Quotation of the Day…

by Don Boudreaux on May 24, 2022

in Innovation, Reality Is Not Optional

… is from page 1 of the late William Baumol’s 2002 book, The Free-Market Innovation Machine:

Under capitalism, innovative activity – which in other types of economy is fortuitous and optional – becomes mandatory, a life-and-death matter for the firm.

DBx: Indeed so. And so, all efforts by government to determine the specific firms, outputs, and jobs that will be created and survive in a market economy are inherently inconsistent with a market economy.

By its very nature, innovation is creative; it can neither be planned nor predicted. Therefore, if an industrial-policy scheme is pursued, innovation must be suppressed, for otherwise the scheme will be upset. If, instead, innovation is allowed, then industrial policy must be abandoned.

Most proponents of industrial policy will deny the above. They’ll insist that their industrial policy not only welcomes, but encourages, innovation – as long as, of course, it’s the correct sort of innovation. But as I and others have written elsewhere, all such denials merely reveal the unseriousness of the thought of these industrial-policy proponents. Such denials indicate a failure to understand what innovation is and what its existence in an economy entails. Anyone issuing such a denial should not be taken seriously when he or she discusses economic matters.

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The Wall Street Journal‘s Editorial Board applauds the U.S. Fifth Circuit’s ruling that reins in administrative-agencies’ propensity to conduct star-chamberish trials. A slice:

Merits of the case aside, the constitutional problem is that the SEC acted as prosecutor, judge and jury. The Dodd-Frank Act lets the SEC decide whether to bring charges in its own tribunal or federal court. The agency usually chooses the former, as do other agencies such as the Federal Trade Commission.

Enter the Fifth Circuit, which held in Jarkesy v. SEC that the SEC’s tribunals, as currently structured, violate the Seventh Amendment’s right to trial by jury. As Judge Jennifer Walker Elrod explains for the 2-1 panel majority, the jury guarantee applies to all suits of “common law,” as understood at the time of the founding. This includes fraud prosecutions.

The Fifth Circuit also ruled that Congress’s delegation of legislative power to the SEC to decide where to bring fraud enforcement actions violates the Constitution’s separation of powers. Congress may grant agencies prosecutorial discretion to decide what cases to bring, Judge Elrod noted, but it cannot give them free rein to decide their judicial forum.

Also writing in the Wall Street Journal about the Fifth Circuit’s excellent ruling is Mario Loyola. Two slices:

Now the U.S. Court of Appeals for the Fifth Circuit has taken what could be a historic step toward restoring the Constitution’s checks and balances, in the case of Jarkesy v. SEC. The Securities and Exchange Commission acts as rulemaker, prosecutor and judge for America’s securities laws. It may have a solid case for fraud against investor George Jarkesy, but the powers and perks the agency has accumulated pose the constitutional problem.

The Constitution vests legislative power in Congress, executive power in the president, and judicial power in the federal courts. But today the executive branch does most of the legislating and adjudication in the federal government, while, paradoxically, administrative agencies beyond the control of the president (or anyone else) wield much of the executive power. Checks-and-balances are dissolving in all directions, with the executive branch absorbing the powers of the other branches into an administrative leviathan, even as executive power become shielded from democratic control.

In the case of Mr. Jarkesy, the SEC used a provision in the Dodd-Frank law that allowed it to seek civil penalties for fraud either in normal federal courts or in internal proceedings before its own administrative law judges. Those ALJs are civil servants who can only be removed for good cause by the commissioners of the SEC, who themselves can only be removed for good cause.


The Fifth Circuit held that because Dodd-Frank’s grant of authority to the SEC to decide which cases to bring in traditional court and which to try in its own tribunals wasn’t supported by any intelligible principle, it was an unconstitutional delegation of the legislative power vested in Congress. Crucially, the court referred to the dissent by Neil Gorsuch in Gundy v. U.S., which lays the foundation for significant limits on the rule-making authority that Congress can delegate to agencies.

The Fifth Circuit also observed that because agency officials exercise executive powers only in the name of the president, in whom that power is constitutionally vested, such officials must remain accountable to the president. That means the president must be able to remove them at will. For most of the past century it was assumed that if an executive official exercises quasi-legislative or quasi-judicial functions in addition to executive ones, then that official may be shielded from removal at will by the president; hence the existence of “independent agencies.”

In the past decade, however, the Supreme Court has ruled in cases such as Free Enterprise Fund v. PCAOB and Seila Law v. CFPB that there are limits to how much any official exercising executive authority can be shielded from presidential control. The Fifth Circuit took these decisions to their next logical step, holding that because the SEC’s ALJs exercise executive powers in addition to other functions, the restrictions on their removal by the president are unconstitutional.

That could severely crimp administrative adjudications, and not just at the SEC. Hence the decision will almost certainly be appealed to the Supreme Court. The decision heralds a potentially significant curtailment of the administrative state. A century after bowing to FDR’s court-packing threat, the federal judiciary may be recovering the self-confidence to enforce the Constitution’s limits on government power.

Harald Uhlig explains that academic freedom is under assault at Princeton.

Walter Olson rejects the case for mandatory voting.

Writing in the Wall Street Journal, Scott Lincicome and Emily Ekins ask why the FDA is seizing baby formula. A slice:

Parental demand led to American mom-and-pop vendors selling European formula because the manufacturers wouldn’t make the effort. They even provided translated instructions. But the FDA in the past year has cracked down on these sellers. Without notice, thousands of families were left scrambling to find more formula. Parents who tried to purchase directly from Europe had hundreds of dollars of formula seized by U.S. customs agents. One parent reported that she had nearly $700 of formula destroyed at the border—in the middle of a national formula shortage.

The FDA’s actions have exacerbated the problem they were trying to solve. The agency cites concerns about storing and transporting powdered formula to avoid bacterial contamination or product deterioration. But by shutting down trusted vendors who had built a reputation on importing and selling high-quality products, the FDA drove desperate parents to untested sellers, creating the storage and handling concerns that caused the FDA to distrust European products. The difficulty finding preferred baby formula brands also increased the likelihood of inauthentic products and unscrupulous sellers taking advantage of parents in need.

James Pethokoukis points to evidence that we free traders still have much work to do to disabuse the public of fallacies about trade.

My intrepid Mercatus Center colleague Veronique de Rugy warns against supposing that Emmanuel Macron is a liberty-loving liberal. A slice:

That sounds eloquent, but it is hard to reconcile with his first-term record. The executive in France enjoys far more concentrated and unchecked powers than in the United States. But in the name of security, Macron pushed a series of controversial laws that massively boosted the powers of both the police and the military while reducing their accountability.

A 2017 law ended the state of emergency that was put in place after the 2015 terrorist attacks, but it made permanent many of the emergency measures that were embraced at the time. It continued to allow the search, seizure and house arrest of people that the Interior minister identifies, with little to no judicial review. That same minister can also close religious establishments, which mostly means mosques.

Juliette Sellgren talks with Brian Knight about woke capitalism.

Damon Root writes eloquently about the great Zora Neale Hurston’s “inconvenient individualism.” A slice:

Some of Hurston’s contemporaries, such as Richard Wright, made their names by writing about race and racial injustice with a left-wing bent, an approach that is still plenty fashionable today. Hurston did not. In fact, Hurston denounced Communism’s demeaning influence on writers like Wright. (Wright was a member of the American Communist Party for several years before breaking with his old comrades and becoming a prominent left-wing anti-Communist.) “Mr. Wright’s author’s solution,” Hurston scoffed in a 1938 review of Wright’s short-story collection, Uncle Tom’s Children, “is the solution of the [Communist] Party—state responsibility for everything and individual responsibility for nothing, not even feeding one’s self.”

Her dissents from mainstream progressivism could be equally caustic. “Throughout the New Deal era,” Hurston wrote in 1951, “the relief program was the biggest weapon ever placed in the hands of those who sought power and votes.” More to her taste was the approach of Republican Sen. Robert A. Taft of Ohio, a libertarian-leaning conservative whose credo, as Hurston favorably summarized it, was “the people and the individual retain true liberty.” Thanks to views like that, Hurston found herself increasingly out of step in elite literary and publishing circles.

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Quotation of the Day…

by Don Boudreaux on May 23, 2022

in Economics, Innovation

… is from page 300 of the late, great UCLA economists Armen A. Alchian’s and William R. Allen’s Universal Economics (2018; Jerry L. Jordan, ed.); this volume is an updated version of Alchian’s and Allen’s magnificent and pioneering earlier textbook, University Economics:

Waste or inefficiency is only what can be avoided at a cost less than the waste. If the cost of avoiding some seeming waste is greater than the waste, it’s not really a waste.

DBx: One of the many advantages of what my Mercatus Center colleague Adam Thierer calls “permissionless innovation” – that is, of refusing to use government restrictions to protect industry incumbents or politically favored cronies from competition – is that it incessantly transforms efficient uses of resources into wasteful uses.

This wording sounds odd, but it’s accurate. Innovation renders uses of resources that yesterday were the ‘best’ possible – uses of resources that yesterday were efficient – into uses that today are inefficient in light of newly discovered knowledge. For example, in the 19th century efficiency was served by using labor and transportation vessels to harvest ice from ponds and lakes in New England for shipment to New York and Philadelphia. The widespread availability of electrification and household refrigeration renders such ice harvesting today inefficient.

The profit motive obviously propels entrepreneurs to identify existing wasteful uses of resources and to eliminate such wastage. But the profit motive also, and more importantly, propels entrepreneurs to innovate in ways that transform today’s ‘efficient’ uses of resources into tomorrow’s inefficient uses – and then to eliminate the newly ‘created’ waste.

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Quotation of the Day…

by Don Boudreaux on May 22, 2022

in Complexity & Emergence, Hayek

… is from page 465 of F.A. Hayek’s profound and important 1964 article “Kinds of Order in Society” (available without charge on-line here) as it appears in Liberty Fund’s 1981 single-volume collection of New Individualist Review:

We have it in our power to assure that such an overall [social and economic] order will form itself and will possess certain desirable general characteristics, but only if we do not attempt to control the detail of that order. But we jettison that power and deprive ourselves of the possibility of achieving that abstract order of the whole, if we insist on placing particular pieces into the place we wish them to occupy. It is the condition of the formation of this abstract order that we leave the concrete and particular details to the separate individuals and bind them only by general and abstract rules. If we do not provide this condition but restrict the capacity of the individuals to adjust themselves to the particular circumstances known only to them, we destroy the forces making for a spontaneous overall order and are forced to replace them by deliberate arrangement which, though it gives us greater control over detail, restricts the range over which we can hope to achieve a coherent order.

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Unprofitable Analysis

by Don Boudreaux on May 21, 2022

in Inflation

The blog post by Bivens reads like something written by a clever sophomore who’s too lazy to do real thinking; it’s filled with many errors in addition to the one mentioned below.

Mr. K__:

Thanks for sharing with me Josh Bivens’s blog post in which he blames inflation on high corporate profits. Unlike you, however, I’m unimpressed with Bivens’s thesis.

Profits are a residual. They’re that portion of revenue that’s left to firm owners after they pay all expenses to workers and other input suppliers. Therefore, Bivens’s argument that inflation is caused by profits must rest on the implicit assertion that firms reap higher profits simply by raising the prices of their outputs. But Bivens’s argument illegitimately assumes the existence of that which must be explained – namely, some change in economic phenomena that allows firms successfully to raise prices.

Bivens is silent about what this change might be, but the theory currently in vogue among Progressives identifies it as “greed.” Yet for at least three reasons this ‘greed’ theory is laughable.

First, there’s no reason to suppose that firms have recently become more greedy. Second, “greed” is at least as likely to push prices down as up; after all, the most obvious way for firms that are greedy for more customers to satisfy their lust is to cut prices. Third, even if producers have mysteriously and suddenly become more greedy, and even if this greed incites producers to try to raise prices, prices will not actually rise unless higher prices are able to be paid by consumers. More intense producer greed does not generate the increase in consumer spending power required to sustain the price hikes.

If we’re to coherently explain the sustained rises in many prices, we must reject Bivens’s lazy practice of simply assuming the existence of that which must be explained – namely, producers’ ability to charge, and consumers’ ability to pay, higher prices. We must identify some plausible change in underlying economic realities that incites firms today to raise prices and allows consumers to pay these higher prices. The only plausible change that I’m aware of is the injection into the economy over the past few years of gargantuan amounts of additional purchasing power.

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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Quotation of the Day…

by Don Boudreaux on May 21, 2022

in Nanny State

… is from pages 226-227 of my colleague Peter Boettke’s 2017 paper “Rebuilding the Liberal Project,” as this paper appears in Pete’s 2021 book, The Struggle for a Better World:

True liberal radicalism has always pulled on the nostril hairs of the pretentious and arrogant in positions of power who thought they could choose better for others than they could for themselves.

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In my column for the September 28th, 2012, edition of the Pittsburgh Tribune-Review, I expressed skepticism of some arguments for mild inflation. You can read my column in full beneath the fold.

Read the full post →

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This piece by George Will on abortion is brilliant. A slice:

The abortion debate that the Supreme Court’s calendar has ignited is compelling Americans to consider what abortion policy ought to be but first to recognize what the United States’ policy is: an extreme outlier. In 39 of the 42 European nations that permit elective abortions, the basic limit is at 15 weeks of pregnancy or earlier. In 32 of the 39, the limit is at 12 weeks or earlier. Worldwide, fewer than a dozen countries allow abortions after 20 weeks of pregnancy on any grounds.

In 1975, two years after Roe was decided, Archibald Cox, Harvard law professor and former U.S. solicitor general under President John F. Kennedy, said in a lecture at Oxford University: “The [Roe v. Wade] opinion fails even to consider what I would suppose to be the most important compelling interest of the State in prohibiting abortion: the interest in maintaining that respect for the paramount sanctity of human life which has always been at the centre of Western civilization.” That interest, although perhaps unintelligible to the likes of [Letitia] James, is important to the broad American majority.

This majority might soon have the dignified task of instructing their elected representatives to codify, state by state, community standards about the onset of personhood. An acorn is not an oak tree; an oak sapling is. The burden of intelligence, and self-government, is that distinctions must be drawn.

Randy Holcombe writes wisely about enemies and “enemies.” A slice:

Yet another area in which this rhetoric arises is race relations. Whites are being told that simply because of their race, they are the enemy. This editorial in the Seattle Times tells us, “We are all socialized in whiteness as a by-product of living here. The primary purpose of whiteness is to consolidate power through the value, protection and reinforcement of white western ways of knowing and being at the expense of nonwhite racial and ethnic identities via structural racism.” If whites are being told they are the enemy of Blacks, does this make Blacks the enemy of whites?

Martin Luther King hoped people would be judged by the content of their character rather than the color of their skin, but when people are not only being judged by the color of their skin but told that those of a different color are the enemy, this is a recipe for violence.

The recent supermarket shooting in Buffalo by a young white supremacist was a horrible event, and there is no possible justification or excuse for his actions. But one must wonder if the racial rhetoric saying that whites are the enemy of Blacks would not prompt the shooter to think that therefore, Blacks are the enemy of whites.

I’m not assigning blame for the shooting to anyone but the shooter. But the rhetoric of white supremacists reinforces the rhetoric of critical race theorists, which prompts a backlash by white supremacists. As the rhetoric escalates, it is natural for both sides to think, “If you tell me I am your enemy, that implies that you are my enemy.”

My intrepid Mercatus Center colleague Veronique de Rugy is no fan of newly reconfirmed Fed chairman Jerome Powell.

C.J. Ciaramella reports on yet another instance in the U.S. of the banana-republic practice of civil asset forfeiture.

John O. McGinnis writes thoughtfully about right and wrong ways to reform colleges and universities.

The Wall Street Journal‘s Editorial Board explains that the shortage of baby formula is caused by government. A slice:

Trade protectionism—including tariffs of up to 17.5%—and Food and Drug Administration labeling and ingredient requirements limit competition. About 98% of U.S. infant formula is made domestically, though it’s no safer than European or Australian products. While FDA has the authority to inspect foreign plants, tariffs make imports less competitive.

Solution: Suspend tariffs and ease labeling and ingredient requirements for trusted partners. The FDA now says it will use enforcement discretion on product labeling and provide a streamlined import entry review process for products from foreign facilities with positive inspection records. But these trade barriers shouldn’t exist in the first place.

GMU Econ alum Dominic Pino explains why those politicians who voted against increased funding for the FDA were correct in this decision.

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Quotation of the Day…

by Don Boudreaux on May 20, 2022

in Other People's Money

… is from page 12 of the original edition of Robert Higgs’s indispensable – and now more relevant than ever – 1987 book, Crisis and Leviathan:

The welfare state has become, if it was not from the beginning, the redistributional state. Government policies for the limited purpose of saving the most unfortunate from destitution have merged into governmental policies for the purpose of redistributing income and wealth among virtually all groups, rich as well as poor.

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Some Covid Links

by Don Boudreaux on May 19, 2022

in Current Affairs, Seen and Unseen

Gigi Foster rejects the tale – recently told in the New York Times – that Australians should be pleased with their authoritarian response to covid. A slice:

Unlike the costs of COVID, the costs of lockdowns are spread far more widely across age categories, with massive losses in areas like mental well-being, physical well-being, future government expenditure, and future earnings due to decisions such as stay-at-home orders and school closures – not to mention the effects of extended lockdowns on less-measurable drivers of social flourishing like the development of anti-social habits, productivity losses, and lower levels of trust in institutions like our healthcare system that were complicit in COVID policy mismanagement.

Many of those spared death in 2020 or 2021 from COVID are succumbing now in 2022 as our borders re-open, meaning that enduring the horror of lockdowns “saved” only a couple of years of life for a large fraction of Australia’s eventual COVID victims.

Australia is now experiencing far more COVID deaths and infections than when lockdowns and other draconian restrictions were being imposed, while COVID restrictions have largely been eased on the back of triumphant politicians’ claims that the COVID injections have been the game-changer that we all needed to escape lockdowns and start to live normally again.

As we head into a federal election on May 21st, the major parties’ candidates really don’t want to talk about COVID. I wonder why?

My Mercatus Center colleague Bob Graboyes adds his clear voice to those who decry Fauci’s power-lust.

TANSTAFPFC (There Ain’t No Such Thing As Free Protection From Covid.)

The Economist reports on China’s “zero-covid industrial complex.”

Writing in the Telegraph, Matt Ridley warns humanity against trusting the W.H.O. in a future pandemic.

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