Some Links

by Don Boudreaux on August 20, 2015

in Data, Immigration, Myths and Fallacies, Seen and Unseen, Trade

Scott Lincicome explains how Trumponomics benefits political elites at the expense of people less politically powerful.

The great Mary Anastasia O’Grady explores, in the Wall Street Journal, Donald Trump’s defective economics.  (gated)  A slice:

Mr. Trump may be impressed by devaluation as a policy tool because Mexico—whose politicians in his eyes are among the cleverest and most “cunning”—practiced it for many years. Yet slashing the value of currency to achieve prosperity is preposterous, as generations of Latin Americans, not only Mexicans, can attest. If “competitive devaluation” worked, Argentina would be the national equivalent of Donald Trump. That means very, very rich, in case you somehow missed the Donald’s constant assertion about his net worth.

Mark Perry exposes Donald Trump’s hypocrisy.

Kevin Williamson explains (some of) what Donald Trump does not understand about trade.

James Sherk reveals a foundational flaw in Hillary Clinton’s assertion that worker pay hasn’t kept pace wit worker productivity.

Jeff Jacoby reflects on Sesame Street’s move to HBO.

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… is from pages 476-477 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

At one time, it was believed that importing more than was exported impoverished a nation because the difference between import and exports had to be paid in gold, and the loss of gold was seen as a loss of national wealth.  However, as early as 1776, Adam Smith’s classic The Wealth of Nations argued that the real wealth of a nation consists of its goods and services, not its gold supply.

Too many people have yet to grasp the full implications of that, even in the twenty-first century.  If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a “deficit or a “surplus” in the international balance of trade.

Yes.  And it matters not how Americans (or, more generally, how denizens of whatever country is considered to be the ‘domestic’ one) gain greater access to goods and services produced globally.

If the Chinese become zealous devotees of a religion whose doctrine requires that they serve Americans by shipping to Americans goods and services free of charge, then Americans are made better off.  If the Chinese innovate in ways that lower their costs of production – and distribution and, thus, enable them to sell goods and services to Americans at lower prices – then Americans are made better off.  If the Chinese invent new products and offer to sell these new products to Americans at prices that Americans find attractive, Americans are made better off.  If the forces of international competition oblige Chinese producers to lower their export prices to levels closer to their costs of production, then Americans are made better off.  If the Chinese government forces Chinese citizens to subsidize the production of goods and services sold to Americans so that Americans can purchase these goods and services at artificially low prices, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).  If the Chinese monetary authority buys U.S. dollars with newly created yuan in order to (of necessity temporarily) make Chinese exports artificially inexpensive for Americans to buy, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).

The above reality is missed by people, such as Donald Trump (but hardly limited to him) who judge trade to be ‘successful’ only if the jobs and businesses that it visibly – that is, directly – creates in the domestic economy are perceived as being greater than the number of jobs and businesses that it visibly destroys.  This error is among the oldest and most difficult to kill in economics – not only because this error is serviceable to domestic producers who greedily seek protection from competition, but also because it appeals to people who refuse to think beyond what is immediately and blindingly obvious.

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Over at Alt-M, George Selgin corrects some myths about the gold standard and about price-level fluctuations.

Steve Horwitz explains the huge economic, health, and wealth benefits of the automobile.  A slice:

The omnipresence of horses meant that 19th-century houses were built with “boot scrapers” outside so that people could get the manure off their boots before entering a home. The waste was also a source of disease, as were the dead horses in the streets. Disposing of the horses and their by-products was costly, and as historian Stephen Davies observed in an earlier Freeman column, there were many debates about how society would deal with the even larger amount of manure the future held if the then-current growth rate in the use of horses continued.

The car eliminated that worry by dramatically reducing the use of horses and replacing them and their waste products with the much cleaner automobile.

Tim Worstall explains why Trumponomics is simply a modern version of nutty ages-old mercantilist myths.

David Boaz concludes that we Americans live now in a libertarianish era.

James Pethokoukis points us to a new study out of the New York Fed casting further doubt (as if much doubt remained among sensible people) on the popular myth that irrational or bigoted discrimination is responsible for differences in men’s and women’s pay.

Elaine Schwartz warns against the unintended ill-consequences of government-mandated maternity leave. A slice:

According to a recent study from an economist at Cornell, generous parental leave policies could jeopardize all women’s chances for promotion. Looking at the impact on women, the study indicated that women hired after the Family and Medical Leave Act was passed were “five percent more likely to remain employed but eight percent less likely to be promoted than those who were hired before” it was enacted. The reason? Perhaps employers hesitate to invest in women if there is a chance they will take long periods of time away from work.

Similarly, research on the impact of generous maternity policies in Europe indicates that women are less likely to become managers or to occupy high-powered positions. In Chile, a child care mandate for working mothers led to a decrease in starting salaries for all women.

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Another Open Letter to Donald Trump

by Don Boudreaux on August 19, 2015

in Myths and Fallacies, Trade

Dear Mr. Trump:

You insist that we Americans are harmed whenever foreigners take actions that result in us getting more imports in exchange for our exports.  I ask that you, with your own money, prove that you really believe the economic principle that lies at the root of your insistence.

If you’re correct that people are impoverished when they pay lower prices, and are enriched when they pay higher prices, then you can easily augment your personal fortune by demanding that the suppliers from whom you purchase the steel, cement, and other materials used to construct Trump buildings raise the prices they charge you for their merchandise.  The higher they raise the prices they charge you to carry out your economic affairs, the wealthier you’ll become because you’ll be increasingly reluctant to purchase their offerings.  In the limit they can charge you prices so high that you’ll buy nothing from them!  How great would that be?!  And the possibilities don’t end there!  You can even further expand the Trump treasure by lowering the prices – even to $0 – that you charge your customers for hotel rooms and the other goods and services that you supply.

Just think of the additional wealth that will come your way by your being, as a buyer, dissuaded by high prices from purchasing goods and services from people not named ‘Donald Trump,’ and, as a seller, by the hordes of customers who will demand to consume almost limitless quantities of the wares that you make available at prices of $0.

Who knew that getting rich is so easy?!

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 August 19, 2015

in Prices, Reality Is Not Optional, Seen and Unseen

… is from page 120 of Introducing Market Forces Into “Public” Services, which is volume 4 in the 2004 Liberty Fund series The Collected Works of Arthur Seldon (original emphasis):

A price is better thought of not as a barrier but as its opposite – a link between buyer and seller.

Government force (or the threat of such) used to cause prices as revealed in money to be something other than prices would be on the market breaks vital links between buyers and sellers.  Some buyers who would otherwise buy, and some sellers who would otherwise sell, are left disconnected to each other because of the government-imposed price control.  As a result, uncountable numbers of mutually advantageous voluntary exchanges that would have occurred do not occur.  This reality holds for government-imposed price floors (such a minimum wage) and government-imposed price ceilings (such as rent control).  In both instances, the amounts of the price-controled good or service that actually find their way from willing sellers to willing buyers are less than are the amounts of these good or services that would have found their way from willing sellers to willing buyers in the absence of the price controls.

People who believe that a government-imposed price floor makes all sellers better off, and people who believe that a government-imposed price ceiling makes all buyers better off, are no more realistic than are people who believe, say, that a meddlesome mechanic who rigs the thermometer on a thermostat to cause that thermometer never to register a room temperature higher than 65°F successfully ensures that the temperature in that room will in fact never, regardless of how much heat is being pumped into that room, exceed 65°F.

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Here’s a letter to the Wall Street Journal:

Brian Collins asks “Do you truly believe that absent any increase in the minimum wage that Wendy’s or any other business will suspend efforts to develop and implement new forms of automation that promise to reduce staff levels?” (Letters, August 18).

The answer is ‘no.’  Contrary to Mr. Collins’s implication, however, this fact does nothing to excuse raising the minimum wage.

Even in a world in which market forces naturally promote automation, raising the minimum wage has two pernicious effects.  First, it causes the rate of automation to be faster than it would be if the minimum wage were not raised.  That is, raising the minimum wage results in automation being introduced at a rate that is too fast given the size of the low-skilled labor force.  Second, raising the minimum wage destroys incentives for entrepreneurs and businesses to find ways to profitably employ workers whose limited skills prevent them from producing hourly outputs valued at least as high as the minimum wage.  The first effect throws some low-skilled workers out of jobs that they would otherwise retain, while the second effect ensures that no one has incentives to find ways to profitably employ these and other low-skilled workers.

If it is inhumane to outlaw the profitable employment of those workers whose skills are the least valuable, then the minimum wage is deeply inhumane.

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

If the government instituted a minimum wage of $100 per hour and, therefore, made unlawful the profitable employment of all those people whose skills are too meager to enable them to produce at least $100 worth of output per hour, there would be a national uproar – and rightly so.  Yet when the government implements such a policy but in a way that outlaws the profitable employment only of people whose skill-sets are among the lowest, relatively few people object and many people – especially “Progressives” – applaud the policy as humane.  How sad.  And how especially sad that many economists today, who above all should know better, lend their authority to such an inhumane policy.

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George Leef rightly explains that eminent domain is unjustified even if, by some metrics, it “works.

John Cochrane brilliantly and wisely takes apart Larry Summers’s recent case for the minimum wage – and, in doing so, Cochrane demonstrates beautifully the fact that the best service that good economists perform is to ask probing questions.

Donald Trump is a hypocrite.  (Stuart Anderson explains.)

Katie Allen, writing in The Guardian, helps to calm the fears of Luddites and others who worry that technological advances are ruining life for ordinary people.  (HT Amir Weitmann)

Speaking of technological improvements, Mark Perry has more good news.

Recent GMU Econ PhD Abby Hall explains that “a growing body of literature is illustrating that private forms of governance have been, and continue to be, an important way of organizing human behavior.

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Even when I disagree with John Oliver’s politics (which is quite frequently), he makes me laugh.  (A steady offering of humor prompts me to forgive lots of sins.)  My son, Thomas, and I roared with laughter yesterday morning as we watched Oliver’s recent smack-down of televangelists who preach something called “the Prosperity Gospel.”  (Warning: Adult language.)  

Until watching Oliver’s video, I was only vaguely aware of this sub-species of scam-artists.  But as I watched this video I kept thinking to myself “These people – these scamming televangelists – remind me of something.  What?  Who?  What???  Who????”  Then it hit me: Politicians!

Most Americans (myself included) – and, most assuredly, all Americans to the left of Mike Huckabee – understandably both laugh at the antics of these televangelical slime balls and shake our heads with a mixture of sorrow and befuddlement that fellow human beings fall prey to their idiotic dupery.  But without claiming that there is a one-to-one correspondence between cosmetics-caked preachers of the Prosperity Gospel and typical politicians crawling the corridors of Washington, DC., I submit that the overlap and similarities between these two types of public pleaders are far greater than most respectable Americans are willing to admit.

According to the Prosperity Gospel (or so I gather), sending money to one of its preachers will, by some mystical force, eventually result in more material prosperity redounding to the benefit of those who heed the call to send money to these con artists.  Of course, the people who send their money to these swindlers are convinced that these swindlers are sincere oracles of a higher power – oracles who tell of a genuinely reliable means of both pleasing the higher power and being rewarded materially for doing so.

Naturally, the only people becoming more materially prosperous through this scam are the swindlers and their entourages.  The poor suckers who fall for the swindlers’ schemes are drained of wealth.  And it is the rare and cold-hearted person who asserts that, because the swindled people should have been smart enough to see through the deceits and illogic of the swindlers, the swindlers aren’t blameworthy.

The parallels between government and these televangelical swindlers are numerous; they’re too numerous even to list in a single blog post.  I’ll content myself here to point out only some of these ominous parallels, which include the notions that:

– sending your money off to other people will result in that money being spent in ways that promote your long-term well-being better than your long-term well-being would be promoted had you spent your money yourself;

– telegenic people speaking into the camera while alluding to mysterious doctrines – and claiming to have special understanding of those mysterious doctrines – are motived chiefly by your best interest as they plead for your money;

– these telegenic people must, of course, fly about in private jets and live luxuriously, for they – unlike you – are tasked with a special responsibility to work for a Higher Good;

– these telegenic swindlers are expert not only at feigning sincere concern for strangers, but also at spinning lies and deceits to explain away the constant failures of their prophesies.

….

One significant difference that notably separates the Prosperity Gospel swindlers from what we might call the Prosperity Politics swindlers is that only the latter have the power to grab the money of people who don’t fall for their deceits.  If the Prosperity Politics swindlers manage to dupe 50% +1 of the voters into falling for their scam, the Prosperity Politics swindlers get to grab the money of not only the people who naively fall for their dupery but also the money of those of us who see such dupery for what it is.

It should at least give pause to those who are enthusiastic about substituting the ‘will of the majority’ for the freedom of each individual to choose to lead his or her life as he or she will to reflect on the fact that the world has no shortage of people who fall for the Prosperity Gospel fraudsters.  Democracy – as opposed to individual freedom – allows people who fall for the Prosperity Gospel to have a say in your life and in the lives of everyone who understands that the Prosperity Gospel is the work of Satan.

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… is from page 463 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

The illusion of investment is maintained by giving the Social Security trust fund government bonds in exchange for the money that is taken from it and spend on other government programs.  But these bonds likewise represent no tangible assets.  They are simply promises to pay money collected from future taxpayers.  The country as a whole is not one dollar richer because these bonds were printed, so there is no analogy with private investments that create tangible wealth.  If there were no such bonds, then future taxpayers would still have to make up the difference when future Social Security premiums are insufficient to pay pensions to future retirees.  That is exactly the same as what will have to happen when there are bonds.  Accounting procedures may make it seem that there is an investment when the Social Security system holds government bonds, but the economic reality is that neither the government nor anyone else can spend and save the same money.

Eighty years ago this month (on August 14th, 1935, to be precise), Uncle Sam foisted on its subjects a scheme that would make Charles Ponzi green with envy.  And to help hide the hideous nature of this spending-other-people’s-money fraud, Uncle Sam maintains a scam called the “Social Security Trust Fund” – which is simply I.O.U.s written by the government to itself.

If you think that the Social Security Trust Fund represents real wealth for the American people held in trust by their agent, the U.S. government, go out right now and hire an agent and give him the following powers:

– he can regularly take a large chunk of your current income and spend it however he chooses on you; but

– for every dollar that he takes from you he must draft an I.O.U. requiring that you will repay yourself that dollar in the future; these I.O.U.s are stashed in a “Trust Fund” maintained by your agent; your agent assures you that this Trust Fund contains enough wealth to enable you to live comfortably in your retirement.

When you retire, you attempt to redeem your I.O.U.s.  Only then, lo and behold!, does the realization hit you that an I.O.U. that you owe to yourself is no wealth at all for you.  Those I.O.U.s are redeemable only if you return to work and then pay yourself, with your income, the value of each of your I.O.U.s.

You’ve been scammed by your agent, although you yourself bear much of the blame for being so stupid as to fall for his misrepresentation.

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Quite by coincidence I returned home from Whole Foods about 30 minutes ago and, opening my computer, then found posted at Mark Perry’s Carpe Diem blog a Reason.tv video of this excellent conversation between Nick Gillespie and Whole Foods’s co-founder John Mackey.  Watching this video is a great way to spend the next 16 minutes of your life.

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