… is from page 77 of Arnold Kling’s 2006 book, Crisis of Abundance:
Markets are conducive to evolutionary improvement. Government empowers those who want to resist change.
Sometimes the impact of a set of policies is not obvious immediately. When Japan was riding high in the late 1980’s, a lot of people suggested that their model was one to emulate. Their public/private partnership with lifetime employment seemed to be working well. Japan had high growth rates and their future seemed limitless. It was only a matter of time before their economy surpassed America’s. It didn’t turn out that way.
France is another example. Why can’t our economy be more like France’s, many people asked. They have a high standard of living, long vacations, a very generous safety net and a relaxed, healthy lifestyle. They don’t work as hard as Americans and that’s good, we were told. But maybe the impact of those policies takes a while to unfold. Maybe the incentives don’t have their full impact right away. Steven Erlanger at the New York Times reports that the French model does not appear to be sustainable:
For decades, Europeans have agonized over the power and role of Germany — the so-called German question — given its importance to European stability and prosperity.
Today, however, Europe is talking about “the French question”: can the Socialist government of President François Hollande pull France out of its slow decline and prevent it from slipping permanently into Europe’s second tier?
At stake is whether a social democratic system that for decades prided itself on being the model for providing a stable and high standard of living for its citizens can survive the combination of globalization, an aging population and the acute fiscal shocks of recent years…
The French are justifiably proud of their social model. Health care and pensions are good, many French retire at 60 or younger, five or six weeks of vacation every summer is the norm, and workers with full-time jobs have a 35-hour week and significant protections against layoffs and firings.
But in a more competitive world economy, the question is not whether the French social model is a good one, but whether the French can continue to afford it. Based on current trends, the answer is clearly no, not without significant structural changes — in pensions, in taxes, in social benefits, in work rules and in expectations.
My favorite line in the whole piece is:
The French are justifiably proud of their social model.
What’s the justification for that word “justifiably?” It’s evidently not a sustainable or realistic model. It’s like someone in 2008 saying “The United States is justifiably proud of their home ownership rate.” It’s not justified. The opposite. We should have been ashamed. The home ownership rate was artificially increased by unsustainable means that ultimately caused us to pay a terrible price.
After talking about how uneager many are to press for change, Erlanger observes:
There is nonetheless an underlying understanding that there will be little lasting gain without structural changes to the state-heavy French economy. The warning signs are everywhere: French unemployment and youth unemployment are at record levels; growth is slow compared with Germany, Britain, the United States or Asia; government spending represents nearly 57 percent of gross domestic product, the highest in the euro zone, and is 11 percentage points higher than Germany. The government employs 90 civil servants per 1,000 residents, compared with 50 in Germany.
Hourly wage costs are high and social spending represents 32 percent of G.D.P., highest among the industrialized countries; real wage increases outpace productivity growth; national debt is more than 90 percent of G.D.P.
About 82 percent of the new jobs created last year were temporary contracts, up from 70 percent only five years ago, not the kind of full-time work that opens the door to the French middle class. That keeps nearly an entire generation living precariously, no matter how hard people study or work.
The good news?
When the French work, they work hard; labor productivity, perhaps the single most important indicator of an economy’s potential, is still relatively high, if dropping. But with long holidays and the 35-hour week, the French work fewer hours than most competitors, putting an extra strain on corporations and the economy.
But as others have pointed out, their high labor productivity relative to other nations is a mirage. France has a high minimum wage–over $11 an hour. The least productive members of their work force aren’t working. So measured productivity of those who are working is high. If America raised its minimum wage, average productivity would increase too–not because anyone was more productive but simply because there would be fewer low-skilled workers in the economy who would bring down the average.
The overall theme of the piece is to ask whether the socialists will be able to dismantle the socialist policies that are holding France back. Should be interesting to watch. But the lesson for me is to remember that not every policy has an immediate impact. Culture can surmount some policies for a while but eventually it is hard for culture to overcome the power of incentives. The danger of this lesson is to think that you’re always right and that it is just a matter of time before your worldview is found to be triumphant. The best version of this challenge is the line that Marx was so far-seeing that his predictions haven’t come true yet. So while I am aware of my bias, it does appear that a model of growing bureaucracy, growing government spending and a heavily regulated labor market are unlikely to produce a good outcome for an economy.
Cato’s Dan Ikenson is rightly distressed that government policies in the U.S. increasingly discourage investment in America. Here’s a slice:
Unlike ever before, the world’s producers have a wealth of options when it comes to where and how they organize product development, production, assembly, distribution, and other functions on the continuum from product conception to consumption. As businesses look to the most productive combinations of labor and capital, to the most efficient production processes, and to the best ways of getting products and services to market, perceptions about the business environment can be determinative. In a global economy, “offshoring” is an inevitable consequence of competition.
Steve Landsburg is reading Robert Caro’s multi-volume biography of L.B.J. Seems that, so far at least, Steve is less impressed than are most readers of Caro’s study.
Sarah Skwire finds Austrian-economics insights in the novels of Jane Austen.
Superb news! My former GMU Econ colleague – and now Professor of Economics at Chapman University – Bart Wilson will guest blog at EconLog.
… is from page 71 of F.A. Hayek’s 1960 volume, The Constitution of Liberty:
Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions and will receive praise or blame for them. Liberty and responsibility are inseparable.
Every semester I tell my Principles of Microeconomics students the following true story.
One afternoon during my sophomore year of high school (1973-74), my friend Kerry Dugas and I were walking back from school to my house. We noticed a mildly unusual sight: my father’s pick-up truck arriving home at the same time as we were. (Dad usually got home from work about two hours later in the day.) Also, the bed of his truck was loaded with something covered by a canvas tarpaulin.
“Hi Dad. Watcha got in the truck?” He raised part of the tarpaulin to reveal toilet paper. Lots of toilet paper. He’d stocked up on toilet paper. Ever attentive to his family’s needs, Dad sprung into action after hearing of a coming shortage of toilet paper. He wasn’t about to let his wife, four kids, and father (who was living with us) be inconvenienced by such a shortage.
Kerry and I helped Dad to transfer the precious insurance against future inconvenience from his truck into his work shed, where it would be safely stored for ready accessibility when most other Americans were scrambling frantically about seeking flushable, downy-soft, yet-not-too-easily shredded paper tissues.
In teaching, I use this blast from my past when discussing the determinants of demand – one of which is expectations of the future availability of the good in question. Because my father came to expect that toilet paper would be much more difficult to acquire tomorrow, his demand for it increased today.
Until this afternoon, though, I had no idea that the great toilet-paper scare was the doing of Tonight Show host Johnny Carson. I learned of Carson’s role only just now when my colleague Dan Klein shared with me this passage from Robert Dogde’s 2006 book, The Strategist: The Life and Times of Thomas Schelling:
[In 1973] oil-producing Arab nations unleashed … an embargo on oil shipments to countries supporting Israel. By the time the embargo was lifted in 1974, the price of oil had quadrupled, and Americans were trying a variety of schemes to cope with the apparent oil shortage … On December 19, 1973, Johnny Carson opened The Tonight Show by quipping: “You know what’s disappearing from the supermarket shelves? Toilet paper. There is an acute shortage of toilet paper in the United States.” This was a joke, but the idea of a toilet paper shortage was disturbing enough to cause an unusually large number of people to decide they should stock up “just in case.”
The next morning, 20 million viewers headed to the supermarket and emptied the shelves of the available supplies, resulting in a short-lived toilet paper shortage, perhaps the only shortage ever caused by a single person. People made their decision to buy toilet paper based on the the decision they anticipated other people would make, which was also to buy more paper. People also anticipated that others were making a decision that was being made by many viewers of the show: The mentality that “I’m deciding to buy more, and I know he’s deciding to buy more” sent people rushing to get to the market first. People were thinking vicariously about what other people were thinking and what those people were thinking the same people were thinking — nobody wanted to be caught unprepared. The shortage was short lived, and Carson apologized for having brought it on.
Here’s a YouTube clip of Carson on toilet paper:
Although the competition is stiff, here’s one of the most economically uninformed notions that I’ve ever encountered – namely, that nature has an annual “budget” of resources out of which humanity consumes. (HT Daniel Hackney – who, I quickly add, recognizes the absurdity of this notion)
Naturally (pun intended), the purveyors of this economic and historical illiteracy insist gravely that we denizens of modernity are “overshooting” our budget. For much of the year (somehow calculated now to be from August 20th through December 31st), we are operating with an annual “ecological deficit.” Here’s a slice:
Just as a bank statement tracks income against expenditures, Global Footprint Network measures humanity’s demand for and supply of natural resources and ecological services. And the data is [sic] sobering. Global Footprint Network estimates that in approximately eight months, we demand more renewable resources and C02 sequestration than what the planet can provide for an entire year.
Rather than rely upon only my own scarce – although, even that, not strictly quantitatively limited – set of ideas for explaining the many faults with this notion of an “ecological budget,” let’s demonstrate the truth of the insights of scholars such as Julian Simon, Deirdre McCloskey, Israel Kirzner, and Matt Ridley by relying upon you, dear readers – in decentralized competition and cooperation with each other – to fill the comments section with your creative ideas on why the notion of an “ecological budget” is so fallacious.
Following Bryan Caplan’s practice at EconLog, I will compile the best answers into a post (with proper attributions, of course).
… is from page 251 of the 1992 collection of some of William Graham Sumner’s best essays, On Liberty, Society, and Politics (Roger C. Bannister, ed.); specifically, this quotation is from Sumner’s 1894 essay “The Absurd Effort to Make the World Over”:
Writers very often assert that something never existed before because they do not know that it ever existed before, or that something is worse than ever before because they are not possessed of detailed information about what has existed before.
The instances of Obamacare harming the very people it is ostensibly designed to help are piling up. (HT Reuvain Borchardt)
Here’s a letter to Washington, DC – based WTOP radio:
You report that “A new Economist poll finds that a majority of Americans yearn for the bubble gum days of the 1950s” (“Which era do you prefer? Poll finds Americans long for the 1950s“).
It’s hard to believe that these poll results reveal people’s informed preferences. Rather, these results likely reflect nostalgia mixed with misinformation spread by a barrage of news ‘reports’ on the allegedly stagnant – or even deteriorating – economic fortunes of middle-class Americans.
I challenge you and other Americans to do what I did and lay your hands on a Sears catalog from the 1950s. My catalog – bought recently on eBay (a company founded in 1995) – is from 1956. Peruse the catalog. What do you see? You see, for example, Sears’s cheapest TV (black’n’white, of course), priced so that a typical full-time manufacturing worker in 1956 had to toil 61 hours to earn enough money to buy that TV. Today, the typical American worker can buy an infinitely superior TV with only ten hours of work. And this lower cost in term of work-time is true for nearly everything else that Sears sells: clothing, kitchen appliances, automobile parts, office furniture, sporting goods, children’s toys. The list is long.*
An even longer list can be made of what you don’t see in that catalog or in any other record of the economy’s offerings to Americans in the 1950s: no digital cameras; no lightweight waterproof sportswear; no microwave ovens; no CDs, DVDs, or MP3 players; no personal computers; no cellphones; no GPS devices; no indexed mutual funds; no soft contact lenses; no statins; no measles or meningitis vaccines; no portable defibrillators; no oral contraception; no MRI machines. Commercial jet travel did arrive in 1958 – but at fares well beyond the reach of most Americans.
While today is far from perfect, I’ll bet my defined-contribution pension that any American – even any white, male, Christian, heterosexual American – transported from today into the 1950s would struggle to get back to the future with a fervor that would embarrass the 1985 movie character Marty McFly.
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* See the links here (starting from the bottom).
Russ Roberts, here. I haven’t posted in ages. I’ve been writing a book about Adam Smith and have finally finished a roughish draft. So I am hoping I’ll be doing more posting sooner than later. The book, by the way, is scheduled to be released in October of 2014. I’ll keep you posted on that as it moved forward.
Thanks Don for keeping Cafe Hayek stocked with good stuff for your consumption.
