Some Links

by Don Boudreaux on October 19, 2018

in Competition, Creative destruction, Immigration, Myths and Fallacies, Trade, War

My intrepid Mercatus Center colleague Veronique de Rugy writes about the winningest losers in Trump’s trade war. A slice:

In theory, the goal for all of this trade disruption was to negotiate lower tariffs. In reality, it hasn’t worked. Global tariffs have gone up. That’s a bummer for the small and midsize companies that moved production back to the United States from China before the trade dispute started. Over 50 percent of the U.S. tariffs on Chinese imports are on intermediate goods, parts and materials used to make finished U.S. products. This reality means that production costs have increased for these firms dramatically.

Chelsea Follett explains how women are empowered by free trade and hurt by tariffs.

Pierre Lemieux identifies one benefit of tariffs: they can be instructional.

In my most recent column in the Pittsburgh Tribune-Review, I decry what my GMU Econ colleague Bryan Caplan calls the “anti-foreign bias.” A slice:

Blaming foreigners is a cheap and ages-old political trick, but one that too often wins political office and public applause for those who play it. Falling for this trick has ill consequences beyond relieving us of the need to take personal responsibility for our actions. Falling for this trick also further fuels unjustified fears of foreigners — fears that impoverish us by prompting us to reject opportunities for mutually beneficial trade and cooperation with foreigners.

George Will, having read Max Hastings new book on the Vietnam war, laments the political folly and venality that lay at the root of U.S. involvement there. Here’s his conclusion:

A history book can be a historic act if, by modifying a nation’s understanding of its past, it alters future behavior. Obviously Vietnam itself was insufficiently instructive. On Page 752, the book’s concluding words are [Walter] Boomer’s: “It bothers me that we didn’t learn a lot. If we had, we would not have invaded Iraq.” Sometimes, contrary to Marx, history repeats itself, first as tragedy, then not as farce but as tragedy again.

Mike Munger tackles the myth that only the state can adequately supply public goods (such as lighthouses). A slice:

But Mill and Sidgwick assumed that since they could not imagine a private solution, government provision of the service itself must be necessary.

And that’s not true. Markets are at least as adaptable as government, and in many cases the capacity for innovation, especially regarding local externalities, is far greater. In fact, as Candela and Geloso point out in a Public Choice paper, the range of creative responses can be remarkable. The solution is not a pure market outcome, of course, because government action and enforcement of property rights are an indispensable part of efficient market processes. The lighthouses of coastal England in 1840 were not pure market entities, but rather a kind of hybrid.

Jeff Jacoby observes that Elizabeth Warren is, genetically, a typical white American.

David Von Drehle rightly cherishes the demise of Sears. A slice:

Despite its perennial appeal in coffee shops and on college campuses, socialism fails wherever it steps in to protect flabby enterprises from the lethal winnowing of competition. Legacy companies naturally act to preserve the status quo, because the past was where they flourished. Give them the protection, the special favor, of state power and they will use it to snuff out young and vigorous competitors while they have the chance.

The same is true of the so-called capitalists who seek to convince governments that they are too big to fail, and therefore require special care and favors. If granted, those advantages ultimately weaken society by stifling initiative.

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Quotation of the Day…

by Don Boudreaux on October 19, 2018

in Myths and Fallacies, Trade

… is from chapter 1 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (footnote omitted):

Protectionism is not a theory in the correct sense of the term, but it comes under some of the popular and incorrect uses of the word. It is purely dogmatic and à priori. It is desired to attain a certain object – wealth and national prosperity. Protective taxes are proposed as a means. It must be assumed that there is some connection between protective taxes and national prosperity, some relation of cause and effect, some sequence of expended energy and realized product, between protective taxes and national wealth. If then by theory we mean a speculative conjecture as to occult relations which have not been and can not be traced in experience, protection would be a capital example. Another and parallel example was furnished by astrology, which assumed a causal relation between the movements of the planets and the fate of men, and built up quite an art of soothsaying on this assumption. Another example, paralleling protectionism in another feature, was alchemy, which, accepting as unquestionable the notion that we want to transmute lead into gold if we can, assumed that there was a philosopher’s stone, and set to work to find it through centuries of repetition of the method of “trial and failure.”

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Two Wrongs Really Don’t Make a Right

by Don Boudreaux on October 18, 2018

in Myths and Fallacies, Trade

Here’s a letter to a Cafe Hayek reader:

Mr. Michael Preston

Mr. Preston:

Unhappy with my recent letter to the Wall Street Journal, you argue that it is ethical for Uncle Sam to impose tariffs on Americans “because of the chance that US tariffs would force other countries to cut theirs – meaning we’d be freer then to trade with other people.”

I disagree that any such chance supplies an ethical justification for U.S. tariffs.

Suppose that your neighbor regularly and severely beats his children, who are your children’s best friends, and that your children are thereby denied the opportunity to enjoy playing with their friends. Further suppose that there’s a positive chance that your neighbor will stop beating his children if he observes you beating your children. Does this positive chance of changing your neighbor’s heinous behavior bestow upon you any ethical justification to beat your children?

I assume that your unequivocal answer is “no,” despite there being a chance that your beating your children will result in them enjoying more time playing with their friends in the future.

And so for the same reason you should answer “no” to U.S. tariffs. The U.S. government acts unethically whenever it, in order to pressure foreign governments to reduce their economic abuse of their citizens, inflicts economic abuse on American citizens.

Adding one wrong to an existing wrong does not sum to one right. Protective tariffs are wrong. They are aggression against people engaged in peaceful commerce. Nothing justifies this aggression. Nothing.

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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Free Trade, Unconditional and Unilateral

by Don Boudreaux on October 18, 2018

in Trade

Here’s a letter to the Wall Street Journal:

Steve Forbes, Arthur Laffer, Fred Smith, and Stephen Moore are correct that a world of zero tariffs would be ideal (“Mr. President, It’s Time for Zero Tariffs,” Oct. 18). But they err in advising that U.S. tariffs be cut to zero only on condition that other governments cut their tariffs to zero. Instead, the U.S. should do what Hong Kong has done, to its enormous benefit, for most of the past century, and what it continues to do: carry out a policy of free trade unconditionally and unilaterally.

Because in economics the only justifications for protectionism are so narrow and recondite as to have no real-world applicability – and because in ethics the justifications for protectionism are completely nonexistent – there is no reason why we Americans must wait for other governments to stop imposing artificial scarcities upon their citizens before our government stops imposing artificial scarcities upon us.

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

UPDATE: After reading the above letter, my Mercatus Center colleague Dan Griswold e-mailed to me this observation:

I recently looked at Hong Kong’s 6-digit tariff schedule—5,360 lines of nothing but zeros. It was a beautiful sight to behold!

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… is from chapter 2 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (link added; footnote omitted):

They have never had any plan or purpose in their tariff legislation. Congress has simply laid itself open to be acted upon by the interested parties, and the product of its tariff legislation has been simply the resultant of the struggles of the interested cliques with each other, and of the log rolling combinations which they have been forced to make among themselves. In 1882 Congress did pay some deference, real or pretended, to the plain fact that it was bound, if it exercised this mighty power and responsibility, to bring some intelligence to bear on it, and it appointed a Tariff Commission which spent several months in collecting evidence. This Commission was composed of protectionists with one exception. It recommended a reduction of 25 per cent. in the tariff, and said: “Early in its deliberations the Commission became convinced that a substantial reduction of tariff duties is demanded, not by a mere indiscriminate popular clamor, but by the best conservative opinion of the country.” “Excessive duties are positively injurious to the interests which they are supposed to benefit. They encourage the investment of capital in manufacturing enterprises by rash and unskilled speculators, to be followed by disaster to the adventurers and their employés, and a plethora of commodities which deranges the operations of skilled and prudent enterprise.” This report was entirely, thrown aside, and Congress, ignoring it entirely, began again in exactly the old way.

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More on the Long-Run

by Don Boudreaux on October 17, 2018

in Environment, The Future, Trade

Two or three days ago on the radio – I think NPR, but I don’t recall with certainty – I heard a report on climate-change research. This report was prompted by William Nordhaus being named co-winner of the 2018 Nobel Prize in Economic Sciences. The reporter mentioned, correctly, that estimates of the size of the optimal tax on carbon emissions depend on the rate of discount – that is, on the rate at which we today discount well-being in the future relative to well-being today.

In practical terms, the higher the rate of discount, the greater the value we attach to consumption today relative to consumption tomorrow. Someone with an infinitely high “time preference” (as economists sometimes call it) cares nothing about even the nearest future and only about the now. Such a person would use a pricey wooden dining-room chair for firewood rather than spend the extra few minutes that are required to fetch a fire log from the pile of firewood stored outside of his home. (Overlook the fact that such a person is extremely unlikely to have a home in the first place.)

Someone with a zero time preference cares about today and next year and 100 years from now and 1,000 years from now and 100,000 years from now equally. Such a person is just as happy to have a meal served to her today as to have a certain prospect that that same meal will be served to her 10,000 years from now. (Overlook the fact that this person will not be around to enjoy the meal 10,000 years from now.)

Clearly, every human being has a time preference somewhere between zero and infinity. Most of us care about the future, but we care less about the future than we care about the now, and our concern for the future diminishes the further out is the future from the now.

An upshot of the above, rather obvious observations is that ‘optimal’ government policies are not designed to maximize our ability to consume today. But also such policies “discount” the future: a policy that promises $1,000,000 of net gains in 2029 is not as good as a policy that promises $1,000,000 of net gains in 2019. And a policy that promises $1,000,000 of net gains in 2030 is even less valuable to us in 2018 than is the policy that promises net gains of $1,000,000 in 2029.

Because the (vast majority) of any ill-effects that might be caused by today’s carbon emissions will occur only in the future, the more eager someone is for government to restrict carbon emissions today, the more likely is that person to argue for a low, or even zero, rate of time discounting. “We should care about the earth and humanity 1,000 years from now no less than we care about the earth and humanity today!” – such a person might proclaim.

This post is not about the reality of climate change; it’s not about its causes; it’s not about its consequences; it’s not about the ‘best’ ways to deal with it. Instead, this post is about an inconsistency that many people, especially on the political left, exhibit in their policy proposals.

Over the years I’ve encountered many people – on the political right and left (and middle) – who object to free trade at least in part on the grounds that the short-run adjustment costs are high enough to warrant trade restrictions. That is, these people might grant that in the long-run the benefits of free trade will be positive, but the long run is, well, in the future. We should care about the workers who today loses their jobs and the business owners who today suffer bankruptcy.

A similar attitude is at work in many discussions of immigration policy. The short-run adjustment costs of more open immigration are often alleged to be high enough to overwhelm whatever net long-run benefits a policy of more-open immigration might produce.

How many are the people who, on one hand, support restrictions on trade and immigration on the grounds that the future gains from less-restrictive policies should be discounted heavily, and who, on the other hand, insist that, when it comes to the environment, the future should, if discounted at all, be discounted only at a very low rate?

I don’t know the precise answer to my question, but I do know that a decent answer is “Quite a few.” Such people are deeply inconsistent. If higher carbon taxes and stricter environmental regulations are justified today with the argument that even the far-distant future – beyond our lifetimes – is nearly as important to us as is today, then the long-run consequences of freer trade and more open immigration policies should be all that matter; their short-run consequences should be completely ignored.

Obviously, government policies should discount the future but not completely so. Unfortunately, given the unusually short time horizons of elected officials, government policies almost always give undue weight to the here and now and too little weight to the future.

…….

The above post is little more than a rehash of my very first post ever at Cafe Hayek.

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Quotation of the Day…

by Don Boudreaux on October 17, 2018

in Hubris and humility, Man of System

… is from page 101 of Eamonn Butler’s excellent 2018 monograph, An Introduction to Capitalism:

There is actually plenty of planning in capitalism: individuals and firms make plans all the time. Those plans get constant and instant feedback from the daily decisions of customers on what they will or will not buy, and producers quickly adjust their plans accordingly. If they make a mistake, it is only they who suffer. But things are quite different when a nation’s entire production is planned. Such huge schemes are slow to put into effect and to change; there is less feedback because consumers have less choice; so there is less dynamism and progress. And if the plan proves mistaken, the whole nation suffers.

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Bonus Quotation of the Day…

by Don Boudreaux on October 16, 2018

in Philosophy of Freedom

… is from pages 25-26 of the original edition of IHS-founder F.A. “Baldy” Harper’s 1949 tract, Liberty: A Path to Its Recovery:

The problem of economic liberty touches every exchange of goods and services, the ownership of property, and every contractual arrangement involving these “economic” affairs, because human relationships are involved in all of them.

Economic liberty is absent to whatever extent a person is prohibited from using his talents and his property to produce and sell (or exchange) anything he desires, at whatever price is agreeable to him and to the buyer. If he is prohibited from doing this, by another person or by any combination of persons who are not direct parties to the deal, his liberty is thereby transgressed. And further, it makes no difference, so far as liberty is concerned, under what name the act of prohibition is paraded; or whether it is by a corporation, a cooperative, a labor union or a trade union, the government, or what not.

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Walter Olson draws an important lesson about antitrust policy from the demise of Sears.

My intrepid Mercatus Center colleague Veronique de Rugy laments the demise of federalism in the United States. A slice:

This lack of meaningful interstate competition is a boon to state and local legislators but bad for taxpayers. The states and the federal government now act as a tax cartel. They are in a position to charge more for their services even when the quality is getting worse.

While I could pick a few nits with this Wall Street Journal op-ed by Jason Furman, he is correct to argue that the Trump administration is mistaken to accuse Beijing of keeping the value of the Chinese yuan artificially low. A slice:

Another law of economics explains why China’s currency has slid somewhat more against America’s than the euro or the yen. Tariffs depreciate the currencies of countries they’re imposed on, because decreasing imports lowers demand for the exporter’s currency. China’s retaliatory tariffs have an offsetting effect. Yet the U.S. imports more from China than it exports, so its tariffs are levied on a larger base. Rising oil prices have compounded the downward pressure on its currency.

Regardless of whether Beijing put its thumb on the scale, U.S. policy and shifting economic fundamentals have weakened the yuan against the dollar. And it’s worth noting that there are no direct signs of such manipulation.

My GMU Econ colleague Dan Klein argues that the Libertarian Party undermines the prospects for greater liberty in the U.S.

Free markets are hostile environments for racism and bigotry.

David Henderson pleads with some folks at the Niskanen Center to get the work of William Nordhaus right.

Allan Stevo explains that San Francisco’s minimum wage exacerbates that city’s problems with homelessness.

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Quotation of the Day…

by Don Boudreaux on October 16, 2018

in Trade

… is from chapter 3 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (original emphasis; footnote omitted):

Trade is a beneficent thing. It does not need any regulation or restraint. There is no point at which it begins to be dangerous. It is mutually beneficent. If it ceases to be so, it ceases entirely, because he who no longer gains by it will no longer carry it on.

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