David Brooks’s recent criticism of socialism and applause for capitalism contains much that is good. Indeed, much of it is very good (if not original to Brooks), such as:

I came to realize that capitalism is really good at doing the one thing socialism is really bad at: creating a learning process to help people figure stuff out. If you want to run a rental car company, capitalism has a whole bevy of market and price signals and feedback loops that tell you what kind of cars people want to rent, where to put your locations, how many cars to order. It has a competitive profit-driven process to motivate you to learn and innovate, every single day.

Socialist planned economies — the common ownership of the means of production — interfere with price and other market signals in a million ways. They suppress or eliminate profit motives that drive people to learn and improve.

Yet reading Brooks’s essay left me somewhat less than satisfied.

My dissatisfaction comes only mildly from Brooks’s stated choice of ‘economic heroes.’ Alexander Hamilton?! Teddy Roosevelt?! Hamilton was infatuated with mercantilist fallacies while T.R. was a textbook “man of system.” Each man, in my opinion, is vastly overrated. (Oh, and by the way, T.R.’s aggressive use of antitrust was sand in the gears of capitalist dynamism rather than, as Brooks believes and as potted histories assert, a lubricant of those gears. The “giant corporations” on which T.R. sicced antitrust regulators were themselves the result of dynamic, competitive, and innovative entrepreneurship.)

Most of my dissatisfaction with Brooks’s essay comes from his sop to unjustified even-handedness, as here:

But capitalism, like all human systems, is always unbalanced one way or another. Over the last generation, capitalism has produced the greatest reduction in global income inequality in history. The downside is that low-skill workers in the U.S. are now competing with workers in Vietnam, India and Malaysia. The reduction of inequality among nations has led to the increase of inequality within rich nations, like the United States.

If some feature Y found in system X is common to all systems, it is misleading to talk or to write of Y as being a feature of system X. Greater clarity of thought is promoted by identifying Y as being a feature of the larger category of which system X is a member.

In the case of capitalism being “unbalanced,” if all systems that we humans use, or could possibly use, to provide for our material sustenance are “unbalanced,” it is, at best, trite to note that the capitalist economy exhibits some unbalancedness. Noting such a thing is, in practice, merely to note that a common feature of the human condition has not been eliminated by capitalism. Under capitalism things are “unbalanced,” and under capitalism hearts are broken when lovers separate, and under capitalism using a plot of land to grow peas prevents that plot of land from being used as the site of an amusement park, and under capitalism we humans continue to be unable to fly by twirling our tongues. Well, as they say, duh.

(A entirely separate question – one, perhaps, for another post –  is raised by the ambiguity of the term “unbalanced” as Brooks rather lazily uses it.)

And to Brooks’s specific example of lack of balance – namely, “low-skill workers in the U.S. are now competing with workers in Vietnam, India and Malaysia” – such competition is avoidable only by forcibly grinding all economic change to a halt. Only when consumers are prohibited from changing the ways they spend their money – and only when each worker is locked for life, by government diktat or by oppressive tradition, into his or her particular job – and only when the manner of performing each of those jobs is prevented from changing – will no worker face the prospect of competition from some alternative means of performing the tasks that workers are employed to perform.

When goods, services, and resources are scarce – as they will be always this side of paradise – to improve anyone’s material well-being even in the slightest requires changing the pattern of resource use. To improve greatly the material well-being of many people requires even greater changes in the pattern of resource use. And to change the pattern of resource use means to select among different available options for using resources – a reality that implies competition among alternative ways of using resources.

If improvement in the material well-being of even just one person is desired, competition in practice is unavoidable.

The selection of the overall ‘new’ pattern of resource use can be done consciously. The results of this selection will reflect the necessarily very limited information, knowledge, foresight, and abilities of the officials charged with making this selection.

Alternatively, changes in the pattern of resource use can be generated by decentralized, rivalrous market processes – with each person as consumer, entrepreneur, investor, and worker spending his or her own resources as he or she sees fit in light of that person’s own preferences and information, and guided by the resulting market prices.

If you trust the likes of Donald Trump, Elizabeth Warren, Marco Rubio, Jeremy Corbyn, Viktor Orbán, or Vladimir Putin choosing the way your labor and resources are used, opt for some economic scheme that relies on the conscious allocation of resources. If you have no such trust, opt for markets as free, as innovative, and as open as possible.

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… is from page 77 of the late William Niskanen’s May 2000 paper “Should the Ex-Im Bank Be Retired?” which is reprinted as chapter 7 of the 2008 collection of some of Niskanen’s best writings, Reflections of a Political Economist:

I regard the market-failure rationale for Ex-Im as wholly spurious, and the activities based on this rationale are best described as “Aid to Dependent Corporations.”

DBx: Those who use the market-failure rationale to justify subsidies doled out by the U.S. Export-Import Bank allege that private investors, investing their own money or money voluntarily entrusted to them, routinely fail to see the future profitability of the activities of firms that operate in international markets. To remedy this asserted ‘failure’ of private markets, the U.S. government hires bureaucrats to invest other people’s money – money coercively extracted from taxpayers – in these activities that private investors allegedly miss on a routine basis.

As Niskanen noted, this rationale is wholly spurious. For it not to be spurious would require that in reality government officials investing other people’s money be generally better at identifying profit opportunities than are private investors investing their own money. Yet nothing in history or theory suggests the existence of any such superior acumen among government bureaucrats. Quite the opposite.

At best, a subsidy racket such as Ex-Im results in pretentiously justified wastes of money: resources are directed toward inefficient activities and, hence, away from efficient ones. In reality, all such rackets not only waste money – that is, result in massive misuses of resources – they also incubate cronyism and corruption. And what is true for relatively small-scale industrial policies carried out by Ex-Im and other so-called “export credit agencies” is true also – but on a scale larger and, thus, more destructive – of more-comprehensive industrial policies.

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… is from page 132 of the 2016 Third Edition of James D. Gwartney’s, Richard L. Stroup’s, Dwight R. Lee’s, Tawni H. Ferrarini’s, and Joseph P. Calhoun’s excellent Common Sense Economics (original emphasis):

In the private sector the profit rate provides an easily identifiable index of performance. Since there is no comparable indicator of performance in the public sector, managers of government firms can often gloss over inefficiency. In the private sector bankruptcy eventually weeds out inefficiency, but in the public sector there is no parallel mechanism for the termination of unsuccessful programs. In fact … government agencies and enterprises often use deteriorating conditions and failure to achieve objectives as an argument for increased funding.

DBx: Keep this reality in mind if ever you’re tempted to fall for any case, whether issued from the political left or right, for industrial policy. Firms, although nominally private, that are favored by makers of industrial policy will be shielded from losses just as if these firms were full-on government agencies.

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Fareed Zakaria is correct that Donald Trump is no friend of free markets. Here’s Zakaria’s conclusion:

On the core issue that used to define the GOP — economics — the party’s agenda today is state planning and crony capitalism. And this is what so-called conservatives are doubling down to defend.

(Note: I understand that the likes of Elizabeth Warren and Bernie Sanders might well be as bad or worse than Trump. But this fact no more counsels against warning of the horribleness of Trump’s policies than does the recognition that being burned alive at the stake might be an even worse form of execution than being garroted counsel against warning of the horribleness of being garroted.)

Steve Davies writes wisely about automation.

I’m thrilled to see Bryan Caplan’s and Zach Weinersmith’s Open Borders receive the prominent attention that it deserves and is now receiving!

My colleague Pete Boettke has some reading recommendations for those who are interested in economics.

Steve Horwitz correctly accuses advocates of wealth taxes of confusing stocks with flows.

Shikha Dalmia warns that India is entering a new dark age.

George Selgin busts more myths about money and banking.

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In my March 9th, 2007, column for the Pittsburgh Tribune-Review, I argued that the best policy for the home-country government is to ignore subsidies doled out by foreign governments. You can read my argument beneath the fold.

Read the full post →

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… is from page 267 of Frank Knight’s 1956 collection, On the History and Method of Economics; specifically, it’s from Knight’s 1950 Presidential address to the American Economic Association, titled “The Role of Principles in Economics and Politics” (original emphasis):

The supreme and inestimable merit of the exchange mechanism is that it enables a vast number of people to cooperate in the use of means to achieve ends as far as their interests are mutual, without arguing or in any way agreeing about either the ends or the methods of achieving them. It is the “obvious and simple system of natural liberty.” The principle of freedom, where it is applicable, takes other values out of the field of social action. In contrast, agreement on terms of cooperation through discussion is hard and always threatens to become impossible, even to degenerate into a fight, not merely the failure of cooperation and loss of its advantages. The only agreement called for in market relations is acceptance of the one essentially negative ethical principle, that the units are not to prey upon one another through coercion or fraud.

DBx: Note that for two or more persons to have interests that are mutual is not necessarily, or even normally, for those persons to have interests that are the same. It is, instead, for each of those persons to have interests that can be furthered by his or her helping to further the interests of the other person or persons. The owners and suppliers (including workers) of Whole Foods supermarket and I have interests that are not the same, but that are indeed mutual: each of us helps the others further our own interests by trading with each other.

Note also this implication of Knight’s remark: because the ethical principle at the root of market relations is “that the units are not to prey upon one another through coercion or fraud,” market relations cannot be saved, improved, or otherwise promoted through interventions such as tariffs and industrial policy. In both principle and practice these interventions are coercive. And as anyone who knows even just a bit of sound economics and a smidgen of history understands, in practice these interventions are also fraudulent, for they are sold to the general public with half-truths and deceptions.

Efforts to “save” or to “strengthen” the market with schemes such as protectionism or industrial policy – policies wholly inconsistent with market relations – make no more sense than schemes to save or to strengthen marriages by advocating that spouses cheat on each other. Clever sophists can spin tantalizing tales of how such cheating – actions wholly inconsistent with most people’s understanding of marital relations – might in the end bring spouses closer to each other and bond them firmly in loving and trusting unions. But no one with an adult mind actually falls for such sophistry.

It’s too bad that so many people fall for the similar sophistry of protectionists and advocates of industrial policy.

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… is from page 175 of Pierre Desrochers’s and Joanna Szurmak’s important 2018 book, Population Bombed!:

In the end, population growth and the development and use of carbon fuels liberated human labour and brains from subsistence agriculture while simultaneously reducing pressures on both wild flora and fauna. As a result, not only has much marginal agricultural land been rewilded in many parts of the world over the last several decades, but an increasingly large number of human brains and hands were given the opportunity to pursue an ever-wider range of occupations through ever-more diverse, useful and powerful means. Trade, the division of labour, more people and more carbon fuels are what allowed humanity to simultaneously bake and enjoy an ever-larger number of economic and environmental cakes, while in the process making human societies ever more resilient against extreme weather events and any climate change trend they might be confronted with.

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Eric Mack Is Correct

by Don Boudreaux on December 7, 2019

in Subsidies, Taxes, Trade

Here’s a letter to Eric Mack, who e-mailed me in response to my letter yesterday to Neil Garza:

7 December 2019

Prof. Eric Mack
Department of Philosophy
Tulane University
New Orleans, LA 70118

Dear Eric:

You are indeed correct that my statement – in this letter – that “we Americans shouldn’t care in the least why we’re able to buy more imports at attractive prices” is too sweeping. As you note, there might well arise in reality good reasons for why we should care, even if we are materially enriched by the imports in question.

To use one of your examples, if a foreign government enforced, or even merely tolerated, chattel slavery as a means of subsidizing the production of exports bound for America, then, yes, we Americans should very much care. We should not purchase such products, regardless of their price, even though doing so might enrich us materially. And even I, staunch free trader that I am, would support the U.S. government, it having made a credible case that some low-priced imports are produced by persons held in actual bondage, banning the sale in the U.S. of these imports.

In my earlier letter I presumed that the policies under discussion are ones that governments, including ours, today practice routinely. (As a practical matter, such policies are overwhelmingly the only ones in play in such discussions.) My position is this: if what a foreign government does to make its country’s exports artificially less pricey on world markets is of a class of actions that our government routinely carries out – or that our government, to retaliate, would feel justified in matching – then we most certainly should not care that the prices that we pay for imports from that country are made artificially low by its government’s actions.

Because national, state, and local governments in the U.S. routinely tax us for all manner of reasons – and because most Americans regard taxation as ethically acceptable – it’s illegitimate to hold foreign governments to standards higher than those to which we hold our own governments. Someone who believes that it’s okay for governments in the U.S. to tax cannot logically declare that taxation used abroad to subsidize the production of foreign-producers’ exports is so immoral as to justify U.S. government retaliation – especially given that the commonly chosen means of retaliation is the very same allegedly offensive device – taxation (for that’s what tariffs are) – against which our retaliation is ostensibly aimed!

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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George Will rightly – and devastatingly – criticizes Sen. Marco Rubio for “joining anti-capitalist conservatives.” A slice:

Rubio serves in a legislature whose constant resort to funding the government with continuing resolutions testifies to its incompetence concerning even its most elemental function: budgeting. Yet he expects this government to wisely define the “common good” and deftly allocate wealth and opportunities accordingly.

John Samples is, like George Will, dismayed by the rise of what Samples calls “big government conservatism.

John Stossel is understandably unhappy with Hollywood’s hostility to free markets. A slice:

Greedy miners want to kill nature-loving aliens in “Avatar.” Director James Cameron says: “The mining company boss will be the villain again in several sequels.

One reviewer calls a scene in the recent “Star Wars” movie “a beautiful critique of unregulated capitalism.”

“Unregulated capitalism” is such a stupid cliche. Markets are regulated by customers, who have choices; we routinely abandon suppliers who don’t serve us well.

The great Steve Davies laments the return of internal passports.

In this enlightening post, Vincent Geloso points to research by Luiz Martinez showing that the link between economic freedom and prosperity is even stronger than is commonly realized.

David Henderson unveils yet more sloppiness in the statistical work of Gabriel Zucman.

Michael Huemer celebrates political gridlock and the political contestation that causes it. (HT David Levey)

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My GMU Econ colleague Dan Klein powerfully challenges, in this recent talk, attempts made by Samuel Fleischacker, Dennis Rasmussen, and some other scholars on the political left to claim Adam Smith as a member of their ranks.

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