… is from page 426 of the late Jan Tumlir’s January 1984 speech at the Cato Institute – a speech titled “Economic Policy for a Stable World Order” – as this speech is reprinted in Dollars, Deficits, & Trade (James A. Dorn and William A. Niskanen, eds., 1989):

Indeed the difficulty for the economist may now lie in explaining why the world economy still functions at all, however dissatisfied we may be with its functioning. The answer is, of course, that there is a lot of ruin in any economy with a modicum of freedom. I am sometimes unsure whether it is actually an advantage of the capitalist system that it can take such an enormous amount of beating. If it were in the habit of collapsing more frequently, we would perhaps govern ourselves more prudently (and more cheaply to boot).

DBx: Indeed.

I’ve long argued that the economist’s standard assertion that government intervenes into the economy first and foremost to correct market failures fails spectacularly as a positive theory of government intervention into the economy. It’s far closer to the truth to say that government intervention into the economy is fueled not by market failures (as understood by economists) but, rather by the market’s astonishing success and robustness.

The market’s success at raising people’s standards of living creates the expectation that wealth creation is easy and normal while poverty is out of the ordinary. But of course historically poverty is the norm – and poverty so deep, unrelenting, and overwhelming that few Americans today can begin to imagine a condition so crushing. Because the market makes wealth so abundant and its production appear to be normal and easy to the point of being practically automatic – and because nearly all of the massive number of details of the intricate processes at work at every moment to create wealth are hidden from view – the market’s ‘failure’ to create heaven on earth is believed by many to be an unanswerable indictment of the market.

On top of this ‘problem’ is the market’s mighty robustness: tax it, saddle it with diktats, poison it with easy money, accuse it of being run by and for demons and devils, and the market keeps motoring along, improving the lives even of those who most hate it and who do the most to harass it. The market works less well than it would absent these intrusions, of course, but it still works surprisingly well. As long as, and insofar as, prices and wages are allowed to adjust according to the forces of supply and demand, the market’s robustness is Herculean. (The market is not, however, indestructible. Harass it too much and it will quit working.)

If the market truly collapsed completely more often, giving people a taste of what life is like without it, the world would have in it not only far fewer communists and socialists, but also far fewer “Progressives” and “conservative nationalists.”

The market’s true failure, in short, lies is its incredible capacity to succeed and to keep on keeping on. The market fails to prevent people from taking it for granted.

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My May 16th, 2007, column for the Pittsburgh Tribune-Review celebrates the marvelous properties of spontaneous market orders. In doing so, this column exposes the utter unrealism and hubris of those persons who insist that the economy can be improved upon by turning resource-allocation decisions over to conscious human design. (Of the many columns that I’ve written, this one is among my favorites.) You can read the celebration below the fold.

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… is from page 6 of the late, great Wesleyan University economic historian Stanley Lebergott’s insightful 1975 book, Wealth and Want (footnote deleted):

The first way to increase poverty in the United States follows fairly obviously from that definition [of poverty as material deprivation relative to the norm in society] – namely, to increase the standard of living. Raise the consumption level of the typical American and you create more poverty. When Ford invented the auto he created poverty. When Zworykin invented TV he created more poverty. Raise the standard decade after decade and you create more (relative) poverty even while you are wiping out the old-fashioned (starvation) kind of poverty. “Solely as a result of growing affluence, a society will elevate its notions of what constitutes poverty.” (So reports the President’s Commission on Income Maintenance.)

DBx: Defining poverty relative to the ‘normal’ standard of living in a society is natural. Even Rev. Malthus defined poverty in this relative way. And there is nothing inherently objectionable in doing so. Yet doing so creates a danger – one that Lebergott exposes brilliantly: defining poverty relative to a society’s ‘normal’ standard of living risks leading us to underestimate a growing economy’s actual performance. (The flip-side: defining poverty in this relative manner causes the performance of a long-term failing economy to be overestimated.)

Lebergott above sought to warn against this underestimation. His point, of course, is that if the standard of living by which poverty is judged rises this year because, say, the masses gain access to electronic devices that on January 1st wowed everyone as miraculous and luxurious but which by December 1st underwhelm everyone as mundane and necessary, the rate of poverty can rise if some lower-income people remain this year unable to afford these devices. No one need get absolutely poorer – and many, including even many of the poor, can get absolutely richer – and yet the reported poverty rate can nevertheless rise.

Sensitive-souled pundits will then complain in the pages of the New York Times, of the Washington Post, and of Vox of capitalism’s “failure.” Accusation-and-slogan-slinging politicians will spring into action with promises to “fix” the “problem.” And the proposed “fix” will invariably involve seizing large chunks of the earnings of the individuals whose entrepreneurship and business acumen created the electronic devices and who, through competitive markets, made these devices so useful and inexpensive that most people not only own one, but cannot imagine living without one.

And so it goes.

But in fact even Lebergott underestimated the productivity of what Deirdre McCloskey calls “innovism”: Despite using a relative definition of poverty, the rate of poverty in the U.S. has nevertheless fallen as living standards rose, at least compared to when I was born. Today, the U.S. poverty rate is about half of what it was in the late 1950s.

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Bonus Quotation of the Day…

by Don Boudreaux on December 11, 2019

in Inequality, Myths and Fallacies

… is from page 210 of Deirdre McCloskey’s superb 2019 volume, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

His [Thomas Piketty’s] ethics is a narrow ethics of envy. His politics assumes that governments can accomplish anything they propose. And his economics is flawed from start to finish.

DBx: I, too, read Piketty’s 2014 tome carefully, cover-to-cover. And I, too, conclude that it’s a torrent of mistaken – often hilariously so – assumptions mingled madly with questionable interpretations of data, and all sifted through the mind of someone who hasn’t a clue about sound economics.

Worst of all, Piketty’s book is one that aims not only to elevate envy into an admirable emotion, but to establish envy as the basis for government policy. I can imagine bases for government policy that are as absurd, abominable, destructive, uncivilized, and unjust as the one proposed by Piketty, his colleagues, and his fans, but I cannot imagine a basis that is more absurd, abominable, destructive, uncivilized, and unjust.

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My intrepid Mercatus Center colleague Veronique de Rugy is rightfully unhappy with the Fed.

Richard Ebeling reviews Janek Wasserman’s The Marginal Revolutionaries.

Steve Horwitz offers his list of top five books that introduce students to Austrian economics.

My GMU Econ colleague Bryan Caplan is extremely intelligent and wise.

Here’s more on progress from James Pethokoukis (and Steve Davies and Joel Mokyr).

Mark Perry shares Katherine Kersten’s critical analysis of the New York Times‘s atrociously unscholarly “1619 Project.”

Doug Bandow remembers the Spanish-American war.

Larry Reed responds to Anand Giridharadas’s recent cover story for Time. A slice:

Socialist rhetoric always scores higher than socialist policies, and both score much better than socialist outcomes. Telling people they’re entitled to free stuff, or assailing the rich generally, appeals to a certain number, but those figures shift when rhetoric meets reality. This is one reason nobody—socialists, least of all—is conducting any polling in Venezuela.

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Taking Leave of Economic Reality

by Don Boudreaux on December 11, 2019

in Myths and Fallacies, Seen and Unseen, Work

Here’s a letter to RealClear Policy:

Editor:

Writing in support of mandated paid family leave, Abby McCloskey and Angela Rachidi ask the wrong question and reach a mistaken conclusion (“The Strong Case for Paid Parental Leave,” Dec. 10).

While accurately noting that different empirical studies of the observable consequences of mandated paid leave find different results, Mses. McCloskey and Rachidi treat as the root question that should be asked by those pondering the wisdom of mandated paid leave as being ‘What are the consequences of mandated paid leave?’ But this question is not the root one; the root economic question is: ‘Is there reason to believe that the market fails to provide optimal amounts of paid leave?’ That the authors never ask this question is disappointing because economic theory offers no more reason to suppose that the market undersupplies paid leave than to suppose that the market undersupplies workplace restrooms, company picnics, pension contributions, or paid holidays.

Mses. McCloskey’s and Rachidi’s failure to ask the correct root question likely explains their mistaken conclusion that mandated “paid parental leave offers more choices to parents who face difficulties balancing work with raising children.” In reality, mandated paid leave causes working-parents’ choices to be fewer. Working parents who prefer to receive as much as possible of their compensation in the form of take-home pay are robbed by mandated paid leave of the opportunity to make this choice.

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

…..

Aparna Mathur once attempted to offer a market-failure explanation of why markets allegedly undersupply paid leave, but her attempt fails.

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In May 2nd, 2007, column for the Pittsburgh Tribune-Review I offered my list of top ten books for introducing people to sound economics. Just in time for your holiday shopping, you can read my recommendations beneath the fold.

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Quotation of the Day…

by Don Boudreaux on December 11, 2019

in Immigration, Myths and Fallacies, Trade

… is from pages vii-viii of Chapman University’s Bas Van Der Vossen’s and Georgetown University’s Jason Brennan’s 2018 book, In Defense of Openness (footnote deleted and tiny typo corrected):

Many people reject the idea that society should be open, respecting the freedom of people to move themselves, their goods, and business in and out of society. They think that immigration and trade are bad, especially immigration from and trade with less developed countries.

These people ignore the overwhelming consensus of economists right and left to the contrary. They ignore hundreds of years of research showing otherwise. In their eyes, drawing an imaginary line on a map magically transforms mutually advantageous trades of goods and services into dangerous games of poker, where one side’s gain comes at the other side’s loss.

DBx: It is no good response to the above to point out that taxation, regulatory, trade, and other government policies differ from jurisdiction to jurisdiction. People who respond by pointing out this reality do so as if it is self-evident that such a response carries the day. Yet it doesn’t.

Even within many national political jurisdictions – for example, within the United States – provincial, state, and local government policies differ from each other without undermining the case for complete freedom of trade among the residents of those national jurisdictions. The fact that the government of Virginia taxes its citizens’ incomes and that the government of New Hampshire doesn’t use such a tax does nothing to justify – either economically or ethically – the government of either state restricting its citizens’ freedom to trade with citizens of the other state.

(I do not doubt, by the way, that were the U.S. Constitution not so consistently interpreted to prevent each state and local government from having its own “trade policy,” this difference in income-tax treatment would be successfully used by special-interest-group producers in each state to justify imposing restrictions on trade with the other state. Special interests in Virginia would assert that New Hampshire’s failure to tax incomes gives producers and workers there an unfair advantage over producers and workers in Virginia – and how can Virginians possibly compete on such an “unlevel playing field?!” At the same time, special interests in New Hampshire would assert that Virginia’s insistence on taxing its citizens’ incomes is such an unjust imposition of burdens on poor Virginians that New Hampshire is duty-bound to punish the government of Virginia by erecting obstructions to the sale of Virginia-produced goods and services in New Hampshire.)

But even for people separated by no political borders whatsoever there are differences amongst them of the sort that are used by protectionists as excuses for trade restrictions. I, for example, – coming as I did from a relatively poor family (by American standards) – had to pay most of my own way through college. Other than paying for my first semester, my parents contributed not a cent toward my tuition. So should I impose on myself restrictions on my trade with those many of my fellow Fairfaxians whose parents or grandparents paid for – “subsidized” – their entire college educations? Am I disadvantaged by trading with my neighbors who do not have to recoup in their current incomes the cost of their college educations?

Or perhaps most of my fellow Fairfaxians are at a disadvantage by freely trading with me. After all, my parents did struggle to pay my tuition for a Catholic-school education K through 12 – primary and secondary education much better, I assure you, not only than that which I would have gotten from the Jefferson Parish, LA, government schools, but also better than what typical students in Fairfax County, VA, government schools get.

Also, what if my neighbor doesn’t believe in the value of a college education and so refuses to send her children to college – thereby not buying from me what I sell (college education, through George Mason University)? Should I respond by refusing to trade with her if she offers to me goods or services at prices that I find attractive? Of course not.

….

Oh, if any of you who are reading this post have sympathies for politicians such as Bernie Sanders or Elizabeth Warren, do not suppose that the above remarks are aimed exclusively at – or apply exclusively to – Trump and his supporters. These remarks apply equally to the likes of Sanders, Warren, and their supporters, for they – on the economic-openness front – differ remarkably little from Trump and his supporters.

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Bonus Quotation of the Day…

by Don Boudreaux on December 10, 2019

in Other People's Money

… is this Facebook post from earlier today by Bob Higgs:

All those American young people who say they favor socialism don’t really want socialism, a type of socio-economic system that fosters poverty, murder, and ultimately totalitarianism. All they really want is other people’s stuff, at no cost to themselves: all the fruits of the rivalrous market system with none of the personal sacrifice and creative effort invested in making that system work so productively.

DBx: Indeed.

How rich it is that these socialists – each a monument to rank greed – call “greedy” the entrepreneurs and business owners whose efforts produce the riches that these socialists seek to confiscate?

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Here’s an open letter to Oren Cass:

Mr. Cass:

I see that you’re leaving the Manhattan Institute in order to launch your own venture, which you describe on Twitter as “a new organization whose mission is to redefine the economic orthodoxy that guides the nation’s politics and public policy.”

Although I wish you well, I have trepidation. My experience is that whenever a non-economist, such as yourself, who is unhappy with free markets expresses dissatisfaction with “economic orthodoxy,” what commences is a furious slaying of straw men. So, hoping to prevent you from doing such slaying, I offer here a handy guide to common misconceptions about free-market “economic orthodoxy” – or to use a less-loaded term, “market economics.”

– Market economics does not hold that money is all that matters. Quite the contrary. Competent economists understand better than most people that individuals have a large scope for, and a deep interest in, trading off money for non-monetary benefits, often ones that are intangible. Indeed, in the end – as any decent economist knows – money is valuable only because it’s exchangeable for benefits that are non-monetary and, frequently, non-material. Money is never what ultimately matters.

– Market economics does not hold that the world would be perfect if only government stays out of the way. Even in the best possible market economy, some workers lose jobs and some businesses go bankrupt. Indeed, in market economies such churn is unavoidable. What market economics does hold is that empowering the state to reduce the incidence of churn will either excessively increase such churn or give rise in its place to different problems that are far worse for the very people whom the state ostensibly intends to help.

– Market economics does not hold that consumers, workers, investors, and entrepreneurs are fully informed and never prone to error or to personal irresponsibility. What market economics does hold is that, while no economic or social arrangement will ever eliminate human ignorance and irresponsibility, government attempts to shield individuals from these realities only make individuals even less informed and less responsible.

– Market economics does not assume that markets are perfectly competitive and that prices, wages, and interest rates adjust instantaneously.

– Market economics does not assume that all foreign governments avoid imposing tariffs and paying subsidies that affect economic activity in the home country.

– Market economics does not assume that workers displaced from jobs instantaneously find new jobs at pay equal to or higher than these workers earned in their former jobs.

– Market economics does not assume that tax cuts are a miracle elixir, or that current taxes should be cut irrespective of the level of government spending.

– Market economics neither discounts the value of work nor denies that people find meaning and dignity in their jobs. Yet while market economics is especially insistent that production precedes consumption, it insists also that the value of work and other production activities lies in how much they increase people’s ability to consume. Market economics understands that, in our world of scarcity, work for the sake of work – work done regardless of its contribution to people’s ability to consume – is wasteful. And there’s no true dignity in spending one’s time wastefully, even if a great amount of sweat is produced by the exertion.

Finally, I urge you not to join the chorus that incessantly chants that most of the world for the past 40 years has been governed by a policy of virtual laissez faire. Starting in the late 1970s, some tax rates were cut (as some tariff rates continued to fall), some activities were freed from government regulation, and, of course, Maoism and then Soviet communism perished.

But the state has remained much more than a night-watchman. Non-tariff barriers are significant, immigration quotas are fixed firmly in place, and governments continue to take a quarter or more of GDP and dole out significant amounts as subsidies. And at least in the U.S. there’s also been a cancerous growth of occupational-licensing and land-use restrictions. Our world isn’t close to the ideal endorsed by scholars such as F.A. Hayek, Milton Friedman, James Buchanan, or Robert Nozick.

Again, good luck with your new venture.

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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