In my latest column for AIER, I summarize the rent-seeking-filled history of American antitrust legislation. Here’s my conclusion:
George Stigler was incorrect. Far from monopolists being the only parties to oppose antitrust legislation, it was firms seeking monopoly power — producers seeking protection from new competitors — that pushed hard for antitrust statutes. Antitrust, while costumed as a tool to promote competition, was from its start a scheme to promote and protect monopoly power.
… is from pages 560-561 of Armen Alchian’s 1979 paper “Words: Musical or Meaningful?” which appears in print for the first time in The Collected Works of Armen A. Alchian (2006), Volume 1 (“Choice and Cost Under Uncertainty”; Daniel K. Benjamin, ed.):
But, then, if I price below cost, what is the objection to my own acceptance of that loss? I bear that social loss. No one else does. Is that not a form of charity?
DBx: If I choose to offer to you a gift in the form of performing some service for you in exchange for a sum of money that doesn’t (by some measure) cover my cost of providing that service to you, you are free to accept or not. If you’re a friend or loved one, you might reject my offer in an attempt to help steer me clear of poverty. (But please do beware that you are here skirting on the edge of arrogance.)
If you are an arm’s-length stranger, I cannot see that you have any good reason to reject my offer on the grounds that the price I ask is too low. It’s my business and mine alone to determine the terms on which I choose to offer my services. It is your business and yours alone to do the same for yourself. If you find my offer appealing, you have no good reason to reject it. You will benefit and I (by assumption) will be made economically poorer. And seller Jones who thereby sells less to you because you accepted my offer has no economic or ethical cause to complain, for you do not owe seller Jones your patronage as a consumer.
In short, if I choose to transfer some of my wealth to you, you commit no economic or ethical offense in accepting my offer.
Nothing changes if I live in, say, China and you live in the United States.
The protectionist will object to this last claim. He will point out, almost always correctly, that the only reason I offer to sell to you at a price below my cost is that my government subsidizes me with funds taken from my fellow Chinese citizens. Thus, the gift that is given to you is not from me but, instead, from my fellow citizens. And they do not give this gift voluntarily; they are forced by Beijing to give it.
The protectionist here feigns concern for the welfare of ordinary citizens of foreign countries, and to help protect the wealth of ordinary Chinese people from the predations of Beijing, the protectionist demands that his government – Uncle Sam – reduce the wealth of Americans by denying to them the freedom to purchase imports sold in the U.S. at prices made artificially low by Beijing’s subsidies.
Of course, in reality the protectionist doesn’t care one little bit about the welfare of ordinary Chinese people. The protectionist’s only goal is to protect his preferred American producers from competition. He latches on to the existence of those Chinese subsidies merely as a convenient excuse to plead for his government to do to his fellow citizens what he pretends he believes is wrongly done by Beijing to Chinese citizens.
We know that the protectionist is insincere because he never complains about the many taxes, regulations, and other burdensome interventions by foreign governments that do not increase other countries’ exports or decrease other countries’ imports.
Despite his sometimes ostentatious protests to the contrary, the protectionist is not offended by government interventions that artificially reduce ordinary people’s consumption and production opportunities. Indeed, the protectionist’s chief order of business is to make a case for such interventions in his own country, and he uses whatever duplicity, hypocrisy, half-truths, falsehoods, and twisted coils of logic he can pass off to the general public as plausible.
Here’s Jeffrey Tucker on his new book – one that I’m especially eager to read – The Market Loves You: Why You Should Love It Back.
Daniel Moore reveals some of many costs of Trump’s trade war on American consumers. (HT Walter Grinder)
Pierre Lemieux ponders how to recognize a tyrant.
Markets aren’t immune to being pulled and pushed by emotions, yet overall, they’re smarter than any one politician or administration. Markets reflect expectations of the future health of the economy. And what they’re telling us now, strongly and clearly, is that they’re uncertain about the economy’s ability to sustain a long trade war with China. That’s true even if, by some measures, China is getting hit harder than we are. The great interconnectedness of our economies means that if China “loses,” we do, too — and vice versa.
Phil Magness rescues Gordon Tullock from the same full-throttle slime machine that is operating to destroy the reputation of Jim Buchanan. (University of Chicago political science student Calvin TerBeek apparently belongs to the same school of deceptive ‘scholarship’ whose modern Dean is the so-called “historian” Nancy MacLean.)
… is from a 2007 interview that Russ Roberts did with economist Paul Romer (who is a co-winner of the 2018 Nobel Prize in Economics):
Russ Roberts: Do we really care if the television was invented in the United States versus Russia? Do we really care where the car was invented or where the next great breakthrough comes from? Does it matter?
Paul Romer: No, we don’t and it’s a really good point to emphasize. People often use these national comparisons as if it’s a race where there’s winners and losers. I often tell my students, “Any time you’re thinking about rivalry between countries, reframe the question as rivalry between states in the United States.”
Would it upset us if we lived in Illinois and Intel was making microprocessors in California? Is it bad for us that Intel develops microprocessors? Of course not. We’re glad they make them and we’re happy to use them. We get the benefits from using them. Does it make people in Illinois any worse off if people in California grow richer or develop new technology? Absolutely not. People in Illinois are better off being able to trade with California and people in California are better off being able to trade with people in Illinois and New York and the rest of the country.
So this notion that there’s a kind of a rivalry with winners and losers when we think about nations, it’s really very misleading about the underlying economics. This, by the way, was one of the advantages the United States had in the early part of the twentieth century. We were already a big free trading block when a lot of the world was still relatively closed.
DBx: One of the achievements of trade is that it allows each of us to enjoy the fruits of the minds and hands of all of the rest of us. Because I can trade with you, I need not do for myself what you can do for me better, or at lower cost. And while nothing prevents me, here today in my home in Virginia, from working to invent the likes of some new drug, some new app, some new fusion-cuisine dish, or some new clothing style, if for whatever reason I fail to do so, so what? I can spend the income that I earn from doing what I do – lecturing and writing about economic matters – to acquire these marvels from those who do invent these marvels.
The people with whom I trade are not so much in competition with me as they are cooperating with me. “I’ll do this for you,” says I to them, “if you do this for me.” With astonishing regularity, they agree. We’re all made better off. Further, it does not matter one whit if the person with whom I want to trade is Lee, my next-door neighbor in Virginia, or Li, my fellow human being in China.
And when a third party obstructs my ability to trade as I see fit, that third party obstructs my ability to cooperate productively with others. Such obstructions are anti-social.
John Stossel sent my letter of earlier today on to Victor Davis Hanson. Mr. Hanson was not impressed with my letter.
I do not have permission to share Mr. Hanson’s response, but I here share my (slightly edited) reply to his response – a reply that John Stossel forwarded to Mr. Hanson:
John,
Mr. Hanson’s attempted defense of his use of the U.S. trade deficit with China fails. The concept itself is economically insignificant, and it does not gain a whit of significance by being large in magnitude. Nor does the identity of the counterparty country matter. In a world of more than two countries, any bilateral trade deficit or surplus is a mere accounting artifact with absolutely zero economic relevance. The fact that Mr. Hanson attempts to salvage his use of the concept by pointing to its large magnitude is evidence that he here doesn’t understand the economics of this matter. Ditto for his attempt to salvage his use of this meaningless concept by suggesting that such a “deficit” with a different country would be less worrisome than is such a “deficit” with China.
Mr. Hanson gives further evidence of his failure to understand balance-of-payments matters when he refers to his credit card being maxed out. He (admittedly, like many economically uninformed people) presumes that a higher U.S. trade deficit necessarily means higher American indebtedness to foreigners. But, of course, it means no such thing.
Moving on. It would have been helpful if Mr. Hanson had carefully kept national-security concerns separate from economic-policy concerns. For productive discourse, the rules of the game cannot be – but nevertheless often do seem to be – these: “Whenever one can point to national-security concerns posed by foreign country X, (1) any amount and type of protectionism in the home country is justified, and (2) any economic argument, no matter how fallacious, in defense of this protectionism is rendered acceptable by repeating that foreign country X poses a national-security threat.”
It is impossible to tell in Mr. Hanson’s essay where his economics end and his national-security concerns begin. Many of the problems he points to are problems, not with trade as such, but simply with China’s economic growth. A richer China does indeed mean that the government in Beijing will have more resources to use militarily and diplomatically. And freer trade will make China richer, while – contrary to Mr. Hanson’s apparent belief – mercantilism will make China poorer. If Mr. Hanson really is worried that Beijing will one day pose a mighty military threat to the west, he should not write critically of Beijing’s mercantilism but in praise of it!
I’ve much more to say, but I’ll content myself with one last point. I do not think it “surreal” to argue that greater commercial ties between the Chinese and Americans work to discourage belligerence. Even if Mr. Hanson is correct in all that he says about Beijing’s current hostile attitude toward the United States, greater economic integration increases the costs, to both sides, of a shooting war. If nothing else, in the event of such a war between the U.S. and China, the Chinese investments in the U.S. that so worry Mr. Hanson would either be expropriated by Uncle Sam or lose most of their value. Are the Chinese so single-mindedly hostile to Americans that they are indifferent to the fate of their economic investments?
In conclusion here, I readily concede that Mr. Hanson knows much more about military and diplomatic history than I do. But I cannot help but discount the seriousness of what he writes when those writings are infused with a string of economic fallacies – fallacies the criticisms of which have not, despite Mr. Hanson’s protest, remotely been rebutted.
Don
Here’s a letter to National Review:
Editor:
If Victor Davis Hanson’s case (“China’s Brilliant, Insidious Strategy,” May 14) for why we Americans should fear China can be judged by the quality of Mr. Hanson’s economics, we can breathe easily. Mr. Hanson’s economic arguments are hopelessly confused.
For example, he regards America’s trade deficit with China as a “price” that we Americas pay – a price that is “now-worrisome.” But Mr. Hanson’s claim (one, of course, also made repeatedly by Trump) is economic nonsense. In a world of more than two countries, there’s no reason whatsoever to suppose that any pair of countries will import from, and export to, each other the same amounts. It follows that America’s “trade deficit” with China has no more economic significance than does Victor Davis Hanson’s trade deficit with United Airlines or his favorite restaurant.
And to the extent that America’s trade deficit with China does reflect differentially high Chinese investments in the U.S., those investments both enrich us by bringing more capital to our shores, and reduce Beijing’s incentives to wage war against America.
Another confusion: Mr. Hanson assumes that Beijing’s mercantilist policies are for China’s economy a source of strength. This assumption, too, is sheer nonsense. Cronyism and hubris in Beijing are just as certain to weaken China’s economy as cronyism and hubris in Washington are certain to weaken America’s economy. Because Mr. Hanson’s employer, the Hoover Institution, is a leader in warning of the dangers to Americans of Washington’s cronyism and hubris, it is quite curious that Mr. Hanson assumes that Beijing’s cronyism and hubris will not weaken China’s economy but instead, through some miracle, strengthen it.
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
There is a lot more that can and should be said in justifiable criticism of this essay by Hanson. If time permits, I’ll soon say two- or four-cents more.
In this superb new video, Russ Roberts digs carefully into the data and again busts the myth that asserts that over the past few decades only the American rich – and not the American middle-class and poor – have gotten richer.
… is from page 244 of Agnar Sandmo’s 2016 article “Adam Smith and Modern Economics,” which is chapter 14 in Ryan Patrick Hanley, ed., Adam Smith: His Life, Thought, and Legacy (2016):
But the mastery of techniques is not sufficient to make a good economist. He or she must also be able to develop a more intuitive grasp of the connection between the abstract models and the real economy. In this respect Adam Smith is still a good role model.
In my latest column for the Pittsburgh Tribune-Review, I attempt to reveal just how bizarro and backwards are trade wars. These wars truly are ones that each citizen should fervently hope his or her government loses. A slice:
Oh, as in real wars, in trade wars each government intentionally inflicts harm on innocent people. But unlike in real wars, each government waging a trade war intentionally inflicts harm on its own citizens — as when the U.S. government punitively taxes American buyers of Chinese-made goods in order to pressure Beijing to stop extracting revenue from its taxpayers to subsidize imports sold to Americans.
Trade wars are truly bizarre. The goal of each government in harming its own citizens with tariffs is to pressure the other government into stop harming its own citizens with tariffs.
… is from page 2 of Tyler Cowen’s excellent 2019 book Big Business: A Love Letter to an American Anti-Hero:
“Meeting payroll,” to invoke a now old-fashioned phrase, is nothing less than a heroic act. Someone or some group put in the hard work and thought up the innovations required to create a company from scratch – I know it’s easy enough to take this for granted if you aren’t the one who did it.
DBx: Absolutely true. And the fact that no entrepreneur today built the infrastructure that nearly always makes the specific form of his or her business possible – infrastructure that also ensures that the value of that business’s outputs is higher than it would be otherwise – does nothing to diminish the reality that the profits earned by successful entrepreneurs reflect only the additional prosperity that each creates for his or her fellow human beings. None of this prosperity would exist absent entrepreneurial creativity and effort.
To regard entrepreneurial profit as created by society, and the entrepreneur as merely the lucky individual upon whom entrepreneurial profit fell, is a dangerous yet common error.
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