In my column for the May 23rd, 2008, edition of the Pittsburgh Tribune-Review I explained why I am not taken in by ‘green’ initiatives such as buying local and driving an electric automobile. It’s better, of course, that such initiatives be voluntary rather than – as is too often the case – imposed by government. But the intellectual and economically uninformed hubris that nevertheless motivates proponents of even voluntary ‘green’ initiatives is disturbing. You can read my explanation beneath the fold.
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… is from page 346 of Matt Ridley’s important 2010 book, The Rational Optimist:
The future will feature ideas that are barely glints in engineers’ eyes right now – devices in space to harness the solar wind, say, or the rotational energy of the earth; or devices to shade the planet with mirrors placed at the Lagrange Point between the sun and the earth. How do I know? Because ingenuity is rampant as never before in this massively networked world and the rate of innovation is accelerating, through serendipitous searching, not deliberate planning. When asked at the Chicago World Fair in 1893 which invention would most likely have a big impact in the twentieth century, nobody mentioned the automobile, let alone the mobile phone. So even more today you cannot begin to imagine the technologies that will be portentous and commonplace in 2100.
DBx: Economic growth beyond the trivial – that is, economic growth of the sort that has been so noticeable over the past two centuries – requires innovation. Innovation, in turn, requires creativity. Creativity by its very nature cannot be foreseen in detail. (Anyone who insists that he or she does possess such miraculous foresight can easily prove the claim by entering the stock market and in a matter of months becoming a gazillionaire.)
Creativity, therefore, cannot be planned or included in any meaningful way in any government plan for the economy or for any sector of the economy.
And so if and to the extent that government plans the economy – say, by adopting any of the many varieties of industrial policy proposed by the likes of Robert Reich, Oren Cass, or Daniel McCarthy – government rids the planned part of the economy of creativity and, hence, of innovation. By so ridding any part of the economy of innovation, the government would thereby prevent the economy from growing.
But the government would make matters even worse by ridding any part of the economy of innovation: it would also launch that part of the economy onto a path of decline. The reason is that innovation is necessary to deal with unexpected changes such as reductions in raw-material supplies and changes in consumer demand. Critical to the economy’s ability to ‘absorb’ such changes – changes which happen incessantly – is the process of discovering effective ways of dealing with them, and these effective ways are often the result of innovation (that is to say, of creativity).
Mr. Oren Cass
American Compass
Oren:
Reporting on the launch of your new organization, American Compass, the Washington Post quotes you as accusing libertarian free-market advocates of believing “that whatever policies are best for shareholders in the short run are the best policies and will eventually be good for everyone else also.”
Nice sound bite. After all, every sensible person understands that an economics that attends only to the interests of one relatively small group of people (shareholders) – and then only to that group’s immediate interests – is nonsense that is unlikely to yield policy recommendations that promote the well-being of everyone over the long-run.
The trouble, however, is that the economics that you trot out as the demon that you and your organization will slay is a witless man of straw. No one among serious libertarian advocates of free markets believes what you accuse them of believing. Not Adam Smith. Not Jean-Baptiste Say. Not Frédéric Bastiat. Not Herbert Spencer. Not Ludwig von Mises. Not F.A. Hayek. Not Ronald Coase. Not Milton Friedman. Not Armen Alchian. Not James Buchanan. Not Bill Niskanen. Not Vernon Smith. Not Israel Kirzner. Not Thomas Sowell. Not Walter Williams. Not Bruce Yandle. Not Jim Gwartney. Not Dwight Lee. Not Deirdre McCloskey. Not Robert Higgs. Not Richard Epstein. Not Doug Irwin. Not anyone of any standing at all among libertarian and classical-liberal economists and scholars.
That you assert such an indefensible notion suggests that you haven’t read the works of the scholars whose arguments you and your organization are arming yourselves to defeat in dubious battle. In this case, therefore, there’s no reason for anyone who is genuinely knowledgeable about the arguments for free markets – and who opposes the protectionism and industrial policy that you advocate – to take you seriously.
If you wish American Compass to play a productive role rather than serving merely to fortify fallacies that are today so widespread from left to right, stop slaying straw men. Learn the economics that you now present to your audience as an absurd caricature.
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
In a new paper, my Mercatus Center colleague Dan Griswold busts several myths about American workers, globalization, and automation. Here’s the abstract:
It is often asserted that, for most American workers, real wages and incomes have been “stagnant” for decades, but evidence shows that the large majority of US workers are better off today than in past decades. Increased trade, globalization, and technological innovation have helped to raise wages and incomes. US economic policy should not aim to regulate or slow a dynamic labor market, but instead to help the minority of American workers who have been displaced or more permanently disconnected from the labor force. Policy initiatives should focus on upgrading the skills of US workers, promoting mobility, eliminating government-created barriers to employment and disincentives to work, reducing addiction and unnecessary incarcerations, and other policy reforms—with the goal of equipping US workers to thrive in a more open and technologically advanced economy.
Also busting myths about American workers is James Pethokoukis.
Terence Kealey busts some myths about government’s role in promoting economic growth.
My Mercatus Center colleague Michael Farren busts some myths peddled by Trump.
Jeffrey Tucker celebrates the creativity behind TikTok.
Deirdre McCloskey makes the case against government-created intellectual properties.
… is from pages xv-xvi of Geoffrey Brennan’s, Hartmut Kliemt’s, and Robert Tollison’s “Foreword” to The Logical Foundations of Constitutional Liberty (1999), which is volume 1 of The Collected Works of James M. Buchanan (original emphasis):
More specifically, public choice stands in vivid contrast both to the naively optimistic “benevolent despot” model of politics that implicitly inhabits most conventional economic analysis of public policy and to the tradition in political theory that views politics as the search for the “true,” the “good,” the “beautiful” in total isolation from the feasible. Public choice is an attempt, quite literally, to conduct political analysis in a way that is shorn of romantic illusion.
Consider, for example, the much-noted reduction over recent decades in Americans’ geographic mobility. This reduced mobility is said to be a major reason why increased trade with China inflicted on Americans what is now known as the “China shock” – namely, a slower than expected adjustment of American workers to increased imports of goods from China. (There is, by the way, some confusion about exactly what the “China shock” finding is. Some people interpret this finding in the manner in which I describe it in the previous sentence. Yet other people interpret it to be a finding that increased trade with China caused a permanent reduction in net American employment. The “China shock” researchers themselves are unclear on this matter. For purposes of my essay here, however, nothing much turns on which interpretation is correct.)
While Americans’ reduced geographic mobility might reflect real problems – such as housing costs in booming cities made artificially high by land-use restrictions – it might also, at least in part, reflect increased prosperity.
Most people prefer to live in some locations over other locations, but to satisfy such ‘locational preferences’ is costly. And so just as when we become richer we are more likely to satisfy our preferences for nicer automobiles and larger homes, as we become richer we also are more likely to satisfy our preferences for living in our favorite locations.
A blue-collar resident 50 years ago of Allentown, PA, might have had a strong attachment to that locale but, having lost his job, couldn’t afford to keep living there. His best economic option was to move. But suppose that today we see a blue-collar worker remain in Allentown despite being unemployed. What should we conclude? The conclusion leapt to by many pundits is that today’s unemployed worker is so much less likely than was the typical worker in the past of finding a new job elsewhere that today’s unemployed worker sees no point in moving. Out of despair, today’s unemployed worker simply stays put.
Perhaps. But given that there’s been no long-term uptick in the national rate of unemployment, this pessimistic conclusion is likely mistaken. A more plausible conclusion is that unemployed Americans today can better afford to stay put in their preferred locales and wait for new jobs to come to them rather than them move to different locales in search of new jobs.
This increased affordability of staying put might come in the form of greater purchasing power of workers’ savings, or in the form of more generous family, private, and public assistance for unemployed workers. Regardless of the source of this increased affordability of locational preferences, such increased satisfaction of locational preferences is evidence that ordinary Americans are today richer than were ordinary Americans in the past.
In my January 28th, 2008, column for the Pittsburgh Tribune-Review I responded to a criticism by Joe Kennedy of this earlier column of mine. You can read my response to Mr. Kennedy beneath the fold. (This column, and the Kennedy piece to which I respond, are not available on-line.)
… is from page 109 of my late Nobel laureate colleague Jim Buchanan’s 1980 paper “Rent Seeking and Profit Seeking” as this paper is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty:
Rent-seeking activity is directly related to the scope and range of governmental activity in the economy, to the relative size of the public sector.
DBx: And, therefore, the larger the government, the larger are rent-seeking’s distortions and wastes.
…..
When anyone calls for any extension of government’s role in the economy, that person necessarily is calling for more resource-allocation decisions to be made by the state and correspondingly fewer such ‘decisions’ to be made by the spontaneous order of markets. Yet unlike economic actors in even the most ‘imperfect’ market, government officials can coerce: when government allocates resources, there is no presumption of mutuality of gains – quite the opposite. Only in instances for which mutual gains from trade are not present is the use of coercion necessary to bring about the particular change in the pattern of resource allocation.
Yes, yes, yes: scenarios can be imagined in which coerced changes in the pattern of resource allocation turn out to be mutually beneficial, or at least beneficial to the group of persons whose aggregate welfare is deemed to be relevant. The fruits of such imaginings have adorned countless blackboards, whiteboards, and PowerPoint slides over the decades. “Pigouvian taxes” that make resource allocation optimal can be described; “optimal tariffs” that raise national income can be shown using graphs; single-payer-health-care schemes that, on paper, work out beautifully can be designed; industrial-policy interventions that protect against this or that predicted calamity are easy to imagine.
Yet because all such proposal involve giving Jones the power to coerce Smith, proponents of all such proposals must answer a question that almost none of them bother even to ask: empowered to coerce, what reason is there to believe that Jones will not abuse this power? No one imagines that a conventional armed robber attempts to ply his trade in ways that ensure mutual gains from trade between himself and each of his victims. The armed robber resorts to coercion precisely because he either cannot, or is unwilling to go to the trouble, to persuade his victims to trade with him to each party’s mutual advantage. So why should we believe that when government-official Jones resorts to coercion against peaceful people that the results of Jones’s coercion will be mutual gains?
The move typical in the circles of policy-wonks, pundits, and professors is to describe a real (or, too often, merely imagined) “market failure” that can be shown on a chalkboard as being ‘solved’ by coercive intervention. Yet even if the market failure is real by some reasonable standard, this condition is merely a necessary one for coercive intervention; it’s not a sufficient condidtion. The mere existence of market failure does not guarantee – or even create the high probability of – government success.
And so – to Buchanan’s point above – as coercion displaces voluntary trade as the means of allocating resources, political considerations loom ever-larger in allocating resources. Those who seek gains are more and more likely to seek those gains through use of the state apparatus of coercion and to avoid the bother of discovering how to make mutually advantageous bargains.
When the above reality is grasped, the notion that in practice the likes of tariffs and industrial policy will strengthen a nation’s economy is exposed as absurd. And no difference is made if such proposals are offered by the likes of Oren Cass or Julius Krein for conservative reasons, or by the likes of Robert Reich or Elizabeth Warren for “Progressive” ones.
… is from Deirdre McCloskey’s “penultimate” contribution to her Pairagraph exchange – titled “Milton Friedman and the Liberal Promise of Broad Prosperity” – with Binyamin Appelbaum:
Mr. Appelbaum says, “the marketplace is not a state of nature.” Yes it is. All humans trade, from about age eight on. The earliest evidence of trade comes from the Blombos Cave in South Africa, 70,000 years ago.
The market, he says, “is an artifact of society.” Sure, but so is art and language and journalism.
“There is no ‘spontaneous order,’” he asserts—with sneering scare-quotes against the absurdity of the very idea that free adults could accomplish anything without coercion—as though art and language and journalism were not also spontaneous orders.
“Markets must be constituted, the rules must be enforced,” by implication, by a state. Wrong again. Markets arise as spontaneous orders on the analogy with language in all societies, in prisons, in medieval market fairs, in the rough justice of exchanging books and snow-blowers and cups of flour among neighbors.
DBx: A great deal of misunderstanding – such as that in which Appelbaum is mired – springs from the simple failure to understand the reality and complexity of social orders that are (to use Hayek’s summary of Adam Ferguson’s phrase) “the results of human action but not of human design.”
Now there is nothing historic about Mr. Trump’s making his budget look good by using fantastical assumptions. All presidents perform this theatrical trick. For instance, no president ever projects that the economy will experience a slowdown in the next ten years of the budget window even though, on average, the economy slows down every 7 years.
“The Battle to Feed All of Humanity Is Over. Humanity Has Won” – So writes Marian Tupy.
Alberto Mingardi is rightly dismayed by Pope Francis’s appalling economic ignorance. (I’m not a Roman Catholic – or, indeed, a believer in any religion – but if I were a member of the Pope’s church I would pray fervently that Francis’s knowledge of economics is no reflection of his knowledge of theology.)
This past August I was honored to be interviewed by Keith Knight.
A blast from the past: here’s George Selgin on Fedophilia.
George Will writes insightfully about NAFTA, USMCA, and the self-degradation of the United States Senate. Here’s his conclusion:
The president’s institutional vandalism is partially explained, although not excused, by the breadth and depth of his ignorance concerning the manners and mores of a republic. The Senate’s self-degradation is even more depressing.
On February 13th great Israel Kirzner turned 90. Peter Boettke celebrates.
