Emergent Order

by Don Boudreaux on September 14, 2019

in Complexity & Emergence, Curious Task, Hayek, Video

Please watch this remarkably wonderful video on spontaneous order. Produced by the Institute for Humane Studies at George Mason University, it features Duke University economist Bruce Caldwell.

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… is from pages 338-339 of George Will’s 2019 book, The Conservative Sensibility:

The more that individualism can be portrayed as a chimera, the more that any individual’s achievement can be considered derivative from society, the less the achievements warrant respect. And the more society is entitled to conscript – that is, to socialize – whatever portion of the individual’s wealth that it considers its fair share. Society may, as an optional act of political grace, allow the individual to keep the remainder of what society thinks is misleadingly called the individual’s possession. Note that “society” necessarily means society’s collective expression: the government. Note also that government will not be a disinterested judge of what is its proper share of others’ wealth.

DBx: So very true.

“Progressives” and many others hold that the individual is so overwhelmingly a product of society that no individual has much, if any, real influence over what he or she does or doesn’t do, at least economically. How ironic, then, that people who hold this ‘theory’ of the individual and society have as their theory of society only the childish notion that society is the creation of the state and receives its direction from the state.

Such people, in other words, have no real theory of society whatsoever. Society, for such people, is simply the conscious creation of the state. This understanding of society as the conscious product, fashioned through the state, of a collective will is so simplistic as to not be worthy of the term “theory.”

But call it what you will. In this notion of society, the chief and grandest role of the individual is to vote; voting is the primary role of the individual in society.

Individuals vote; majority outcomes arise; the state crafts society according to what the majority wants. And – in this worldview – there is very little that the majority can possibly want that the state ought not commence to deliver. Apart from a (shrinking) handful of select freedoms, such as some freedoms regarding reproduction, the individual is believed to have no rights that trump majoritarian outcomes.

And in this worldview, not only is the state duty-bound to obey the dictates of the majority, the state is assumed to be exempt from economic reality. Is availability of housing thought to be inadequate? No problem. Make housing more abundant than it really is by declaring it so in the form of mandated lower monetary rental rates.

Are some workers paid less than intellectuals and politicians deem adequate? No problem. Make these workers’ skills more valuable by declaring them with minimum-wage statutes to be so.

Is the loss by some workers of jobs to imports believed to be unfair? No problem. Impose tariffs to remedy this unfairness – blind, alas, to the resulting and unfair tariff-induced destruction of jobs elsewhere in the domestic economy, as well as to the resulting reduction in living standards.

To the degree that someone believes that intentions are results and that all results are intended, that someone has no theory of the economy or of society. Amazingly, many of the people who fancy themselves to think most deeply about the economy and society believe, to a high degree, that intentions are results and that all results are intended.

So simple. And so mistaken.

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What If All Reality Were Optional?

by Don Boudreaux on September 13, 2019

in Prices, Reality Is Not Optional

A majority of politicians and pundits believe that economic reality is optional. Of course, they don’t express this belief in any manner so direct. But one can logically infer this belief from their policy proposals.

Take, for example, support for rent control. Having the state keep the monetary prices of rental units below the values that would arise in free markets is believed by many pols and pundits – and by nearly all “Progressives” – to effectively keep the actual market values of rental units at whatever low prices the state sets. In this reality-is-optional world, when the state pushes down nominal rental prices, the quantity of rental units supplied not only does not fall, it increases to match the increase in the quantity of rental units demanded.

Want more housing for folks with modest incomes? No problem! We’ll just push the rental prices lower to increase ordinary folks’ access to housing. See, the world is such a simple place!

Similar reality-is-optional ‘solutions’ are minimum-wage statutes (for increasing the pay of low-skilled workers) and mandated paid-leave (for increasing the welfare of all workers).

Pondering this strange notion that the state can make market values be whatever the state wants them to be merely by dictating changes in the names of market values – that is, changes in nominal prices – I wondered what the world would be like if miracles more broadly could be worked merely by changing nominal designations.

Here are some examples of what this reality-is-optional world would look like:

– Jane is brutally murdered by her suspicious husband, Joe. The state then orders detectives from the police department to report that Joe only raised his voice at Jane and never harmed her physically. Poof! Jane is alive, and she and Joe are attending marriage counseling.

– Joe, in fact, had good reason for suspecting that his wife had been unfaithful to him, for she in fact had been unfaithful to him. But the state orders the marriage counselor to inform Joe that his wife had never cheated on him. Poof! Jane’s history is erased; she had never cheated on Joe. The marriage is saved!

– A fire erupts in a high-rise apartment building, killing two dozen people. The state then orders newspapers to report that the only fire that occurred in the building was a small one in the oven of unit 1901. Poof! Twenty-four people who had died are now alive, and the building shows no sign of any fire damage.

– Janice Doe, M.D., has diagnosed her patient, Richard Roe: Mr. Roe, after having smoked three packs of cigarettes daily for 20 years, has stage four lung cancer. He has, at most, only a few months left to live. The state, however, orders Dr. Doe to tell Mr. Roe that his only ailment is a sore throat caused by cheering too loudly at the previous day’s baseball game. Dr. Doe is further commanded to assure Mr. Roe that smoking not only is not bad for his health, but that it’s positively beneficial to it. Poof! Upon Dr. Doe delivering to Mr. Roe the state-ordered information, Mr. Roe is cancer free and eager to improve his health even further by increasing his frequency of smoking from three to four packs daily.

…..

Of course, all such scenarios are ludicrous. Reality isn’t changed merely by reporting that reality is other than what it is. In fact, reality is made worse by false reports because, unable to learn the truth about reality, people act in ways that are inconsistent with reality, thus worsening their situations.

Yes – but why, then, do so many people believe that economic reality is optional? Why do so many people believe that economic reality can be made to be whatever the state wants it to be merely by having the state order that reports of economic reality lie about that reality? All state-imposed price controls – rent control, minimum wages, you name it – are state-dictated lies about reality.

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… is from page 145 of my GMU Econ colleague Larry White’s excellent paper “The Conflict Between Constitutionally Constraining the State and Empowering the State to Provide Public Goods,” which is chapter 7 in Richard E. Wagner, ed., James M. Buchanan: A Theorist of Political Economy and Social Philosophy (2019):

It is rather that we should not forget, in moving our attention from blackboard constructions to the phenomena of the world outside the classroom, that the benefits of any proposed public good are no more than hypothetical. They are, by the premises of the theory, unobservable. Public goods theory thus does not provide an objective standard to guide public policy-making. It is epistemically impractical.

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My intrepid Mercatus Center colleague Veronique de Rugy, writing with Jack Salmon, rightly criticizes popular proposals to further subsidize higher education.

Kai Weiss eloquently exposes the fatal conceit of Mary Eberstadt, J.D. Vance, and other “national conservatives.” A slice:

As Steven Horwitz writes in another reply to Vance over at EconLib, simply because Vance thinks government should solve all of the crises he has diagnosed, does not mean it would be successful in it. In fact, the state in all likelihood will fail (think of public choice economics, false economic premises when it comes to protectionism, or that whole cronyism thing as just a few examples why). Instead, national conservatives “will likely exacerbate the very social ills they hope to remedy.”

And here’s John Hood on nationalist conservatives. (HT Arnold Kling)

Mike Munger clearly explains what should be – but what clearly isn’t – obvious: employment is not created by outlawing employment. The background is California’s insistence on stripping drivers for companies such as Uber and Lyft of their contractual rights. A slice:

The real comparison is not between the current situation of exploited contractors and “good jobs with benefits”; the real comparison is the current situation of an effective and highly flexible system for making more efficient use of excess capacity through commodification via app-based business, and no jobs at all.

Sadly, Trump is not alone in utterly failing to understand international trade. See also Eric Boehm.

Ryan Bourne reveals the reality behind rent-control – the reality being that reality isn’t optional.

Mark Perry unpacks the numbers on income inequality.

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And, Also, the Earth Is Flat

by Don Boudreaux on September 13, 2019

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Editor:

Peter Navarro’s series of assertions that Pres. Trump’s tariffs are “working” is an intellectual dumpster fire (Letters, Sept. 11). Ironically, this eruption of red herrings and irrationalities only further proves that anything that Navarro says or writes about trade ought to be dismissed out of hand

Forget that Navarro ignores the central economic argument against tariffs, namely, that while they do indeed help protected industries, they create greater losses throughout the home economy – losses such as jobs destroyed in unprotected industries, and a reduction in the quantities and qualities of goods and services available to consumers.

Focus instead on his boast that “The Trump tariffs are attracting billions of dollars of foreign investment in manufacturing on U.S. soil.” If true, these investments almost surely increase the U.S. trade deficit – and certainly do nothing to decrease it. So given Trump’s and Navarro’s repeated hysterical warnings about the dangers of  the U.S. trade deficit and their promises to reduce it, why does Navarro here boast about an outcome that promotes U.S. trade deficits?

The fact that U.S. trade deficits in reality are not the problem that Navarro and Trump assert them to be is here irrelevant. Also here irrelevant is the fact that foreign direct investment in the U.S. hit its all-time high in the second quarter of 2018, just as Trump began to escalate his tariffs and that, contrary to Navarro’s suggestion, this investment has since fallen.

What is relevant is Navarro’s shocking failure to understand the elementary point that there’s a positive connection between foreign investment in the U.S. and U.S. trade deficits.

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 September 13, 2019

in Other People's Money

… is from page 286 of the 1982 Norton Critical Edition of William Dean Howells’s great 1885 novel The Rise of Silas Lapham; here, Lapham – a Boston manufacturer – was just offered in on a shady business deal that, he was assured, were it to fail the resulting loss would “fall upon people who are able to bear it”:

There was nothing in the Englishman’s sophistry very shocking to Lapham. It addressed itself in him to that easy-going, not evilly intentioned, potential immorality which regards common property as common prey, and gives us the most corrupt municipal governments under the sun – which makes the poorest voter, when he has tricked into place, as unscrupulous in regard to others’ money as an hereditary prince.

DBx: So true.

The state – assumed by many people, and by nearly every economist, as finding its first and core justification in supplying public goods, including the “internalization” of externalities – in fact creates mountains of negative externalities by enabling Jones to spend Smith’s money, Smith to spend Jackson’s, and Jackson to spend Jones’s.

It’s fashionable today to call this arrangement “progressive” and “humane.” In reality, it’s idiotic and destructive.

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… is from my late Nobel-laureate colleague James Buchanan’s important January 1st, 2000, Wall Street Journal essay titled “Saving the Soul of Classical Liberalism”:

It is only through an understanding of, and appreciation for, the animating principles of the extended order of the market that an individual may refrain from nonsensical political action. Those who advocate minimum wage laws, rent controls, price supports, or monetary inflation simply do not have an understanding of the individual or the marketplace. For the scientist in the academy, understanding such principles should translate into advocacy of classical liberal stances. But economic scientists alone do not possess the authority to impose their own opinions, the citizenry at large must also be brought into the fold.

DBx: Yes.

Because cause and effect in economic reality are no where close to being as easily and as surely identified as they are in physical reality, the role of the sound economic educator is of great importance. A person who proclaims that humans can fly off of skyscraper roofs by flapping their arms will get very few, if any, converts to his or her position. Physical reality speaks clearly.

Yet a person who proclaims that tariffs increase national prosperity, that minimum-wage and mandatory paid-leave requirements improve the well-being of workers generally, or that “free” college tuition will lower the cost of college and that “free” health-care will increase the accessibility of high-quality health-care receives applause, cheers, and – worst of all – votes.

Although these propositions are no less absurd than is the proposition that human flight is possible by the mere flapping of arms, the enormous complexity of society masks the calamitous consequences of these and other similarly wrong-headed policies. The invisibility to the naked eye of these consequences makes necessary the role of the economic educator in helping people to see that which would otherwise remain unseen.

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My intrepid Mercatus Center colleague Veronique de Rugy rightly bemoans Trump’s trade lunacies. A slice:

The president’s profound misunderstanding of what victory looks like is particularly visible in his multifront attack on trade and globalization. All in the name of putting America first, he withdrew from the Trans-Pacific Partnership, treated our trade partners like enemies, forced a renegotiation of NAFTA with no clear idea of whether the new deal (the United States-Mexico-Canada Agreement) could ever be ratified, implemented tariffs to fight imaginary national security menaces and started a trade war with China without any clearer strategy than his willingness to jack up tariffs at all costs.

David Henderson rightly explains that Adam Smith would strongly disapprove of Trump’s trade lunacies. A slice:

Even if you worry about the current account deficit, there is no good reason to worry about a current account deficit with a particular country. We in America buy goods and services from scores of countries around the world. People in scores of countries buy goods and services from us. There’s no reason that the dollar value of what we buy from a particular country should equal the dollar value of what people in that country bought from us. The reason it doesn’t matter can best be seen if we drill down to trade within a country. My wife and I probably spend over $2,000 a year on groceries from our local Lucky supermarket in Pacific Grove, California. But Lucky spends nothing on goods and services from us. So our current account deficit with Lucky is over $2,000. We’re not worried. The facts don’t get scarier if we plus up to all the people in the United States and all the people in another country.

George Will writes insightfully from Hong Kong about the protests there.

Brittany Hunter laments the damage that California’s government is inflicting on the gig economy and those who earn incomes in it.

Here’s Arnold Kling on two modes of political discourse.

If by “history” is meant fiction concocted in service to an ideological agenda, then people such as Ed Baptist are, like Nancy MacLean, historians of indisputable excellence. Phil Magness explains.

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Quotation of the Day…

by Don Boudreaux on September 12, 2019

in Virginia Political Economy

… is from pages 165-166 of my late Nobel-laureate colleague Jim Buchanan’s important 1986 paper “The Potential for Tyranny in Politics as Science” (reprinted in Moral Science and Moral Order [2001], Vol. 17 of The Collected Works of James M. Buchanan):

There is simply nothing analogous to [scientific] truth in politics at all. There is no unique value “out there” that exists, or that should be thought to exist, apart from the individual valuations.

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