Quotation of the Day…

by Don Boudreaux on July 23, 2018

in Economics, Scientism, Seen and Unseen, Trade

… is from Jacob Viner, as quoted on page 90 of Razeen Sally’s 1998 book, Classical Liberalism and International Economic Order:

The idea, for instance, of being able to determine the optimal level of a tariff by a relatively simple geometry on the face invites the type of incredulity that, in another context, led Coleridge to ask ‘What should we think of one who said that his love of his wife was North-West-by-West of his passion for roast beef?’.

DBx: The possibilities that can be described in textbooks and academic papers are practically infinite. Yet, of course, nearly all of these possibilities have no realistic prospect of ever occurring in reality. One reason careless economists (and those who encounter their works) fail to distinguish between that which is possible and that which is plausible is that too many theories and models are constructed using artifactual, aggregate categories – such as “the global market for steel” – that mask all-important details and complexities.

I do not oppose the use of simplified theories and models to assist us in our thinking. Quite the opposite; I am certain that such theories and models are indispensable. But they must be used with care. Such theories and models are not actual descriptions of reality. They are analytical tools that, when used wisely, prompt us to ask probing questions and to take notice of plausibilities and probabilities that might otherwise remain hidden.

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A Protectionist is Someone Who…

by Don Boudreaux on July 22, 2018

in A Protectionist is..., Trade

… when confronted with indisputable evidence of protectionism’s costs dismisses this evidence as irrelevant because, the protectionist alleges, it is of consequences so small as to amount to “a rounding error,” and he treats whatever harms are inflicted on domestic citizens by his policies as necessary and acceptable downsides. Yet this same protectionist insists, without any compelling evidence, that the alleged benefits of protectionism are magnificently huge and glorious – benefits which include relieving select domestic producers from the need to adjust to changes in consumer demands.

The protectionist seems untroubled by the tension between the alleged lilliputian size of protectionism’s costs and the alleged brobdingnagian size of protectionism’s benefits. Similarly, the protectionist cooly and clinically overlooks the pain suffered by domestic citizens as a result of his forcibly imposed obstructions, yet justifies these same obstructions in part as being necessary to prevent other citizens from suffering the pain of having to adjust to import-influenced voluntary changes in the spending patterns of their fellow citizens.

The protectionist is not a systematic thinker; he is, instead, a master of rationalization, excuse-making, and legerdemain.

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Although my son, Thomas, is studying to be a computational astrophysicist, he’s also a naturally good economist. I love talking with him about economics; he helps me to sharpen my ideas and arguments. Earlier today he and I spoke on the telephone about so-called “economic nationalism” – a conversation that prompted the letter below.

Dear Thomas,

Reflecting on our conversation earlier today, I have become quite unsatisfied with the term “economic nationalism” to describe either the philosophy that drives the likes of Trump’s protectionism or those protectionist policies themselves. My dissatisfaction springs from the fact that describing protectionists as “economic nationalists” seems to grant the protectionists’ conceit that their policies are indeed best for the nation – that their policies put the nation first – that their protectionist obstructions enrich the nation and serve the nation better than would a policy of free trade.

But of course this conceit is completely false. Protectionist policies damage the nation. These policies protect a handful of politically potent existing producers from having to best serve the interests of consumers in the nation. These policies are sand in the gears of economic competition and progress; they slow – and in some cases prevent altogether – resources in the nation from moving from less-valued uses to higher-valued uses.  And protectionism diverts executive, managerial, and entrepreneurial talent away from activities that fuel economic growth and toward the seeking of special privileges from venal state officials.

So-called “economic nationalist” policies undermine the welfare of the nation; they make the people of the nation poorer; they choke and encumber the national market even as their champions, such as Trump, snooker the public into swallowing the fraudulent narrative that all these taxes and obstructions are in the national interest.

“Economic nationalism,” in short, is simply a set of crackpot ideas that delude people into believing that their economic self-immolation is really their economic salvation.

Love,
Dad

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Bonus Quotation of the Day…

by Don Boudreaux on July 22, 2018

in Philosophy of Freedom

… is from page 3 of Tom Palmer’s 2013 essay “Why Be Libertarian?, which is chapter 1 of Why Liberty, an excellent 2013 collection edited by Tom:

As you go through life, chances are almost 100 percent that you act like a libertarian. You might ask what it means to “act like a libertarian.” It’s not that complicated. You don’t hit other people when their behavior displeases you. You don’t take their stuff. You don’t lie to them to trick them into letting you take their stuff, or defraud them, or knowingly give them directions that cause them to drive off of a bridge. You’re just not that kind of a person.

You respect other people. You respect their rights. You might sometimes feel like smacking someone in the face for saying something really offensive, but your better judgment prevails and you walk away, or answer words with words. You’re a civilized person.

Congratulations. You’ve internalized the basic principles of libertarianism. You live your life and exercise your own freedom with respect for the freedom and rights of others. You behave like a libertarian.

DBx: Indeed so. And the libertarian correctly understands that an act that is morally unacceptable when performed by an individual doesn’t become morally acceptable merely because individuals as a group possess the physical power to perform that act without their suffering much risk of resistance or retaliation. The burden of proof of justifying coercive actions against peaceful others is on those people who propose such coercive actions, and this burden is a heavy one. The burden is not met simply by counting heads or hands and discovering that a majority endorses the coercive actions.

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Calling people on the political left “liberal” only strengthens the political left.

Thomas Firey assesses the Trump administration’s first 500 days. A slice (which prompts me to note this irony: the deficit about which Trump & Co. incessantly screech and warn – the so-called “trade deficit” – is neither really a deficit nor a problem, while the deficit that is both real and really a problem – the actual U.S. government budget deficit – barely registers a peep of a complaint from this administration and its supporters):

However, the overall reduction of Americans’ taxes will almost certainly not endure because federal spending was not cut along with the tax changes. What spending cuts the Trump administration did propose were tiny, and Congress didn’t adopt them anyway (which the White House probably expected). Instead, Trump and Congress will close the budget gap with more federal borrowing.

My Mercatus Center colleague Dan Griswold, writing at The Hill, discusses the potential U.S-U.K. free-trade agreement.

Jack Goldstone – a GMU colleague over in the School of Public Policy – argues that Americans would benefit from more immigration.

My GMU Econ colleague Bryan Caplan, writing at Newsweek, makes the case against subsidized student loans.

Marian Tupy explains that markets have achieved what Karl Marx wanted: a reduced need to toil.

Speaking of too-often-unnoticed achievements of modernity, here’s Marty Mazorra.

Steve Landsburg’s loves Robin Hanson’s and Kevin Simler’s The Elephant in the Brain.

That’s a big “if,” Veronique.

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Protectionists Never Level With You

by Don Boudreaux on July 22, 2018

in Myths and Fallacies, Trade

In my latest essay for AIER, I argue that free trade is fair trade. Tariffs imposed in the home county – regardless of actual or ostensible reason – tilt the playing field in the home country unfairly against the many and in favor of the politically powerful few. A slice:

Nearly all protectionists today express support for free trade. But there’s always a “but,” as in “but it must also be fair trade.” Appearing to be an unobjectionable qualification to the case for free trade, such a “but” is in fact not only a wholesale rejection of the case for free trade, it is also a stealthy endorsement of unfair trade.

Protectionists typically pull off this deception by inappropriately using the metaphor of the level playing field. Protectionists assume that, just as a football game is played ultimately for the benefit of the players and for the pride of each team’s fans, economic competition is carried out ultimately for the benefit of the producers and for the pride of each country’s citizens.

If this protectionist assumption were correct, then it would indeed be true that the imposition by country A of tariffs on imports it receives from country B would unfairly tilt the playing field in favor of country A. It would also be true that fairness would be served — the playing field would be leveled — if country B retaliated by imposing tariffs on imports from country A.

But the protectionists’ assumption is invalid. Economic activity and the competition it sparks are not contests carried out for the benefit of producers or to discover which country will win and which will lose on the merits. Instead, economic activity is a process whereby all people try as best as they can to improve their and their families’ standards of living.

It’s true, of course, that in this process producers compete against each other to assist consumers in their efforts. It’s true also that this competitive process means continually discovering which producers have the appropriate talent and game plan to excel and which don’t. But unlike in a sporting event, enabling these discoveries is not among the ultimate purposes of the competition. Discovering which producers best serve consumers is merely a byproduct of consumers’ striving to improve their living standards and producers’ competing to be of the greatest possible assistance to consumers.

To grasp this reality is to understand that tariffs imposed by, say, the Chinese government on imports into China are not unfair to Americans. Yes, Chinese tariffs and other trade restrictions do make it more difficult for some American producers to sell in China. But these tariffs have almost no effect on what ultimately matters to Americans — namely, the ability of American consumers to improve their living standards.

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Bad Analogy

by Don Boudreaux on July 22, 2018

in Myths and Fallacies, Trade

Here’s a letter to one of my regular correspondents:

Mr. Nolan McKinney

Mr. McKinney:

You’re very impressed with Walt Greenway’s comment (on Mark Perry’s blog) that countries have tariffs “[f]or the same reasons you probably have locks on the doors to your house: to decide what and who to let in and under what conditions you will allow entry.”

I’m very unimpressed.

Precisely because I am indeed able and willing – in fact, eager – to decide for myself what and who to let in to my house and under what conditions, I don’t need a third party to make such decisions for me. Tariffs diminish my ability to make such decisions. Tariffs are a means used by third parties to override my choices with their commands.

To use Mr. Greenway’s analogy, tariffs are locks imperiously put on my doors against my will by state officials and to which only they, and not I, have the keys.

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

UPDATE: After reading the above letter, Warren Smith e-mailed me to say that he certainly would not want to lock Santa Claus out of his house!

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Quotation of the Day…

by Don Boudreaux on July 22, 2018

in Competition, Creative destruction, Trade

… is from page 118 of Robert Tollison’s and Thomas Willett’s 1979 paper “Foreign Investment and the Multinational Corporation,” which is chapter 7 of the 1979 collection Tariffs, Quotas & Trade: The Politics of Protectionism:

The primary problem with the employment impact debate is that the disputants talk almost exclusively about job creation and destruction in the short run and ignore the long run. In a dynamic economy, however, changes are always occurring. Demand rises in some areas and falls in others, causing employment opportunities to expand in some industries and decline in others. The job creation and destruction associated with international trade and investment should not be viewed in isolation, but rather as part of a perpetual reallocation of resources, responding to domestic as well as to international developments.

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Some Links

by Don Boudreaux on July 21, 2018

in Competition, Crony Capitalism, Economics, Sports, Trade, War

Mike Munger is correct: a country is not made great by its government. A slice:

But the U.S. is now becoming more like Europe, in the sense that we are trusting more and more of the authority to use force to naïve majority rule. When President Obama said, “Elections have consequences, and I won!” he was elevating elections over rule of law.  When he said that he had a pen, and he had a phone, and could use those to govern through executive order rather than depending on the Congress, the rule of law took another hit.

I love how George Will applies an important lesson about market processes to the current state of Major League Baseball. Here’s his conclusion:

Baseball — the game on the field, not just the business side — resembles a market system because constantly evolving strategies create demands for different tactics, and thus different skills, which are then supplied by people and teams eager to excel in the new forms of competition. Before restricting managers’ and players’ interesting choices by limiting shifts (and certainly before softening the ball; or moving the pitcher more than 60 feet, 6 inches from the plate), give the market — freedom for fan-pleasing ingenuity and adaptation — a chance.

Deirdre McCloskey understandably doesn’t believe that Facebook is a problem.

Chris Edwards and Vanessa Brown Calder aren’t keen on so-called “opportunity zones.

Here’s my brilliant colleague Bryan Caplan firmly at his best.

Insight from Paul Rosenberg. (HT Walter Grinder)

Mark Perry reports that “America’s thriving manufacturing sector just produced a record level of output.

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Quotation of the Day…

by Don Boudreaux on July 21, 2018

in Trade

… is from my colleague Bryan Caplan’s insightful EconLog blog post titled “Radical Markets in Immigration“:

Enlightened self-interest may rule markets, but benighted nationalism rules politics.

DBx: See also this Facebook post by the great Steve Davies.

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