… is from page 116 of Thomas Sowell’s excellent 1984 book, Civil Rights: Rhetoric or Reality? (original emphasis; footnote deleted):

To say that some employers are mistaken in their criteria [of which workers to employ] is to say that other employers have special profit opportunities by hiring those workers passed over – and in a competitive market, that means that mistakes are likely to be corrected. It does not mean, however, that every difference in “representation” is a mistake, or that race, sex, or other group designations were used as criteria. Third-generation Mexican Americans earn 20 percent higher incomes than first-generation Mexican Americans of the same age, though it is doubtful if most employers seek the genealogical information necessary to make such a distinction.

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Matthew Lau and I each contributed an original essay to a Fraser Institute project on deficit spending.

Here’s a direct link to Matthew’s essay, and here’s a direct link to my essay.

And here’s a slice from my essay:

Most of the debate surrounding Keynesian economics focuses on technical or theoretical questions. For example: How sticky are wages? Does government spending crowd out private spending? Is there really a tradeoff between inflation and unemployment?

But in their 1977 book, [James] Buchanan and [Richard] Wagner took a different tack. They argued that even if Keynesian theory is correct, the guidance that it offers for public policy is politically naïve. While politicians will—as Keynesianism counsels—eagerly borrow and spend during periods of unemployment, politicians will stubbornly not follow Keynesian policy prescriptions during times of full employment or inflation. During times that call for tight fiscal policy, no less than during times of unemployment, politicians will engage in debt-financed spending. The reason is that spending more today without simultaneously raising taxes is nearly always a good strategy for winning votes, for it allows citizen-taxpayers today to consume government programs today that will be paid for by future generations. As Buchanan and Wagner summarize, “the Keynesian theory of economic policy produces inherent biases when applied within the institutions of political democracy” (1977: Preface).

Buchanan’s and Wagner’s criticism of Keynes went still further. Keynes and his disciples, argued Buchanan and Wagner, undermined the moral aversion to debt-financed spending not only by actively encouraging such spending whenever a case can be made that aggregate demand is too low, but Keynesians also rejected the long-standing view of economists that debt-financed spending is paid for by future generations. Keynesians rejected this view by insisting that government debt that is “owed to ourselves” is no burden on future generations.

The Keynesian argument regarding debt that “we owe to ourselves” is that the losses to the citizen-taxpayers who must pay the bondholders are offset by the gains received by the bondholding citizens. Voila! Debt creates no net burden on future generations! But this argument, whatever its other flaws, ignores the fact that debt financing nevertheless allows some people (namely, today’s citizen-taxpayers) to spend money belonging to other people (namely, tomorrow’s citizen-taxpayers). And thus debt financing encourages excessive government spending.

But no matter. Widespread acceptance of this Keynesian argument conveyed the false impression that debt financing imposes no burden on future generations. Thus today’s citizen-taxpayers are relieved of qualms they once suffered about government spending borrowed funds. The resulting explosion of government’s net indebtedness, both in Canada and in the US, was no surprise to Buchanan, but it was a source of great worry. That worry now seems justified.

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In my latest column for AIER, I explain that, even starting with significant unemployment, increases in employment and output resulting from discretionary fiscal and monetary policies are not costless. Here’s my conclusion:

This summary of some of the ‘costs’ of discretionary fiscal and monetary policies ignores additional concerns expressed by Austrian economists. One such additional concern is the fact that, in practice, government stimulation of aggregate demand unavoidably raises some prices and wages before it raises others. This distortion of relative prices disrupts the market’s ability to accurately inform market participants of the best uses of their resources.

A second, related additional concern is that government stimulus can suppress nominal interest rates and thereby fuel excessive investment in projects that aren’t economically sustainable.

The above considerations don’t prove that discretionary fiscal and monetary policies aren’t worth their costs. Perhaps they are, for to the extent that these policies reduce unemployment, they yield real benefits. But these benefits are not cost-free. Whether the benefits of such policies are worth their costs is a separate, empirical question. It is a question that ought to be asked and answered. Unfortunately, however, it is a question that is thoughtlessly swept and kept off the table by the careless habit of asserting that reductions in unemployment – and the resulting increases in market outputs – brought about by discretionary fiscal and monetary policies are a free lunch. After all, there’s no point in doing a cost-benefit analysis of policies that are believed to produce benefits without costs. This belief, alas, is unwarranted.

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Quotation of the Day…

by Don Boudreaux on May 18, 2022

in Competition, Seen and Unseen

… is from page 1 of the 2006 Liberty Fund edition of Ludwig von Mises’s 1956 volume, The Anti-capitalistic Mentality (available free-of-charge on-line here):

On the market of a capitalistic society the common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality. Those shops and plants which cater exclusively or predominantly to the wealthier citizens’ demand for refined luxuries play merely a subordinate role in the economic setting of the market economy. They never attain the size of big business. Big business always serves – directly or indirectly – the masses.

It is this ascension of the multitude in which the radical social change brought about by the “Industrial Revolution” consists. Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass. They are the customers who are “always right,” the patrons who have the power to make poor suppliers rich and rich suppliers poor.

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Here’s a letter to the Wall Street Journal:

Editor:

You detail many problems with Elizabeth Warren’s economically illiterate effort to fight inflation with price controls (“The Senators from Venezuela,” May 17). Here’s one more: By penalizing price increases that firms cannot prove are the result of corresponding cost increases, Warren’s scheme would block the market’s ability to pass along to producers and consumers newly discovered information about forthcoming reductions in supplies.

The moment, say, a hurricane begins to threaten to damage oil-refining capacity, economic efficiency requires that all gasoline – including that which is already in retailers’ tanks – be economized with even greater care than would be appropriate were there no hurricane. In other words, the moment the storm begins to threaten refining capacity, the gasoline in retailers’ tanks becomes more scarce and, hence, more valuable. Retailers should raise prices immediately in order to incite motorists to use gasoline more sparingly, and to incite producers to take out-of-the-ordinary steps to mitigate the anticipated supply reduction.

By preventing prices today from signaling tomorrow’s reduced supplies of goods and resources, Sen. Warren’s legislation would encourage wasteful consumption and discourage beneficial production.

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

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David Boaz remembers the late George Smith.

Writing in the Wall Street Journal, Todd Henderson warns against government regulation of Google ads. (DBx: Although I agree with Todd’s opposition to attempts to regulate advertising on Google – and I agree with him also that the market for on-line advertising differs in important ways from markets for financial securities – I am much more opposed to financial-market regulation than Todd seems to be.)

Art Carden wonders which non-Nobel-laureate economists should have been awarded the Nobel Prize.

My GMU Econ colleague Bryan Caplan has no patience for vacuous nonsense.

Ryan Bourne and Brad Subramaniam are not impressed with Elizabeth Warren’s newly unveiled whackadoodle scheme to outlaw so-called “price gouging.”

AMA Proudly Beats Back Competition.

Anti-Vaping Hysteria Is Deadly.”

Peter Coclanis exposes the flaws in Matthew Desmond’s contribution to the “1619 Project.” A slice:

Desmond’s melodramatic narrative, like that of the 1619 Project generally, is as tendentious as it is thinly sourced. Except for a one-off nod in the direction of the distinguished economic historian of slavery Stanley Engerman (2000, 480), virtually every authority invoked and assertion made in Desmond’s piece are associated with the New History of American Capitalism movement and its take on slavery and capitalism. Indeed, although the piece is not footnoted, most of it seems to have been drawn from a single text—Slavery’s Capitalism, edited by Beckert and Rockman (2016b)—supplemented by a sidewise glance at Walter Johnson’s River of Dark Dreams (2013). To be sure, an author has the right to his or her own path, but in a publication intended for a broad, nonspecialist audience, doesn’t every author also have an obligation to point out that there are other paths and that the path depicted has its critics and detractors? If Desmond opted for complete transparency, he might even have pointed out that almost every serious economic historian of slavery has rejected the basic NHAC positions he lays out in his essay, in most instances to devastating effect.

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Here’s a letter of mine that appears in today’s Boston Globe:

Editor:

Jeff Jacoby’s attempt to calm people’s fears of a U.S. trade deficit is informed and eloquent (“The trade deficit is up again. No worries.” May 11). Applause would come even from Adam Smith, who wrote that “[n]othing, however, can be more absurd than this whole doctrine of the balance of trade.”*

So true.

Unfortunately, it’s also true that nothing can be more serviceable for politicians itching to transform economic ignorance into votes than this whole doctrine of the balance of trade. Bellowing about “the trade deficit” is a sure-fire way to incite the economically uninformed to support protectionist restrictions that artificially enrich political powerful producers at the larger expense of the public. This cronyist transfer of wealth will end only when we eliminate a deficit that we should truly fear, namely, the deficit of economic understanding. Fortunately, Jacoby is on the job.

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

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Book IV, chapter 3, paragraph 31.

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Some Covid Links

by Don Boudreaux on May 17, 2022

in Crony Capitalism, Current Affairs, Seen and Unseen

University of Auckland Professor of Experimental Economics, Ananish Chaudhuri, is interviewed about his new book, Nudged Into Lockdown? Behavioural economics, uncertainty and Covid-19. Two slices:

Behavioural economics explains the failure to incorporate human response factors into the epidemiological models on which the lockdowns were based. Humans tend to focus on losses that are immediately in front of them rather than those that are more diffuse and dispersed in the background, even when they are larger.

…..

It was easier to justify lockdowns based on “saving lives” when faced with statistically high but overstated death projections. It was said no cost was too much in doing this, though calculations on the costs of lives are common for purposes such as insurance or building roads.

Chaudhuri argues public opinion demands moderation when costs vastly outweigh benefits. The Government did not act moderately until Omicron was endemic in the community, finally forcing the vast bureaucracy of the MIQ system to be dismantled without any effect on the fatality rate or hospital overload.

Another contentious claim is that the lockdown proponents started from the viewpoint that people couldn’t be trusted and should be coerced en masse into quarantine or managed isolation under threat of punishment. The regulations prioritised some lives over others, while opponents were accused of being guilty of the same thing.

The plight of bankrupted family-owned businesses, farmers who couldn’t harvest their crops and migrant workers left in limbo were just some examples of human rights and freedoms being trashed.

K. Lloyd Billingsley reports on conflicts of interest at the National Institutes of Health. A slice:

As [Adam] Andrzejewski explains, the NIH doles out $32 billion in grants to some 56,000 grantees, and over 11 years, approximately $350 million is “flowing back to NIH scientists and leadership.” With the NIH blocking requests for information, the payments are receiving no scrutiny, “on its face a conflict of interest.” Taxpayers and unwitting participants in medical trials might dial back to Dr. Fauci’s first “treatment” for AIDS.

auci promoted trials of AZT (azidothymidine), marketed as Zidovudine, a DNA chain terminator rejected for cancer treatment because of cytotoxicity, and lethality to cells. In 1987 the FDA approved AZT at lightning speed, which disturbed molecular biologist Dr. Harvey Bialy, who was the scientific editor of Biotechnology.

“I can’t see how this drug could be doing anything other than making people very sick,” said Dr. Bialy, but at the time, AZT was making some people very rich. After FDA approval, Burroughs Wellcome stock went through the roof. At $8,000 per year per patient, AZT was the most expensive drug ever marketed. As the BBC showed in “Guinea Pig Kids,” Fauci also conducted trials of AZT and other dangerous drugs on black and Hispanic foster children in New York City.

In her 1995 book, The Search for an AIDS Vaccine, Fauci’s wife Christine Grady said children and pregnant women were suitable subjects for drug trials and touted “the availability and effectiveness of AZT.” As the couple had to know, it was anything but.

el gato malo is correct:

if you learn one thing from the last two years, learn this:

the road to perdition is paved in apathy.

this was done to you, not for you.

and it will not change until we change.

In China, covid tyranny continues – as do protests against it.

Here’s Jay Bhattacharya, on Twitter, decrying the goings-on in today’s dystopian Shanghai:

Read this thread about one night in the Shanghai lockdown. The authorities killed pet cats and dogs of people who tested positive. Some owners released their pets into the city to save them. Now feral, they attack each other, howling in hunger every night.

Covid lockdowns left toddlers unable to speak or play properly.”

Future generations will look back upon covid hysteria and shake their heads in a combination of amazement and despair at the realization that humans can be so very irrational and cruel. (HT Jay Bhattacharya)

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Quotation of the Day…

by Don Boudreaux on May 17, 2022

in Trade

… is from page 228 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 (typo corrected):

Parochialism kills progress by forcing attention in-group, rather than allowing, let alone enabling, individuals in their quest to seek new ways to learn and benefit from others. Turning inward means turning away from pursuing productive specialisation and peaceful social cooperation in the global marketplace.

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… is from page 285 of F.A. Hayek’s profound 1952 book The Counter-Revolution of Science, as this book appears as part of volume 13 (Studies on the Abuse & Decline of Reason, Bruce Caldwell, ed. [2010]) of the Collected Works of F.A. Hayek:

The discussions of every age are filled with the issues on which its leading schools of thought differ. But the general intellectual atmosphere of the time is always determined by the views on which the opposing schools agree. They become the unspoken pre-suppositions of all thought, and common and unquestioningly accepted foundations on which all discussion proceeds.

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