Bonus Quotation of the Day…

by Don Boudreaux on August 15, 2018

in Philosophy of Freedom, Politics

… is from Joseph Epstein’s essay – “Don’t Invite Me to a Party if It’s a Political One” – in the August 16th, 2018, edition of the Wall Street Journal:

As difficult as it is to imagine the country functioning without political parties, equally difficult is to imagine political truth and America’s larger interests lying chiefly with either Republicans or Democrats. To sign on with one or the other is to give away too much in independence of thought, feeling, integrity.

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In the March 7th, 2014, edition of the Wall Street Journal, then-GMU Econ student (now SUNY-Purchase econ professor) Liya Palagashvili and I did our best to bust the myth that worker pay in the U.S. has failed to keep pace with worker productivity. I can now share the full text of this op-ed here. ‘Tis below the fold.

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Here’s a letter to the Wall Street Journal:

Elizabeth Warren’s “Companies Shouldn’t Be Accountable Only to Shareholders” (August 15) is one of the most frightening displays of economic ignorance and intellectual arrogance that I’ve ever read from a high U.S. government official. Never mind that Sen. Warren mistakenly asserts that worker pay in the U.S. hasn’t kept pace with worker productivity. (Four years ago in these pages Liya Palagashivili and I offered evidence that directly contradicts Sen. Warren’s assertion.) And also forget that this former law professor, in her designs to radically remake the way in which corporations are governed, gives no evidence of familiarity with even the rudiments of corporate finance.

In effect, Sen. Warren’s aim is to confiscate a large chunk of the property of equity owners (those whose economic welfare is most directly tied to the quality of corporate decision-making) and transfer it to a largely nebulous set of “stakeholders” (those who, having directly risked nothing of their own on the performance of corporations, will nevertheless get a say in how corporations are run simply because politicians, bureaucrats, and judges declare them – according to what criteria we do not know – to be “stakeholders”).

Or maybe not. I above describe stakeholders as largely nebulous because, in fact, one group of them is quite clear – namely, existing employees. Perhaps the practical effect of Sen. Warren’s proposal would not be the widespread stakeholder management of her dreams but, instead, worker management. Corporations would be run overwhelmingly for the benefit of existing workers. Pay would outstrip worker productivity – which itself would fall. Payrolls would bloat. Efficiency-enhancing innovation would disappear. And economic competition would become anemic as companies are run less and less to produce goods and services that appeal to consumers and more and more to produce security and sinecures that appeal to workers.

Either way – whether corporations would be run for a broad set of “stakeholders” or only for workers – Sen. Warren’s planned confiscation of owners’ equity would turn what is now a Niagara of job-creating and prosperity-enhancing investment funds into a mere puddle, as stagnant as it is puny. We would then bid adieu to American prosperity.

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


I don’t encounter many reasons for me to wish that Trump will win re-election in 2020. But this essay by Warren comes close.


Scott Shackford has more.

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Here’s a letter to the editor of Project Syndicate:

Robert Skidelsky’s apology for “liberal protectionism” (“Protectionism for Liberals,” August 14) is a flood of flaws. Here are just two.

First, contrary to Lord Skidelsky’s claim, the case for a country to freely trade with other countries is no more weakened by changes over time in the tasks for which that country has comparative advantages than is the case for an individual to freely trade with other individuals weakened by changes over time in the task for which that individual has a comparative advantage.

When I was 17 my comparative advantage was in bagging groceries; ten years later it was in teaching economics. Similar changes occurred in the comparative advantages of many of the people with whom I traded. And yet these changes – some ‘natural,’ most (like mine) consciously pursued – did not create a situation in which I would have been made better off had a third party obstructed my freedom to trade with other individuals.

Second, it’s untrue that today’s relatively high mobility of capital results in the wholesale offshoring of production by high-wage countries, such as the United States, to low-wage countries. For example, not only is the real value of manufacturing output in the U.S. today near an all-time high, but also the real value of the stock of foreign direct investments in the U.S. has never been higher than it is today. (It is today 23 times higher than it was in 1977* – the year that the U.S. began its current run of trade deficits.)

Additionally, the vast majority of outward foreign direct investment by Americans is not in low-wage countries but in high-wage countries. In 2017, the five countries in which the value of Americans’ stock of foreign direct investment assets was highest were, in order: the Netherlands, the United Kingdom, Luxembourg, Ireland, and Canada. Also in 2017, a whopping 93 percent of Americans’ direct equity investment outflows in manufacturing went to Europe and Canada** rather than – as Lord Skidelsky presumes – to low-wage countries.

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

* I converted the nominal dollars here into real dollars using this inflation adjustor.


(I thank Richard Ebeling for alerting me to Skidelsky’s essay.)

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… is from page 355 of Liberty Fund’s 2011 collection of Frédéric Bastiat’s writings, The Man and the Statesman: The Correspondence and Articles on Politics – which is the first volume in what will eventually be six volumes, expertly edited by David Hart, of The Collected Works of Frédéric Bastiat; specifically, this quotation is drawn from Bastiat’s 1846 letter “To the Electors of the District of Saint-Sever”:

Government power, a vast, organized, and living body, naturally tends to grow. It feels cramped within its supervisory mission. Now, its growth is hardly possible without a succession of encroachments upon the field of individual rights. The expansion of government power means usurping some form of private activity, transgressing the boundary that I set earlier between what is and what is not its essential function.

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… comes this report, from May 2017, on a European Parliament resolution that is impossible to spoof because it is a spoof on itself. (My son, Thomas – erupting in laughter – just found this report and shared it with me.) The report’s title is “EU aims to abolish planned obsolescence.”

Damn all this rapid, incessant improvement in the likes of personal computers and cellular devices! Wouldn’t life be better if we all still used the perfectly functional devices pictured here rather than wasting our money, as we do in 2018, buying pads and smartphones? Politicians in Europe want the optimal rate of progress in technology to be set by the all-knowing and benevolent state rather than by all those unreliable choices made by myopic consumers frivolously spending their own money as they foolishly deem best and entrepreneurs greedily risking their own funds in sinister schemes to defraud their customers and impoverish their employees.

What could go wrong by having the state mandate that technological progress be slowed down? (Nota bene: Overwhelmingly, the people who push for and applaud resolutions such as this one by the European Parliament are in America called “Progressives.” Bizarre, that.)


Here’s my favorite sentence from the report:

The European Parliament also hopes the resolution will also stimulate job creation, because it should result in more independent repair services.

Yep! Nothing enriches the masses like arranging for all of them to be stuck with out-of-date technologies and for some of them to be employed repairing out-of-date devices.


There’s no doubt that individuals acting privately – in families, in friendships, in free markets – often say and do childish, stupid, and sometimes even destructive things. But there’s also no doubt that the forum that brings out, magnifies, and amplifies  – and, unlike in private settings, actively encourages – human childishness, stupidity, and destructiveness is politics. Compared to any randomly chosen government official, the typical consumer, worker, business executive, entrepreneur, and investor is more logical than Mr. Spock, more sober than a devout Morman, more intelligent than Einstein, more wise than King Solomon, more creative than Edison, and more resolute than Helen Keller.

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Quotation of the Day…

by Don Boudreaux on August 14, 2018

in Property Rights

… is from page 53 William Bernstein’s 2004 book, The Birth of Plenty: How the Prosperity of the Modern World Was Created:

The right to property is the right that guarantees all other rights. Individuals without property are susceptible to starvation, and it is much easier to bend the fearful and hungry to the will of the state. If a person’s property can be arbitrarily threatened by the state, that power will inevitably be employed to intimidate those with divergent political and religious opinions.

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… is from page 94 of Razeen Sally’s excellent 1998 volume, Classical Liberalism and International Economic Order:

All the classical economists began their analyses with a theoretical statement on the static and dynamic gains that issued from unimpeded cross-border trade. Nevertheless, their clinching argument against the imposition of trade barriers relied primarily on the ‘political economy’ of empirical and policy observations.

DBx: Protectionists find unjustified comfort in some theoretical curiosa discovered by careful economists – curiosa such as “optimal tariffs” and “strategic trade theory.” But just as the operation of the private economy must be modeled realistically, so too must the operation of the state be modeled realistically. And when the operation of the state is modeled realistically, the prospect of the state acting ‘scientifically’ and apolitically is recognized to be so close to negligible as to be zero. Equally negligible is the prospect of even the most ‘scientific’ and apolitical state ever possessing sufficient knowledge and information to intervene ‘productively.’

The case for unilateral free trade rests no less on the venality and ineptitude of the state as it does on the pro-social incentives and creativity of the market.

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My intrepid Mercatus Center colleague Veronique de Rugy makes the ethical case for free markets and against nanny statism. A slice:

In his book Permissionless Innovation, my colleague Adam Thierer argues that creators of new technology shouldn’t have to seek the blessing of skeptical, out-of-touch regulators before they can develop and offer their innovations to consumers. In fact, it’s because some innovators have had the nerve to start a business without asking for permission that we all benefit now from services like Uber and Lyft, Homejoy, grocery-delivery services like Instacart, last-minute errand-running services like TaskRabbit, restaurant-quality meal-delivery services like SpoonRocket, and more.

Chris Koopman warns of the risks of risk aversion at the Federal Aviation Administration.

Tyler Cowen’s new book, Stubborn Attachments, will be available in October.

What did Americans think of Uncle Sam and of FDR in 1932?

John McGinnis explains that “Progressive” regulations increase economic inequality.

Speaking of the baneful effects of government-imposed regulations, here’s more from Bill Shughart.

Dan Mitchell celebrates tax competition.

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After explaining – and endorsing the explanation – that non-Americans’ demand to use U.S. dollars as the major global currency contributes to the U.S. running trade deficits period after period after period, Robert Samuelson offers this parenthetical disclaimer:

(Note: Many economists reject this theory. The problem, they say, is that Americans want to invest more than they’re willing to save. The gap is filled by an inflow of foreign capital converted into dollars. Despite differences, both theories operate similarly. They create a demand for dollars that affects the exchange rate.)

There are two flaws in this disclaimer, one minor the other major.

The minor flaw is that no economists of whom I’m aware deny that non-Americans’ demand to hold dollars or to use dollars as a major global currency causes U.S. trade deficits to be larger than otherwise. It’s true that many economists reject the claim – and righty so – that the dollar’s role as major global currency is the only reason why the U.S. consistently runs trade deficits. But contrary to what Mr. Samuelson might here be understood to mean, it is not true that even a small number of, much less many, economists reject the claim that the U.S. dollar’s role as major global currency is among the reasons why the U.S. consistently runs trade deficits.

The major flaw is contained in these words: “that Americans want to invest more than they’re willing to save.”

Mr. Samuelson’s wording is true to the conventional view that U.S. trade (or current-account) deficits reflect inadequate U.S. savings and, hence, that these deficits would disappear if only we Americans would increase our savings by enough to cover the full amount of investment that takes place in the United States. Notice again Mr. Samuelson’s wording, here with emphasis added: “that Americans want to invest.”

This wording accurately reveals the conventional presumption that all of the investment that takes place during some period in the U.S. is driven exclusively by the desire of – and reflects the entrepreneurial designs and investment plans of – Americans. But this presumption is invalid. Much of the investment that takes place in the U.S. is driven by the desire of – and reflects the entrepreneurial designs and investment plans of – non-Americans. That is, it is emphatically not true that if, say, $X amount of investment takes place in the U.S. in August 2018, that in August 2018 we Americans “want” to invest in the U.S. an amount equal to $X.

Non-Americans want to do some of this investment. And much of the investment that non-Americans do in the U.S. simply would not be done – or not done in the U.S. – were it not for the entrepreneurial designs and investment plans of non-Americans.

If this point of mine appears to be academic, it isn’t. In the conventional view in which all investment that occurs in the U.S. is driven by the desires and plans of Americans, the amount of that investment that is funded with dollars contributed by foreigners is easily taken reflect a shortfall of American savings. ‘We Americans want to invest $X but – profligate us – we saved only $X-Y. Therefore we must rely upon foreigners to contribute $Y if we are to have funded all of the investment spending that we ‘want’ to take place in the U.S.’ (And it’s a very easy and common, although not necessary, leap from this false conclusion to the further false conclusion that we Americans borrow $Y from non-Americans.)

But once it is recognized that non-Americans can initiate the entrepreneurial plans that are manifested as investments in the U.S., there is no longer any reason to suppose that if, in some month, $X amount of investment takes place in the U.S. and if $Y amount of this investment is contributed by foreigners, then we Americans must be saving too little or that the trade deficit of $Y would not have occurred if only we Americans had saved and additional $Y amount.

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