trade is for Uncle Sam to raise tariffs — that is, taxes — on American consumers.

Never mind the hypocrisy at work when Uncle Sam — itself a major subsidizer of many U.S. exporters, such as Boeing and Dow Chemical — uses charges of “unfair trade” as an excuse to punitively tax Americans who purchase imports.

I can pick two or three nits with Alan Blinder’s recent essay in the Wall Street Journal about trade, but overall it’s very good.  A slice:

Trade is more about efficiency—and hence wages—than about the number of jobs. You probably don’t sew your own clothes or grow your own food. Instead, you buy these things from others, using the wages you earn doing something you do better. Imagine how much lower your standard of living would be if you had to sew your own clothes, grow your own food . . . and a thousand other things.

The case for international trade is no different. It’s not mainly about creating or destroying jobs. It’s about using labor more efficiently, which is one key to higher wages.

Mark Perry offers us a fascinating trade visual.

My colleague Pete Boettke introduces us to Tyler Cowen’s recent conversation with Camille Paglia.

I agree with Bob Higgs (as I almost always do).  And I agree with my colleague Bryan Caplan (as I almost always do).

John Stossel writes about his lung cancer and about free markets.  (Needless to say – but I’ll say it anyway – Russ and I wish John a full, speedy, and lasting recovery from his illness.  He’s a unique talent, one that all friends of liberty should treasure.)

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Quotation of the Day…

by Don Boudreaux on April 27, 2016

in Hayek, Inequality, Myths and Fallacies

… is from page 196 of the 2011 Definitive Edition (Ronald Hamowy, ed.) of F.A. Hayek’s 1960 volume, The Constitution of Liberty:

It is one of the great tragedies of our time that the masses have come to believe that they have reached their high standard of material welfare as a result of having pulled down the wealthy, and to fear that the preservation or emergence of such a class would deprive them of something they would otherwise get and which they regard as their due.

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… is from page 76 of the Second Edition (1999) of R.W. Grant’s The Incredible Bread Machine:

The politician dispenses wealth which other men have produced, and we say he is “compassionate,” while the businessman who produces the wealth is dismissed as “greedy” and “materialistic.”

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In this Prager University video, historian Burt Folsom explains why private investment works better than does government investment.

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Imperfect!

by Don Boudreaux on April 26, 2016

in Complexity & Emergence, Economics

During an informal water-cooler chat a few moments ago, GMU Econ PhD student Rosolino Candela – who knows a bit of Latin – told me that the original meaning of “imperfect” is more akin to “incomplete” rather than, as we understand it today, “not ideal.”  Here’s the entry for the adjective “perfect” from this on-line dictionary of etymology:

perfect (adj.)
early 15c. alteration of Middle English parfit (c. 1300), from Old French parfit “finished, completed, ready” (11c.), from Latin perfectus “completed, excellent, accomplished, exquisite,” past participle of perficere “accomplish, finish, complete,” from per- “completely” (see per) + facere “to make, do, perform” (see factitious).

Notice in this meaning of “perfect” the element of process.  For something to be “finished” or “completed” implies that that something was once unfinished or incomplete and that some process brought that something to a finish or to completeness.  Good economists understand that all social institutions, including markets, facilitate the finishing, or the competing, of individuals’ plans.  Good economists understand also that this finishing or completing means to bring countless incompatible plans into closer compatibility with each other so that as many as possible such plans will meet with success.

Good economists judge markets and other social institutions (including government) by how well they facilitate this process of making plans compatible.  The market is indeed a process, and it should no more be criticized because it is still in the process of finishing or competing its ‘task’ of making plans compatible than a sculptor who is still chiseling away on a block of marble should be criticized because he’s still in the process of finishing or completing his masterwork.

Yet one important difference does distinguish the market from the sculptor.  Because – as good economists also understand – people’s preferences change as do the ‘external’ constraints and opportunities that people confront, there is no actual finished or completed state of the market that is comparable to the actual finished or completed state of the sculptor’s masterwork.  The constancy of change in society and the economy means that no social institution, including the market, will ever actually finish or complete this plan coordination.  It’s always an on-going process.  But it is the process that must be evaluated – as a process – against alternative processes for its effectiveness at satisfying human desires.  That the market process is at any moment in time still unfinished – that is, “imperfect” – is irrelevant.

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Some Links

by Don Boudreaux on April 26, 2016

in Civil Asset Forfeiture, Crony Capitalism, Economics, Politics, Taxes, Trade, War, Work

Sandy Ikeda weighs in on the economics of the minimum wage.  A slice:

What does it say about the economic literacy of the [New York] governor’s office for him [Gov. Andrew Cuomo] to proclaim that increasing the cost of labor would more than double employment? Obviously, more people would be willing to work at the higher rate, but he seems to have forgotten that employers also have an incentive not to hire as many people as before, or to offer them fewer hours, or both.

Shikha Dalmia exposes the frightening uses to which government surveillance is being put.

The Institute for Justice wins another challenge to the uncivilized atrocity of civil asset forfeiture.

GMU Econ alum Rohit Shetty discusses approval voting.

This past Sunday (April 24th) was Tax Freedom Day in the U.S. – a day that prompted Bill Shughart to write about taxation.

Bob Higgs wonders what business government has poking its nose – and its lethal weapons – into your business.

Scott Sumner rightly laments many economists’ selective use of economic theory.

My old friend Roy Cordato is correct: there should be a complete separation of bathroom and state.  (HT David Henderson)

Dan Ikenson rightly complains that the scientifically discredited and crony-enriching doctrine of mercantilism remains inspiration for U.S. trade policy.

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… is from page 89 of Anthony Scott’s 2008 book, The Evolution of Resource Property Rights (link added):

In every period of English law, protection of property from actionable damage at the hands of others has been recognized by law….  [E]ven [the American] Justice Story in Tyler v. Wilkinson agreed that sic utere tuo ut alienum non laedas (‘use your land without harming your neighbor’s’) has always been part of the law.

It’s gross error – in most instances reflecting an inadequate knowledge of history – to suppose that the control of what economists call “externalities” (or, more narrowly, of what in popular discussion is called “pollution”) had to await the dictates of legislatures.  Common law was long aware of such potential problems and was remarkably nuanced and surprisingly effective at dealing with them.  One can argue that the common law – and the property-rights regime that was part of it – dealt with externalities less well than did legislators and their bureaucratic appointees.  (And one can argue also the opposite.)  But the popular understanding – one that is shared by many economists, unfamiliar with Alchian and Coase, who pronounce on the subject – that externalities are uncontrollable except by legislative diktat is plainly mistaken.

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A Proposed Minimum-Wage Experiment

by Don Boudreaux on April 25, 2016

in Science, Scientism, Seen and Unseen, Work

Here’s a note to the many readers who e-mail me, or who offer comments in the comments section of Cafe Hayek, with the counsel that I be more “scientific” about minimum-wage legislation.  (The specific prompt for this post is an e-mail from FrankieJoe, but the point is more general than the formulation as it appears in his or her particular note.)

Readers urge me: “Why not regard minimum wages as social experiments?  If they succeed, great.  If not, they can be undone.”  The more intelligent of these readers understand that real-world minimum-wage legislation is instituted for political and not objectively scientific reasons.  But these readers hold out hope that the political zebras who alone can inflict minimum wages on workers will lose their stripes and begin to be more “scientific” about enacting minimum wages.

Unlike these readers I do not believe in miracles.  Zebras’ stripes will not be replaced with single-color coats, and politicians’ political motivations will not be replaced with scientific ones.  (This reality is one of the many reasons why I oppose minimum-wage legislation.)  But let’s play along with the miracle-believers for just this post.

Here’s a scientific experiment that I propose: abolish the minimum wage completely and for a long stretch of time and then see what happens over time.

Because minimum wages have been part of the regulatory scene in the U.S. for nearly 80 years, this experiment in eliminating the minimum wage will have to last a long time.  It’ll have to last at least as long as a decade if the results of this experiment are to accurately reveal the true consequences of minimum-wage legislation.  Only if people come really to believe that the minimum wage has been eliminated and will not be reinstated anytime soon will employers and employees adjust fully to a no-minimum-wage economic environment.  But if such a belief can be instilled by credibly eliminating the minimum wage for a long stretch of time, then we can scientifically compare employment in the new, no-minimum-wage-regime economy to employment in the older, minimum-wage-regime economy that the new regime replaces.

If minimum-wage opponents (such as me) are correct, we’ll see over time that elimination of the minimum wage increases the employment of low-skilled workers, as well as eliminates or greatly reduces the differences between the unemployment rates of black and Hispanic low-skilled workers and the unemployment rates of white low-skilled workers.  We’ll see a slight reduction in the incomes of middle-class households and increases in the incomes of lower-income households.  We’ll see also fewer people in their 20s and 30s who have never gained on-the-job experience and skills.

Of course, if minimum-wage opponents (such as me) are incorrect, then we’ll not see these consequences.  A much-more-solid scientific basis than what we have today will thereby be created upon which to found the case for minimum wages.

So why not run the experiment?  Science demands it.

It will not do to counter with the accurate observation that we already have a lot of empirical evidence on the effects of raising the minimum wage.  First, much of this evidence suggests that the standard economic prediction holds true in reality – namely, that raising the minimum wage destroys jobs for some low-skilled workers.  So if this evidence is to carry the day, then let us hear no more assertions that raising the minimum wage does not destroy jobs for some low-skilled workers.

As for the other evidence – the evidence that finds no negative employment effects of minimum-wage hikes – the vast bulk of this evidence comes from studies that take a minimum-wage regime as a given.  That is, these studies are done of economies in which minimum-wage legislation already exists and, typically, has existed for a long time.  Further, these economies are ones not only in which there is no expectation that minimum-wage legislation will be permanently repealed, but likely contain widespread expectations that existing levels of minimum wages will be raised to higher levels sometime in the foreseeable future.

In short, nearly all existing studies that find no negative employment effects of minimum wages are studies of economies in which employers and employees have already adjusted their production arrangements and employment-contract terms (both formal and informal) to the realities of binding minimum wages and to the likelihood that existing minimum wages will be raised, if not today or tomorrow, the day after tomorrow.  These empirical studies, therefore, tell us at best how employers and employees adjust to unexpected increases in existing minimum wages.  (See here and here.)  And very few of these studies even attempt to distinguish unexpected hikes in the minimum wage from expected hikes.  So even if such studies correctly find no negative employment effects of minimum-wage hikes, those findings do not tell us that imposing a minimum wage where none before existed (and where none had been reasonably anticipated) will not destroy jobs for some low-skilled workers.

But, again, because low-skilled workers and their employers (and potential employers) in America have for nearly eight decades now been burdened by minimum-wage legislation, an empirical test of imposing a minimum wage America is out of the question.  So let’s run the experiment backwards: eliminate the minimum wage and promise to keep it eliminated for, say, at least ten years.  We’ll then be able to get a much truer and fuller sense of the employment consequences of minimum-wage legislation.

So, to all of my ‘scientific’ friends out there who base their support for minimum wages on “the data,” will you join me in calling for this important scientific experiment?

…..

Note, by the way, that it also will not do to reject my proposed experiment by arguing that innocent people might be harmed by it.  The reason is that innocent people might be harmed by current minimum wages.

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Washington Post columnist Robert Samuelson writes sensibly about the gender pay gap.

GMU Econ student Emily Washington writes about market urbanism.

Here’s part of an abstract of an interesting paper to which Tyler Cowen recently linked:

Notably, using the appropriate historical parameter values we were able to capture the historical dynamics of wealth inequality in the United States during the course of the 20th century. It is found that the effect of personal savings on wealth inequality is substantial, and its major decrease in the past 30 years can be associated with the current wealth inequality surge. In addition, the effect of increasing income tax, though naturally contributing to lowering income inequality, might contribute to a mild increase in wealth inequality and vice versa.

Kevin Grier identifies a major problem with modern macroeconomics.

Incoming GMU Econ PhD student Jon Murphy warns of unintended consequences.

I wish that the so-called ‘war on drugs’ were one of Richard Branson’s businesses.

I’m eager to read Randy Barnett’s new book, Our Republican Constitution.

A former McDonald’s executive warns that raising the minimum wage will destroy jobs for many entry-level workers.

Speaking of the minimum wage a cruel government policy of pricing many low-skilled workers out of jobs, this ReasonTV video reveals the gross economic ignorance that fuels the political success of minimum-wage legislation.

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My Dad

by Don Boudreaux on April 25, 2016

in Civil Society

Seven years ago today my father died, peacefully, just a few weeks shy of his 74th birthday.  I miss him far more than I can express in words.  He was a good, gentle, and unbelievably kind-hearted man, husband, and father.  Here’s the remembrance of him that I wrote just after he died.

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