NYU Event on Immigration

by Don Boudreaux on October 22, 2018

in Immigration

On the afternoon of this coming Thursday (October 25th) I’ll speak at NYU, along with Sanjay Reddy, on immigration. The event is hosted by the Foundations of the Market Economy Program and NYU’s Department of Economics.

Add a Comment    Share Share    Print    Email

My intrepid Mercatus Center colleague Veronique de Rugy, writing in Reason magazine, explains that tariffs really do matter.

In my latest essay for AIER, I summarize the case that our environment has been cleaned by capitalism. A slice:

In your garage or driveway sits yet another amazing anti-pollutant: your automobile. Sure, it does emit carbon monoxide into the air when you drive it, but your automobile does not emit onto the streets on which you live and work the bacterial wastes that were emitted by the horses and other draft animals that people used before the automobile became ubiquitous. Not only did the constant coating of the noxious mix of feces, urine, spittle, and snot make using streets and sidewalks unpleasant in ways that we in 2018 cannot imagine, it also attracted flies and other insects that distributed the filth into our homes, schools, churches, theaters, shops, factories, and offices.

Stanford University’s Rebecca Diamond reports on recent research into the the consequences of rent control. (HT Elizabeth Higgs) A slice:

Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive.

Jeffrey Tucker writes on the epic battle today to control our thoughts.

Megan McArdle eloquently reflects on Sears.

Gene Epstein reviews my GMU Econ colleague Bryan Caplan’s new book, The Case Against Education. A slice:

On his popular podcast EconTalk, Hoover Institution economist Russ Roberts faulted Caplan for not recognizing the mind-enhancing benefits—admittedly hard to measure—of formal education. But even granting the existence of these benefits, there is considerable harm (also hard to measure) caused by compulsory schooling: resentment, impairment of curiosity, and revulsion from being force-fed ideas and culture. When Caplan spoke at the Cato Institute, questioners charged him with indifference to the real goal of education: “to create great citizens,” as one put it. But his data show that schools are failing miserably on that metric. Most Americans are shockingly ignorant about the most rudimentary facts concerning U.S. history and government.

Diane Katz reviews the Trump administration’s efforts to roll back some government regulations. A slice:

Ultimately, however, reform is difficult because powerful forces favor the status quo. Regulation is a political spoils system by which various special interests impose their will on the public and profit from government favor.

Arnold Kling identifies a reason why libertarians today are confused. Here’s his conclusion:

So libertarians can no longer say that they are on the left on social issues and on the right on economic issues. They can say that they stand where the left used to stand on social issues and where the right used to stand on economic issues. But that is confusing.

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on October 22, 2018

in Myths and Fallacies, Trade

… is from chapter 4 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth:

So the nation which has free trade when the others do not have it, gains the most by comparison with them. It gains while they impoverish themselves. If all had free trade all would be better off, but then no one would profit from it more than others. If this were not true, if the man who first sees the truth and first acts wisely did not get a special premium for it, the whole moral order of the universe would have to be altered, for no reform or improvement could be tried until unanimous consent was obtained. If a man or a nation does right, the rewards of doing right are obtained. They are not as great as could be obtained if all did right, but they are greater than those enjoy who still do wrong.

Add a Comment    Share Share    Print    Email

Here’s a letter to the American Conservative:

One of my blog’s readers – Mr. Stefan Kløvning – alerted me to your favorable tweet yesterday of a link to a 2003 article in your pages by one R.B. Calco titled “The Misunderstood Adam Smith.” The title is appropriate as Calco’s understanding of Adam Smith is deeply flawed.

For example, consider Calco’s assertion that “Smith operated under the assumption that everybody, yes, even capitalists, was [sic] fundamentally patriotic….” This assertion is nonsense; Smith’s Wealth of Nations is filled with observations that contradict it. Here’s just one: “A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his trade; and a very trifling disgust will make him remove his capital, and together with it all the industry which it supports, from one country to another.”*

No less flawed is Calco’s understanding of comparative advantage. Especially egregious is this passage: “While the dull, pencil-headed, pocket calculator logic of Comparative Advantage works fine for the textbook laboratory example of two nations and two products, it falls apart entirely the minute real-world constraints or considerations are introduced. It becomes absurd when you attempt to factor ‘comparative advantage’ across three nations and three products, let alone the hundreds of nations and millions of products of the real world. Try it – you will lose your mind.”

The most charitable interpretation of this bizarre passage is that Calco leaps from the fact that introductory demonstrations of comparative advantage are often done by reckoning costs directly in terms of forgone units of real outputs – how many more fish would Ann have caught had she not produced that additional banana? – to the conclusion that costs can only be reckoned directly in terms of forgone units of real outputs. Calco doesn’t realize the relevance of the reality that, in our real world of countless outputs, inputs, producers, and consumers, costs are reckoned in monetary terms – and that so reckoned it is quite easy for individuals in the economy to compare the costs of many different options for acquiring desired goods. Try it – you will not lose your mind because you perform this calculation regularly.

Protectionists have no revered economists to call their own. Nor do they have any coherent principles or theories on which to build their case that greater abundance springs from government-contrived scarcities. So I suppose it’s understandable that protectionists continue to struggle both to claim Adam Smith as one of their own and to demonstrate the alleged inapplicability to reality of the principle of comparative advantage. Yet these struggles are as likely to succeed as are efforts to draw triangular circles or to roast kosher pigs.

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

* Book III, chapter iv (and page 426 of the 1981 Liberty Fund edition).

Add a Comment    Share Share    Print    Email

Quotation of the Day…

by Don Boudreaux on October 21, 2018

in Crony Capitalism, Trade

… is from chapter 4 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth:

It is argued that hardship disciplines a man and is good for him; hence, that the free-traders, who want people to do what is easiest, would corrupt them, and that protectionists, by “making work,” bring in salutary discipline for the people. This is the effect upon those who pay the taxes. The counter operation on the beneficiaries of the system I have never seen developed.

DBx: By protecting some domestic producers from foreign competition, the state does indeed make easier the lives of these firms’ owners, investors, and workers and other suppliers. It does so by artificially increasing the burdens that others in the country must bear.

Add a Comment    Share Share    Print    Email

Here’s a letter to a new Cafe Hayek reader (who apparently believes me to have multiple heads):

Mr. Ernie McDonald

Mr. McDonald:

You write that “our survival as a nation is threatened by never ending floods of cheap imports priced below their full value.” And after asserting that because I’m a tenured “heads up [my] ass” professor I “have no right” to criticize protectionists, you call me “gullible, blind and ignorant about the Real World.”

I’ll treat you here with the respect that you deny to me in your hostile and impolite letter.

First, like you I have a right to criticize or to praise anyone or anything I wish as long as I do so peacefully. You have no duty to listen to me, but my job status does nothing to strip me of my right to speak and to write freely.

Second and more substantively: How can it be that our “never ending” access to low-priced goods threatens our survival? Is your and your family’s survival threatened when you purchase goods that are on sale? If in a supermarket contest you were to win a lifetime of free groceries, would you tremble in fear and then refuse the winnings? I suspect not.

You will (mistakenly) reject my supermarket analogy as inapt. And so, third, I ask if you believe that our survival as a nation is threatened by never-ending floods of technological innovation. One of this year’s Nobel laureates, William Nordhaus, found that innovators capture, on average, only 2.2 percent of the full value of their innovations. As a practical matter, this fact means that when innovators, in never-ending new streams, offer to us goods and services at prices that not only are below those of existing goods and services but a tiny fraction of their “full value,” we happily accept and, as a result, are all enriched.

Can you explain to me why, if the much-greater abundance brought to us routinely by innovation makes us richer, the greater abundance brought to us by trade threatens our survival?

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

Add a Comment    Share Share    Print    Email

Wages Reflect Underlying Economic Realities

by Don Boudreaux on October 20, 2018

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Lamenting that final assembly of manufactured goods occurs today mostly in low-wage countries rather than in the United States, Walker Martin mistakes effect for cause (Letters, Oct. 20).

For much of the 20th century American workers were (by the standards of the day) paid well to perform the sort manufacturing tasks that are now performed abroad because American workers back then had a comparative advantage at performing those tasks. But contrary to Mr. Martin’s implication, having a comparative advantage at performing those tasks was not the result of the high pay that American workers received to perform them.  Instead, having a comparative advantage at performing those tasks was the source of the high pay that American workers received to perform those tasks.

The comparative advantage at final assembly of consumer goods has since shifted to workers in low-wage countries. Yet it has done so because American-workers’ comparative advantage has itself shifted to the performance of even higher-valued tasks. This fact is why relatively little final assembly is performed today in the U.S.: Americans’ wages in their current jobs are so high that manufacturers seeking to employ workers to perform final-assembly jobs cannot afford to bid American workers away from these workers’ current, higher-paying jobs. This reality should be celebrated rather than lamented.

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

Add a Comment    Share Share    Print    Email

… is from William Graham Sumner’s Preface to his 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth:

Protectionism arouses my moral indignation. It is a subtle, cruel, and unjust invasion of one man’s rights by another. It is done by force of law. It is at the same time a social abuse, an economic blunder, and a political evil. The moral indignation which it causes is the motive which draws me away from the scientific pursuits which form my real occupation, and forces me to take part in a popular agitation. The doctrine of a “call” applies in such a case, and every man is bound to take just so great a share as falls in his way.

DBx: The human mind is creative. It often creates marvelous things that improve human welfare – things such as reinforced concrete, refrigeration, antibiotics, inexpensive internal-combustion engines, smart phones, wine, and automatic washing machines. Yet it often creates means of reducing human welfare. Excuses for war are at the top of the list of these latter, destructive things. But up there as well is protectionism.

Protectionists tirelessly employ lazily done analyses, half-truths, logical fallacies, historical misunderstandings, legerdemain, and sometimes even outright lies in their attempts to justify their absurd assertion that out of artificially increased scarcity will come artificially increased abundance. My sense, from having dealt for decades now with protectionists, is that a large but still-minority portion of them sing from the protectionist hymnal merely because doing so will promote their narrow material self-interest. These protectionists would be free-traders if their self-interest was best promoted by free trade. They would be advocates of establishing zoroastrianism as the state religion if they believed that their self-interest was best promoted by zoroastrianism.

In contrast, the majority of protectionists strike me as being sincere in their belief in protectionist myths but not very intelligent and poorly informed about history. These protectionists consistently reveal their lack of interest in intellectual and ethical consistency. They cannot think beyond the first impressions that strike their minds. They are easily entranced by intellectual mirages. They seldom show evidence that they actually listen to, and understand, the best arguments offered in support of free trade. They behave as if constant repetition of fallacies and falsehoods turns these into truths. And protectionists either cannot add or have the bizarre belief that reality becomes immune from the laws of arithmetic whenever commerce crosses political borders.

Add a Comment    Share Share    Print    Email

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.

Add a Comment    Share Share    Print    Email

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.”

Add a Comment    Share Share    Print    Email