… is from page 74 of my friend and old classmate Roger Koppl’s superb 2014 monograph, From Crisis to Confidence: Macroeconomics after the Crash:

Discretionary regulation appears to have become something of a new orthodoxy in the theory and practice of financial-market regulation.  I think this orthodoxy is mistaken and dangerous.  Discretionary regulation … violates the rule of law and it tends to make the global financial system more fragile and less resilient.

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Here are words of wisdom from Nick Gillespie on the ‘war on terror.’  A slice:

The sheen has also mostly worn off The Patriot Act, that awful, Constitution-shredding piece of legislation that, until the passage of Obamacare, held the record for being the least-read law that was rubber-stamped by a pliant Congress (at least our representatives debated The Affordable Care Act). Ongoing revelations about massive bipartisan government abuses of power and the general ineffectiveness of the Patriot Act have driven home the reality that government will use whatever powers it has to do pretty much whatever it can get away with.

Indeed.  Giving government more power to fight terrorism gives government more power to terrorize.

One of the strangest notions that still has currency is that slavery is a means of promoting widespread economic growth (save, of course, for the slaves themselves).  Scott Sumner weighs in against this myth.  (This topic was the subject of my very first regular column in the Pittsburgh Tribune-Review.)

Bryan Riley rightly argues that Uncle Sam should not copy foreign export credits – that is, not copy the practice of many foreign governments to forcibly shift scarce resources to those producers who display a comparative advantage at pleading to be subsidized with other people’s money.

Abby Schachter explains some of the problems caused by occupational-licensing requirements.

My Mercatus Center colleague Richard Williams warns us to be wary of debt deniers.

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Quotation of the Day…

by Don Boudreaux on September 13, 2014

in Seen and Unseen

… is from page 211 of the 1992 collection of some of William Graham Sumner’s best essays, On Liberty, Society, and Politics (Roger C. Bannister, ed.); specifically, this quotation is from Sumner’s famous 1883 essay “The Forgotten Man“:

When you see a drunkard in the gutter, you are disgusted, but you pity him.  When a policeman comes and picks him up you are satisfied.  You say that “society” has interfered to save the drunkard from perishing.  Society is a fine word, and it saves us the trouble of thinking to say that society acts.  The truth is that the policeman is paid by somebody, and when we talk about society we forget who it is that pays.  It is the Forgotten Man again.  It is the industrious workman going home from a hard day’s work, whom you pass without noticing, who is mulcted of a percentage of his day’s earnings to hire a policeman to save the drunkard from himself.

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Here’s a letter to the Wall Street Journal:

Peter Thiel notes that, despite its being “considered both the ideal and the default state in Economics 101,” economists’ theory of perfect competition doesn’t remotely describe the realities of actual capitalist rivalry (“Competition Is for Losers,” Sept. 13).  He’s right.

As explained by the great economist Harold Demsetz, the theory of perfect competition is not a theory of competition at all.  Instead, it’s a theory of the formation of prices under conditions of extreme decentralization.*  Yet by calling it a theory of competition (perfect, no less!), careless economists - as well as antitrust officials - naively mistook this theory meant to describe one thing (price formation) as being a theory meant to describe something altogether different (market competition).  And so it’s as unsurprising as it is regrettable that when the actual process of real-world market competition reveals itself to be nothing like anything found in the theory of perfect competition, far too many economists and bureaucrats accuse real-world markets of being less than ideally competitive – of being infected with strains of monopoly power.

In fact, as Mr. Thiel recognizes - and as Austrian economists such as Ludwig von Mises, Joseph Schumpeter, F.A. Hayek, and Israel Kirzner have always insisted - entrepreneurs who innovate in ways that create unique market niches that yield temporary above-normal profits are not really monopolists at all.  Instead, they are the essential drivers of genuine, dynamic, and consumer-friendly competition.

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

* Harold Demsetz, Economic, Legal, and Political Dimensions of Competition: The De Vries Lectures in Economics (Amsterdam: Elsevier Science, 1982).  [See also here.]

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Coyote Blog’s Warren Meyer offers this useful Venn diagram.

economics_venn1

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Proprietary Cities

by Don Boudreaux on September 12, 2014

in Civil Society, Complexity & Emergence, Innovation

Unlike my late and much-missed colleague Jim Buchanan, I never bought into the social-contract theory of the origin of the nation-state.  Historically, it’s not descriptive; analytically, it’s a mess.  Yet there are real-world instances of communities being formed by actual voluntary consent among the flesh-and-blood people who are then bound by the rules of the communities.  See, for example, this wonderful 2002 collection of original articles, The Voluntary City, edited by David Beito, Peter Gordon, and my colleague Alex Tabarrok.  Also relevant – I brag without justification – is my and Randy Holcombe’s 1989 article, “Government by Contract.”

Now to brag with justification: my student Mark Lutter – who is writing his dissertation under my direction – is doing exciting work on proprietary cities.  Indeed, not only is Mark academically exploring the nature of community consent and governance, he’ll soon move to Honduras to work full-time in an effort to make proprietary cities more of a reality.  Here’s an essay written by Mark to introduce the concept of proprietary cities.

If you can’t beat your nation-state, it would be good to have genuine options to leave it.  Such options are today far too few and weighed down with government-imposed burdens; jurisdictional competition among sovereign governments is today obstructed by practical and political barriers.  Hopefully, vigorous jurisdictional competition will become a reality in the not-too-distant future.  If so, a non-trivial portion of the thanks will be owed to my student Mark Lutter.

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Quotation of the Day…

by Don Boudreaux on September 12, 2014

in Hubris and humility

… is from page 10 of the 1996 Liberty Fund collection of Frank Meyer’s essays, In Defense of Freedom (William C. Dennis, ed.); specifically, it’s from Meyer’s July 1955 Freeman article, “Collectivism Rebaptized” – an essay critical of the “New Conservatism” as embodied then in the thought of Russell Kirk (original emphasis):

It can be admitted that the long experience crystallized in traditional human wisdom is a necessary make-weight to the conclusions which reason would seem to dictate to a single group or even to the conscience of a whole generation  But to make tradition, “prejudice and prescription,” not along with reason but against reason, the sole foundation of one’s position is to enshrine the maxim, “Whatever is, is right,” as the first principle of thought about politics and society.  Such a position is immoral from any point of view….

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John Stossel on War

by Don Boudreaux on September 11, 2014

in Reality Is Not Optional, War

Tune in tonight at 9:00, EDT on FoxBusiness (FBN).  Stossel will, as always, have engaging and thoughtful guests.  And here’s Stossel’s own take:

The U.S. military is asked to chase and kill terrorists, train foreign militaries, protect sea lanes, secure the internet, contain China, keep oil cheap, protect other countries from aggression, stop genocide, protect innocent people, transform failed states into democracies-and the list goes on! Is it worth all the spending and the lives? Often it makes new enemies. Like most government plans, war tends not to work out as well as planners hoped. We libertarians wonder why people assume government will do better this time.

Indeed so.

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In today’s Washington Times, CEI’s Ryan Young (a GMU Econ alum, I boast) explains that the U.S. Export-Import Bank is pro-business and not pro-market.  A slice:

Ex-Im Bank has a long history of giving special treatment to politically favored sectors, such as renewable energy and other green industries. In fact, 10 percent of Ex-Im Bank’s authorizations are required to go to renewable-energy projects, and there are tight restrictions on financing “high-carbon intensity” projects, regardless of economic merit. That’s wonderful for those individual green businesses, but terrible for the economy at large.  This kind of favoritism erodes the competitive market process. There is only so much investment capital to go around. Every time Ex-Im Bank secures favorable terms for one of its beneficiaries, another company elsewhere has to pay more to attract scarce financing — or may lose access to it entirely. Worse, over the years, Ex-Im Bank has helped secure financing for politically connected companies, such as Enron and Solyndra. Imagine what other uses that wasted capital could have been put to instead, if only pro-business politics had stayed out of financing decisions.

Speaking of the great geyser of cronyism that is the Ex-Im Bank, Tim Carney offers this account of the absurd arguments that champions of this cronyism shamelessly offer.

Sarah Skwire and Steve Horwitz expose as shoddy Thomas Piketty’s use of literature (although I’m not quite as impressed as are Sarah and Steve by Tom Wolfe’s portrayal, in Bonfire of the Vanities, of professional financiers).

Speaking of Piketty, Steve Fritzinger isn’t impressed.  A slice:

As someone who has had his share of success and failure investing, I can tell you that generating above-average returns for decades is not as easy as Piketty thinks.  As famed tech investor Marc Andreesen noted in a recent interview, “The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I’ve ever met…. He assumes it’s really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that’s supposed to happen.”

In today’s Washington Post, George Will explains the radical hostility to free speech of many members of the U.S. Senate.

A poem, by Scott McPherson.

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Some War Links

by Don Boudreaux on September 11, 2014

in Hubris and humility, Seen and Unseen, War

The steady confidence that many American conservatives (and many “liberals,” for that matter) have in the ability of U.S. military might to successfully subdue evil abroad never ceases to astonish me.  The same conservatives who wisely warn against the risks of unintended ill consequences of government intervention into domestic economic affairs seem largely oblivious to the same (I would argue much greater) risks attendant upon government intervention into foreign political affairs.  Utterly baffling.  Art Carden writes sensibly on this matter over at EconLog.  A slice:

That terrible people do terrible things does not mean that good people can stop them without ultimately making matters worse. I think Bryan’s “Common-Sense Case for Pacifism” is relevant to the President’s claim that we will “degrade and ultimately destroy” ISIS leaders (here’s coverage from the local paper).

War is an occasion for bluster, bravado, and cheap talk. Shoveling BS can be fun when we’re explaining how you will suffer humiliation when the sports team from my area defeats the sports team from your area. BSing is something else entirely when lives are in the balance; borrowing from Alex Tabarrok, we should tax it by expecting people to bet.

Judge Andrew Napolitano warns against war.

Sheldon Richman warns against war.

Jacob Sullum warns against war.

Bruce Fein warns against war.  A slice:

In sum, anyone who believes ISIS is a non-trivial threat to ordinary Americans at home, at work, or at play would be frightened of their shadows. Indeed, if the danger ISIS presents to the sovereignty and people of the United States satisfies a threshold to justify war, then we should not tarry in attacking Russia, China, North Korea, Pakistan, Iran, Cuba, the Mexican drug cartels, or otherwise. Moreover, even if we destroyed ISIS, the dynamics behind its creation would remain to create a new variety, just as ISIS has eclipsed Al Qaeda: namely, utterly dysfunctional and tyrannical Arab governments ruling over artificial nations whose boundaries were drawn by a handful of donnish European diplomats a century ago with ulterior motives.

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