Bonus Quotation of the Day…

by Don Boudreaux on September 23, 2020

in Complexity & Emergence, Seen and Unseen

… is from page xiv of the Mercatus Center’s hot-off-the-press 2020 reissue of the late Ludwig Lachmann’s 1986 book, The Market as an Economic Process:

The central idea of this book is the market regarded as an economic process, that is, an ongoing process, impelled by the diversity of aims and resources and the divergence of expectations, ever changing, in a world of unexpected change.

DBx: Lachmann here describes well a central feature of real-world markets.

Nothing is more uninformed and off-base than are the many allegations that those of us who propose to “let the market handle it” are lazy simpletons who are enchanted by a false nostrum. In reality, we advocates of the market process and opponents of industrial policy and other forms of interventionism endorse the market precisely because we appreciate, far more than do most other people, the astonishing complexity, and importance of detail, of real-world economic challenges, possibilities, and limitations.

The true simpletons are those many persons – left and right – who suppose that government officials are capable of gathering and processing enough knowledge to ensure that their commands will result in economic outcomes that are superior to the outcomes that emerge from decentralized competitive market processes.

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In my column for the September 15th, 2010, edition of the Pittsburgh Tribune-Review I wrote about Cuba and intellectuals’ gullibility for brutes promising to bring paradise. You can read my column beneath the fold.

Read the full post →

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Quotation of the Day…

by Don Boudreaux on September 23, 2020

in Media, Seen and Unseen

… is from page 128 of the late Hans Rosling’s 2018 book, Factfulness; it’s from a chapter titled “The Size Instinct”:

You tend to get things out of proportion. I do not mean to sound rude. Getting things out of proportion, or misjudging the size of things, is something that we humans do naturally. It is instinctive to look at a lonely number and misjudge its importance. It is also instinctive … to misjudge the importance of a single instance or identifiable victim. These two tendencies are the two key aspects of the size instinct.

The media is this instinct’s friend. It is pretty much a journalist’s professional duty to make any given event, fact, or number sound more important than it is. And journalists know that it feels almost inhuman to look away from an individual in pain.

DBx: In this book, Rosling doesn’t mention Bastiat. But Rosling here describes the distortions in people’s perceptions that many of us classify under the heading “what is seen and what is not seen.” Anyone blind to the unseen focuses only on what is seen. It is what is seen that is addressed. Action is taken on the basis only of what is seen.

But that which is seen is often only a tiny feature of a much larger group, the bulk of which is invisible. And so actions that appear to be admirable and compassionate – because these are aimed at changing for the better that which is seen – are in fact often harmful because these actions are taken without knowledge of the larger group.

Home-country workers who lose their jobs to imports are seen; so tariffs help them. Protectionists are applauded for their intentional humanity. Home-country workers (and foreign workers) who lose jobs because of these tariffs, and consumers whose real incomes are reduced because of higher prices, are unseen. Protectionists are not derided for their unintentional cruelty.

Paid leave required by government is seen; the resulting reductions in other forms of compensation, and the greater difficulty of many workers to get jobs as goods as possible for them, are unseen.

Workers whose wages are pushed up by minimum-wage statutes are seen. Workers rendered unemployed or who suffer worse employment conditions are unseen.

People suffering and dying from covid-19 are seen and easily filmed. And while some of the damage done by the hysteria and lockdowns is seen – for example, shuttered stores and unemployed workers – much of the damage is unseen. The people who suffer and die from other ailments because access to medical care was made unnecessarily difficult by the lockdowns – the new businesses not created – the friendships in school not made – the stream of anti-social consequences that will long haunt us now that so many of us regard other human beings as carriers of death – the inevitable abuse into the future of the malignant eruption of arbitrary state power – all this and much more is unseen.

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… is from page 79 of Pierre Lemieux’s excellent 2018 monograph, What’s Wrong With Protectionism?:

There is no reason to believe that more market failures occur in international trade than in domestic trade. But even if, in special circumstances, a convincing case could be made for market failure, there is no reason to believe that politicians and bureaucrats (who, in practice, run the government) could provide an efficient solution. Even if those individuals were perfectly well intentioned, they are not omniscient and cannot comprehend the detailed complexity of the economy. They lack local knowledge about consumer preferences and the costs and opportunities of producers…. Political failures are likely to be more damaging than any market failure, as shown by historical attempts to plan and control economies.

DBx: Yessir. And this same logic applies to government efforts to counteract real and imagined negative effects in the home country caused by foreign-government tariffs or subsidies or both. Government officials at home are not made more knowledgeable (or more saintly) simply by shifting the ostensible justifications for their actions from home-grown problems, or from problems not intentionally caused by humans, to problems allegedly caused at home by tariffs imposed, and subsidies dispensed, by foreign governments.

Yet scratch the surface of the arguments of all persons who insist that the home government must “retaliate” against foreign-governments’ tariffs and subsidies with tariffs and subsides of its own. You will find there, just beneath the surface, the implicit assumption that economic harassment by foreign-government officials of their citizens miraculously renders home-government officials sufficiently knowledgeable (and apolitical) to tax and subsidize in ways that are likely to improve the performance of the home-country economy.

This assumption, of course, is bizarre. But the case for home-country “retaliation” requires it.

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Here’s the third and final installment in my and Lyle Albaugh’s series, for AIER, on Coase and covid. Here are our closing paragraphs:

Is it plausible that government officials have sufficiently accurate and detailed knowledge about how mandated restrictions on socializing will affect the economy, especially over time, such that these officials can be trusted to mandate only those restrictions that produce benefits greater than their costs? Is it plausible that, even if lockdowns in the specific case of Covid-19 pass some cost-benefit test today, the resulting expansion of governments’ powers will not be abused tomorrow? And is it plausible that a people bridled, broken in, and subjugated as never before by the Covid-19 lockdowns will retain enough of a sense of personal responsibility and desire for freedom that they will resist government overreach in the future?

We’re confident that the answer to each of these questions is an emphatic ‘No!’ We can find no plausible reason to believe that the same government officials who routinely refuse to look beyond the next election – who regularly display utter ignorance of the most basic economic realities – who habitually sacrifice the public welfare on the altar of special-interest groups – and who are known often to lie and dissemble are, in any real-world situation, likely to use the terrifying power to lock down in ways that pass a cost-benefit test. When we take account of the full costs of lockdowns and related mandates, including the pernicious precedents these inevitably set, it’s clear that the lowest-cost – the best – source of protection against disease such as Covid-19 is personal responsibility.

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My GMU Econ colleague Dan Klein rightly applauds Ivor Cummins and others who have, with reason and data, refused to succumb to the hysteria over covid that paved the path to the hell of the lockdowns. A slice:

But why the dominant crisis-lockdown mindset at all? The foolishness of lockdowns has become all the more apparent as people think through and count up the injuries and tragedies that government coercion has inflicted. Cummins treats that too in his video. Lockdown was ill considered from the word “go,” and it was downright stupid as soon as the curve was flattened at the intensive wards, which quickly expanded anyway.

GMU Econ PhD candidate Jon Murphy decries the expert failure strewn throughout the covid calamity. A slice:

In other words, these experts fall into a problem that Roger Koppl calls “siloing.” These experts make decisions based upon their understanding, training, and knowledge. They do not necessarily know (or even know to consider) how their actions affect other elements of society.

GMU Econ alum Rosolino Candela explores the relevance of externalities.

The editors of the Wall Street Journal are understandably disgusted by the cronyism revealed by the Trump administration’s treatment of TikTok. A slice:

Economic statists may cheer all this, but it sure looks to all the world like U.S. government meddling that rewarded political allies. Cfius was established to protect national security, not to be used as leverage to steer investment to certain companies.

Art Carden reports that “Free To Choose” holds up well even after 40 years.

My Mercatus Center colleague Dan Griswold, writing at The Hill, explains his idea for a BRAC-style commission to unilaterally reduce tariffs in the U.S. A slice:

A broad reduction in tariffs made possible by the Tariff Reform Commission would deliver immediate benefits to millions of American households, invigorate the nation’s productive capacity, and increase the supply of goods critical to the fight against the novel coronavirus. As has been the case with military base closures, a commission would help Congress overcome the special interest pressure that keeps tariffs in place despite their negative impact on the overall economy and the national interest.

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Quotation of the Day…

by Don Boudreaux on September 22, 2020

in Economics, Scientism, Seen and Unseen

… is from pages 154-155 of Frank Knight’s 1940 review essay titled “‘What Is Truth’ in Economics?” as this essay is reprinted in Knight’s 1956 collection, On the History and Method of Economics:

Economics and other social sciences deal with knowledge and truth of a different category from that of the natural sciences, truth which is related to sense observation – and ultimately even to logic – in a very different way from that arrived at by the methodology of natural science. But it is still knowledge about reality.

DBx: The fact that economists, with relatively rare exception, cannot conduct controlled laboratory experiments which allow a focus on the behavior of a small handful of variables does not render the knowledge arrived at by economic scholarship – observation, research, and reasoning – unscientific.

Key phenomena that economists must study are human plans formed to achieve ends the details of which are known ultimately only to the individuals who form the plans. These individual plans, in turn, are formed and modified in light of each person’s local knowledge, unique experience, subjective preferences, and expectations. All of these inputs into plan formation and modification are unobservable to outsiders and unquantifiable. And the details that constitute each of these inputs into plans are vast in number and bear complex connections to each other.

For this reason alone (although there are others), to fancy that one can gain an adequate understanding of the workings of the economy merely by carefully observing and measuring the relatively few objective pieces of quantified data that are typically available to economic researchers – “the” unemployment rate, “the” four-digit concentration ratio of this and that industry, “the” Gini coefficient for this and that country, “the” average wage for production and nonsupervisory employees, and the like – is foolish. All such observable empirical facts are the results of vast and complex plan formation and modification and human interactions. Observable facts about the economy have no meaning on their own, and they are not – or ought not to be – the subject-matter of economics. It’s much closer to the truth to say that the subject-matter of economics is – or ought to be – human plan formation and interaction, as well as the tracing out of the unintended consequences of this formation and interaction.

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Subsidies, Like Tariffs, Impoverish

by Don Boudreaux on September 21, 2020

in Myths and Fallacies, Subsidies, Trade, War

This letter addresses one of the countless zombie myths about trade:

Mr. Crosby:

You ask: “How do free trade principles deal with a powerful foreign country like China unfairly subsidizing its exports to us and using the profits to build its military up?”

The assumption that sparks your question is widespread but mistaken. Sales made only because of subsidies bring in revenues less than the full costs of producing the goods that are sold. To subsidize such export sales, Beijing acquires the necessary resources from the Chinese people. By orchestrating subsidies, Beijing thus inflicts losses on the Chinese people and makes the Chinese economy weaker than it would be without such subsidies.

Further, the country that gains from such subsidies is the United States: We Americans get valuable goods from China at prices less than we’d have to pay otherwise.

The higher are Beijing’s subsidies and tariffs, the weaker the Chinese economy and, hence, the fewer are the resources available to Beijing for military uses. Therefore, to the extent that we Americans worry about Beijing building up its military, we should actively encourage Beijing not only to continue, but to increase, its subsidization of Chinese exports and to further raise its tariffs on imports into China. And the last thing that we should do is to “retaliate” with our own subsidies and tariffs – policies that would only weaken our economy.

Donald J. Boudreaux
Professor of Economics
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 21, 2020

in Hubris and humility, Myths and Fallacies

… is from page 104 of Michael Strain’s excellent 2020 book, The American Dream Is Not Dead (But Populism Could Kill It):

Both the populist left and right are turning inward – anxious about the future, closed to to the world, attempting to return to an imagined past, intoxicated with nostalgia or with the concept of an unobtainable utopian future. Both are retreating from the importance of personal responsibility, embracing a narrative of victimhood, and treating those with whom they disagree as enemies to be defeated rather than as fellow citizens with whom to compromise.

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Bonus Quotation of the Day…

by Don Boudreaux on September 20, 2020

in Innovation, Science

… is from page 152 of the late Stanford University economic historian Nathan Rosenberg’s December 1991 paper “Critical issues in science policy research,” as this paper is reprinted in Rosenberg’s 1994 collection, Exploring the Black Box: Technology, Economics, and History:

The most successful American research laboratories in private industry have demonstrated that it is possible to perform research of both a fundamental and an inter-disciplinary nature in a commercial, “mission-oriented” context.

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