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… is from page 247 of the third edition (2007) of Thomas Sowell’s Basic Economics:

Fights over which individuals and groups get how big a slice of the national pie generate the kinds of emotions and controversies on which the media, politicians, and intellectuals thrive.  But the economic reality is that the main reason most Americans or Chinese have prospered is that the pie itself has gotten much bigger, not because this group or that group changed a few percentage points in its share of the national income.

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… is brought to you by EconLog’s Art Carden; it’s from page 44 of Deirdre McCloskey’s 2006 volume, The Bourgeois Virtues; I had marked this quotation to be used as an eventual entry in my own “Q.o.D.” series here at the Cafe, but why wait?  It’s splendid!

The tempting shortcut of taxing the rich has not worked, for two reasons.  First, I repeat, taxation is taking, and as the philosopher Edward Feser puts it, “Respecting another’s self-ownership … [reflects] one’s recognition that that other person does not exist for you …  The socialist or liberal egalitarian … rather than the Nozickian libertarian … is … more plausibly accused of ‘selfishness.'”  No left egalitarian has explained how such takings square with Kant’s second formulation of the categorical imperative: “So act as to use humanity, both in your own person and in the person of every other, always at the same time as an end, never simply as a means.”  Taxing Peter to pay Paul is using Peter for Paul.  It is corrupting.  Modern governments have been encouraged to think that any abuse of Peter is just fine, that Peter is a slave available for any duty that the ruler has in mind.  A little like nonmodern governments.

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Perhaps the most common way for people who do not like the conclusions of basic economic analyses to dismiss those conclusions is to allege that the assumptions used in the analyses are absurd.  And while some economists do indeed sometimes employ absurd assumptions, most basic microeconomic analyses are founded on quite reasonable (and, hence, secure) foundational assumptions.

The microeconomic assumptions challenged most often are the assumptions that human beings are rational and self-interested.  Here’s all that I mean – and that, I believe, most good economists mean – by these assumptions:

A person is rational if three things generally hold about that person’s manner of assessing and choosing among different options:

(1) he or she acts purposefully in ways that he or she believes will best lead to the achievement of his or her goals; that is, human action is goal-oriented and everyone seeks to achieve his or her goals at as low a cost (broadly reckoned) as possible (e.g., if my goal is to get from Washington to New York City as quickly as possible within a certain budget, I might drive north using mostly I-95, or I might take the Acela express train from Union Station to Penn Station; I will not first drive from D.C. to Miami and then to New York, and nor will I first fly from D.C. to Chicago and then hop a train from Chicago to New York); the goals can change – and they can be, by different ethical criteria, good or bad – but each individual, at each moment in time, acts to achieve goals and as many goals as possible;

(2) he or she learns, if only imperfectly;

(3) he or she has preferences that are transitive; that is, at the moment of choice, if Smith prefers A to B and prefers B to C, then Smith prefers A to C.

A person is self-interested if he or she cares more about himself or herself and about close loved ones and friends than he or she cares about strangers and about acquaintances more ‘distant.’  Imagine Smith as a point at the center of concentric circles emanating out from this point – that is, from Smith.  The further out the circles from Smith, the more distant and less intimate the connection between Smith and the individuals on the circles.  The closer someone is to the center of the set of concentric circles, the greater is Smith’s degree of genuine concern for that person.

These assumptions strike me as quite reasonable descriptions of human motivation as we encounter it daily.

….

I was inspired to write the above not only because this evening I will meet for the first time my Fall 2013 Principles of Microeconomics class at George Mason University.  It’s always a class that I love – dearly and deeply love – to teach.  But another inspiration for the above arose when I was watching the crime show Castle last night with my son, Thomas.  One of the main characters, a tough detective Kate Beckett, asked a prison inmate about information regarding a murder suspect.  The incarcerated inmate sneered back at Det. Beckett and replied “Why should I answer you?”

Everyone understands that people respond rationally to incentives.  The writers of this show (and, I dare say, of all other shows, of all movies, of all plays, of all novels, of all you name it) rely upon this widespread understanding.  The inmate had nothing to gain by answering the question, so Det. Beckett spelled out some terms – something like, “If you level with me, I’ll see what I can do to get you out of prison earlier.”  (She could have, by the way, also threatened to make his life in prison even more unpleasant than it already is.  Carrots.  Sticks.  Doesn’t matter here for my point.)

The writers know that audiences understand that an inmate with information valuable to the police will try to get something in return for his giving that information.  A newspaper t.v. critic would be laughed out of a job if that critic were to write, after seeing this show, “Silly crime-show writers: they assume that people are rational!  We all know that human motivations are far more complex.  These writers and their shows make no sense at all!”

….

“Why would someone want to kill the victim?”  “What was Jones’s motivation for committing murder?”  “Why was the victim in this place when he was shot?”  Questions such as these are at the heart of every good (and bad) crime story – and at the heart of every real-world criminal investigation.  And questions such as these are sufficient to justify the assumptions that economists make about individual human motivation and behavior.  Questions such as these justify economists assumptions if only because questions such as these are solid evidence that we all, in every facet of our lives, make the very same assumptions about human motivations and behavior.

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My former GMU Econ colleague – and now Professor of Economics at Chapman University – Vernon Smith reflects upon education and learning.

Alvaro Vargas Llosa offers some wise thoughts on immigration policy.

Simon Lester and K. William Watson offer some wise thoughts about free trade and the environment.

Rich Vedder explains why Pres. Obama’s scheme for making college more affordable will make college less affordable.

Speaking of Rich Vedder, here’s an article in the Wall Street Journal about him and his work on the economics of education.  (HT W.E. Heasley)

Cato’s Sallie James again explains the absurdity of Export-Import Bank cronyism.

My GMU Econ colleague and dear friend Walter Williams has no patience for politically correct presumptions and indoctrinations.

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… is from pages 67-68 of Will Durant’s 1953 volume, The Renaissance:

But it took more than a revival of antiquity to make the Renaissance.  And first of all it took money – smelly bourgeois money….  Money is the root of all civilization.  The funds of merchants, bankers, and the Church paid for the manuscripts that revived antiquity.  Nor was it those manuscripts which freed the mind and senses of the Renaissance; it was the secularism that came from the rise of the middle class; it was the growth of the universities, of knowledge and philosophy, the realistic sharpening of minds by the study of law, the broadening of minds by wider acquaintance with the world.

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Jim Epstein and Naomi Brockwell join forces again, this time to explain how peaceful people find and employ creative ways to strike mutually advantageous exchanges despite the fact that members of the political class are simultaneously attempting to stifle this peaceful commerce.  Here’s the video that accompanies Jim’s report at Reason:

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“The voracious need for lobbying help in dealing with ObamaCare has created a price premium for lobbyists who had first-hand experience in crafting or debating the law.”  (HT Adam Simpson)

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… is from page 270 of Gabriel Kolko’s important 1963 volume, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916:

What the President [Woodrow Wilson] ignored, of course, was that the road had never been charted by him, and that the New Freedom, in its concrete legislative aspects, was little more than the major demands of politically oriented big businessmen.  They had defined the issues, and it was they who managed to provide the direction for change.

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Here’s a letter to the Wall Street Journal:

You worry that, if approved as Chairman of the Federal Energy Regulatory Commission, Ron Binz will expand that agency’s reach well beyond its narrow mandate by conscripting it to fight “the climate wars” (“The Friends of Ron Binz,” August 26).

Your concern is justified.  As H.L. Mencken observed 80 years ago, “The bureaucrat begins, perhaps, by doing only what he conceives to be his sworn duty, but unless there are very efficient four-wheel brakes upon him he soon adds a multitude of inventions of his own, all of them born of his professional virtuosity and designed to lather and caress his sense of power.”*

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

* H.L. Mencken, On Politics: A Carnival of Buncombe (Baltimore: The Johns Hopkins Press, 1996 [1956]), pp. 278-279.

And of course the current administration, far from equipping its bureaucrats with such brakes, instead strips them of brakes and installs upon them turbo-charged engines.