Over at EconLog, my colleague Bryan Caplan exposes further misunderstanding about the relationship between poverty and illness.  A slice:

It’s almost like the last two centuries never happened.  Quick recap: During the last two hundred years, living standards exploded even though the distribution of income remained quite unequal.  How is such a thing possible?  Because total production per person drastically increased.  During this era, no country escaped dire poverty via redistribution, but many escaped dire poverty via increased production.  And while the effect of moderate redistributive policies on growth is unclear, there is no doubt that populist and socialist movements determined to “tackle the inequitable distribution of money, power and resources” and “change the way that society is organized” sharply retard growth.

In yesterday’s Wall Street Journal (that was an especially fine edition!) my former research assistant Mark Perry, along with Michael Saltsman, set the record straight about the ratio of CEO pay to that of other workers.

CEI Senior Attorney Hans Bader reveals one of the many ways that so-called “liberals” are quite illiberal.

Speaking of liberals, both genuine and faux, Alberto Mingardi reviews Edmund Fawcett’s book such.

And speaking of Alberto, he points us to this recent interview with Deirdre McCloskey.

Bob Murphy explains that outsourcing makes us richer.  A slice:

To see the relevance of this point, let’s consider exactly how the phenomenon of outsourcing occurs. As the video describes it, US employers realized “about 30 years ago” that they could hire foreign workers to do the same jobs at much lower wages, so they relocated their production facilities abroad. This assertion raises the question: Why didn’t employers just cut US wages down to what the foreigners were asking?

The answer is that US workers won’t take such low-paying jobs because they have better options. For example, suppose Americans are originally employed in a TV factory in Tennessee, making $16 an hour. The owner of the plant realizes he can relocate it to India, where he can hire workers who are half as productive (meaning they only make half as many TVs per hour) but who are willing to work for $4 an hour. He would never bother relocating if the American workers would simply accept a pay cut to $8 an hour. (The American workers make twice as many TVs per hour, remember.) Suppose they won’t do that, because their next-best job option is to work in a warehouse for $10 an hour. In this case, with the numbers I’ve invented, the original factory owner would “ship jobs to India,” not because of some horrible flaw in the labor market, but because American workers had better things to do than make TVs for $8 an hour. It was more efficient for those workers to go into the warehouse sector and for the Indian workers to make the TVs.

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… is from page 272 of the 1977 volume, edited by Walter Grinder, of Ludwig Lachmann’s papers, Capital, Expectations, and the Market Process; in particular, this quotation is from Lachmann’s 1940 Economica paper, “A Reconsideration of the Austrian Theory of Industrial Fluctuations“:

“[C]apital-intensification” or the “deepening of capital” is merely another form of Innovation.  Once we have rid ourselves of the notion of capital as a homogeneous aggregate and bear in mind its essentially heterogeneous character as an agglomeration of houses, ships, machinery, etc., it is easy to see that “an increase of capital per unit of output” does not just mean the addition of another piece of machinery to an otherwise unchanged equipment park, but that as often as not it will entail a complete re-arrangement of the existing productive apparatus, including depreciation of specific factors, and possibly a change in the character of the final product.

Thus, it is incorrect to insist that increasing the amount of capital relative to labor or other inputs (including previously assembled pieces of capital) necessarily reduces capital’s marginal productivity.  Being cognizant of this complex reality of capital and its structure makes much more difficult the task of composing simple theories about capital and its relationship to labor and to aggregate demand.  But this reality isn’t optional – and nor are the many real-world problems created by interventionist policies whose justifications are rooted in simplistic theories (such as those of Keynes) about the nature of capital and of the economy.

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More On Hayek’s Nobel

by Don Boudreaux on October 13, 2014

in Economics, Hayek, State of Macro

In addition to my essay, with Todd Zywicki, in today’s Wall Street Journal on Hayek’s 1974 Nobel award, I also devote my latest column in the Pittsburgh Tribune-Review to the commemoration of the 40th anniversary of this award of the Prize.  A slice:

With his work in economic theory regarded, by the start of WWII, as reactionary and unscientific, Hayek turned increasingly to political theory. In 1960 he published an ambitious volume — “The Constitution of Liberty” — on the nature of the good society. And in the 1970s he produced an even deeper and more profound study of the relationship between the economy, politics and law: the three-volume “Law, Legislation, and Liberty.”

Hayek’s refusal to go along with Keynesian economics did not reflect a closed-minded devotion to an older tradition in economics. Instead, it reflected Hayek’s intellectual brilliance and courage. By 1940 he surely realized that he was being cast aside by his fellow economists because of his continuing opposition to Keynesianism. Yet rather than give credit to a popular brand of economics he knew to be fundamentally flawed, he remained true to what his reason and interpretation of the facts told him about the economy.

In time, Hayek’s perseverance paid off. By the 1970s the flaws in Keynesian economics became manifest.

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Quotation of the Day…

by Don Boudreaux on October 13, 2014

in Politics, Reality Is Not Optional

… is from page 183 of the 1978 Arlington House edition of David Friedman’s 1973 book, The Machinery of Freedom; (a revised on-line edition of this indispensable book is available for free):

There is a difference between what institutions allow and what they require.  If in a capitalist society everyone is convinced of the desirability of one common goal, there is nothing in the structure of capitalist institutions to prevent them from cooperating to attain it.  Capitalism allows for a conflict of ends; it does not require it.

Socialism does not allow for it.

That’s the nature of collective decision-making, whether on a national scale (such as classic socialism) or on a smaller scale (such as government intervention into this or that industry or type of consumer choice): every individual must abide by the rule dictated to, or decided for, everyone in the group.

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Hayek’s Noble Humility

by Don Boudreaux on October 12, 2014

in Curious Task, Economics, Hayek, Hubris and humility

To commemorate the 40th anniversary of the award of the Nobel Prize in Economic Science to F.A. Hayek, my GMU colleague (from over in the law school) Todd Zywicki and I wrote this essay for the October 13th edition of the Wall Street Journal.  A slice:

In addition, many of Dodd-Frank’s costs are passed on to consumers in the form of higher bank fees and reduced bank services. Expensive bank fees then drive many consumers out of the mainstream financial system and into the arms of payday lenders. The Federal Deposit Insurance Corp. estimates that the number of “unbanked” consumers in America rose by one million from 2009 to 2011, while payday lending has boomed during the same period. That was not the plan.

Such hubris and its inevitable results would not have surprised Hayek. In the 1970s, he saw government policies create the inflation they were designed to avoid. Government has shown again and again the folly of efforts to centrally direct complex systems.

What does Hayek recommend? A little humility. “We shall not grow wiser before we learn that much that we have done was very foolish,” he wrote in his 1944 masterpiece, “The Road to Serfdom.” It was the book’s central lesson that hubris makes us not only poorer but also less free. Today’s leaders would be wise to become better students of the late Nobel laureate.

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Here are two pieces of evidence against the proposition that politics, through some miracle, turns people who are allegedly excessively irrational and uninformed when operating privately into creatures much more rational and informed when operating politically.

The first is this recent blog post, over at EconLog, by my colleague Bryan Caplan, inspired by the superb new Cato paper by John Mueller and Mark Stewart.  Note the minuscule risk to Americans of being killed in the U.S. by terrorists.  The chance of being so killed is 1 in 4,000,000 – less than half the chance of being killed by a home appliance in America.  Yet consider the huge effort, especially since 9/11/2001, to protect Americans from terrorists.  And let evil savages behead a few innocent westerners, video-tape the inhuman horrors, and make those videos public, and many Americans suddenly come to believe, against all fact and reason, that there has arisen a huge, existential threat to civilization – a threat that requires more warring, more military bluster, more bombing, more boots-on-the-ground, and more sacrifices by every American of even more precious liberties.

Sen. John McCain is among those who want more American boots-on-the-ground to stamp out the ISIL threat….  Which brings us to the second piece of evidence: Sen. McCain is calling also for an “Ebola czar” in the U.S.  So far, a grand total of one person has contracted ebola in the U.S., and that person is a nurse who had direct contact with the late ebola victim who came here from Liberia.

Has McCain no ability to do even plausibly passable risk assessment?  Seemingly not.

Conservatives who applaud McCain and his ilk should pause to ponder the fact that not only is government no more likely to be reliable and efficient and uncorrupt when pursuing ‘national defense’ goals than it is when pursuing the nationalization of health-care or the regulation of labor markets, but also that resources and effort spent to counter threat X are resources and effort that are no longer available to counter threat Y.  As horrible as any actual instance of X surely is, that fact is insufficient justification for increasing the size and potency of the armories and the bureaucratic legions to be leveled against X.

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Some Links

by Don Boudreaux on October 12, 2014

in Antitrust, Books, Competition, Hayek, Inequality, Regulation, Seen and Unseen, Video

David Henderson reviews, in Regulation, Thomas Piketty’s Capital in the Twenty-First Century.  A slice:

But if there is anything we know in economics, it is that incentives matter. An annual tax on capital will reduce the incentive to create capital. With less capital than otherwise, the marginal product of workers will be lower than otherwise. Bottom line: Piketty’s proposed tax on capital would hurt labor.

How does Piketty handle this serious problem? He doesn’t.

(Read David’s review in full.  It’s excellent.  And while you’re at it, notice that the review following David’s is Dwight Lee’s review of Jeremy Rifkin’s The Zero Marginal Cost Society.  Read that review, too.  Indeed, read all of the reviews; each is superb.)

Jim Gwartney’s, Bob Lawson’s, and Josh Hall’s 2014 Economic Freedom of the World Report, published by the Fraser Institute, is now available.

You can find here the talks from the recent Mercatus Center celebration of the 40th anniversary of Hayek being awarded the Nobel Prize in Economics.

Pierre Lemieux writes informatively about the vacuity of the political ‘we.’

Bryan Caplan points out, quite rightly, that conservatives also embrace moral relativism (although most do not realize it).

I’m eager to read this new book by Thomas Hall.

Annie Lowrey explains that Amazon is not a monopoly.  (HT Tyler Cowen)  (I bloast that these two 1996 papers by Andy Kleit and me – here, and here – are relevant to this discussion.)

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Here’s a letter to the New York Times Book Review:

Reviewer Latoya Peterson notes that one of the topics covered by the socialist-feminist author Laurie Penny is “the woes of the free market” (“A Vindication,” Oct. 12).  Never mind that Ms. Penny’s latest book, Unspeakable Things, is retailed by for-profit private firms such as Amazon.com and Barnes & Noble and delivered to paying customers by for-profit private firms such as FedEx and UPS.  Ignore the fact that her book is published by a for-profit private company (Bloomsbury) with net assets of $186 million.  Pay no heed to the additional royalties that Ms. Penny will receive by virtue of her book being reviewed in the pages of the for-profit private New York Times.  And forget that no force on earth has done as much to liberate women from the domination of men and the tedium of housework than has free-market capitalism and the many time-saving consumer goods it makes available – goods such as indoor plumbing, automatic clothes washers and dryers, automatic dishwashers, wrinkle-free fabrics, electric vacuum cleaners, kitchen ranges, microwave ovens, and prepared foods.

Overlook all of these facts.  Instead, ponder the irony that feminists such as Ms. Penny plead that women are inept, helpless, and oh-so-terribly vulnerable without the constant aid and protection of trusty Big Brother.

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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Quotation of the Day…

by Don Boudreaux on October 12, 2014

in Curious Task, Economics

… is from page 17 of David Friedman’s 2000 book, Law’s Order:

“Strike” means very different things in baseball, bowling, and labor relations.  ”Efficient” means very different things applied to engines, employees, and economies.

Economic efficiency can most usefully be thought of as the economist’s attempt to put some clear meaning into the metaphor “size of the pie.”  What makes doing so difficult is that the relevant pie is not a single object that we can weigh or measure but a bundle of many different sorts of goods and services, costs and benefits, divided among hundreds of millions of people.

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John Oliver says a lot with which I disagree – but in this particular clip, he and I see eye-to-eye pretty consistently.  (Warning: some obscene language)  (HT Thomas Boudreaux)

I’m especially glad that Oliver gives some air time here to the heroic Radley Balko.

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