What if….

by Don Boudreaux on May 27, 2018

in Seen and Unseen, Trade

The letter below is to someone who tells me by e-mail that he was once “fooled by free trade ideology” but has since discovered the error of his ways.

Mr. Phil Becker

Mr. Becker:

Unhappy with my recent criticism of Wilbur Ross, you allege that economists’ case for free trade “puts ivory tower theories over tough reality.” Not so. Indeed, to a large degree, the economic case for free trade is simply an application of the logic of arithmetic.

Protectionists see, for example, that tariffs on steel imports lead to more output of domestic steel and more employment in the domestic steel industry. Economists, too, see these effects. But economists also ‘see’ that which protectionists either can’t or won’t, namely, that the materials and workers that are directed by tariffs to the domestic steel industry come from somewhere else. These materials and workers are diverted from other domestic industries, where they would have produced outputs other than steel (and, of course, they would been paid for these efforts).

Is it “ivory-tower theory” that insists that the materials and workers diverted by tariffs to particular domestic industries do not fall free from the heavens – that these materials and workers are diverted from other uses? Is it “ivory-tower theory” that demands that the value of what would have been produced through these other uses be counted against the value of that which is produced by the uses made possible only by tariffs? Is it “ivory-tower theory” to reason that when tariffs succeed at making goods less abundant in the domestic economy that goods are less abundant in the domestic economy – and that less abundance means a smaller economic pie than does greater abundance?

If you really want to find poor theorizing – to find those who elevate vague notions above common sense and the rules of arithmetic – look no further than the pronouncements of protectionists. It is they who spin rococo tales of how the artificial creation of greater scarcity leads to the creation of greater abundance. And it is protectionists whose arguments rely heavily on dubious “what-if” speculations: What if China becomes the monopoly producer of steel? What if our military will be unable to defend us tomorrow if we import too many semiconductors today? What if our cutting tariffs on imports from Korea and Chile will prompt those governments to raise their tariffs on our exports? “What if, what if, what if!” Protectionists – ivory-tower theorists that they are – never tire of bombarding us with fanciful hypotheticals.

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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… is from page 49 of Steven Pinker’s 2018 book, Enlightenment Now:

As we care more about humanity, we’re apt to mistake the harms around us for signs of how low the world has sunk rather than how high our standards have risen.

DBx: Many of today’s concerns, however valid or invalid any of them might be, are luxury concerns. Only rich people – by which I mean people whose standard of living is roughly that of ordinary citizens of first-world countries in the early 21st century – can afford to worry about the likes of climate change, species loss, the manner in which chickens are raised, urban sprawl, how locally ‘sourced’ is the eggplant that we eat, and rising Gini coefficients.

Again, I don’t say that these and other modern concerns are invalid. Some are and some aren’t. But it’s good to pause from time to time to be thankful that we’re wealthy enough to have escaped most of the daily, much more horrible concerns that pressed immediately upon our ancestors. It’s appropriate to be grateful that we’re rich enough to worry about, say, what might happen in a few decades to the sea level in a distant country rather than about whether or not our children will die of starvation during the night.

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… is from page 60 of my late Nobel-laureate colleague James Buchanan’s May 1988 American Economic Review paper, “Contractarian Political Economy and Constitutional Interpretation,” as this paper is reprinted in Choice, Contract, and Constitutions (2001), which is volume 16 of The Collected Works of James M. Buchanan:

The contractarian or catallactic approach to economic interaction suggests that systems or subsystems be evaluated in terms of the comparative ease or facility with which voluntary exchanges, contracts, or trades may be arranged between and among members of the community. Normative judgments take the form of statements that array “better” and “worse” processes (rules, laws, institutions) within which exchanges are allowed to take place. These judgments are categorically distinct from those that array and evaluate results or outcomes.

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Here’s a letter to the Wall Street Journal:

You rightly denounce what you call “Trump’s Trade Confusion” (May 25). Confirmation of that confusion is Commerce Secretary Wilbur Ross’s recent declaration that “there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.”

Ignore the question of whether or not Mr. Ross’s statement about the auto industry is correct empirically. Focus instead on the fact that he apparently doesn’t realize that ‘eroding’ domestic industries that compete against imports is precisely what free trade is supposed to do. When we import goods at prices lower than the costs we’d incur to produce those same goods, we spend fewer resources at home producing those particular goods and, thus, devote more resources at home to the production of goods and services that, without those imports, we’d be unable to produce. It follows that when our government obstructs our ability to buy imports, our government – by thereby denying other domestic industries the resources they need to flourish – does just what Mr. Ross decries, namely, erodes particular domestic industries.

Yet there’s a huge difference between the erosion of particular domestic industries caused by our purchases of imports, and the erosion of particular domestic industries caused by our government impeding our purchases of imports: in the former case resources move from less-productive to more-productive uses (thus fueling economic growth) while in the latter case resources move from more-productive to less-productive uses (thus stifling economic growth).

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

……

A good textbook in the economics of international trade could be written simply by quoting the stream of statements made by Trump and his trade triumvirate on trade and then, after each quoted conclusion, write “Not!

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Quotation of the Day…

by Don Boudreaux on May 26, 2018

in History, Standard of Living

… is from page 322 of Daniel Boorstin’s magnificent 1973 volume, The Americans: The Democratic Experience:

In western Europe until about the middle of the nineteenth century the mainstays, and in some places nearly the exclusive items in the diet, were various forms of cereal, mainly bread, supplemented now and then by salted meat. Milk, fruit, and vegetables were frills, eaten for novelty by those who could afford them and when and where they could be found fresh.

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“A car tariff would hurt consumers, the auto industry, and the nation” – so argues my Mercatus Center colleague Dan Griswold. A slice:

And who benefits most from the competition from motor vehicle imports? Millions of American households. Because of imports, motor vehicles today are safer, more reliable, and more comfortable than past models, and come loaded with the latest high tech features. And the average quality-adjusted price for new vehicles sold in the United States hasn’t budged in the past 20 years.

Also on Trump’s asinine proposal to impose punitive taxes on Americans who buy automobiles assembled outside of the United States is Pierre Lemieux.

My intrepid Mercatus Center colleague Veronique de Rugy correctly and rightly describes the Trump administration’s machinations on trade as “ignorant.” A slice:

Bilateral trade deficits don’t have any economic relevance. The world is made of more than two countries, so it would be shocking, rather than normal, if each pair of countries has “balanced” trade. (If you still aren’t convinced, you may want to read this superb piece by Bob Higgs.) It is also almost impossible to determine the particular factors that cause a bilateral trade deficit to change directions.

One last thought. While Trump and his protectionist acolytes spend a great deal of time talking about the trade deficit with China as evidence that some great corrective measures are needed, I wonder why he is silent about the many countries with which we have a trade surplus.

George Will remembers one of the few U.S. presidents who possessed a rare qualification for that political office, namely, not really wanting it.

Alice Calder and Anne Hobson are unimpressed with the EU’s General Data Protection Regulation (GDPR).

Jeff Jacoby wisely argues that we Americans will not be enriched by falling birth rates.

Barry Brownstein applauds the fact that free markets make people less narrowly selfish.

My colleague Pete Boettke writes about the open-endedness of the classical-liberal project.

Colin Grabow explains that among the happy consequences of scraping the Jones Act would be lower gasoline prices.

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Among the points that I make in my latest column in the Pittsburgh Tribune-Review is that because regulation by government often shields politically influential producers from competition, it is really deregulation – and that “deregulation” (so-called), insofar as it rolls back “regulation” (so-called) by government, is really greater regulation.  A slice:

Economic competition is the most reliable and incorruptible form of regulation. If in free markets that are unsullied by government favoritism an airline mistreats its passengers or a bank is careless with its customers’ deposits, the market punishes these firms with losses and, if they don’t mend their ways, with bankruptcy. In other words, when markets are free, the ability of consumers to withhold their spending is a source of what I believe to be the most strict means of regulation.

In contrast, so-called regulation by government has the opposite effect. Although sold as government efforts to ensure that businesses better serve the public, far too many government “regulations” are really devious schemes to give politically powerful industry incumbents protection against competition from upstart entrepreneurs and politically weak firms.

Government “regulation” of U.S. airlines during the mid-20th century protected incumbent carriers from having to compete against new entrants by blocking entry into that industry. Government also protected airlines from having to compete against each other. It did so by setting high airfares that no carrier was allowed to undercut. This arrangement was sweet for U.S. airlines but not so much for the American public, for whom government-set airfares were too high to enable ordinary Americans to fly on a regular basis.

But following the late-1970s rollback of this government intervention into the commercial airline business, airfares fell dramatically while safety continued to improve. So-called airline “deregulation” subjected air carriers to the far more stringent regulation of competitive market forces.

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Quotation of the Day…

by Don Boudreaux on May 25, 2018

in Doux Commerce, Trade, War

… is from pages 140-141 of my Mercatus Center colleague Dan Griswold’s excellent 2009 book, Mad About Trade:

Our more globalized world has also yielded a “peace dividend.” It may not be obvious when our daily news cycles are dominated by horrific images from the Gaza Strip, Afghanistan, and Darfur, but our more globalized world has somehow become a more peaceful world. The number of civil and international wars has dropped sharply in the past 15 years along with battle deaths. The reasons behind the retreat of war are complex, but again the spread of trade and globalization has played a key role.

DBx: Pictured above is a statue, in Manchester, England, of Richard Cobden – one of history’s greatest champions of peace and free trade.

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In July 2006 I reviewed my late Nobel-laureate colleague Jim Buchanan’s 2005 collection, Why I, Too, Am Not a Conservative. My review is below the fold.

Read the full post →

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Bonus Quotation of the Day…

by Don Boudreaux on May 24, 2018

in Hayek, History, Law

… is from page 182 of the original 1960 University of Chicago Press edition of F.A. Hayek’s The Constitution of Liberty:

And the Constitution which the new American nation was to give itself [in 1787] was definitely meant not merely as a regulation of the derivation of power but as a constitution of liberty, a constitution that would protect the individual against all arbitrary coercion.

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