Some Links

by Don Boudreaux on August 14, 2016

in Books, Economics, Politics, Seen and Unseen, Trade

Ross Kaminsky marshals logic and facts to rightly expose as baloney the protectionist arguments made by Clump.  A slice:

And nobody talks about what should be your fundamental right to buy what you want from whom you want without pandering politicians telling you to pay one-third more because they’re trying to scrounge up some votes in Ohio.

Bill Watson further explains why one particular half of Clump is clueless about trade.

Tyler Cowen rightly recommends the new edition of Jim Gwartney’s, Rick Stroup’s, Dwight Lee’s, Tawni Ferrarini’s, and Joe Calhoun’s Common Sense Economics.  A slice from Tyler’s post:

[T]this is a very good introduction to economics for say a smart high school student who reads books.  Sadly, more and more politicians and indeed professional Ph.d. economists need this wisdom too.

(Indeed.  Possessing a PhD in economics – even one from a highly ranked university – is not necessarily to possess economic understanding.)

Gary Galles warns against committing the fallacy of decomposition.

In this essay in National Affairs, George Will ponders the limits of majority rule.  A slice:

There are those, and they might be an American majority, who believe that majority rule is the sovereign American value that trumps all others. They believe that the degree of America’s goodness is defined by the extent to which majorities are able to have their way. Such people are bound to believe that it is the job of the judicial branch of government to facilitate this by adopting a modest, deferential stance regarding what legislatures do.

Many also implicitly believe that such an attitude should shape the attitude of courts toward what executive branch officials and agencies do. Here, judicial deference is said to be dictated by the plebiscitary nature of the modern presidency. This began with the presidency of Andrew Jackson, but did not fully flower until modern communications technologies — especially radio and then television — changed the nature of the American regime by changing the nature of political campaigns and of governance. Many have argued that, because presidents alone are elected by a national constituency, they are unique embodiments of the national will, and hence should enjoy the maximum feasible untrammeled latitude to translate that will into policies.

The two-fold problem with such an attitude of deference, however, is that majorities can be abusive, and that some questions are not properly submitted to disposition by majority rule because there are some — actually, there are many — closed questions even in an open society.

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… is from page 247 of David Friedman’s excellent 1996 book, Hidden Order:

The result – that price control results in a cost to the consumer, pecuniary plus nonpecuniary, higher than the uncontrolled price – does not depend on the details of the [supply and demand] diagram.  Consumers cannot consume more gas than producers produce, so the nonpecuniary cost must be large enough to drive quantity demanded down to quantity supplied.  Quantity supplied is lower than without price control, so cost to the consumer must be higher.

In other words, because a government-imposed limit – a “ceiling” – on the monetary price that suppliers are allowed to charge (and that buyers are allowed to pay) causes suppliers to supply less than they would supply without this government-imposed price ceiling, the height of the ‘cost-obstacle’ that stands between consumers and supplies of this good or service must increase.  With fewer units available for sale (per period of time), something must deter consumers from actually buying the full number of units that they would have bought were a larger number of units available for sale.

That something is typically (although not always) the nonpecuniary cost of queuing – or, in American parlance, “waiting in line.”  The time and effort spent waiting in line is a cost to each person who waits in line no less than is the sacrifice of money paid for the good by each person who buys the good.  In each case, the person sacrifices something of value in order to acquire something that has for him or her higher value.  Waiting in line to buy the good involves the sacrifice of whatever income or enjoyment would otherwise have been yielded to the person had she spent in some other way – say, working at her office job – the time that she actually spent waiting in line.  Spending money on the good involves the sacrifice of whatever goods or services that she would have otherwise bought had she not spent the money on this good.*

While the consumer in this example might be indifferent between these two means of expenditures on the good, the suppliers are most certainly not indifferent between them.  (Note: because monetary payments are the most general form of payment, in practice most consumers – even ones with relatively modest incomes – would prefer paying money prices to paying nonpecuniary prices.  But explanation of this reality is beyond the scope of this post.)  To the extent that consumers acquire the good by paying money to the suppliers of the good, the suppliers get something of value in return – which prompts suppliers to supply the good in sufficient quantities.  But to the extent that consumers acquire the good by paying for it in some other way that does not redound to the benefit of suppliers – say, by waiting in long lines – the consumers’ expenditures are not translated into efforts by suppliers to bring sufficient quantities of the good to market.  Price controls are a policy of forcing an unnecessarily large portion of the amount of resources that consumers spend to acquire goods to be spent in ways that do nothing to call forth greater quantities supplied of goods.

Again, although price ceilings might be sincerely meant to lower consumers’ cost of acquiring price-ceilinged goods, price ceilings lower only the amount of consumers’ expenditures on the good that are received by suppliers of the good.  The result is reduced quantities supplied – which, in turn, inevitably cause the nonpecuniary portion of the cost of the good to rise such that the total cost (pecuniary plus nonpecuniary) is higher than the total cost of the good would be without the price ceiling.  In short, price ceilings not only artificially reduce the quantities of the good that consumers get, they raise the cost to consumers of acquiring the good.

……

* To be more precise: As James Buchanan explains in his brilliant little 1969 book, Cost and Choice, what is ultimately sacrificed is the subjective utility that the person anticipates she would have gotten had she chosen differently than she actually chose.

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Sarah Skwire argues that air-conditioning is not merely cool, it’s an immense blessing for humanity – regardless of the uninformed protests of Popes and politicians.

Joe Stromberg reviews Sheldon Richman’s America’s Counter-Revolution.  (HT Walter Grinder)

A GMU colleague of mine from over in the law school, Ilya Somin, proposes sensible changes for the Olympics.

John Cochrane shares some common sense about zoning.

David Henderson details the FDA’s enforcement of a cartel.

As David Boaz documents, Hillary Clinton’s knowledge of the U.S. Constitution isn’t much better than Donald Trump’s.

A sweet treat!

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Quoting from pages 111-112 of the 1990 Transaction Publishers reprint of W.H. Hutt‘s 1936 volume, Economists and the Public; (note: by “power-thought” Hutt – adopting language proposed in Robert Briffault’s 1919 volume, The Making of Humanity – means thought the aim and effect of which is to protect the privileges and purses of the powerful):

The apologists, academic and otherwise, for the doctrine of Protection have derived their convictions, more or less unconsciously, from the power-thought of those whose privileges or advantages were in danger; and the conspicuousness of Protectionist publicists has in itself been a result of power-thought; they have been selected and quoted by the politicians or producing interests whose contentions they have supported.  There are countless false but superficially convincing notions and arguments which can be brought into the field to aid the defence of private profit as enhanced by tariffs: the necessity for ‘creating employment’, the necessity for protecting the home standard of living, the necessity for maintaining the balance of trade, the economic and political advantage of ‘national self-sufficiency’, and so forth.  We are not concerned here to consider the validity of the doctrine of national economic protection.  But the economist can make a list of arguments of this kind that are gravely used by intelligent and eminent politicians, arguments which regularly appear in the columns of leading newspapers, journals and reviews; and he will find them all so easily capable of refutation by elementary logic that the nature of power-thought is thrown into clear light.  It becomes obvious that these ideas are either insincere, deliberately propagated with the idea of gulling an ignorant electorate, or else (and we believe that this is the more important explanation), that the presence of vested interests makes it possible for the feeblest reasoning to be grasped at as effective confirmation for the conviction of most people that what leads to their profit cannot possibly hurt the community.  More subtle reasoning seldom has much effect.  There exists, for example, some rather ingenious arguments for tariffs which have been put forward from time to time; but they have exercised, as arguments, practically no influence on opinion.  The danger in some of these subtle improbabilities that may appear to justify Protection lies, not in their own content, but in the fact that the authority of the propounder (if his status sounds well), will be seized upon, and the community told that So-and-so, ‘an eminent economist’, believes that a tariff is necessary.  It is, however, simple and plausible fallacies which fill the columns of newspapers; they have good propaganda value; and the politicians repeat them to one another in Parliament.  Arguments have been selected for the control they can exercise upon the minds of men and hence upon State policy.

Arguments for protection today – be these trumpeted by Trump, shouted by Sanders, cackled by Clinton, or read in any eminent newspaper or on prominent blogs – are no different or stronger or more refined than were arguments for protection 80 years ago, which themselves were no different or stronger or more refined than were arguments for protection 80 or 160 years before that.  Economists have shown again and again the illogic, the faulty premises, and the biased use of facts that are always to be found in popular arguments for protection.  Yet these arguments never die.  They are idea-zombies, largely because a failure to grasp fundamental economics makes mercantilism seem correct – in the same way that a primitive human being, never exposed to even the most rudimentary scientific thought and judging exclusively from his own personal experience – concludes that the earth is stationary and at the center of moving orbs and twinkly little lights.  This popular ignorance is greedily exploited by powerful producer groups to secure state privileges for themselves at at the expense of the economically uninformed masses.

There is nothing remotely progressive about protectionism.  It is regressive politically, ethically, and economically.  Buffoonish ignoramuses such as Donald Trump and knavish power-mongers such as Hillary Clinton surely don’t care about this reality, but, for heaven’s sake, people who aspire to be intelligent, rational, cosmopolitan, and unbiased ought not fall for the mix of idiocy and grasping-greed that is protectionism.

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is Alberto Mingardi’s letter-to-the-editor in today’s Financial Times:

Sir, Mark Mazower, in his Books Essay “On Your Marx” (Life & Art, August 6), says: “Communism may have failed. But it can scarcely be said that contemporary capitalism – with its intensifying tendency to increasing inequality, its propensity to crisis, its hollowing-out of political institutions, and its casualisation of the labour force – has succeeded.”

Professor Mazower is factually right: communism was an “ism” in the sense that it was a coherent doctrine for governing this world. It had its promises, and it failed in delivering them. Capitalism, on the other hand, is distinctly not an “ism”. It is no doctrine to manage the world but an evolving ecosystem, constantly coping with threats to its own survival, sometimes successfully, sometimes not so much.

And yet “capitalism” succeeded – at the game of communism.  If realised socialism killed millions, realised capitalism enriched billions.  As Deirdre McCloskey puts it in Bourgeois Dignity: Why Economics Can’t Explain the Modern World, until the 1800s the overwhelming majority of human beings lived with a real income equivalent to about $3 a day. Modern economic growth increased that amount roughly tenfold over the world population, 30 fold for developed, “capitalist” countries. Whatever the posh talk on inequality, today for the first time the number of people living with less than $2 a day is below 10 percent of the world population, which has grown enormously since modern capitalism’s debate.

This is not the triumph of an “ism”, but of the the people that, with relative economic freedom, could try to better their own conditions without waiting for marching orders.

Alberto Mingardi
Director General,
Instituto Bruno Leoni,
Turin, Italy

The historical ignorance of people such as this Professor Mazower is astounding and disturbing – as is their distorted value scale on which wide differences in monetary incomes are equated with genocide.  As I wrote here,

But let’s be clear about one indisputable fact: capitalism vigorously pursued has never produced the atrocities – starvation, tyranny, and genocide – that are produced by statism vigorously pursued.  Nothing remotely close.

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Bonus Quotation of the Day…

by Don Boudreaux on August 12, 2016

in Adam Smith, Crony Capitalism, Trade

… is from page 61 of the 1990 Transaction Publishers reprint of W.H. Hutt‘s 1936 volume, Economists and the Public (link added):

Whately remarked that the reasoning of Euclid would have been disputed had it borne on the fortunes of individuals.

No matter the logic of the argument – no matter the consistency of the argument’s conclusions with human experience, both general and specific – no matter the scientific reputation and personal integrity of the scholars who advance the argument – if widespread acceptance of the argument threatens the power or the purses of members of some influential interest group or groups, the argument will not want for people, many with high reputations, to accuse it of being false, flawed, foolish, or the product of ideological corruption.

The case that free trade increases the material prosperity of ordinary people is as strong a case as is known in the social sciences.  The truth of this case has been proved about as surely as any case about social reality can be proved.  The arguments marshaled against the case for free trade are ridiculously weak; they are akin to someone arguing that Pythagoras’s reasoning and conclusions are mistaken or outdated because Pythagoras never drew a perfect triangle or that he never had access to a supercomputer.  Every argument against a policy of free trade – every argument offered up by the mercantilists who wrote before Adam Smith’s time to the arguments barked by mercantilists today (including the assertions of bloviatingly ignorant and knavish politicians who, lusting for votes, pander to mercantilist interests and public ignorance) – has been heard by economists and answered conclusively thousands of times and in thousands of different ways.  There is simply no credible economic case to be made that protectionism enriches the populace of the “protected” nation or region.

Yet because the case for free trade bears on the fortunes of individuals – because it bears on the fortunes of those particular individuals who currently are economically ascendant – the case for free trade has always been and will always be disputed in the interests of protecting the powerful both from the consequences of a widespread understanding of the truth and from the full freedom of their fellow citizens to pursue economic gain as they see fit.

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In a comment on this excellent EconLog post by Alberto Mingardi, “Phil” writes:

In his book Economics Rules, Dani Rodrik writes: “The hedgehog’s take on a problem can always be predicted: the solution lies in freer markets … . Foxes … sometimes … recommend more markets, sometimes more government.” It’s better to be a fox than a hedgehog, according to him.

(I add that “Phil” does not seem to endorse Rodrik’s point.)

I’ve not read this Rodrik book, but I’m familiar with the argument.  The argument is quite common.  It’s also wrong.  Its error is that it incorrectly identifies the set of choices for dealing with problems (and with “problems”).

Rodrik’s argument appears to be the height of reasonableness.  “It is dogmatic and dangerous,” the argument’s champions rightly note, “to assume that one solution or one approach is the answer to every problem.  Some problems call for the use of screwdrivers, others call for the use of hammers.  Only a benighted fool insists on using a screwdriver to hammer in nails and on using a hammer to insert screws.  The wise, non-ideological, enlightened, open-minded, reasonable, and scientifically aware person sometimes uses a screwdriver and other times uses a hammer.  What could be more reasonable?!”

The error in this formulation is that markets are many tools.  Markets are a toolkit with far more tools in it than government has access to.  While government has only a few tools – mostly hammers (some sledge), saws, and clamps – the market is filled with many, almost countless, tools.  And the market’s tools are much more varied, nuanced, specialized, and creative than are the government’s simple set of tools.

Put differently, to say “Let the market handle it” is just a shorthand way of saying “Let whoever is most willing, most able, most experienced, most knowledgeable, and best equipped be free to try his or her hand at dealing with each specific problem.”  And to say “Let the market always handle it” is not – contrary to what Rodrik’s argument suggests – to propose a single, simple fix for all problems; it is to propose that the field be left open for as many fixes as are feasible to be tried.  To say “Let the market always handle it” is to warn that using government as a fix crowds out – prevents – experimentation with many other possible fixes.

In short, the choice is not between only two alternative possible fixes: the market or the government.  Instead, the choice is between a gigantically large and varied set of possible fixes (the market, with its many detailed specialized carpenters and master builders) or a tiny set featuring one possible fix (the government, with its hammering, sawing, and clamping officials, none of whom – unlike the case with market participants – can be reasonably presumed to know enough of the finer details of any of the problems that they are called upon to ‘fix’).

The truly reasonable person – the one who understands the benefits of having access to as many ‘solutions’ to problems as possible – supports the market because he or she knows that to turn to government solutions is to drastically reduce the number of ‘solutions’ that will be tried.

Below the fold is a post from ten years ago that addressed the same topic.

Read the full post →

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… is from page 463 of the final (2016) volume – Bourgeois Equality – of Deirdre McCloskey’s pioneering trilogy on the essence of bourgeois values, on their transmission, and on their essential role in modern life (footnotes deleted):

In 1600 England … still affixed chains on enterprise, under the theory that trade was zero-sum.  Many Englishmen believed, as one of them wrote around 1600, that “to add more persons to be Merchant Adventurers is to put more sheep into one and the same pasture which is to serve them all.”  Let us have predictable lives.

It is what is behind the persistent modern revivals of mercantilism against international comparative advantage, as in Lou Dobbs on Fox News, or the books of Robert Reich and John Grey, or the French vintners demanding still more protection, or the Department of Trade and Industry in South Africa requiring hard-to-get licenses for all business, or the antiglobalization rioters at the meetings of the Group of Seven.  Oddly, people who would readily agree that attempting to lay down the future would be disastrous in, say, painting or rock music or journalism or most science and all writing of novels or of scholarly books, think that we already know how to organize a mere economy, and that the government knows best in central planning or regulation or nudging.

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Tyler Cowen correctly explains that even if government borrows at a zero percent real rate of interest the opportunity cost of that borrowing is not zero.  Really, it’s not even close.

Elaine Schwartz observes that “mandated caregiving from government eliminates individual behaviors that create a virtuous society.

Matt Ridley explores the long history of opposition to innovation.  A slice:

“When a new invention is first propounded,” said William Petty in 1679, “in the beginning every man objects and the poor inventor runs the gauntloop of all petulant wits.” As Calestous Juma, of Harvard Kennedy School, recounts in a fascinating new book called Innovation and Its Enemies, even coffee and margarine were fiercely rejected at first.

My Mercatus Center colleague Veronique de Rugy is rightly critical of Clump’s economic ‘vision.

My Mercatus Center colleague Dan Griswold is rightly critical of Clump’s opposition to TPP.

My former research assistant, Mark Perry, is rightly critical of the opposition of many “Progressives” to Uber and Lyft.

GMU Econ alum Abby Hall Blanco defends payday lending.

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… is from page 80 of the 1990 Transaction Publishers reprint of W.H. Hutt‘s 1936 volume, Economists and the Public:

Because of its non-discriminatory nature and its opposition to privilege, competitive capitalism is essentially an equalitarian force.

(See also the late Ludwig Lachmann’s insightful essay “The Market Economy and the Distribution of Wealth.”)

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