… is from page 188 of the 2016 Mercatus Center re-issue of my late colleague Don Lavoie’s superb and still-relevant 1985 volume National Economic Planning: What Is Left? (original emphasis):

unknown-2The case for the free market does not rest on any sort of belief that market forces bring the economy to some ideal equilibrium state of full adjustment.  It argues that market forces drive a process of plan coordination in which full coordination can never be attained, but which uses more knowledge than any single agent or organization can command.

DBx: Indeed so.  And for this reason – because the market is an on-going process of discovery, change, creation, and adjustment – any supposed revelation by some professor, pundit, or politician of a market ‘imperfection’ (say, monopsony ‘power’ in today’s market for low-skilled workers in northeastern Nebraska or southwestern New Jersey) creates no good case for government intervention.  Not only is there a much-better-than-even chance that this professor, pundit, or politician is mistaken (for such people are almost never actual participants in the markets on whose details they presume to pronounce) – and not only are the ‘remedies’ offered by such people ones that, being imposed by force, distort future market processes – the likelihood that alert and creative entrepreneurs will discover whatever correctible problems exist today and launch courses of action, often in competition with each other, to address these problems in the best manner possible (that is, without political influence, and with more knowledge than can be mustered by government regulators) is high.

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Ilya Somin, a colleague over in GMU’s Antonin Scalia Law School, has penned a splendid essay on why the Senate should prevent Jeff Sessions from becoming the next Attorney General of the United States.  A slice:

I don’t expect any president — Democrat or Republican — to appoint an attorney general as libertarian as I would ideally prefer. Far from it. But libertarians and others who care about federalism and limiting government power can reasonably expect someone with a less terrible record than Sessions. His divergence from mainstream views on so many issues does not by by itself prove that he is wrong. But it does make him potentially vulnerable.

I am not the only right-of-center commentator with grave concerns about Sessions. George Will, the Wall Street Journal editorial page and Michael Tanner (writing in National Review) have done so, as well, among others. As Tanner puts it, Sessions “has a record that ought to worry believers in small government and individual liberty.”

My Mercatus Center colleague Dan Griswold is appropriately skeptical of Steve Moore’s defense of the GOP’s proposed “border-adjustable” tax scheme.

I agree with Tyler Cowen on “Black Lives Matter.”  A slice:

“Black Lives Matter” is a large movement, if that is the proper word for it, and you can find many objectionable statements, alliances, and political views within it.  I don’t mean to endorse those, but at its essence I see this as a libertarian idea to be admired and promoted.

I enjoyed the movie Hidden Figures – and also this write-up of it by Charley Locke.  (HT Manny Klausner)

Kevin Williamson notes a pattern in Paul Krugman’s attitude toward government budget deficits.  And here’s Scott Sumner on the same issue.

The Competitive Enterprise Institute’s Wayne Crews – a GMU Econ alum – wisely argues that we should fear politicians rather than labor-saving innovations.

Here’s Nick Cowan’s excellent Introduction to a symposium celebrating the five-year anniversary of the publication of Mark Pennington’s remarkable 2011 volume, Robust Political Economy.  (HT Walter Grinder)

George Selgin has just posted part 9 of his excellent “Monetary Policy Primer.

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Here I continue my correspondence with Mr. Vince Vogel:

Mr. Vince Vogel

Mr. Vogel:

You “celebrate” Donald Trump’s tweet threatening Toyota with a “big border tax” if it produces America-bound Corollas in Mexico rather than in the United States.  You “find refreshing … our President-elect getting tough on corporations which take and don’t give to America.”

Are you serious?  How is Toyota not ‘giving’ to us Americans when it offers to sell automobiles to us at prices that we find attractive?  Do Americans who voluntarily buy such cars not benefit?  Of course they do.  And do other Americans who, because of Toyota’s competition, pay lower prices for American-assembled cars not also benefit?  Of course they do.  That you fail to see that an increased flow of goods and services made available to Americans – especially at prices that reflect production costs as low as possible – raises Americans’ standard of living means that you fail to understand the most basic facts of economics.

You also fail to understand the nature of Trump’s bullying threats.  First, Trump threatened not only Toyota; he threatened also Americans who would purchase Mexican-assembled Corollas.  Mr. Trump’s “big border tax” would oblige these Americans to pay higher prices.

Second, suppose that Trump learns that in 2017 Americans intend to eat more meals prepared at home and fewer meals prepared at restaurants.  Would you “celebrate” if, in response, Trump tweets to every American household “NO WAY!  Eat at restaurants or pay big home-cooked-meal tax”?  Both cases – the home-cooked-meals case and the Toyota-in-Mexico case – feature actions that destroy or fail to create some specific jobs in an identifiable American industry.  Both cases feature outcomes that depend upon the voluntary actions of American consumers.  Both cases, in short, are economically identical.  Yet I suspect that you would be appalled at any tweet threatening Americans who choose to eat more home-cooked meals.  If I’m correct, you should be equally appalled at Trump’s tweet about Toyota producing cars in Mexico.

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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I’ve come to the conclusion that the world would be better off had there never been the sub-discipline within economics of “international economics” (or, alternatively, of “international trade” and “international finance”).  The economics profession likely also would be better off without such a sub-discipline.

Only individuals, separately or in voluntarily formed groups such as firms, trade; countries as such do not trade.  Only individuals, separately or in voluntarily formed groups such as firms, have comparative advantages and comparative disadvantages; countries as such have no such advantages or disadvantages.  Only individuals, separately and in voluntarily formed groups such as firms, specialize in production; countries, as such, do not.  Only individuals, separately and in voluntarily formed groups such as firms, create or take advantage of economies of scale, of scope, or of both in production; countries, as such, don’t.  Only individuals, separately or in voluntarily formed groups such as firms, spend, save, and invest; countries, as such, don’t.  Only individuals experience income, wealth, or welfare gains and losses; countries as such experience nothing.

Of course, we can – and do – talk, for example, about “America trading with China,” about “Germany having a comparative advantage in the brewing of beer,” about “India’s national income rising,” and about “Peru’s trade deficit falling.”  But all such talk merely describes the largely unintended, aggregate results of countless choices and actions each made by a particular, flesh-and-blood person.  And also, of course, governments do perform many of these activities – for example, spend.  But no government is a country.  Each government is merely a particular organization run by particular, flesh-and-blood persons according to a certain set of formal and informal rules.

The reason for my conclusion that it is unfortunate that there exists the sub-disciple “international economics” is that discussing “international trade” and “international finance” gives the impression that there is something so unique about international transactions in goods, in services, and in investments and financial instruments that these transactions warrant being studied separately from non-international transactions.  But there is nothing essentially unique about international transactions.  Nothing at all.

There are, of course, inessential differences that separate domestic from international transactions.  Examples of these inessential differences include the need for currency conversions; the fact that different jurisdictions have different monetary policies; the fact that people in one political jurisdiction operate under different laws and legislation – including tax policies – than do people in other political jurisdictions; the reality that average wages and wealth in some political jurisdictions often differ from those in other political jurisdictions; the fact that international transactions generally (although not always) occur over geographical distances that are greater than are the distances covered by domestic transactions.

But whatever analytical gain there might be from treating transactions that are separated by these inessential differences differently from transactions that are not separated by these differences, the price of this gain is too great.  The very notion of “international trade” causes us to miss the essential reality of trade, which is always flesh-and-blood individuals bargaining and exchanging with each other in ways that each person judges to be in his or her best interest.  This intellectual oversight is the result of conceiving of trade as something done between countries.  This country-level perspective then prompts us to judge the merits of trade by how likely or unlikely it is to increase the aggregate net well-being (however conceived or measured) of the subset of human beings who are denizens of, or citizens of, each particular country.

Yet any such country-wide assessment of trade is illegitimate – or, at least, such an assessment is no more legitimate than would be an assessment of trade that takes as the relevant group, not the whole country, but my neighborhood.  People in my neighborhood freely trade with people outside of my neighborhood.  Sometimes this freedom to trade works to the immediate disadvantage of my neighbors – for example, to have the oil changed in my car I do not use my nearby, neighborhood service station; instead I go to the dealership where I bought my car, which is several miles from my home.

Fortunately, we have no sub-discipline in economics devoted to the study of “interneighborhood trade.”  Were such a sub-discipline to exist, all sorts of nefarious empirical studies and theoretical welfare analyses would be conducted – studies and analyses that would lead unavoidably to government manipulation of interneighborhood trade.  And while much of this manipulation would be sparked by economic ignorance – such as some wag’s insistence that my neighbors and I cannot be allowed to trade freely in interneigborhood markets if the result is a trade deficit for our neighborhood – nearly all of this manipulation would be supported by politically influential neighbors who profit from the ‘protection’ they receive in the form of government restrictions on interneighborhood trade.

Trade is trade is trade, no matter how many, or what sort of, political borders it might span in any specific instance.  Economists should study trade, period, with no more attention paid to international trade than to interstate or intercontinental on interneighborhood or interfamily or interhousehold or interpersonal trade.  Without a separate sub-discipline called “international trade,” the general public would be spared – and rent-seeking interest groups would be denied – the many misleading mirages that are created when trade is discussed as if its character and contents are fundamentally different when it spans political borders compared to when it doesn’t.

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My former GMU Econ student Caleb Brown discusses – in this Cato Institute Daily Podcast with Dan Ikenson and Dan Mitchell – Trump’s economically ignorant trade triumvirate (of Robert Lighthizer, Peter Navarro, and Wilbur Ross).

Nick Gillespie points out that “Progressives” bear much of the blame for many of the dangers that are likely forthcoming from Trump’s presidency.  A slice:

One of the things that [Meryl] Streep, who spoke at the Democratic National Convention last summer in support of Hillary Clinton, didn’t address, though, is the way in which Barack Obama has handed Trump vast powers as president. There’s no question that Obama worked overtime to arrogate more power to the presidency over the past eight years, using all sorts of unilateral action to get shit done. Even Yellow Dog Democrats will grant as much when it comes to civil liberties abuses (remember Bam’s “secret kill list”?) and waging war (still waiting on his request to Congress under the War Powers Act to sanction Libya, which turned out so well). Obama was on the losing end of a 9-0 Supreme Court ruling about abusing recess-appointment powers and his moves on immigration law suffered a similar fate as well. In all sorts of ways, the plain fact is that, like George W. Bush before, Obama was ready to grab as much power as he could. And whatever presidential precedents he established will now be sitting in Oval Office, waiting for the arrival of Donald Trump.

Speaking of “Progressives” with a weak grip on reality, here’s my great colleague Walter Williams.

Todd Zywicki (my colleague from over in GMU’s Antonin Scalia Law School) and Geoff Manne argue, correctly, in today’s Wall Street Journal that behavioral economics has no good place in U.S. constitutional law.

Emily Skarbek reports on some interesting history of the early career of Milton Friedman.

John Tamny challenges Robert Atkinson’s flawed call, from the political right, for (yikes!) a “national productivity strategy.

Here’s a newly released, very important, new book – Reframing Financial Regulation – edited by my Mercatus Center colleagues Hester Peirce and Benjamin Klutsey.

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Quotation of the Day…

by Don Boudreaux on January 10, 2017

in Myths and Fallacies, Trade

… is from page 274 of Leland Yeager’s and David Tuerck’s indispensable 1966 volume, Trade Policy and the Price System:

imagesBy adopting free trade independently, instead, the United States could show the whole world that it sees tariff removal not as a self-inflicted injury to be carefully measured and paid for but as a direct benefit to itself.  This dramatic example might do more for the cause of world-wide free trade than years of negotiations.  It would avoid putting the stamp of approval on the protectionist ideas that show up in the inevitable exceptions and escape clauses of international [trade] agreements.

DBx: To be clear, I support complete unilateral free trade, regardless of how open or closed other countries are to international trade – and my support for complete unilateral free trade is without a single if, and, but, or other qualification.  Yet because unilateral free trade is politically impossible now in the United States, I also support any and all trade agreements that make Americans’ trade with non-Americans freer than it would be absent such agreements.  And I judge that most such agreements, in reality, do indeed make trade freer (if not, of course, as free as trade could be or should be).  But as Leland and David make clear in this quotation (and, indeed, in much of the chapter from which this quotation is extracted), there’s a real danger beyond any such agreement’s failure to make trade freer: such agreements are premised on deep ethical and economic misunderstanding.

The ethical misunderstanding is that domestic producers, whenever they succeed in persuading the state to act as their agent, are entitled to some portion of consumers’ income, and that force is justified to ensure that producers are able to extract from consumers that portion.  The economic misunderstanding – or, rather, the most prominent of a Niagara of economic misunderstandings – is that allowing consumers to import more is the price ‘we’ must pay for the benefit of enabling producers to export more.

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Bonus Quotation of the Day…

by Don Boudreaux on January 9, 2017

in The Future

is from page 64 of Mary Beard’s wonderful 2015 history of ancient Rome, SPQR.:

51m0ljamyrl-_sx331_bo1204203200_[C]ultural anxieties are often a privilege of the rich.

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Quotation of the Day…

by Don Boudreaux on January 9, 2017

in Economics, Hubris and humility, Man of System

… is from page 466 of my late colleague Jim Buchanan‘s 1986 Nobel Prize lecture, “The Constitution of Economic Policy,” as it is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty; today – January 9th – is the 4th anniversary of Jim’s death:

unknown-3The constructivist urge to assume a role as social engineer, to suggest policy reforms that “should” or “should not” be made, independently of any revelation of individuals’ preferences through the political process, has simply proved too strong for many to resist.  The scientific integrity dictated by consistent reliance on individualistic values has not been a mark of modern political economy.

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Here’s a second letter to my new correspondent, Vince Vogel:

Mr. Vince Vogel

Mr. Vogel:

You allege that in this blog post I “falter.”  You say that your parents taught you that “anyone that works hard and lawfully gets to enjoy middle class prosperity” and that “it’s a duty of government to help guarantee this [outcome].”  With respect, my parents taught me differently.  They taught me that, while anyone who works hard and lawfully improves his or her prospects of enjoying middle-class prosperity, no one is guaranteed any such outcome and, further, that the only agent responsible for my well-being is me and not the state or anyone else.

I then learned additional lessons from economics.  One such lesson is that hard work is not self-justifying.  Suppose that for years I work 24/7/365 to learn how to sing every Elton John song backwards.  And suppose that at the end of my labors I’m unable to earn a living by selling the fruits of my hard-earned skill.  Am I entitled to have government force you and others to support me simply because I worked hard and lawfully?  I, for one, think not.

Another lesson that I learned from economics is revealed in this next thought experiment.  Suppose that you’re given a choice between two careers.  In career one you’re guaranteed never to lose your job.  But your real annual income will never be higher than $1,000. In career two, in contrast, you have no such guarantee as you have in career one, yet the annual income that you can reasonably expect – although not be guaranteed – is $60,000.  Unlike in career one, in career two there’s a chance that you’ll be unemployed for long stretches, but also a chance that some years your income will be six, or even seven, figures.  ($60,000 is merely the annual income that you can statistically expect to earn in career two.)  Which career would you choose.  I’m sure that the answer is career two (given that you almost certainly can now, but refuse to, find someone to employ you on the same terms that I spell out for career one).

A key reason that career two pays more than career one is that career-two workers are more productive that are career-one workers.  Career-two workers’ efforts and skills can be transferred from performing less-valued to performing more-valued tasks.  Thus, economies with lots of career-two workers are vastly more productive than are economies dominated by career-one workers.

For most of human history career-one jobs have dominated – and each pays about $3.00 per day.  Career-two jobs are relatively recent.  They’re a product of the industrial revolution – that is, of an expansion of trade and of what Deirdre McCloskey calls “market-tested innovation.”  Today, typical career-two jobs pay between $100 and $300 a day.

We could, if we are unhappy not having jobs guaranteed for life, return to a society of nearly absolute job security.  But the unavoidable result would be that all but a very few of us would become desperately poor serfs, although ones quite secure in our jobs and in our status.

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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Bonus Quotation of the Day…

by Don Boudreaux on January 8, 2017

in Competition, Complexity & Emergence, Prices

… is from page 128 of Israel Kirzner’s brilliant 1985 volume, Discovery and the Capitalist Process (original emphasis):

unknown-3The primary function of the market is not to offer an arena within which market participants can have their decentralized decisions smoothly coordinated through attention to the appropriate list of given prices.  The market’s essential function, rather, is to offer an arena in which market participants, by entrepreneurial exploitation of the profit opportunities offered by disequilibrium prices, can nudge prices in the direction of equilibrium.

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