Here’s another letter to “proud Trump man” Nolan McKinney:

Mr. McKinney:

Applauding Trump’s sanctions against Huawei, you “continue to be impressed by our President’s resolve to ensure national security by clamping down on trade with China.”

I continue to be impressed by our president’s confusion.

Consider Trump’s sanctions against Huawei. To manufacture its cellphones, that company buys many inputs made in America – inputs that, thanks to Trump, Huawei will no longer be able to buy.

With one breath, protectionists assert that when the U.S. government obstructs American imports of key manufacturing inputs – and thereby encourages greater production of these inputs by American firms – it enhances U.S. military might. Yet now we hear from these same protectionists that when the U.S. government obstructs Chinese imports of key manufacturing inputs it diminishes Chinese military might. How can both claims be true? If reducing the flow of key inputs into the U.S. strengthens national security in the U.S., won’t reducing the flow of key inputs into China likewise strengthen national security in China?

Also, if breaking down foreign trade barriers helps to increase the strength of American producers by expanding their markets, aren’t American producers such as Cirrus Logic, Intel, and Micron Technology – who supply many of Huawei’s inputs – harmed by the shrinkage of their markets brought on by Trump stopping these firms from selling to Huawei? And won’t this harm to American companies potentially compromise U.S. national security?

Logically, there does exist a national-security exception to the case for free trade. Yet practically, this exception must be treated with enormous skepticism, especially when it’s used to justify trade restrictions imposed by an administration whose capacious ignorance of the economics of trade is matched only by its long-standing craze for protectionism.

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

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My GMU Econ colleague Pete Boettke makes the case that Econ 101 is vitally important. A slice:

Third, precisely because economics is counterintuitive as first blush, and because it requires discipline to reason through, various vested interests can cloud the public discourse to agitate for special privileges. Of course, economists understand this problem and have since at least the time of Adam Smith. Political processes tend to concentrate benefits on the well-organized and well-informed, and disperse the costs on the unorganized and ill-informed. This is why despite centuries of economic thinking that has agitated against special privileges of any type, vested interests have been able to garner protections from government against the rigors of competitive pressures both foreign and domestic. But, consumers benefit greatly from access to open markets both foreign and domestic. Economic theory really does speak unequivocally on this down through the ages, but vested interests confuse the discourse.

My Mercatus Center colleagues Trace Mitchell and Adam Thierer applaud the State of Texas flushing its occupational-licensing requirement for plumbers. A slice:

Less competition also means less innovation. Licensed taxi operators provided the same low-quality, high-cost service for decades until unlicensed ride-sharing services came along. Customers flocked to Uber and Lyft. Prices fell and quality improved. Most people loved it; cab companies hated it.

Appearing recently on Bob Zadek’s radio show, my intrepid Mercatus Center colleague Veronique de Rugy busted some myths about the so-called “gender pay gap.

Jeffrey Tucker explains some of the deprivations offered by socialism.

Market prices assured that adult beverages were available as the Great Chicago Fire roared.

Charles Lane details the combination of economic ignorance and greed that propels wealthy blue-state citizens to embrace policies that shut less-wealthy people out of the housing market.

David Boaz praises one of the few members of Congress who deserves praise.

Eric Boehm is understandably dismayed by the unalloyed economic illiteracy displayed by the U.S. Treasury Department’s most-recent annual report to Congress.

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Quotation of the Day…

by Don Boudreaux on June 18, 2019

in Philosophy of Freedom

… is from page 11 of George Will’s hot-off-the-press 2019 volume, The Conservative Sensibility:

We are social animals, dependent for our physical survival and mental well-being on some degree of sociability. To speak of natural rights is to bring the theoretical into the service of the practical: Are there things we must do, and must not do, in order to improve the probability of commodious and worthy living for creatures with our natures? Are there claims – natural rights – that, in a good society, people should be able to effectively assert in order to protect such ways of living? At no point does one need to feel bound to postulate that natural law, in the sense described here, requires a transcendent lawgiver. One can believe in moral knowledge teased from reflection on human nature and historic experience without believing that this is related to God’s revealed intentions.
A secular basis for natural rights reasoning is that rights are natural in the sense that they are discovered by something that is natural: reason.

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Bonus Quotation of the Day…

by Don Boudreaux on June 17, 2019

in Hubris and humility

… is from this recent tweet by el gato malo:

i think i cracked the riddle: price is the signal in a free market economy that tells everyone what to do.

this is why socialists and authoritarians hate market prices so much.

THEY want to be the ones telling everyone what do do.

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In my latest column for AIER I use the analogy of a school fund-raising fair to help explain why a government that successfully keeps the price of its country’s currency below that currency’s market value impoverishes its own citizens as it enriches foreigners who buy that country’s exports. A slice:

If, for example, Beijing successfully arranges for Americans to purchase Chinese yuan at below-market prices, Chinese exports to America will indeed rise, and American exports to China will fall. Chinese firms that sell more to Americans will reap artificial benefits while American firms whose sales fall as a result of the undervalued yuan will suffer. (For the record, I have real doubts that Beijing succeeds in keeping the value of the yuan against the dollar artificially low. But for my purpose here I take as true the claim of many protectionists that the yuan is indeed undervalued.)

Yet despite visible gains to Chinese exporters, the Chinese people as a whole will be made poorer by an undervalued yuan. After all, to produce additional goods to ship to America requires real resources. (These goods are not crafted literally out of money.) And these real resources must come from somewhere. These come from the Chinese people who, because of the undervalued yuan, can purchase for their own use fewer goods and services than otherwise.

Also, despite visible losses of some American firms, the American people as a whole will be made richer by an undervalued yuan. After all, American buyers – final consumers as well as American firms that use Chinese imports as inputs in production – are the lucky recipients of the additional resources that Beijing’s currency policy extracts from the Chinese people.

The real costs of goods exported to Americans by the Chinese people are not lowered simply because Beijing keeps artificially low the dollar price of the tickets – yuan – that Americans use to purchase goods and services in China. Indeed, because any “successful” undervaluation of the yuan relative to the dollar artificially drains real resources out of China and into America, such undervaluation impoverishes China as it enriches America.

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… is from pages 220-221 of Robert Cooter’s and Benjamin Chen’s 2019 paper “Creativity, Economic Freedom and Human Rights,” which is chapter 11 of Economic Liberties and Human Rights, a 2019 volume edited by Jahel Queralt and Bas van der Vossen:

Applied in the economic domain, creativity involves the invention of new products, processes and organizational forms, as well as the modification of familiar ones. But novelty is not sufficient. To qualify as economically creative, an innovation must fulfill human needs at a cost commensurate to its benefits. The introduction of an ingenious good or service – say one-hour delivery of online shopping by drone – is not economically creative unless it has a realistic chance of financial success. In contrast, lobbying an electorally vulnerable legislator for an exclusive license to operate a casino may bring financial success, but it is not economically creative (in economic terms, it is merely “rent seeking”).

DBx: Yes indeed.

Using force – which is the principal tool at the disposal of the state – to get what you want is primitive and unintelligent. Among the many comical ironies of political “progressivism” is the fact that “Progressives” fancy themselves to be unusually enlightened, intelligent, and (of course) progressive when, in reality, their ideal world is one featuring that most primitive, unenlightened, and uncreative of means: physical force exerted against fellow human beings.

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… is from page 305 of Columbia University economics professor Arvind Panagariya’s excellent 2019 volume, Free Trade and Prosperity:

As regards interventions that continue [in China], free-trade critics have provided no compelling evidence that their maintenance was necessary to the double-digit growth. The fact that continued liberalization was accompanied by some acceleration in per capita income growth suggests that the interventions were a hindrance rather than aid to growth. The explanation for the gradual liberalization is to be found not in a grand growth strategy through industrial policy but in political economy, which often permits only small changes at a time in policy.

DBx: The final sentence of the above quotation should be read with emphasis on the word “gradual,” for there Panagariya offers an explanation for why China has not liberalized all at once but, instead, only gradually. As he notes on page 302 of his book, “Once we recognize that policy change must be gradual [because of usually inescapable political realities], it is not surprising that even a steadily reforming economy would look highly distorted at various points. The more distorted it is initially, the more distorted it would look at any point in time for a given pace of liberalization.” China – having suffered an historic amount of distortion under Mao – was unusually heavily distorted when economic liberalization began there in the late 1970s.

Panagariya is here explicitly refuting the argument, made by both Ha-Joon Chang and Dani Rodrik (among others), that China’s economic success of the past few decades resulted more from state intervention and less from liberalization. The logic of the argument of Chang and Rodrik would also lead to them – and those who accept their argument – to conclude that the improved health and vigor of someone who is gradually weening himself off of cigarettes and booze is due, not to that person’s reduced smoking and drinking, but to the cigarettes that he continues to smoke and the bourbon that he continues to swallow.

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My intrepid Mercatus Center colleague Veronique de Rugy finds incredible the credulity of people – including those in the Trump administration – who support a new government diktat forcing employers to pay overtime wages to certain workers.

Phil Magness continues to bust myths about economic inequality.

Russ Roberts talks with Bjorn Lomborg on the costs and benefits of dealing with climate change.

Just how Chinese are smartphones produced by Huawei?

Mark Perry offers some choice quotations from Thomas Sowell.

Megan McArdle rightly laments the rise of rent control. A slice:

The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need: When the demand for a product consistently exceeds the supply, prices will rise until the quantity demanded is equal to the amount that suppliers have available.

As long as there’s no new construction, controlling that natural increase is just a game of musical chairs. You can change which people get to live in a city, but you still leave just as many people out in the cold. Actually, a few more, because rent control also reduces the incentive to supply rental housing.

Democratic-party presidential candidates should, but likely won’t, heed George Will’s counsel.

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Quotation of the Day…

by Don Boudreaux on June 16, 2019

in Law, Legal Issues

… is from page 123 of Opting Out, a 2019 collection – edited by Michael Stratton and Amy Lynch – of selected writings of Gerrit Wormhoudt:

If we open our minds, we cannot but realize that, for the most part, the elaborate barriers designed to minimize the role of government force in our lives have over time been increasingly ignored. Those very few powers granted to the federal government have been so broadly construed as to become meaningless.

DBx: Sad but true.

A constitution interpreted to allow the state or today’s majority of voters to do pretty much whatever it fancies is no constitution at all. Such a “constitution” is akin to a traffic light that, although it clearly shows green, yellow, and red at different times, is interpreted at each moment to allow drivers to do whatever they please regardless of the color of the light pointing in their direction.

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Bonus Quotation of the Day…

by Don Boudreaux on June 15, 2019

in Adam Smith, Myths and Fallacies, Trade

… is from pages 284-285 of 1998 economics Nobel laureate Amartya Sen’s 2016 paper “Adam Smith and Economic Development,” which is chapter 17 in Ryan Patrick Hanley, ed., Adam Smith: His Life, Thought, and Legacy (2016):

Even if all countries had the same mixture of resources, they could still greatly benefit from trade through specialization in different types of production. The benefits of trade do not depend only on the contingent circumstances of the different countries (in particular, having divergent availability of natural resources), and the people of the world can greatly benefit from more trade even if there were exactly the same natural resources everywhere. The benefits of specialization, economies of scale, and skill formation create and expand opportunities for trade and exchange. To the the benefits of specialization in some field, a country does not have to be, [Adam] Smith’s reasoning indicated, blessed with a preexisting resource base giving it a natural advantage: specialization creates its own resource base, through skill formation and learning, as well as economies of large scale.

DBx: Yes. And of course it isn’t a surprise that this reality was understood by Adam Smith.

When thinking of individual human beings, no one ever supposes that the task that each individual will specialize in as an adult is determined exclusively by the inchoate raw talents that that individual possesses at birth. We understand that most persons – at least in the modern world – consciously exert effort to change their skill mix (by, for example, going to college to earn a degree in accounting or nursing) – meaning, to change their comparative advantage from what it would ‘naturally’ be to something different.

Because countries are but collections of individuals, why anyone would suppose that each country’s comparative advantage is determined exclusively by its endowment of inanimate resources – and that that comparative advantage doesn’t change as the strivings, exertions, experiences, and discoveries of individuals change – is most mysterious.


UPDATE: A treasured patron of Cafe Hayek sent this gem of a note in reaction to the above post:

Antwerp is not a diamond center because of its diamond mines.

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