In my June 28th, 2006, column for the Pittsburgh Tribune-Review I argued for liberalization of the market for human kidneys. You can read the column beneath the fold.

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Quotation of the Day…

by Don Boudreaux on November 19, 2019

in Hubris and humility, Man of System, Scientism

… is from page 419 of George Will’s important 2019 volume, The Conservative Sensibility:

The largest and most lethal eruptions of irrationality have occurred in the name of reason.

DBx: Reason is indispensable for human flourishing. It is an essential tool for gaining understanding and even wisdom. Yet reason itself reveals the unreasonableness of treating artifactual abstractions as if these are concrete realities – artifactual abstractions ranging from large and often ominous, such as “the will of the American people” and “the white race,” to smaller yet still-pregnant-with-mischief notions such as “the steel industry,” “Italy’s national income,” and “the elasticity of demand for low-skilled workers.” None of these things has a concrete reality independent of the particular ways that we humans define them.

Some such notions, although not all, when used by people who understand them as being the artifactual abstractions that they are, can be useful for analysis and teaching. Yet in all cases too many individuals throughout history have mistaken an ability to conceive of certain artifactual abstractions about humanity and the economy – and to attach to these abstractions concrete names (for example, “national competitiveness” and “the U.S. trade deficit”) – as achievements sufficient to enable them, and those with power whom they advise, to engineer society as an industrial engineer might optimally design the operation of a factory that produces toothpaste. This mistake, mistaken as the application of reason, is wholly unreasonable. In fact, it’s downright mystical – and often fatal.

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Here’s a letter to the Wall Street Journal:

Editor:

Sridhar Kota’s and Tom Mahoney’s case for U.S. industrial policy is an avalanche of assertions ranging from the simply naïve to the deeply fallacious (“Innovation Should Be Made in the U.S.A.,” Nov. 16). Just to list them all would require a long essay. So let’s ignore, for example, their unwarranted assumption that politically appointed bureaucrats, when allocating resources, would somehow be impervious to political pressures.

Instead focus on Kota’s and Mahoney’s fundamental error of presuming that the amount of innovation in particular industries is determined by the amount of capital invested in those industries. In fact, it’s the other way ‘round: capital accumulation is not the cause of innovative ideas; it’s the result. As Deirdre McCloskey has discovered from her careful and wide survey of economic history, “capital in the face of very, very good ideas is easily acquired. Capital is not the constraint.”* The constraint is good ideas.

But industrial policy – by turning over to government officials the task of coming up with creative entrepreneurial ideas, and giving to these officials the power to veto ideas from private-sector entrepreneurs – reduces the supply of good ideas. As such, Messrs. Kota’s and Mahoney’s scheme would fail not only to produce the efflorescence of innovative ideas that they desire, it would also reduce the productivity (and, hence, the value) of capital invested in American industries

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

* Deirdre Nansen McCloskey, Why Liberalism Works (New Haven: Yale University Press, 2019), page 233.

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In my most-recent column for AIER I offer only a handful of the many criticisms that are appropriately leveled against the truly horrendous piece by Sridhar Kota and Tom Mahoney endorsing such government intervention. (It’s especially distressing that this gawdawful piece appears in the opinion pages of the Wall Street Journal.) A slice:

Third and more fundamentally, when and to the extent that trade and markets are free, Americans benefit from innovation no matter where it occurs. Kota and Mahoney seem blind to the reality that if Lee in Shanghai figures out how to produce steel at a lower cost, Americans who are free to buy steel unimpeded on global markets reap the benefits of the resulting lower price of steel no less than if this innovation were done by Lou in Youngstown.

Fourth and even more fundamentally, the authors mistakenly write as if the amount of innovation is fixed.

Yes: if a foreign country attracts more investment to create manufacturing plants it will likely also become the site of greater innovation. This fact is so in part because an increased number of factories that produce outputs for sale in competitive markets naturally inspires people who work in those factories to creatively devise better and more efficient uses of those factories. But greater innovation in these cases also comes from a deeper source – namely, the improved policy climate that itself heightened the attractiveness of putting factories in those locations.

Countries that attract more investment typically are countries whose public policies and private attitudes have become more favorable to markets, including to the innovation which is the source of economic growth. So it’s quite natural that as countries industrialize according to market forces the peoples of those countries unleash more of their innovative energies.

Importantly, this increased innovation abroad does not decrease innovation here in the U.S. Innovation here is merely rechanneled into different avenues.

Stop Dissing the Service Sector

One of these avenues is the service sector. This sector (although you’d never guess it by reading Kota and Mahoney) has for a century now been the single largest sector of the American economy. As the U.S. manufacturing sector continues to shrink relative to the U.S. service sector, a greater portion of American innovation occurs in the provision of services. Yet Kota and Mahoney mistakenly write as though innovation is driven exclusively by manufacturing and occurs exclusively in that sector.

By the way, don’t suppose that innovation in manufacturing is somehow better than innovation in services. Among the most spectacular innovations since the end of World War II are Sam Walton’s, and later Jeff Bezos’s, revolutionary improvements in retailing. Other innovations in services are Fred Smith’s creation of affordable overnight package delivery and Sergei Brin and Larry Page’s improvements in search engines. And let’s not forget innovative services such as ride-sharing, music streaming, and social media.

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… is from page 261 of Deirdre McCloskey’s 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All (original emphasis):

The more complex and specialized and spontaneously bettering an economy is, the less it can be planned, the less a central planner however wise and good can know about the trillions of preferences and plans for consumption and production and betterment. A household or your personal life might possibly be plannable, though anyone who believes it with much confidence has not lived very long. But a big, modern economy has vastly too much going on to plan.

DBx: Precisely so. To dispute Deidre’s point is to suffer what Hayek called, in 1976, “The New Confusion About ‘Planning'” (available here, free of charge, by scrolling down a bit.)

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In my June 20th, 2006, column for the Pittsburgh Tribune-Review I argue for a liberalization of the market for transplantable human body organs. You can read the column beneath the fold.

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… is from page 175 of Geoffrey Brennan’s and Loren Lomasky’s profoundly important 1993 book, Democracy & Decision: The Pure Theory of Electoral Preference:

[B]ecause voting is virtually cost free, it is likely to prove conducive to extremes of expression, both altruistic and malicious and that at least under prevailing conditions of secrecy, the malicious extreme might be differentially encouraged.

DBx: Indeed so.

Here’s what Brennan and Lomasky mean by voting being “virtually cost free”: Because every voter understands that his or her vote in a political election will not determine the outcome of the election, each voter, by casting a ballot for X, does not thereby prevent himself or herself from enjoying Y or any other option that would be available to him or her had the vote been cast differently.

For example, suppose that I vote for the candidate who promises to eliminate all government funding to higher education – a program that, if implemented, would indeed reduce, significantly so, my annual income. And further suppose that I brag to you about how I voted. “See what a man of principle I am!” I – libertarian Don – boasts.

You, however, would be justified in withholding any conclusion of just how principled I really am even if you are 100 percent certain that I voted exactly as I claim to have voted. You know that I understood, when I was in the voting booth, that my casting a ballot for the no-government-funding-to-higher-education candidate did nothing to increase the prospects that government funding to higher education would actually be abolished. The practical prospects of my vote determining the outcome of the election were zero. So for me as a voter to express my ideological preference for ending all government involvement in education cost me, materially, nothing at all.

You cannot infer from this reality that if the decision about whether or not to abolish government funding to higher education were indeed exclusively in my hands that I would vote to retain such funding. Perhaps I really am a man of principle who would willingly suffer a loss of income in order to do what I believe to be right. But what you cannot do is to infer from my voting, in a real-world election, for a candidate whose program would reduce my income that I am, therefore, a man of principle.

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Twenty years ago, Adam Pritchard – my UVA Law (’92) classmate, dear friend, co-author, and (then as now) professor of law at the University of Michigan – and I penned a piece for the Mackinac Center for Public Policy, in Michigan, urging liberalization of the market for transplantable body organs. (My strong recollection is that a version of this piece ran as an op-ed in the Detroit Free Press, but I can find no evidence on-line to give credence to my recollection.)

Here’s the text of the version as published by the Mackinac Center:

Organ Donation: Saving Lives through Incentives

by Donald J. Boudreaux and A. C. Pritchard

Michigan patients suffer from a critical shortage of transplantable human organs. Although the number of organ donors has increased from 534 in 1996 to 825 in 1998, demand for organs in Michigan continues to dwarf supply. More than 2,300 Michiganians— and roughly 67,000 people nationwide—are currently waiting for organs. An estimated 4,000 Americans die each year because no kidneys, hearts, lungs, or other organs can be found for them.

In 1998, the Michigan Secretary of State’s office made it easier for people to sign up for the Organ and Tissue Donor Registry. This year, the Michigan Department of Community Health is cosponsoring radio ads encouraging more people to sign. Partly as a result of these two measures, the list of names has grown dramatically but still, the need is greater than the supply.

Economics tells us that paying people market prices for their organs could reduce the shortage, but widespread public hostility to the idea of a “market for organs” means that repeal of federal and state bans on organ sales is not likely. In an attempt to cut the shortage without resorting to outright organ sales, the state of Pennsylvania recently proposed paying families of organ donors $300 for funeral expenses. There may be a better and less costly way to solve the problem.

We propose an alternative that would reduce the organ shortage without employing those market features that organ-sale opponents find objectionable. By permitting a small payment to a person at the time he or she signs a donor registry, the shortage can be lessened without harming anyone. In addition, our plan ensures that future donors make decisions well in advance of the time for donation, potentially easing the burden on distraught family members who are asked for their consent before a donation from a loved one is made.

The system would work by paying healthy people to sign organdonor cards. People who today sign these cards when renewing their driver’s licenses receive nothing in return for consenting to organ donation, except of course an intangible “psychic” benefit. If each person were offered a modest sum—perhaps $10 or $25—to sign an organ-donor card, we can be confident that many more people would do so. To the extent that signing these cards increases the chances that organs will be made available for transplant, the small fee can pay huge dividends.

Who would pay this signing fee? Not taxpayers. Instead, states could allow non-profit organizations, such as the American Red Cross, to use space at motor-vehicle bureaus and pay for donor-card signings out of their charitable contributions. To supplement these contributions, whenever a health insurer uses an organ from a donor-card signer, the insurer would reimburse the charity that solicited the donation. To help fund other needed charitable activities, the reimbursement fee could be much higher than the fee paid to each card signer. Hospitals and insurers would gain from this system, too: hospitals because they would get more life-saving transplant opportunities and insurers because an increased supply of organs would cut the cost of transplant surgery and the expensive alternatives that now keep a patient alive until a donated organ is available.

Paying people a small fee for signing a donor registration card creates no losers, only gainers. There would be no windfalls inducing people to consent to organ donation, and organs would not be auctioned to the highest bidder. Only a nominal sum would change hands, compensating the donor for the time and thought spent in signing up. No one under this plan would be forced to sign donor cards and anyone wishing to sign out of a spirit of charity could still do so by simply refusing the fee. Moreover, the ultimate purpose served by the fee is beyond question: saving lives.

The current system of organ donation with no incentive beyond goodwill is likely to always come up short, with consequences that could not be more severe—people who could be saved are dying daily. Paying modest fees to donor-card signers is not the same as buying and selling organs but it would likely increase the supply. To save precious lives, Michigan should consider this promising option.

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… is from page 127 of Deirdre McCloskey’s 2019 volume, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

Our leaders, such as the Chinese Communist Party with its illiberal projects of high-speed rail and unprofitable state-owned enterprises, buy their power and prestige with our money. They “create jobs” that shouldn’t have been, and that make us poorer, not richer.

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In my Pittsburgh Tribune-Review column for May 12th, 2006, I make some predictions, which you can read beneath the fold.

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