Quotation of the Day…

by Don Boudreaux on August 18, 2014

in Hayek, Inequality

… is from page 82 of the 1976 Vol. II (“The Mirage of Social Justice”) of F.A. Hayek’s Law, Legislation, and Liberty:

The great problem is whether this new demand for equality does not conflict with the equality of the rules of conduct which government must enforce on all in a free society.  There is, of course, a great difference between government treating all citizens according to the same rules in all the activities it undertakes for other purposes, and government doing what is required in order to place the different citizens in equal (or less unequal) material positions.  Indeed, there may arise a sharp conflict between these two aims.  Since people will differ in many attributes which government cannot alter, to secure for them the same material position would require that government treat them very differently.

We are forever being warned by enthusiasts for forcible ‘redistribution’ of monetary incomes or wealth that great differences among individuals or families in financial earnings or holdings will lead to destructive social unrest.

There are several problems with this warning.  Here are just two.  First, those who issue this warning seldom, if ever, distinguish between historical epochs in which the quality of life of even the poorest members of society are improving over time, and conditions in which the quality of life of even the poorest are not improving.  Historical instances, prior to the industrial revolution, of political revolts of the have-nots are not so obviously applicable to today’s world in which the size of the real economic pie is expanding practically without cessation and the quality of life of even the poorest members of society is improving over time.

Second, fans of forcible ‘redistribution’ – while worrying publicly and theatrically over the potential social unrest unleashed by financial inequality – are quiet and sanguine about the potential for social unrest unleashed by power inequality.  If it is so worrisome that the Jones’s increasingly large financial holdings relative to those of the Smiths will spark revolutionary anger in the Smiths, why is it not at least as worrisome if the Joneses accumulate increasingly greater political power relative to that the Smiths?  If the Smiths – regardless of the trend of their absolute quality of life – will be propelled by their human nature into violent revolt against the financially successful Joneses, why will the Joneses – regardless of the trend in their absolute quality of life – not be propelled by their human nature into violent revolt against the politically successful Smiths?

In short, if large differences in monetary incomes and wealth are likely to spark revolution, why will not the inevitable differences in the way that governments must treat people in order to make them more materially equal not spark revolution?  As I assess matters, the latter differences are far more likely than are the former to give rise to revolutionary anger.

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Some Links

by Don Boudreaux on August 17, 2014

in Current Affairs, Health, Inequality, Standard of Living, Taxes, Wal-Mart, War

Rand Paul speaks out eloquently, in Time, against the militarization of the police throughout the United States.

Glenn Greenwald also writes against this horror.  (HT Walter Grinder)

The tragic events in Ferguson, MO, supply an excellent reason for those of you who haven’t yet bought, read, and studied Radley Balko’s Rise of the Warrior Cop to do so.

Now for some better news (here from Matt Ridley).

George Will – rightly – is not upset by corporations acting to keep their tax bills as low as possible.  A slice:

This is the progressive premise in action: Because government provides infrastructure (roads, etc.) affecting everyone, and because government-dispensed money flows everywhere, everything is beholden to the government, and more or less belongs to the government, and should be subordinated to its preferences, which always are for more control of the nation’s wealth.

And Will’s conclusion:

This illustrates the grandstanding frivolity of the political class. It legislates into existence incentives for what it considers perverse behavior, and then waxes indignant when businesses respond sensibly to the incentives.

The Tax Foundation’s Alan Cole explains why income data is a poor measure of economic inequality.

Hopefully, Wal-Martcare might save us from many of the ill-consequences of Obamacare.

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… is from page 218 of Matt Ridley’s superb 2010 book, The Rational Optimist:

Even farm labourers’ income rose during the industrial revolution.  As for inequality, in terms of both physical stature and number of surviving children, the gap narrowed between the richest and the poorest during industrialisation.  That could not have happened if economic inequality increased.

This particular historical point is important; the general point that it makes is even more so.  Throughout the margins of my heavily marked-up copy of Thomas Piketty’s Capital in the Twenty-First Century I scribbled the words “get real.”  By this phrase I do not (mostly) mean ‘gimme a break’; rather, this phrase is a shorthand way of suggesting that the monetary figures that parade throughout Piketty’s volume often mask trends in real living standards.

What matters, ultimately, is not how much $$$$ or €€€€ or ££££ or ¥¥¥¥ someone (or some statistical category of someones) earns or has stashed away absolutely, or relatively to how much $$$$ or €€€€ or ££££ or ¥¥¥¥ other people earn or have stashed away.  What matters is how well people live according to their own lights and preferences.  If the great majority of people, and especially the poor, are living better and better lives – or at least have access to a greater supply of goods, services, and leisure that they can use to live better lives – that fact is powerful evidence that the economy is working well.  And that evidence remains relevant and powerful regardless of whatever is happening to the (to use Piketty’s term) “evolutions” of monetary incomes and monetary wealth.

Note that I am not saying that there is no positive connection between monetary income (or wealth) and real living standards.  But I am saying that trends in the former are often misleading about trends in the latter.  And I’m saying also that only the latter matters.

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Sloganeering versus Serious Thinking

by Don Boudreaux on August 16, 2014

in Environment

Here’s a letter to a correspondent:

Mr. Joshua Holman

Mr. Holman:

Upset by my “Notable & Quotable” in today’s Wall Street Journal, you ask if I can “really be so clueless to not know the commonsense meaning of sustainability.”  You then baselessly accuse me of being “paid by the Kochs to emit word pollution” to “block the work of the many activists struggling to save our planet from over use, exploitation and destruction.”

Here’s a quiz: Who wrote the following? “It is very hard to be against sustainability.  In fact, the less you know about it, the better it sounds.  That is true of lots of ideas.  The questions that come to be connected with sustainable development or sustainable growth or just sustainability are genuine and deeply felt and very complex.  The combination of deep feeling and complexity breeds buzzwords, and sustainability has certainly become a buzzword.”

a) me
b) Ronald Reagan
c) George Will
d) John Stossel
e) Milton Friedman
f) Robert Solow

The correct answer is “f,” Robert Solow* – a distinctly Progressive Nobel laureate economist at M.I.T. who nevertheless, by your logic, must have been paid by “corporate polluters” to “discredit the sustainability movement.”

You describe yourself as an “informed and involved college junior.”  I don’t doubt that you’re involved.  But I beg you - sincerely - to consider the possibility that your information is not as full and free of error as you now suppose it to be.  Reality cannot be grasped, and it certainly cannot be improved, with slogans.

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

* Robert M. Solow, “Sustainability: An Economist’s Perspective” (a lecture delivered at Woods Hole, MA, on June 14, 1991).

(I thank Bill Workman for the pointer to Solow’s thoughtful essay.)

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Quotation of the Day…

by Don Boudreaux on August 16, 2014

in Competition, Politics, Property Rights

… is from page 58 of Richard Stroup’s important 2003 primer, Eco-nomics: What Everyone Should Know About Economics and the Environment:

As transfers that depend on political clout increase, more people redirect their energies to gaining political influence, taking away more time, energy, and other resources from productive activities.  Competition shifts from innovations in production and trade to competing for political favors.  When political redistribution of society’s goods and services (the pie) grows, fighting over shares reduces efforts devoted to increasing the size of the pie, making it smaller.

Picking a nit: While I know, and agree with, what Rick means – and while I’m pretty sure that Rick will agree with what I’m about to say – I wish that Rick hadn’t here used the term “society’s goods and services.”  Society is not an entity that can own anything.  Practically speaking, property rights can be vested only in, and exercised only by, persons - either as individuals, or as groups of persons such as families, firms, and governments.  Resources that government officials ‘redistribute’ were created and made into property by a network of individual decisions and efforts and are initially vested in identifiable, flesh-and-blood persons (again, either as individuals, or as decision-makers for groups of persons).  Resources have never belonged to, and can never belong to, “society.”  Society is not a sentient creature; it can no more own anything than can a bowling ball or an ear of corn.

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Quotation of the Day…

by Don Boudreaux on August 15, 2014

in Property Rights

… is from page 21 of Richard Stroup’s wonderful 2003 book, Eco-nomics: What Everyone Should Know About Economics and the Environment:

Very simply, property rights hold people accountable.  When people treat property negligently or carelessly, its value decreases.  When they treat it with care, its value increases.

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Mike Munger explains that the main victims of higher-education’s failures are students who lean politically left.  (HT Steve Pejovich)

More from Mike.  A large slice:

When I am discussing the state with my colleagues at Duke, it’s not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA.

But their solution is, without exception, to expand the power of “the State.” That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least three hundred years.

To paraphrase Hayek, then, the curious task of the liberty movement is to persuade citizens that our opponents are the idealistic ones, because they believe in unicorns. They understand very little about the State that they imagine they can design.

Arnold Kling is correct: this employment pattern cannot plausibly be explained by aggregate demand – but it can be explained by pesky microeconomic factors any reference to which too many macroeconomists consider to be illegitimate when the question is “Why is the labor market sluggish?

Kevin Williamson reflects wisely on Abenomics and economics.  (HT Steve Bradley)  A slice:

The battle against scientism in economics is a long one. I am afraid that is also is a losing one. F. A. Hayek, in his Nobel lecture, dropped an Austrian hammer on “The Pretense of Knowledge” in his profession, but the tendency of economists to present their theories as a kind of fiscal physics has, if anything, intensified since Hayek’s time, abetted by the rise of a distinctly phony school of political rhetoric dressing up familiar prejudices as “empirical” and “evidence-based.”

I’ll bet you your next unemployment check that if Japan continues to slide, the answer from the Left will be: “Abe was on the right track, but he didn’t go far enough. And here’s my model proving it. I’m only following the evidence.” But the evidence suggests that there are a lot of moving parts to an economy, and that their relationships are unpredictable. Perhaps Japan benefits from stimulus, but stimulus adds to debt, which in Japan is very heavy — higher, proportionally, than in Greece. That can be offset by tax increases, as with the consumption tax, but those have effects on economic behavior. You might have three balls in the air at the same time, but that doesn’t mean you’re juggling.

For the “Do-you-really-want-to-trust-government-regulators?” file.  (HT Henry Manne)  A slice:

Wanli Zhao, associate professor of finance, partnered with David M. Reeb, the Mr. and Mrs. Lin Jo Yan Professor in Banking and Finance at the National University of Singapore Business School, and Yuzhao Zhang, assistant professor at the Rutgers University Business School, for the study into insider trading involving supervised industries.

Their findings are being published under the title “Insider Trading in Supervised Industries” in the August 2014 edition of the prestigious “Journal of Law and Economics.”

“Our findings are somewhat controversial in that we’re saying the presumed protectors of the shareholders and general public interests appear to be using their positions to their advantage,” Zhao said. “The evidence shows it is happening. There is more insider trading within regulated firms than within unregulated firms. There is very, very strong indirect evidence that this is due to people involved in the regulatory agencies.”

John Cochrane discusses what we can know about the costs of government regulations.

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Here’s a letter to the Washington Post:

You rightly highlight the dubious assumptions used by the Export-Import Bank to estimate the number of jobs its subsidies “support” (“Seeking clarity on the number of jobs the Export-Import Bank is responsible for,” August 14).  Yet a deeper truth deserves prominence - namely, subsidizing exports is no more likely to increase overall employment than is subsidizing any other class of goods or services.

Suppose that, instead of the Ex-Im Bank, we had a Yellow Goods Bank.  This bank would subsidize all purchases, foreign and domestic, of maize, summer squash, school buses, and other goods colored yellow.  Such subsidies would indeed result in larger numbers of people working to produce yellow goods.  But such subsidies would also pull resources - financing, raw materials, machinery, and workers - from the production of beets, blue jeans, cardiovascular surgery, and other non-yellow outputs.

Because sensible people are unlikely to be duped into thinking that a government policy of artificially increasing the production of goods described as “yellow” means a stronger overall economy, why do so many otherwise sensible people continue to fall for the mercantilist myth that a government policy of artificially increasing the production of goods described as “exports” means a stronger overall economy?

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 14, 2014

in Other People's Money, Politics

… is from page 182 of Matt Ridley’s 2010 book, The Rational Optimist (link added):

Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure‘.  Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members.  Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.

Precisely so.  Faith in government is irrational and (at least for economists who justify government action as a means of reducing the number and severity of free-rider problems) inconsistent; such faith reflects a belief in miracles.

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Here’s a letter to The Hill:

It’s true that over the past three years bureaucrats at the Export-Import Bank exceeded their travel budget by 71 percent (“Ex-Im busts travel budget by $3M,” Aug. 13).  But what’s the problem?

According to the Bank’s supporters, Ex-Im creates jobs in the U.S. by spending taxpayer money to boost demand for those American goods and services that Bank employees determine should be purchased in greater quantities.  Well, Ex-Im employees clearly determined that more taxpayer money should be spent to increase the purchases of travel services – purchases that, if the economic theory used by Ex-Im supporters is correct, create more American jobs.  So Rep. Maxine Waters, Sen. Maria Cantwell, Bill Clinton, and the Bank’s many other champions should positively celebrate such budget-busting travel as furthering the Bank’s mission and strengthening the American economy.

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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