… is from page 334 of my late colleague Gordon Tullock’s 1987 essay “Concluding Thoughts on the Politics of Regulation,” which is the final chapter of the important 1987 collection, Public Choice & Regulation: A View from Inside the Federal Trade Commission (Robert J. Mackay, James C. Miller III, and Bruce Yandle, eds.):

If we look over the entire spectrum of government activity, we observe immediately that the creation of monopolies is one of the government’s major preoccupations.  It is traditional to say that the tariff is the “mother of monopolies,” and certainly no one who contemplates the U.S. trade-barrier structure would raise any question about this, except possibly to call attention to the existence of quotas as well.  Agriculture has been thoroughly monopolized by the Department of Agriculture, which not only restricts production, thus raising the price of food, but also uses the taxpayers’ money to subsidize the farmers in return for their agreeing to reduce production.

To anyone who is even passingly familiar with economic and regulatory history, the notion that the state is the – or even a – safeguard against monopolies is laughable.  People who fall for the commonly heard assertion that antitrust and other modes of state intervention play an important role in the process of keeping markets competitive are people who fall for mere words and expressed intentions.  They are not people who know anything about the history of such state interventions.  Nor are they people who possess an adequate understanding of market processes or of political processes.

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You earn $1,000 this week.  You spend $650 on consumption items (rent,* food, gasoline, a new pair of jeans) and save – you admirably prudent person you – $350.  You use this $350 to buy three shares of stock in Apple, Inc. (which are priced today at just over $116 per share).

The rest of the world – the non-you world; the economic entity that we might call the “non-youers” – has, as result of your transactions, a trade deficit with you this week of $350, and you have a trade surplus of exactly the same amount with the non-you world.  You exported to non-youers $350 more of goods and services (that is, of whatever it is you produced to earn your weekly income) than you imported from non-youers.

If mainstream media and most pundits are to be believed, you should be ashamed.  You must be up to no good!  You must be trading unfairly!  You must be stopped!!  Leaders of the non-you world call upon you to mend your frugal ways.  But you, possessing an independent turn of mind, laugh at the non-youers.  “I’ll spend and save as much as I choose,” you defiantly shout back at them across the boundary that separates your household from the non-youers.

The non-yourers are disturbed and worried.  They hold conferences at which prominent experts inform audiences that what the audiences all already think they know is in fact unassailably true: the non-yourers’ trade deficit with you is proof that you’re an unfair trading partner and that the non-youers’ trade deficit with you also is proof that the non-youers must revamp their trade and economic policies in order to prevent this calamity from continuing.

The non-youers – in unison, and behind their bellowing president-elect who campaigned on a platform of making non-youers great again in part by eliminating non-youers’ trade deficit with you – denounce you and erect penalties on all non-youers who trade with you until you credibly commit to stop saving and investing so much in the non-yourers’ economy.

You laugh at the silly and economically ignorant non-youers.  They, swathed in their blanket of economic ignorance, continue to snarl angrily at you for your dastardliness and to penalize themselves for hiring you to produce valuable outputs for the non-youers to consume.


* UPDATE: Although purchases by foreigners of real estate are recorded on the capital account, and thus contribute to a country running a current-account deficit, I above include rent as a personal consumption expenditure (that is, as an expenditure recorded on the current account).  I do so because – although a rented residential apartment is real estate – the renter does not, by paying rent, thereby acquire ownership of that real estate.  But in the end this classification is an accounting convention.  There is no reason why the payment of rent could not, or should not, be classified as an acquisition of title to real estate.  After all, the tenant who pays her rent on time and honors the other terms of the rental contract does acquire the right to occupy and use, according to the terms of the rental contract, her apartment for the duration of the lease.  That is, the tenant’s payment of the rent confers upon her ownership of the right to occupy her apartment.

It is not conventional in Anglo-American law to classify such a contractual right as ownership of the real estate, and I have no problem with this convention.  Yet it does show the economic arbitrariness of fretting about trade deficits.  In my little example above, if rental payments for real estate were recorded on the capital account, then your trade deficit with non-youers would be even larger than $350; it would be $350 plus whatever rent you paid that week.  Of course, any such reclassification would change nothing substantively about the economics of the matter.

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… is from page 568 of the final volume (2016) – Bourgeois Equality – of Deirdre McCloskey’s soaring trilogy on the essence and role of bourgeois values in modern life (original emphasis):

The big and little tragedies of a profit-directed economy are necessary for it to get better.  The same is true in science and art, though not about money profit.  Many experiments fail, and we get the benefit from the better ideas for surgeries and paintings and fish restaurants that succeed because resources have been reallocated to them instead.

Trade-tested betterment is the most altruistic of economic systems, because everything is directed toward satisfying ordinary customers.

Those who would restrict trade – here because the suppliers that customers choose to patronize aren’t members of state-approved guilds, there because the suppliers that customers choose to patronize carry passports issued by an agency different from the agency that issues those customers’ passports, and over yonder because the suppliers that customers choose to patronize charge prices that are deemed by ‘leaders’ to be too low or too high – are insufferably ignorant and arrogant.  They would disrupt the competitive process by substituting their own judgments of how trade should proceed for the judgments of the actual individuals who put their own money and reputations on the line with every trade – namely, consumers spending, and producers and investors risking, their own money.

While towns boasting names such as “Cambridge” and “Palo Alto” and “Washington” have no shortage of residents who can write abstract models that show just how this restriction on trade and that restraint of commerce can, under just the right circumstances, increase social welfare – and while these writers-of-abstract-models frequently fancy themselves as being counsellors and confidants to the Powerful – these writers-of-abstract-models remain not only shockingly naive about the actual motives and actions of the Powerful whom they so pantingly admire, but also distressingly unaware of how real-world economies differ in many crucial ways from their lovely abstract social-engineering models.

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Some Links

by Don Boudreaux on October 10, 2016

in Books, Economics, History, Myths and Fallacies, Politics, Property Rights, Trade

Here’s the great Steve Davies, at his Facebook page, effectively answering the question ‘Who is worse, H. Clinton or D. Trump?’:

I can only quote Dr Johnson “Sir, there is no point in establishing a matter of precedency between a flea and a louse”.

And also from a Facebook page – this one Bob Higgs’s – is this gem.  A slice:

Q: What is the chief political function of the news media in the USA?
A: To divert the public’s attention from what is important to what is trivial and thereby to ensure that fundamentals receive little or no discussion and hence play no role in political competition.

Sticking with the current, horribly sickening U.S. presidential campaign between two especially heinous individuals, here are Jeff Jacoby’s post-debate-II thoughts.  Jeff concludes with apropos thought:

In just four weeks, barring a miracle, one of these two deplorable and dishonest people is likely to be the president-elect of the United States. God have mercy.

John Tamny nicely exposes the unreality of Robert Atkinson’s case for being skeptical of free trade.

While I would go much further than he proposes, José Luis Pardo Veiras – writing in the New York Times – calls for the government of Mexico to decriminalize drug use.

Here’s my GMU Econ and Mercatus Center colleague Tyler Cowen’s Bloomberg column on Oliver Hart and Bengt Holmström – the co-recipients of the 2016 Nobel Prize in Economic Science.

Speaking of the Nobel Prize in Economic Science, Ed Glaeser reviews (in the Wall Street Journal) Avner Offer’s and Gabriel Söderberg’s new book on this Prize.

Terry Anderson explains that native Americans had private property rights.  Here’s Terry’s conclusion:

Non-Indians also will do well to stop promulgating myths as a solution to modern environmental problems. Especially in a multi-cultural society where worldviews vary widely, devolution of authority and responsibility offers the best hope for resource conservation. Rather than shunning property rights solutions, we should embrace them, as did our predecessors on this continent.

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Once upon a time the land of Tyrantia was ruled by an evil king who took intense pleasure in inflicting pain and suffering upon the poorest people in Tyrantia.  “Ha, ha, ha!” laughed the evil king one night to his evil wife, “I’ve just devised an excellent scheme to cause poor people to needlessly suffer even more!”

“What, dearest vile one,” asked the queen with a sinister smile, “is your new brilliant plan?”

The king answered as he grinned and rubbed his gnarly, warted, and sweaty hands together: “I will command that the price of bread be raised so high that the poorest of my people will be unable to buy any!  They will go without!  Many poor people will starve to death!”

“Oh, my loathsome liege!  You are an evil genius!” the queen cooed as she flashed one of her fleshy ankles at her beloved.


In case you missed it, the king and queen in the above little fairytale are very bad people.  They intend to harm others for no reason other than that doing so gives them pleasure.  And their intention in this case will reap the desired result: the artificially high price of bread will indeed cause many of the poorest people of Tyrantia to suffer starvation.  For all their dastardliness, the king and queen do understand basic economics.

In particular here, they correctly understand that an exchange between Farmer and Baker will not take place if Farmer does not offer for Baker’s loaf of bread at least as much as Baker values that loaf of bread.  The monstrous monarchs also understand that, while Baker wants from Farmer as much as possible for a loaf of bread, competition from Baker’s many siblings and cousins will prompt him to give to Farmer his loaf of bread in exchange for Farmer agreeing to give to him (Baker) just enough dough to compensate Baker for his sacrifice of the loaf of bread.

These ruthless rulers understand also that Farmer’s resources are limited.  Farmer has only so much dough that she can offer in exchange for a loaf of bread.  If the maximum amount of dough that Farmer has to offer to any Baker for a loaf of bread is less than the amount of dough that any Baker asks for a loaf of bread, Farmer will not get a loaf of bread.  Farmer needs more dough, but she doesn’t have it.  And she cannot conjure it out of thin air.

Finally, because these terrible tyrants understand all of the above, they correctly conclude that if they instruct their polizei to prohibit Bakers throughout the land from lowering below some arbitrary minimum the amount of dough that Bakers charge for loaves of bread, some – and perhaps many – poor Farmers will be unable to buy bread, even though each possesses enough dough to entice Bakers to sell bread to them at prices below the dictated minimum price of bread.

Who doesn’t understand any of the above?  It’s all so straightforward and obvious that it’s a waste of my time to write – and a waste of your time to read – the above paragraphs.  Right?  Sigh, apparently not, for those who advocate minimum wages as a means of raising the incomes of all low-skilled workers do not understand the above points.

Low-skilled workers are akin to the Farmers in the above tale and employers are akin to the Bakers.  Low-skilled workers want to exchange with employers and employers want to exchange with low-skilled workers.  Low-skilled workers offer that which they have (namely, their labor services) and want to receive in return that which employers have to offer (namely, spending power in the form of money, and also job experience).

What the dastardly dictators in the above tale would correctly understand, but what many minimum-wage proponents do not, is that a minimum wage artificially raises the price that workers must pay to purchase economic opportunity.  By enacting a minimum wage, the state’s tells each worker that if his or her current wealth of skills is not as high as the state deems minimally appropriate, he or she may not purchase from any employer the opportunity to earn current income and job experience.  “If you are too poor in skills,” says the state to workers, “you may not acquire any income or job experience.  If your current wealth of skills falls below what we, the state, deem minimally acceptable, you are too poor in skills to participate in our economy.”

To workers who are very poor in skills, the state declares: “Any income and experience to be gotten from working at jobs in our economy are reserved for people who are richer in skills than you are.  You are too poor in skills to be allowed access to those economic opportunities.  Those opportunities are for the ‘haves.’  You are a ‘have-not,’ and you shall remain that way.”

And yet when government officials in, for example, Washington, DC, and Washington State enact minimum-wage legislation – doing effectively the same thing as is done in the above fairytale by the awful autocrats – these officials are widely celebrated as humane and “Progressive” champions of the poor rather than condemned as the evildoers that they are.

This reality is grim.

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Quotation of the Day…

by Don Boudreaux on October 10, 2016

in Seen and Unseen, Trade

… is from page 230 of Martin Wolf’s 2004 book, Why Globalization Works:

It is right to say that transnational companies exploit their Chinese workers in the hope of making profits.  It is equally right to say that Chinese workers are exploiting transnationals in the (almost universally fulfilled) hope of obtaining higher pay, better training and more opportunities than would otherwise be available to them.

Indeed.  And of course what is true in developing countries for relatively poor workers is equally true in developed countries for relatively rich workers – workers including senior partners at prestigious law and accounting firms no less than 16-year-olds newly hired at the minimum wage by McDonald’s and Walmart.  (Unfortunately for 16-year-olds and other low-skilled workers, minimum-wage legislation prevents many of them from profitably exploiting employers.  These unfortunate workers remain economic outcasts.)

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Bonus Quotation of the Day…

by Don Boudreaux on October 9, 2016

in Hubris and humility, Regulation

… is from page 191 of Arnold Kling’s outstandingly good new book (2016), Specialization and Trade: A Re-introduction to Economics:

The degree of specialization poses a challenge for regulators.  Regulators cannot be expected to understand every process as well as the specialists themselves understand it.  That incomplete understanding makes it almost impossible for regulators to correctly anticipate problems.

The problem that Arnold here identifies is ubiquitous – and would be widely recognized as such were it not the case that so many proponents of regulation by government work, usually unawares, with the wholly irrational, unscientific, and detached-from-reality superstition that the state is god-like.

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Trade and Unemployment in a Country

by Don Boudreaux on October 9, 2016

in Myths and Fallacies, Trade, Work

Several people recently have asked why economists argue that protectionist policies do not lead to greater unemployment over the long-run in countries whose governments impose such policies.  I hope soon to do a longer post on this matter, but for now I content myself to state the argument in summary form and to support that argument with one simple thought experiment.

The argument, in summary, is that the degree of employment within a country is ultimately determined by the flexibility (or not) of its labor markets, by the expectations of workers there, by the ability and willingness of these workers to endure unemployment as they search for better jobs, and by the macroeconomic conditions that prevail in that country.  The freedom or restrictiveness of international trade has no direct bearing on any of these matters.  While a movement to greater protectionism – just like a movement to freer trade, or any other change in the patterns of consumer demands (regardless of the source of these changes) – will destroy some jobs, it will create others.  Such a move might or might not result in a measurable, short-run increase in the unemployment rate (just as a movement to freer trade might or might not increase the unemployment rate over the short-run).  But there’s no reason to believe that tighter trade restrictions are any more likely to render workers permanently unemployed than there is to believe that a change in consumers’ dietary habits (and, hence, in the kinds of foods consumers buy) will render workers permanently unemployed.

What protectionism does do on the employment front is to protect lower-paying jobs and, in the process, prevents the creation of higher paying jobs.  But protectionism does not, as such, promote greater long-run unemployment.

To see why this conclusion is valid, consider the well-known decline in birth rates in Europe and in Japan.  This reduction in birth rates means that the number of Europeans and Japanese that Americans can today trade with is smaller than it would have been had there been no decline in European and Japanese birth rates.  Yet no one, correctly so, ever argues that this decline in the birth rates of some of America’s biggest trading partners will raise long-term unemployment in America.  Because this decline in birth rates perhaps causes the division of labor to be less deep than it would otherwise be, and because it means that the world is blessed with less of the ultimate resource (human beings in relatively free economies), we Americans are arguably poorer today than we would be had these birth rates not declined.  But this decline in European and Japanese birth rates, although it likely diminishes the amount of foreign trade that we do, does not cause our long-term unemployment rate to be higher than it would otherwise be.

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Kevin Williamson celebrates the spontaneous order of markets – markets featuring both competition and cooperation.  (HT Richard Fulmer)  A slice:

What is truly remarkable about 21st-century capitalism is not the competition – creatures that aren’t even quite sentient, like catfish, snails, and members of Congress, compete over scarce resources, too – but its cooperation. Every time you buy a T-shirt or a fast-food hamburger, you tap into a vast network of productive resources involving everything from agriculture to information science to logistics, millions of people who do not know one other – who, if they did, might even hate each other – cooperating in relationships of literally incalculable complexity, in the service of ordinary schmucks like us.

And there is one remarkable aspect of all that to keep in mind: No one is in charge of it.

My colleague Larry White asks if the gold standard failed.

Jeff Jacoby rightly complains that the furies are too seldom unleashed on Congress.

The great lawyers at the Institute for Justice (with some help from an amicus brief submitted by the Reason Foundation) have won an important legal victory for consumers, competition, and a correct understanding of property rights.  (See also here.)

And one benefit of this legal victory will be reduced racism.  Another benefit will be continued, market-tested innovation.

Shikha Dalmia puts the egregious and indefensible Donald Trump – and many of the reactions to his boorishness – in perspective.

Baruti Libre Kafele explains that free trade promotes economic growth.  (I pick one small nit with this essay: contrary to the author’s claim, protectionism does not cause unemployment.  Protectionism ‘protects’ relatively poor jobs and prevents the creation of better jobs.  But the overall level of employment in a country is no different with protectionism than it is with free trade.)

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screen-shot-2016-10-09-at-6-14-55-am This screenshot, taken earlier this morning, is of the front page of the on-line edition of today’s Washington Post.  (The top report is here; the bottom one is here.)  The juxtaposition of these two reports of the destruction wrought by hurricane Matthew speaks volumes about the benefits of the economic prosperity made possible by bourgeois dignity.

In economically unfree Haiti people are desperately poor.  They live in flimsy shanty houses.  Their roads, bridges, electrical grid, and other infrastructure are primitive by modern American standards.  Their supply lines, even in the best of times, are creaky and fragile.  As a result, hurricanes and other natural disasters prove to be literally lethal for many such poor people.  And large numbers of these poor people who survive live for weeks, months, or perhaps even years after the natural disaster strikes in filthy and miserable conditions that most Americans can’t imagine.

In contrast, in (relatively) economically free America people are much more prosperous.  Therefore, hurricanes and other natural disasters are much less lethal and their ill-consequences far less long-lived than in Haiti and other poor countries.  In Florida, Matthew, while responsible for a small number of deaths, mostly just washed away dunes and “dreams.”  In Haiti, Matthew washed away whole villages and hundreds of lives.  Far better that a hurricane destroy my “dream” than that it kill my son.

Yes, yes, yes: much depends, in any particular set of circumstances, on the exact location of a natural- disaster’s striking points.  Maybe Matthew did not strike Florida with the same brute force that it unleashed on Haiti.  Or maybe it struck Florida in a less populated location than where it struck Haiti.  Yes.  But make no mistake: all else equal, denizens of rich societies, such as that of the United States, are far safer when natural disasters strike than are denizens of poor societies – and getting safer.  ’tis true.  (I once offered to put my money where my mouth is on a closely related proposition.  The offer remains open.)

Free, innovative, bourgeois markets – contrary to the false assumptions of what Deirdre McCloskey calls “the clerisy” – deliver to ordinary people far more than an abundance of trinkets, playthings, and other amusements.  Free, innovative, bourgeois markets deliver cleaner, safer, longer lives – longer lives filled with less pain, less anxiety, less hardship, less tragedy, less ugliness, and less serious disruption.

Put differently – but no less importantly – free, innovative, bourgeois markets, even if they do contribute to global warming, make humans’ environments more pleasant, more robust and resilient, and far safer.

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