Some Links

by Don Boudreaux on August 21, 2019

in Books, Crony Capitalism, Education, History, Myths and Fallacies, Podcast, Trade

Vincent Geloso brilliantly explains that America’s economic riches were not, and are not, the product of slavery – quite the opposite. Here’s his conclusion:

It is clear that one cannot infer that America was made richer from the often-used facts about growth and slavery. It is even clearer that America was made poorer by slavery. Slavery leaves a nasty legacy. Its preservation required the use of racist ideological constructs to justify it. These constructs persist today and, since Emancipation, meant that incredible violence was directed towards African-Americans. It bred a class of rent-seekers who continued their rent-extraction efforts in the form of segregation laws and public goods funded by all but whose use was restricted to whites. To these items in the shadow of slavery, we must also add a poorer America.

Here’s a 15-minute-long conversation between my intrepid Mercatus Center colleague Veronique de Rugy and Jim Woods.

Bruce Yandle reveals yet another ugly aspect of Trump’s protectionism.

Eric Boehm details Trump’s proposed bribery of Apple to (presumably) keep Apple quiet about the damage that that company is suffering as a result of Trump’s idiotic and destructive trade war war on trade.

Here’s Alberto Mingardi on Sebastian Mallaby on James Grant on Walter Bagehot.

George Leef wants to bring back to college campuses a great intellectual tradition.

Walter Olson weighs in on the prospect of corporations serving so-called “stakeholders” at the expense of shareholders.

Bryan Caplan distinguishes material from rhetorical dominance.

Add a Comment    Share Share    Print    Email

Here’s a letter to the Washington Post:


Megan McArdle ably warns against the dubious ethics lurking within calls for “stakeholder capitalism” (“It’s hard to argue against firms looking beyond investors. But let me try.” August 21). Also lurking within these calls is dubious economics – namely, the mistaken belief that, by intentionally “looking beyond” investors, corporations will thereby better serve all stakeholders.

The ironic reality is that when businesses respond to market prices and wages in ways that maximize share values they generally promote the welfare of a far larger number of stakeholders than when businesses discount the importance of share values in order to intentionally promote the welfare of stakeholders. The reason is quite practical: the only stakeholders whose welfare businesses can intentionally promote are those who are known and, hence, who currently exist. But precisely because the range of people who are affected by each business’s decisions extends well beyond today’s investors – it extends to consumers, workers, and citizens distant both in space and time – attempts to promote the welfare of known stakeholders will inflict larger, if unnoticed, harms on multitudes of real but invisible people.

Suppose, for example, that businesses intentionally sacrifice some share value in order to promote the welfare of American workers by refusing to buy inputs from abroad. We can see, and feel glad for, workers who thus keep their jobs. But what about consumers who, as a result of this solicitousness for salient stakeholders, must pay higher prices? What about firms and workers who, because consumers must reduce their spending on some goods and services, go bankrupt and lose their jobs? What about businesses that lose sales, and workers who lose jobs, because, with foreigners now earning fewer dollars supplying Americans with imports, foreigners have fewer dollars to spend on American exports? What about consumers tomorrow who, because businesses today intentionally operate at less than peak efficiency, have access to fewer and lower-quality goods and services? And what about workers tomorrow who – also as a result of businesses today operating inefficiently – are paid lower wages?

Competitive markets, and their resulting prices and wages, oblige businesses to take account of the welfare of far larger numbers of people – many not yet born – than can possibly be taken account of intentionally.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on August 21, 2019

in Philosophy of Freedom

… is from page 27 of University of Maryland philosopher Dan Moller’s 2019 book, Governing Least:

[I]t remains unclear how, when I stand outside your home and wish to perform what would otherwise be a horrible violation, simply calling enough neighbors and signing some documents could transmute my violation into a permissible act.

DBx: Note that the argument here is not that there are no tasks that are legitimate for the state to carry out yet illegitimate for individuals in their private capacities to carry out. Instead, the argument is that mere mob agreement – even if the mob is a superficially peaceful democratic majority – is insufficient to give moral legitimacy to actions that are morally illegitimate.

Add a Comment    Share Share    Print    Email

Bonus Quotation of the Day…

by Don Boudreaux on August 20, 2019

in Law, Philosophy of Freedom

… is from page 120 of the 1982 Liberty Fund edition of Albert Venn Dicey’s 1885 Introduction to the Study of the Law of the Constitution:

It [the rule of law] means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, of prerogative, or even of wide discretionary authority on the part of the government.

DBx: Who can observe the size and scope of the administrative state in America today – not to mention the discretion exercised by the U.S. president personally – and honestly conclude that the rule of law here reigns supreme? I think no one.

Add a Comment    Share Share    Print    Email

Here’s a letter to Joshua Johnson, host of NPR’s “The 1A”:

Mr. Joshua Johnson, Host
The 1A
WAMU Radio

Mr. Johnson:

I enjoyed today’s show on “Shareholders To Stakeholders: Why Business Leaders Are Shifting Focus.” I write, however, to register disagreement with Rick Wartzman’s case that corporations should aim to maximize, not share values, but, instead, the well-being of so-called “stakeholders.” Mr. Wartzman’s case is filled with several flaws, including …

… his repetition of familiar yet thoroughly debunked myths, such as that the inflation-adjusted pay of ordinary American workers hasn’t risen in 40 years (see, for example, here and here), and that maximization of share values requires corporate executives to ignore the long-run and focus only on the short-run. If corporations ignored the long-run, it would be impossible to explain, for example, why Google is spending $13 billion this year to build new offices and data centers.

… his mistaken suggestion that corporations that successfully maximize share values in competitive economies yield benefits only to their shareholders. In reality, the case for keeping businesses free to earn as much profit as possible in competitive markets is not only, or even chiefly, that successful businesses yield maximum possible profits to their owners but, instead, that such businesses, in their pursuit of profit, create an abundant flow of goods and services out of which ordinary people improve their living standards. I, for example, have never owned a single share of Amazon, Apple, Google, or Ikea, yet each of these companies has contributed greatly to my improved well-being.

… his presumption that identifying “stakeholders” is easy. For example, do workers who would get high-paying jobs in the future only if resources are released through painful corporate downsizing in the present count as stakeholders? If not, why not? And because workers at, say, Walmart will suffer if Target successfully devises a better means for it to serve consumers, should Target, when deciding whether or not to implement this means of better serving consumers, take account of the likely negative consequences that its innovation will have on the shareholders and workers of rival retailers – and if that negative impact is judged to be sufficiently big, refrain from implementing this means of better serving consumers? If not, why not?

Declarations that corporations should maximize “stakeholder” welfare rather than “merely” maximize share values have a nice ring to the ears of people who think only superficially about such matters. But the more deeply one examines the case for so-called “stakeholder capitalism,” the more one sees its confusions, contradictions, and potential dangers.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Add a Comment    Share Share    Print    Email

In my latest AIER column I write about the rising costs of post-secondary education, housing, and health-care. Here’s my conclusion:

Nevertheless, in spite of improvements in education, housing, and health care, the work-time costs of these goods and services — unlike the costs of food, furniture, and most other products — have indeed risen. And it’s possible — although I think highly unlikely — that this rise in the costs of these three categories of products has resulted in overall economic stagnation for ordinary Americans.

If so — if the rising costs of education, housing, and health care are causing ordinary Americans to tread water economically despite the falling work-time costs of most other goods and services — why would anyone suppose that the “solution” to this problem is more government intervention? No three sectors of the American economy are as heavily and as consistently distorted by taxes, subsidies, and regulations as are these three sectors. The conclusion that I draw is that reducing the role of the state — rather than increasing it — is a necessary step to take to ensure that the prosperity of ordinary Americans continues to grow.

Add a Comment    Share Share    Print    Email

… is from page 441 of Abba Lerner’s October 1957 article in the Journal of Political Economy, “The Backward-leaning Approach to Controls” (original emphasis):

The free-trade doctrines are valid as general rules whose general use is generally beneficial. As with all general rules, there are particular cases where, if one knew all the attendant circumstances and the full effects in all their ramifications, it would be better for the rule not to be applied. But that does not make the rule a bad rule or give reason for not applying the rule where, as is normally the case, one does not know all the ramifications that would make the case a desirable exception. It is a good rule for me to grade my students according to the work they do in my class. If I knew that giving a certain student an A instead of a B would encourage him to become an economist and that he would then become a great economist instead of a bad sociologist, I might stretch a point. But, in general, I cannot know this, and so the rule remains a good rule. In the same way the more simple-minded rules for the freeing of trade wherever possible are good rules to which exceptions should be granted only when there is enough evidence to overcome the general presumptions in favor of the rules. Too easy a granting of exceptions can undermine the rule.

DBx: Describing situations in which violating a sound rule will make the world a better place is surprisingly easy. The reason for this ease is that the very purpose of rules – “the reason of rules” – is that they are tools to better enable us always-imperfectly informed human beings to successfully navigate a world filled with uncertainty. All that such descriptions require is the assumption that we human beings know more than we know.

An omniscient being would be foolish to bind itself to rules.

When we adopt a rule, we wisely admit our ignorance. For a clever assistant professor or ambitious politician to then describe situations in which violating this or that rule will make the world a better place is to achieve absolutely nothing. Although such descriptions often appear to be ingenious discoveries of means for improving the human condition, such descriptions are nearly always nothing but trite demonstrations that if we knew what we do not and cannot know, then acting in disregard of the rule would bring about a state of affairs better than the state of affairs that would be brought about by following the rule.

Well duh.

As a rule, whenever you encounter someone peddling a scheme for improving the world by giving the state discretion to act in violation of well-established rules – for example, to make workers better off by blocking the operation of the price system with minimum wages, or to enrich residents of the domestic economy by substituting free trade with “strategic trade policies” or “optimal tariffs” – recognize that these scheme peddlers arrogantly assume that they or those who will carry out their schemes possess knowledge and information that human beings, as a rule, do not and cannot possibly ever possess.

Add a Comment    Share Share    Print    Email

… is from page 299 of the 2014 collection – The Market and Other Orders (Bruce Caldwell, ed.) – of some of F.A. Hayek’s most influential essays; specifically, it’s from Hayek’s brilliant 1967 paper “The Results of Human Action But Not of Human Design” (original emphasis; footnote excluded):

There never has been and never can be a ‘gap-less’ (lückenlos) system of formulated rules. Not only does all made law [that is, legislation] aim at justice and not create justice, not only has no made law ever succeeded in replacing all the already recognized rules of justice which it presupposes or even succeeded in dispensing with explicit references to such unarticulated conceptions of justice; but the whole process of development, change and interpretation of law would become wholly unintelligible if we closed our eyes to the existence of a framework of such unarticulated rules from which the articulated law receives its meaning.

DBx: Many are the men and women who think themselves to be realists in their insistence that law is necessarily the creation of the state. Yet they are mistaken. The state creates legislation. The state also sometimes enforces law. But law no less than language, no less than a set of norms, and no less than a pattern of market prices is the undesigned product of an emergent, or “spontaneous,” order.

And therefore the only true lawmakers are ordinary people going about their daily affairs and adjusting and reacting to – and forming expectations about – each other’s actions. Law is – as the title of Hayek’s essay here suggests – the result of human action but not of human design. The common practice of calling legislators “lawmakers” is, thus, a grave mistake.

Add a Comment    Share Share    Print    Email

Jeffrey Tucker sets straight the economically and factually misinformed Pope Francis I. A slice:

Let me offer my own definition of libertarianism. It is the political theory that freedom and peace serve the common good better than violence and state control, thus suggesting a normative rule: societies and individuals must be left unmolested in their associations and commercial dealings so long as they are not threatening others.

My intrepid Mercatus Center colleague Veronique de Rugy is appalled by the hypocrisy and myopia of today’s conservatives.

After reading Princeton sociologist Matthew Desmond’s New York Times Magazine piece attempting to tie capitalism to slavery, Tim Worstall understandably asks about Desmond: How can anyone actually be this stupid?

George Will rightly praises one of the very few elected officials in Washington who deserve praise: Justin Amash.

My Mercatus Center colleague Bob Graboyes warns of a bad means of lowering pharmaceutical prices.

Alberto Mingardi points us to a fascinating interview of my GMU Econ colleague Dan Klein on Sweden.

Eric Boehm busts one of the many myths peddled about tariffs by Trump’s top trade shaman, Peter Navarro.

Ryan Bourne asks if Oren Cass’s case for a U.S. industrial policy stands up. Ryan answers with a resounding no. (HT David Simon) A slice:

Sadly, this view gets things completely backwards and shows a glaring contradiction with his first claim about employment. As my trade colleagues never tire of outlining, manufacturing output has continued rising and the real GDP share of manufacturing has remained steady despite a long-term decline in manufacturing employment. That’s precisely because historic productivity growth in manufacturing overall has been strong, causing (at least a large part of) the employment decline of the sector. Cass’s desire for “stable employment” and “high productivity growth” in manufacturing is thus a direct contradiction.

Add a Comment    Share Share    Print    Email

… is from page 18 of the late Stanford University economist Nathan Rosenberg’s 1994 book, Exploring the Black Box: Technology, Economics, and History:

[T]he ability to achieve the commercial exploitation of new scientific knowledge is heavily dependent upon social capabilities that are remote from the realm of science. These capabilities involve skills in organization, management, and marketing in addition to those of a technological sort.

DBx: Yes. And this ability to achieve the commercial exploitation of new scientific knowledge is heavily dependent also upon – as Deirdre McCloskey explains – people’s attitudes toward market-tested innovation, creative destruction, and progress.

Economic growth – while it is made possible by, and itself makes possible, countless impressive mechanical and technological feats – is not itself a mechanical, technological feat. Sustained economic growth cannot be engineered as can successful missions to the moon. The economic, legal, and social institutions required for there to be sustained growth are many, indescribably intricate and complex, and largely unseen (and, hence, unappreciated). To observe with one’s senses, statistics, and measuring instruments a successful economy, or even just a successful firm within a successful economy, is to observe only the surface of economic and social reality. A vast, deep ocean of complex attitudes and margins of adjustments swirls beneath.

Among the many, typically unappreciated implications of this reality is this: even if people in country B manage to acquire, by whatever means, all of the intellectual property belonging to the people of economically successful country A, the people of country B do not thereby gain any sure means of successfully ‘growing’ their economy.

Add a Comment    Share Share    Print    Email