Bonus Quotation of the Day…

by Don Boudreaux on April 14, 2019

in Adam Smith, Myths and Fallacies, Trade

… is from page 124 of Douglas Irwin’s excellent 1996 book, Against the Tide: An Intellectual History of Free Trade:

[Friedrich] List’s harsh attacks on the “cosmopolitan school” of [Adam] Smith frequently distorted the position of classical writers, who were not romantic cosmopolitans neglectful of the national interest, and even List admitted in his preface that his attacks were exaggerated for effect.

DBx: Protectionists – having no solid arguments on which to build their case that prosperity springs from artificially contrived scarcity – frequently resort to distorting the writings of great champions of free trade, including (of course) those of Adam Smith. The very fact that List felt the need to ‘exaggerate’ Smith’s cosmopolitanism – i.e., to distort Smith’s cosmopolitanism – speaks volumes about the quality of List’s own arguments.

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Institute for Humane Studies president (and my former student) Emily Chamlee-Wright points out in today’s Washington Post that genuine communities are built on individualism.

David Henderson offers evidence of growing American prosperity.

Chelsea Follett celebrates how modernity saved her baby.

Jacques Delacroix reveals the poverty of democratic socialism. (HT David Levey) A slice:

The fastest way for a country to raise the official, numerical productivity of its workers is to put out of work many of its low-productive workers. (That’s because the official figure is an arithmetic mean, an average.) This can be achieved entirely through regulations forbidding, for example, food trucks, informal seamstress services, and old-fashioned hair salons in private living rooms, and, in general, by making life less than easy for small businesses based on traditional techniques. This can be achieved entirely – and even inadvertently – from a well-meaning wish to regulate for the collective good. The more of this you do, the higher your productivity per capita appears to be and also, the higher your unemployment, and the less income is available to go around. I think the official high French productivity oddly distorts the image of real French income. I suspect it fools many French people, including public officials: They think they are wealthier than they are.

My Mercatus Center colleague Adam Thierer asks what Joseph Schumpeter would say about today’s hostility toward big tech companies. Here’s Adam’s conclusion:

America’s seemingly inexhaustible supply of entrepreneurial spirit will surprise us with better alternatives than any regulatory wrecking ball Washington devises to demolish existing players or markets. Heed Schumpeter’s lessons and let change happen by getting incentives right such that another wave of creative destruction can work its magic.

David Smither explains that international trade refutes Hobbes’s notion of the state of nature.

When Progressives are in action, there’s no need to create straw men.

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Quotation of the Day…

by Don Boudreaux on April 14, 2019

in Inequality, Myths and Fallacies, Seen and Unseen

… is from page 44 of Tyler Cowen’s just-released (2019) book, Big Business: A Love Letter to an American Anti-Hero:

It’s not a popular thing to say, but one reason CEO pay has gone up so much is that the CEOs themselves really have upped their game relative to the performance of many other workers in the American economy.

DBx: The data – reported in his book – support Tyler’s claim.

The typical complaint about the height of CEO pay is uninformed by sound economic analysis.

The complainers often implicitly assume that there is a pool of funds – a pool the size of which is independent of the decisions and actions of CEOs – out of which all corporate executives and workers are paid. From this wholly mistaken assumption flows the faulty conclusion that the higher are the salaries of CEOs the lower are the salaries and wages of other corporate employees, including, of course, those of nonsupervisory workers.

Thomas Piketty, for example, is one of many people who work with this mistaken assumption. This mistaken assumption fuels a great deal of self-gratifying moralizing; it also fuels a great many calls for destructive regulatory and tax policies.

In closing, note that pointing out that a handful of CEOs did indeed acquire their high pay through fraudulent or otherwise disreputable means no more suggests that CEOs are paid too much than does pointing out that some shop-floor workers raise their incomes by selling merchandise pilfered from their employers suggest that shop-floor workers are paid too much.

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Bonus Quotation of the Day…

by Don Boudreaux on April 13, 2019

in Trade, War

… is from Steve Davies’s January 2004 essay “From Pennsylvania to Verdun: Friedrich List and the Origins of World War I” (typo corrected):

The most serious result of List’s ideas, however, was a change in people’s thinking and perception. Instead of seeing trade as a cooperative process of mutual benefit, politicians and businessmen came to regard it as a struggle with winners and losers. Germany’s leaders, instead of seeing Russia’s rapid growth after 1890 as an opportunity and blessing, agonized over it as a terrible threat. Their response was the idea of “MittelEuropa,” a customs union including Germany, Austria-Hungary, and the Balkans, which would supply Germany with raw materials while providing a captive market. The leaders also advocated colonies outside Europe and a “blue water” navy. This provoked a similar and hostile response from other powers, especially from Russia. The result was a clash of imperialisms in the Balkans, and in July 1914 the German elite took the (insanely foolish) decision to fight a war with Russia and France. Had they seen the world differently this would not have happened.

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Here’s a letter to political-science student Brandon Mortensen:

Mr. Mortensen:

You’re correct that “economic theory identifies conditions” under which labor-market interventions by government – such as minimum wages or mandated paid leave – when performed ideally “increase social welfare.” But it’s incorrect to conclude that these theoretical possibilities “delegitimize [my] stance opposing all these interventions.”

In the past I’ve explained why I believe that not all theoretical possibilities justify policy actions. See, for example, here, here, and here.

Let me, though, try again.

It’s easy to describe conditions under which social welfare will be increased by permitting government officials to summarily execute – without trial, warning, or even explanation – sleeping individuals. Such a policy plausibly passes a cost-benefit test if we simply assume that government officials invested with such permission will summarily execute only individuals who otherwise, after waking up, would commit mass murder.

Such a constructive use of this power is theoretically possible. Yet I trust that you don’t find that this theoretical possibility “delegitimizes” my – and, I presume, your – stance against government officials summarily executing without restriction whichever sleeping persons they wish. In this case, you correctly recognize two features of reality that justify a policy of blanket and unyielding prohibition of such executions: (1) although our real-world often has in it sleeping individuals who, after awakening, will commit mass murder, it’s impossible in practice for government officials to identify such persons; and (2) even if government officials did possess the knowledge and information of god, they possess the self-interest and weakness of humans.

I don’t mean to ethically equate labor-market interventions with a government policy of such summary executions. But I do mean to insist that the theoretical conditions necessary to ensure that social welfare will be improved by labor-market interventions are no less unrealistic than are those necessary to ensure that social welfare will be improved by summary executions of people in their sleep.

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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Rick Geddes is correct: socialism has an unbroken record of producing abysmal economic and political outcomes.

For more insight into the awfulness of socialism, read this essay by Jeffrey Tucker.

GMU Econ alum Will Luther rightly reminds us that the Fed’s independence is not what it’s trumpeted as being.

Here’s the opening paragraph of George Will’s latest column:

The Democrats’ presidential aspirants seem determined to prove that their party’s 2016 achievement — the election of the current president — was not a fluke that cannot be repeated. But the Republican Party, whose last remaining raison d’etre is to frustrate Democrats, seems to be thinking: We are determined to lose the 2020 election to foil Democrats’ attempts to lose it.

My GMU Econ colleague Mark Koyama explains the institutional roots of anti-semitism.

“As the primary advocates of government-spending programs to address social problems, the left would do well to develop a keener appreciation of the possibility that the spending they propose won’t work.” – so sensibly argues Megan McArdle.

“Tariff Man” Trump rides again – so laments Bruce Yandle.

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Quotation of the Day…

by Don Boudreaux on April 13, 2019

in Crony Capitalism, Myths and Fallacies, Trade

… is from page 296 of Jacob Viner’s October 1948 World Politics article, “Power versus Plenty as Objectives of Foreign Policy in the Seventeenth and Eighteenth Centuries,” as this article is reprinted in the 1958 collection of selected articles by Viner titled The Long View and the Short; here Viner is quoting Sir Francis Bacon who himself was reporting the remarks of an unnamed member of Parliament during the reign of James I:

[Y]et, nevertheless, it was a thing too familiar with the merchant, to make the case of his particular profit, the public case of the kingdom.

DBx: Among the practically uncountable number of errors that infect mercantilist dogma is indeed the false notion that the prosperity of the people of a country rises and falls only as the profits of a handful of existing domestic producers – those domestic producers that, for whatever reason, are politically in the limelight – rise and fall.

Mercantilism specifically, and protectionism generally, is overwhelmingly an unscrupulous effort to persuade the state to commandeer consumers and taxpayers to do the bidding of a relatively small handful of existing domestic producers.

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Markets Don’t Work That Way

by Don Boudreaux on April 12, 2019

in Myths and Fallacies

Yesterday I heard a talk by someone – someone of some intellectual prominence – who lamented the rise of CEO pay. The speaker asserted that if CEO pay had not, over the past few decades, risen as much as it did, the pay of workers would have risen more than it did.

There is a great deal wrong with this fixed-size-of-the-economic pie worldview, not least that it reveals a complete failure to understand the operation of labor markets.

Rather than here detail all of the many errors that infect this worldview, I instead share with you Russ Roberts’s reaction when I related to him on the phone what this speaker said. Russ pointed out that, if this speaker is correct, then workers would get even higher pay raises if we enslave all CEOs, paying these corporate leaders only enough to physically survive.

…..

One cannot repeat the following truth too often: wealth must be created and recreated constantly. And there is nothing remotely automatic or even easy in arranging for the production of wealth. Wealth does not rain down on us; wealth is not a glob of stuff that we are free to “redistribute” as we see fit without affecting the amount of wealth in existence.

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Bonus Quotation of the Day…

by Don Boudreaux on April 12, 2019

in Crony Capitalism, Politics

… is from page 40 of Tyler Cowen’s just-released book, Big Business: A Love Letter to an American Anti-Hero:


Given the higher trustworthiness of business and the lower trustworthiness of politics, I find it strange how many people look at the data and think it is a good idea to bring business more and more in thrall to government.

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A silver lining around the dark and nasty cloud of Nancy MacLean’s egregious ‘scholarship’ regarding Jim Buchanan is that it has prompted many true scholars – such as Phil Magness – to recount relevant mid-20th-century American history. Here’s Phil’s latest, which shows just how despicable and duplicitous government-school officials can be. A slice:

Federal court testimony from September 1958 shows the Arlington officials prepared a long list of bureaucratic excuses to justify their decision. Responding to questioning from NAACP attorney Frank D. Reeves, Arlington School Board Chairman Barnard Joy first claimed that six black students who lived within Stratford’s geographic boundaries were academically unprepared and would fall in the bottom 15 percent of Stratford students.

Max Gulker eloquently explains why the theory of perfect competition must be rejected.

Eric Bolling ably defends the oil and gas industry.

Tyler Cowen ably defends high CEO salaries.

Here’s Andrea O’Sullivan on proposals for more government regulation of social-media companies.

Alex Nowrasteh busts more myths about immigration.

Thomas Fiery calls out the Washington Post for its uninformed Malthusianism.

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