Quotation of the Day…

by Don Boudreaux on February 17, 2020

in Crony Capitalism, Seen and Unseen, Subsidies, Trade, Virginia Political Economy

… is from page 109 of my late Nobel laureate colleague Jim Buchanan’s 1980 paper “Rent Seeking and Profit Seeking” as this paper is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty:

Rent-seeking activity is directly related to the scope and range of governmental activity in the economy, to the relative size of the public sector.

DBx: And, therefore, the larger the government, the larger are rent-seeking’s distortions and wastes.

…..

When anyone calls for any extension of government’s role in the economy, that person necessarily is calling for more resource-allocation decisions to be made by the state and correspondingly fewer such ‘decisions’ to be made by the spontaneous order of markets. Yet unlike economic actors in even the most ‘imperfect’ market, government officials can coerce: when government allocates resources, there is no presumption of mutuality of gains – quite the opposite. Only in instances for which mutual gains from trade are not present is the use of coercion necessary to bring about the particular change in the pattern of resource allocation.

Yes, yes, yes: scenarios can be imagined in which coerced changes in the pattern of resource allocation turn out to be mutually beneficial, or at least beneficial to the group of persons whose aggregate welfare is deemed to be relevant. The fruits of such imaginings have adorned countless blackboards, whiteboards, and PowerPoint slides over the decades. “Pigouvian taxes” that make resource allocation optimal can be described; “optimal tariffs” that raise national income can be shown using graphs; single-payer-health-care schemes that, on paper, work out beautifully can be designed; industrial-policy interventions that protect against this or that predicted calamity are easy to imagine.

Yet because all such proposal involve giving Jones the power to coerce Smith, proponents of all such proposals must answer a question that almost none of them bother even to ask: empowered to coerce, what reason is there to believe that Jones will not abuse this power? No one imagines that a conventional armed robber attempts to ply his trade in ways that ensure mutual gains from trade between himself and each of his victims. The armed robber resorts to coercion precisely because he either cannot, or is unwilling to go to the trouble, to persuade his victims to trade with him to each party’s mutual advantage. So why should we believe that when government-official Jones resorts to coercion against peaceful people that the results of Jones’s coercion will be mutual gains?

The move typical in the circles of policy-wonks, pundits, and professors is to describe a real (or, too often, merely imagined) “market failure” that can be shown on a chalkboard as being ‘solved’ by coercive intervention. Yet even if the market failure is real by some reasonable standard, this condition is merely a necessary one for coercive intervention; it’s not a sufficient condidtion. The mere existence of market failure does not guarantee – or even create the high probability of – government success.

And so – to Buchanan’s point above – as coercion displaces voluntary trade as the means of allocating resources, political considerations loom ever-larger in allocating resources. Those who seek gains are more and more likely to seek those gains through use of the state apparatus of coercion and to avoid the bother of discovering how to make mutually advantageous bargains.

When the above reality is grasped, the notion that in practice the likes of tariffs and industrial policy will strengthen a nation’s economy is exposed as absurd. And no difference is made if such proposals are offered by the likes of Oren Cass or Julius Krein for conservative reasons, or by the likes of Robert Reich or Elizabeth Warren for “Progressive” ones.

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