Bonus Quotation of the Day…

by Don Boudreaux on February 26, 2020

in Politics, Virginia Political Economy

… is from page 139 of my former professor Randy Holcombe’s 2018 book, Political Capitalism: How Economic and Political Power is Made and Maintained:

Ultimately, votes [in the legislature] are currency and the legislature has few enough members that they can keep track of IOUs and make sure that debts are paid. If they are not, legislators who renege on their debts will be excluded from future political exchange and therefore be rendered ineffective. The less principled a legislator is, the more successful that legislator can be in the political bargaining process. The political process itself contains a selection mechanism that favors unprincipled politicians over principled ones.

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Here’s a letter that I sent several days ago to the New York Times:

Dear Editor:

Farhad Manjoo complains that public support for using antitrust to break up Amazon is being made too weak by Amazon’s good customer service – service that, according to Mr. Manjoo’s own descriptions, is jaw-droppingly excellent (“The Trouble With Breaking Up Amazon? Its Online Store Is So Good,” Feb. 12). This complaint is, to put it mildly, bizarre.

If the point of antitrust is to keep markets competitive so that companies are led to serve consumers as well as possible, then clearly there’s no need to use antitrust in this case. As Mr. Manjoo himself admits, “even as Amazon gets bigger, it still faces relentless competition.”

To lament the unwillingness to call on antitrust authorities to remove from a healthy industry non-existent monopoly power is akin to lamenting the unwillingness to call on surgeons to remove from a healthy body non-existent malignant tumors.

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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Quotation of the Day…

by Don Boudreaux on February 26, 2020

in Crony Capitalism, Politics

… is from pages 2-3 of Peter Schweizer’s 2013 book, Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets:

Journalists and academics look at politics through a mythical lens that harkens back to Aristotle and Plato: politics is the business of producing correct policies. We may dispute what is correct, but in the traditional view, that is the goal of the process. Media reports on government actions, whether debates, legislation, or regulation, almost always present them in terms of pure policy. New laws are for a specific purpose, perhaps even a noble one.

But what if that isn’t the real point of the exercise? What if politics is really largely about fund-raising and making money? The commercial motives of the Permanent Political Class in acting or not acting are rarely questioned and virtually never fully understood.

DBx: Yes.

In reality, of course, there are differences among the motives that move different individuals to seek success in politics, just as there are differences among the motives that move different individuals to seek success in business. But just as in reality it would be absurd to ignore the desire for personal gain when assessing the motives of people who seek success in business, it is absurd to ignore the desire for personal gain when assessing the motives of people who seek success in politics.

The range of the varieties of personal gain sought through political action among the political class is likely a bit wider than is the range of the varieties of personal gain sought through business action among the entrepreneurial class. The former, far more than the latter, includes the thrills that comes from public acclaim, from the exercise of power, and from honorifics such as being called “the Honorable.” But these thrills are personal gains for successful politicians no less than is monetary profit for successful business people. Further, the seeking of these thrills is evidence of politicians’ attention to their own interests no less than is the seeking of monetary gain evidence of business-peoples’ attention to their own interests.

Even if the likes of Bernie Sanders, Joe Biden, Elizabeth Warren, and Marco Rubio care nothing for whatever boost their careers in politics might give to their financial fortunes, as a practical matter their pursuit of political power and influence is evidence that they are at least as ‘greedy’ as are the likes of Jeff Bezos, Bill Gates, and Bob who owns Bob’s Lawn & Garden Service.

But as Schweizer reveals in his important book, this fact remains: real-world politicians, regardless of whatever other motives might be in the mix, shake their victims down for money.

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Bonus Quotation of the Day…

by Don Boudreaux on February 25, 2020

in Hubris and humility, Philosophy of Freedom

… is from page 3 of Thomas Sowell’s magnificent 1980 book, Knowledge and Decisions; it’s the book’s opening line:

Ideas are everywhere, but knowledge is rare.

DBx: We humans should be thankful for the fertility of our imaginations and the power of our minds. But we should also have a more sober appreciation than many of us have of these blessings. Among the most common of human errors is to mistake ideas for knowledge.

It’s no great achievement for a human being to get into his or her head some beautiful idea about how society or the economy should be ‘organized’ and ‘run.’ And because one’s ideas aren’t constrained by most of the scarcities that are inescapable in reality, one’s ideas are always at risk of being unrealistic.

One of the rarest of ideas is the idea that ideas are not knowledge.

Knowledge, unlike ideas, bears a necessary connection to reality. Knowledge – true, genuine knowledge – isn’t free-floating. And so knowledge does not become what the mind desires simply because the mind desires it or implicitly assumes it to exist. Nor is the knowledge necessary to make any idea ‘work’ rendered optional or unimportant by the idea-holder’s failure to realize the kind and extent of knowledge that is necessary for his or her idea to work in reality.

The world has far more ideas than it has knowledge. And despite the dreams and implicit assumptions of utopians of all stripes, ideas never spontaneously spawn the knowledge necessary for them to work in reality. Nor are ideas substitutes for knowledge.

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Matt Yglesias very nicely summarizes some of the core problems with Oren Cass’s deeply flawed chart meant to show that ordinary Americans are today worse off than they were in 1985. (Another fundamental problem with Cass’s chart, of course, is that it compares median male income to total major household expenditures. Cass really should learn not only some economics – a subject about which he is demonstrably ignorant – but also basic lessons in how to construct and interpret statistics.)

Richard Ebeling explains that we will not be saved by technocrats.

Zoey Poll reviews, in the New Yorker, Bryan Caplan’s and Zach Weinersmith’s Open Borders.

Marian Tupy and Chelsea Follett correct Bernie Sanders on Cuba.

Also rightly critical of Bernie Sanders is Jonah Goldberg. A slice:

First, while it’s true that Sanders does not advocate communism, it’s also true that when communism was still a live proposition in the Soviet Union, Sanders lavished praise on it. It’s also true that he remains bizarrely fond of other non-democratic socialist regimes, including Cuba’s. So while he may not be proposing communism for the U.S. per se, the fact that Sanders isn’t horrified by communist countries should tell you something about how far he might like to take socialism here.

Jeffrey Tucker is rightly amazed that we are again seriously debating the merits of socialism vs. capitalism.

Sweden ain’t socialist!

My GMU Econ colleague Larry White argues, in the Wall Street Journal, against the claim that the U.S. needs a national digital currency. A slice:

Those who say the U.S. government needs to act to ensure the dollar doesn’t lose its dominance to another nation’s digital currency or a private cryptocurrency have it backward. The best way to improve the speed and convenience of dollar payments is through entrepreneurial competition, not the heavy hand of government. The dollar will reign so long as the Fed keeps the dollar inflation rate low.

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In my column for the June 21st, 2008, edition of the Pittsburgh Tribune-Review I wrote about the power of ideas. You can read my column beneath the fold. (I can’t find this version on-line at the Trib, but I did find it on-line here.)

Read the full post →

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On Comparative Advantage

by Don Boudreaux on February 25, 2020

in Economics, Myths and Fallacies, Trade

In a comment at this recent Cafe Hayek post, my old friend Mark Brady writes:

If free traders are going to win the debate, they have to get to grips with the arguments presented here.
http://www.paecon.net/PAEReview/issue55/Fletcher55.pdf

[DBx: more-convenient link here]

…..

When I tried to reply to Mark’s comment, Facebook informed me that my “comment goes against” its “community standards.” Strange. Pasted below, in full and without change, is the comment that I tried to post in response to Mark’s comment:

Mark,

These ideas peddled by Fletcher have been addressed times too many to count, both by myself and by others. And they are, as you know, old: Haberler complained about them – and about their zombie character – back in 1936. Here are just a few of the more recent responses to Fletcher’s and others’ failure to understand the principle of comparative advantage:

https://cafehayek.com/2020/02/another-letter-to-ian-fletcher.html

http://www.dailyspeculations.com/wordpress/?p=6052

https://cafehayek.com/2019/11/getting-comparative-advantage-right.html

https://www.mercatus.org/system/files/de_rugy_-_policy_brief_-_new_protectionism_still_protectionism_and_bad_economics_-_v1.pdf

https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2004/1/cj23n3-6.pdf

https://cafehayek.com/2016/10/41537.html

https://www.aier.org/article/what-is-comparative-advantage/

https://www.aier.org/article/the-wonderful-surprises-of-comparative-advantage/

…..

I emphasize that the above is only a partial sampling of the responses, by myself (e.g., also here) and – more importantly, by others (e.g., Krugman) – to claims of the sort made by Fletcher (and by Sherman Xie, by Oren Cass, by Ha-Joon Chang, by Paul Craig Roberts,… this list is distressingly long).

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… is from page 165 of Tom Bethell’s excellent 1998 book, The Noblest Triumph:

We should also bear in mind that there is no inequality so great as that between command givers and receivers.

DBx: This point is vital. Jeff Bezos has in his financial portfolio many more meaningful zeros to the left of the decimal point than I have in my portfolio. A multitude more. But Jeff Bezos, as a private person – regardless of his financial fortune – can exercise over me or anyone else no power. He cannot tell me what to do. He cannot violate my rights. He cannot take my stuff. He cannot compel me to use his services. He cannot tax me. If he wants my dime, he must offer to do for me something that I find so worthwhile that I voluntarily pay to him my dime. If he fails to offer me any such thing, I keep my dime.

Not so with government officials. By majority vote in the United States, they can take my dime – and my dollars – largely at will. (The Constitution is no longer much of a constraint on such activities.) And far from having, unlike Bezos, to get my approval, all these politicians must do is to get the support of a coalition of some of my fellow citizens – support that these politicians buy with promises to share with the coalition a portion of the dimes and dollars that are taken from me.

From angry old socialist Bernie Sanders on the left to earnest young conservative Oren Cass on the right, America today swarms with people lusting for state power to be amassed and deployed to bring about the paradise that each imagines can be realized if enough ‘right’ people are given enough power to command. Of course, the all-important details of each of these coercion-constructed paradises differ from the details of each of the many other fancied paradises – thus promising destructive conflict down the road.

But what is shared by each of the architects of these coercion-constructed paradises is the conceit that he or she, well-meaning genius that he or she is, has uniquely glimpsed a bright future, knows best how to scheme to bring this future about, and can be trusted – cross-my-heart-and-hope-to-die – to use the required coercion selflessly, wisely, and in ways that will – contrary to all historical experience – have no unintended ill-consequence.

This conceit, of course, is fatal. And it is no less lethal when oozing from self-described conservatives and “economic nationalists” than when gushing from proud “Progressives” and socialists.

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Oren Cass – as part of his effort to build a conservative case for industrial policy and protectionism – argues that ordinary Americans have stagnated economically for decades. Predictably, Cass is getting lots of love from those who are committed to the wildly popular belief that ordinary Americans have stagnated economically for decades. Pessimism and bearing bleak news are oh-so-hip and sciencey-sounding.

It’s also, conveniently, oh-so-convenient for those grasping for ever-more state power to be used to coerce peaceful people and to override market processes. If the economy isn’t working, what alternative do we have but to put more of the economy into the hands of politicians and mandarins? What could possibly go wrong?! (Cass, by the way, is only the latest in a long line of pundits to peddle the stagnationist thesis. And I’m sure that he won’t be the last. [See my point just above regarding the political convenience of this thesis.])

Fortunately, a number of competent scholars, such as Scott Winship, are on the job unpacking and exposing the many errors, oversights, and questionable interpretations that infect Cass’s rendition of the stagnationist thesis. One of these hard-working scholars is American Enterprise Institute economist Mark Perry, who sent to me the graph below which he compiled from U.S. Bureau of Labor Statistics data. Mark’s graph suggests a very different account from that which which is offered by Cass.

I’m sure that Mark will post more about this graph specifically, and about this issue more generally, on his excellent blog, Carpe Diem. And so I’m especially grateful for his permission for me to share his graph here.

…..

Here, by the way, is my and Mark’s January 24th, 2013, Wall Street Journal op-ed in which we took issue with the myth of middle-class stagnation.

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In my latest column for AIER I offer a short primer – it’s just over 1,100 words – on international trade and that nest of fallacies known as “protectionism.” A slice:

– To the extent that tariffs succeed in protecting jobs in some domestic firms, they destroy jobs elsewhere in the domestic economy.

Insofar as tariffs enable some domestic producers to raise the prices they charge – and, thus, prompt these protected firms to produce more output than they would produce absent the tariffs – consumers have less money to spend on other goods and services. Demand for other domestically produced goods and services is artificially lowered by the same tariffs that artificially raise demand for the output of protected firms. While output and employment in protected firms rise, output and employment elsewhere in the domestic economy fall.

Tariffs do not increase total domestic employment over the long run, and nor do tariffs decrease this employment. Tariffs shift employment. Tariffs shift employment away from unprotected industries to protected ones.

– In the absence of any home-country trade restrictions, workers and other domestic resources would tend to be employed in ways that produce the most value.

This happy outcome is ensured by competition. Workers employed to produce domestically what can be imported at lower costs are workers employed inefficiently. With free trade, these workers would lose their jobs. They would eventually find employment producing outputs that are produced most efficiently in the home country.

– Tariffs, therefore, by protecting workers employed inefficiently from losing their jobs, cause workers and other resources to be employed less productively than otherwise.

Because over the long run wage rates are determined by worker productivity, protectionism – by keeping workers in less-productive employments – keeps real wages lower than wages would otherwise be.

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