… is from page 426 of Joel Mokyr’s superb 2009 volume, The Enlightened Economy: An Economic History of Britain 1700-1850:

The fact of the matter, then, is that rent-seeking in all its manifestations had become socially and politically unacceptable in early nineteenth century Britain.  There is no good explanation for this decline except to attribute it to the impact of Enlightenment thought, filtering through many layers and channels to the minds and members of the British political elites in both parties.  The relative payoff of activities that involved redistribution had declined steeply, as the result of a radical change in the ideological mood of the nation.

Perhaps it’s odd that an adherent of public-choice analysis, such as myself, finds much merit in this observation from Mokyr.  But I have become thoroughly convinced that – while ideas of course are incapable of transforming humans into super-humans and, thus, always work for the better when human actions are constrained by appropriate institutions – ideas do indeed matter greatly.  (Ideas channel actions and form constraints – for both good and bad.  Plopping on to society X a set of formal institutions that work very well in society Y will almost never work in society X.  Such a plopping will likely only worsen matters in society X, even if those from society Y who do the plopping-of-institutions on society X feel mighty good about themselves and their ‘success’ at forcibly imposing Y’s institutions on the people of X.)

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(Warning: some of what follows repeats what has been said here before, and perhaps all of what follows repeats something that at least one other person has said somewhere before.)

…..

I’m sick of hearing the “you didn’t build that” mantra trumpeted whenever someone feels the need to flaunt his or her faux sophistication about the way the world works.

Yes, it’s true that entrepreneurs and investors who profit in the marketplace typically don’t build much of the infrastructure they use to connect with their input suppliers and with their customers.  But this fact proves far less than those who shout it out think it proves. Read the full post →

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… is from page 23 of the 1991 Liberty Fund edition of Bruno Leoni’s remarkable and much-underappreciated 1961 volume, Freedom and the Law (original emphasis):

No solemn titles, no pompous ceremonies, no enthusiasm on the part of applauding masses can conceal the crude fact that both the legislators and the directors of a centralized economy are only particular individuals like you and me, ignorant of 99 percent of what is going on around them as far as the real transactions, agreements, attitudes, feelings, and convictions of people are concerned.  One of the paradoxes of our era is the continual retreat of traditional religious faith before the advance of science and technology, under the implied exigency of a cool and matter-of-fact attitude and dispassionate reasoning, accompanied by a no less continual retreat from the same attitude and reasoning in regard to legal and political questions.  The mythology of our age is not religious, but political, and its chief myths seem to be “representation” of the people, on the one hand, and the charismatic pretension of political leaders to be in possession of the truth and to act accordingly, on the other.

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Two Minimum-Wage Links

by Don Boudreaux on April 11, 2015

in Seen and Unseen, Work

Reason‘s Ron Bailey returns again to the minimum-wage fray.

Jim Rose offers some evidence that points quite compellingly toward the conclusion that minimum-wage legislation does indeed promote unemployment – and does so especially among the lowest-skilled workers.

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Here’s a letter to the Wall Street Journal:

Robert Kimmitt and Matthew Slaughter clearly explain how freer trade would increase foreign investment in the U.S. (“How to Ensure That Volvo Is Starting A Trend,” April 10).  And they’re correct that such investment would be a boon to Americans.

Regrettably, Americans are unlikely to absorb Messrs. Kimmitt’s and Slaughter’s important lesson.  The reason is that opportunistic politicians and economically ignorant reporters and pundits incessantly bemoan increases in the U.S. trade deficit and, therefore, treat as harmful any and all economic forces that increase this ‘deficit.’  Yet foreigners cannot invest more in America without putting upward pressure on the U.S. trade deficit.  The reason is (or should be) plain: every dollar that foreigners use to buy dollar-denominated assets is a dollar that returns to America as investment demand rather than as demand for American exports.  America’s capital-account surplus rises.

Of course, it might be that freer trade, by enhancing also the attractiveness of foreign countries to American investors, results in no rise in the U.S. trade deficit.  But such an outcome for America’s balance of trade is neither inevitable nor necessarily desirable.

The benefits of freer trade and greater foreign investment in the U.S. are real even if, as I think likely, the result will be a higher U.S. trade deficit - a happy consequence that, sadly, will inspire doomsday predictions and wails of fear by the politically wily and the economically uninformed.

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

….

Here’s another important fact that Kimmitt and Slaughter report in this same WSJ article:

Last year more than 60% of all U.S. imports consisted of intermediate inputs—parts and subassemblies—not final goods sold to U.S. consumers.

This fact is one part of the appropriate response to those who ignorantly insist that rising American imports (or a rising American trade deficit, or both) necessarily is evidence that Americans are consuming too much.

….

By the way, an excellent introduction to balance-of-payments is the late Herbert Stein’s contribution to the Concise Encyclopedia of Economics.

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… is from page 586 of Dwight Lee’s superb new article “Making the Case Against ‘Price Gouging’ Laws,” which appears in the Spring 2015 issue (Vol. 19) of The Independent Review (footnote excluded):

Today trade has been expanded to include people all over the world, and we have had centuries of opportunities to benefit from and increase the gains of that trade, which explains why we enjoy a prosperity today that was unimaginable even a hundred years ago, much less during the era of hunter-gatherers.  In less than an hour in a local grocery store, we can hunt for and gather a week’s supply of food (much of it ready to eat) from a choice of thousands of items (including a host of nonfood items), made available by the cooperative (and specialized) efforts of millions of complete strangers making productive use of large amounts of human and physical capital.  And we can pay for that food with the income earned in three or four hours from our own specialized productivity, such as working as an accountant in a comfortable office for a manufacturer that produces nothing but ball bearings using highly specialized machinery.

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Some Links

by Don Boudreaux on April 10, 2015

in Civil Society, Crime, Crony Capitalism, Trade, Work

Steve Horwitz – inspired by the recent controversy in Indiana – writes wisely on tolerance and freedom.  A slice:

Tolerance lies at the core of the libertarian worldview. Living peacefully with each other means accepting our differences and allowing others to engage in behavior that we might dislike but that does not harm third parties. “Anything that’s peaceful” is our lodestar, as Leonard Read reminded us. Such tolerance does not require that we associate with people we disagree with, only that we leave them in peace. And this idea cuts to the core of the debate in Indiana.

If, like me, you think that gays and lesbians are not doing anything harmful to anyone, and that they should be treated just like other human beings, you might call the behavior of those who refuse to, for example, provide photography services at a same-sex marriage “intolerant.” Perhaps it is in some sense, but those who have such views are not engaged in any attempt to prevent gays and lesbians from getting married — or anything else — by refusing to provide them with a service. They are, in fact, tolerating them, but also refusing to associate with them. True tolerance does not mandate association.

On the same topic, here’s John Stossel.

My colleague Bryan Caplan is unimpressed with Paul Krugman’s understanding of the range of the public’s political opinions.  (Although I like Bryan’s post very much, I do agree with a commenter at Bryan’s post that Bryan’s use of the term “economic liberalism” here is confusing.)

Jon Murphy weighs in wisely against the minimum wage.

David Henderson sensibly suspects that some stymie-the-competition motives explain at least some expressed support for government efforts to address climate change.

Even the Washington Post – normally blind to the costs of government interventions into the economy – is skeptical of the Export-Import Bank’s assertions that it makes profits for taxpayers.   (HT Veronique de Rugy)

Mark Perry explains that if U.S. firms each year had to pay all of their annual expenses before declaring any earnings to be profits, most firms wouldn’t see a cent of profit until December – and in many cases not until late December.  Merry, merry.

George Will rightly bemoans the overcriminalization of American life.

Bjorn Lomborg argues that “[w]ith one simple policy – more free trade – we could make the world $500 trillion better off and lift 160 million people out of extreme poverty.

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… is from page 213 of the 1994 re-issue of Charles Murray’s 1988 volume, In Pursuit: Of Happiness and Good Government:

Strongly bound communities, fulfilling complex public functions, are not the creation of the state.  They form because they must.  Human beings have needs as individuals (never mind the “moral sense” or lack of it) that cannot be met except by cooperation with other human beings.  To this degree, the often-lamented conflict between “individualism” and “community” is misleading.

Murray is correct.  It is a canard that libertarians and other advocates of free markets believe that human beings are, or ought to be, atomistic – that individual human beings are, or ought to be, unaffected and uninfluenced by the thoughts, attitudes, reactions, writings, talk, interests, and actions of others.  Liberal theory (“liberal” according to the original and correct meaning of that term) is an exploration of human society – of how society forms and evolves, and of what purposes it serves.  Libertarians and true liberals no more believe that the individual human being is, or ought to be, independent of society than does any respectable biologist believe that the individual selfish gene is, or ought to be, independent of the organism which it helps to form, of which it is a part, and which is crucial to its own survival and ability to reproduce.

What the libertarian and true liberal does do is to recognize each individual’s independent moral agency and worth and – again akin to the respectable biologist – reject creator-based explanations of complex social orders.

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Here’s a letter to the Wall Street Journal:

To justify raising the minimum wage, Gary Jimenez alludes to the tale that in 1914 Henry Ford raised his workers’ pay to $5 per day so that he would earn more profits by dint of his workers spending their higher incomes on new Ford cars (Letters, April 9).  This tale is a myth.  Were Mr. Jimenez a better student of history he would know that Ford raised his workers’ pay in order to reduce worker turnover in his factories.

But even someone with zero knowledge of history should nevertheless, and immediately, understand that this tale makes no sense.  Jones does not become richer by gifting $X to Smith and Williams in the hope that Smith and Williams will soon return some portion of the $X to Jones.  Instead, Jones impoverishes himself by this tactic, especially if Smith and Williams will return to Jones some portion of the $X only on the condition that Jones then gives to each of them some good or service in exchange.

If Mr. Jimenez doubts the truth of this analysis, I invite him to start his own company - say, one that manufactures private jets - and pay his workers, from the receptionist up to the CEO, annual salaries that allow each of them to afford to buy a private jet.  If Mr. Jimenez’s economic theory is correct, he’ll prosper and I’ll send him a note of apology.

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

….

At the risk of excessive repetition, it’s crucial to understand that in the Ford-pay-raise myth the higher wages are simply a gift from Henry Ford (or the Ford Motor Co.) to those people who were then fortunate enough to be his employees.  Putting aside the extraordinarily unlikely prospect that this gift-giving would have, by increasing Ford’s annual sales, enabled the Ford Motor Co. to cost-effectively scale up to capture significant economies of scale that were otherwise uncaputurable, there is no way, mathematically, for someone to profit financially by giving gifts to others in the hope that those others will send the gifted funds back to the original gift-giver.

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Quotation of the Day…

by Don Boudreaux on April 9, 2015

in Economics

… is a comment from yesterday at Marginal Revolution; it’s by my colleague Dan Klein and refers to Tuesday’s Conversation at the Mercatus Center between Tyler Cowen and Jeffrey Sachs:

The discussion was outstanding.

I’d like to leave a thought for Professor Sachs: Your diagnostic approach to economic problems is wonderful. The conversation opened with a great analogy to your wife, a pediatrician, and ended with how to change graduate economics. The message was to cultivate an understanding of cases, pathological factors, so as to sharpen and deepen the economist’s aptitude in diagnosing and treating real world economic problems. All this is very sensible, even beautiful — I say that with no irony whatsoever.

What upsets me and so many other Smith-Hayek liberals is that left-liberal economists are so malfeasant in their economic doctoring. In domestic policy, we have case after case after case of economic meningitis — namely, over-governmentalization of social affairs — and left-liberal economists simply don’t treat the case, or treat it wrongly. The economic doctors should be opposing large sways of the regulatory state (for example, practically all so-called consumer protection restrictions) and government-ownership of resources (such as schools, hospitals, infrastructure and other plainly excludable services), but they aren’t. You are right about ideological bias being the dominating force in the case of Paul Krugman, but that problem applies much more generally.

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