My great colleague Walter Williams reviews Universal Economics – a new edition of the greatest economics textbook ever written. A slice:

The authors give a long list of erroneous beliefs that people hold. Here’s a tiny sample: Employers pay for employer-provided insurance; larger incomes for some people require smaller incomes for others; minimum wage legislation helps the unskilled and minorities; foreign imports reduce the number of domestic jobs; “equal pay for equal work” laws aid women, minorities, and the young; labor unions protect the natural brotherhood and collective well-being of workers against their natural enemies, employers; and we cannot compete in a world in which most foreign wages are lower than wages paid to domestic workers.

Deirdre McCloskey asks “what’s still right with the Austrian school of economics?” A slice:

Austrian price theory, Peter [Boettke] notes, was “especially in the hands of Mises and Hayek, institutional in nature: they placed a priority on the framework within which economic life takes place.” But also on ethics. “An institutional framework of property, contract and consent, is a fundamental pre-requisite for the operation of prices and profit-and-loss. Prices guide, profits lure, and losses discipline within the competitive entrepreneurial market process.”

Vanessa Brown Calder issues an important warning about government paid-leave benefits.

Alexander C.R. Hammond celebrates Edward Jenner.

Scott Sumner wisely counsels humility in matters of foreign policy.

Bill Shughart and Arthur Wardle aren’t impressed by Trump’s ethanol plans.

Richard Salsman warns of fallout from trade wars.

Jim Bacchus argues for saving the WTO’s appeals process – a process now being inexcusably and dangerously undermined by the Trump administration.

Those of you who will be in or near Babson Park, Florida, on Monday (Oct. 15th), I encourage you to consider going to see Steve Landsburg speak there (specifically, at Webber International University).

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Quotation of the Day…

by Don Boudreaux on October 13, 2018

in Complexity & Emergence, Law, Myths and Fallacies

… is from my emeritus colleague Vernon Smith‘s profound 2002 Nobel Prize lecture, “Constructivist and Ecological Rationality in Economics” (footnotes and citation deleted):

The early “law-givers” did not make the law they “gave”; they studied social traditions and informal rules and gave voice to them, as God’s, or natural, law. The common lawyer, Sir Edward Coke, championed seventeenth-century social norms as law commanding higher authority than the king. Remarkably, these forces prevailed, paving the way for the rule of law in England. Similarly, the cattlemen’s associations, land clubs, and mining districts in the American West all fashioned their own rules for establishing property rights and enforcing them: the brand on the hindquarters of his calf was the cattlemen’s indelible ownership signature on his property, enforced by gunmen hired through his cattle club; squatter’s rights were defended ably (possession is nine points of the law?) by the land clubs composed of those brave enough to settle wilderness lands in advance of veterans exercising their land script claims, and of settlers under the Homestead Act; mining claims were defined, established, and defended by the guns of the mining clubbers, whose rules were later to become part of public mining law.

DBx: Yes.

No myth is responsible for as much mischief through the ages as is the myth that proclaims that social order must be designed, as if society is a mechanism to be engineered. And no particular instance of this myth is worse than that which insists that law – the rules that govern human interactions – is and can only be the product of the state.

The state makes legislation (including, sometimes, codifications of law). The state never makes law.

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Bonus Quotation of the Day…

by Don Boudreaux on October 12, 2018

in Growth, Myths and Fallacies, Trade

… is from chapter 3 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (internal citations and footnote omitted):

The protectionists say that their system advances civilization inside a state and makes it great, but the facts are all against them. It was by trade that civilization was extended over the earth. It was through the contact of trade that the more civilized nations transmitted to others the alphabet, weights and measures, knowledge of astronomy, divisions of time, tools and weapons, coined money, systems of numeration, treatment of metals, skins, and wool, and all the other achievements of knowledge and invention which constitute the bases of our civilization. On the other hand, the nations which shut themselves up and developed an independent and self contained civilization (China and Japan) present us the types of arrested civilization and stereotyped social status. It is the penalty of isolation and of withdrawal from the giving and taking which properly bind the whole human race together, that even such intelligent and highly endowed people as the Chinese should find their high activity arrested at narrow limitations on every side. They invent coin, but never get beyond a cast copper coin. They invent gunpowder but can not make a gun. They invent movable types, but only the most rudimentary book. They discover the mariner’s compass, but never pass the infancy of ship-building.

DBx: Those protectionists who are not merely venal rent-seekers eager to latch on any excuse for using state power to enrich themselves at the expense of their fellow citizens are deeply uninformed about society, economics, and history. They see greater abundance as a curse and tighter ties of mutual cooperation with foreigners as a threat. These protectionists are blind to all but the most immediate consequences of trade and protectionism. And, ignorant of their vast ignorance and blind to their blindness, they continue to imagine that their puny and illogical objections to free trade are somehow magnificent and effective.

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Here’s more in my continuing correspondence with a proud protectionist:

Mr. Nolan McKinney

Mr. McKinney:

You’re correct that in his letter to the Wall Street Journal Trong Bui attempts to bolster his case for protectionism with an appeal to national security. Specifically, Mr. Bui argues that “There are also national security and economic dangers that would come with not having a robust manufacturing base right here in the U.S. and instead depending on other countries to manufacture goods for us. Time to go back to the ‘we’ll design, and we’ll manufacture’ approach that has served this country so well in the past.”

His argument suffers from several flaws. I mention here only two.

First, Mr. Bui’s argument ignores costs. It’s easy to write that we Americans should do, not only the the design portion of the manufacturing process, but both the design and assembling portions of the manufacturing process. Yet to do more assembling in America requires doing less of something else – perhaps even less designing.

Mr. Bui would respond that the additional resources we’d use to do more assembling in America would be drawn from economic activities other than those associated with manufacturing’s design phases. Perhaps. But how does Mr. Bui know that national security would not be compromised by the reduction in outputs of those other sectors? Perhaps those resources would be drawn from mining. Perhaps from agriculture. Perhaps from transportation.

Second, Mr. Bui’s argument overlooks the fact that the amounts and kinds of manufacturing design activities now done so successfully in the U.S. are themselves a product of U.S. manufacturers’ access to lower-cost assembly options in other countries. The ability to assemble abroad at lower costs than are possible in the U.S. creates a larger market for manufacturing design activities within the U.S. Therefore, if the former is shrunk by tariffs on manufactured goods, the latter will also shrink.

The final result would go beyond Americans made poorer by reduced access to manufactured goods. The final result would include also an increased portion of American workers employed in the low-value-added tasks of manufacturing assembly, and a decreased portion of American workers employed in the high-value-added tasks of manufacturing design. And given that the latter surely contributes more to the strength of U.S. national security than does the former, tariffs that bring back to America low-value manufacturing assembly jobs would weaken rather than strengthen U.S. national security.

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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Can You Outsmart an Economist?

by Don Boudreaux on October 12, 2018

in Books, Economics

Steve Landsburg’s new bookCan You Outsmart an Economist? – is out. I just ordered my copy and cannot wait to read it. Steve has a remarkable gift for asking questions that are both probing and interesting.

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Quotation of the Day…

by Don Boudreaux on October 12, 2018

in Myths and Fallacies, Trade

… is this recent Facebook post by Steve Horwitz:

Instead of “trade wars,” let’s call them what they really are: economic suicide bombings.

DBx: Indeed so.

Like physical bombings, the economic suicide bombings that are tariffs and other trade restrictions create particular jobs by destroying real wealth. Those who then resupply the wealth that is destroyed applaud the suicide bombings, and tirelessly repeat ancient, absurd dogmas to justify the bombings. But unlike physical bombings, the victims of economic suicide bombings are largely unseen and, hence, ignored.

The people – and they are many – who cling to the dogma of protectionism do so as a matter of faith. This dogma cannot withstand the scrutiny of reason or be justified by any competent observation of reality. Yet the uncivilized and destructive religion of protectionism nevertheless flourishes, no doubt in no small part because the narrow interests of a relatively small but politically powerful cabal of producers are served by the public taking to be true all the mysticism of protectionism and its alleged miracles.

Whether or not Jesus miraculously created abundance out of the scarcity of five loaves and two fish I will not here say. I am, however, quite confident that when the likes of Donald Trump, Peter Navarro, Chuck Schumer, Bernie Sanders, and Sherrod Brown promise to perform a similar miracle – that is, to create abundance out of artificially contrived scarcity – they are either delusional about their own powers or are cynically playing their congregations for fools.

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Here’s a letter to the Wall Street Journal:

Trong Bui warns that “we cannot afford as a country to abandon the low-margin/low-tech manufacturing businesses to other countries as Mr. Kessler and others have been advocating. Many Americans are not cut out for designing high-margin microprocessors. Where would they find jobs if the U.S. follows the ‘we’ll design (high margin), and they’ll manufacture (low margin)’ paradigm?” (Letters, Oct. 12).

To see the error in Mr. Bui’s warning, imagine if someone 150 years ago had warned that “we cannot afford as a country to abandon the low-margin/low-tech agricultural tasks to mechanical innovations as Mr. Cyrus McCormick and others have been advocating. Many Americans are not cut out for designing farm equipment and working at other non-farm jobs. Where would they find jobs if the U.S. follows the ‘we’ll do higher-margin production, and let machines do low-margin farm tasks’ paradigm?”

The very fact that nearly all Americans today command wages that make it unprofitable for firms to employ them to perform low-margin manufacturing tasks implies that nearly all Americans today have employment options that are superior to jobs in low-margin manufacturing. In other words, the relatively high wages that even the lowest-skilled American workers of 2018 command is proof positive that these workers are indeed cut out for jobs better than the low-margin ones now prevalent in developing countries.

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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Some Links

by Don Boudreaux on October 11, 2018

in Budget Issues, Debt and Deficits, Economics, Environment, Politics, Trade, Video, Work

Quoting Jonathan Rauch, George Will eloquently exposes the deceptiveness of the typical politician. A slice:

Modernity began when humanity “removed reality-making from the authoritarian control of priests and princes” and outsourced it to no one in particular. It was given over to “a decentralized, globe-spanning community of critical testers who hunt for each other’s errors.” This is why today’s foremost enemy of modernity is populism, which cannot abide the idea that majorities are not self-validating, and neither are intense minorities (e.g., the “Elvis lives” cohort). Validation comes from the “critical testers” who are the bane of populists’ existence because the testers are, by dint of training and effort, superior to the crowd, “no matter how many” are in it.

How fiscally sound is your state? My intrepid Mercatus Center colleague Veronique de Rugy points you to a good source of answers.

Jonah Goldberg draws from the Kavanaugh saga an understandably pessimistic prognostication.

Iain Murray and GMU Econ alum Ryan Young explain that Trump’s tariffs are bad for the American economy. A slice:

Yet, the full effects of tariffs are worse than that. They amount to government intervention in the market to favor some forms of economic activity over others. Thus, the new steel plant has to be viewed alongside the increased costs to industries that use steel as an input. Some of those businesses may close. Some people gain jobs, others lose them, but the jobs that are created are the wrong jobs – jobs that exist purely because of the government’s industrial policy masquerading as trade policy.

Here’s a conversation that Tyler Cowen had recently with Paul Krugman.

Writing in the Wall Street Journal, Bjorn Lomborg is rightly critical of scientists who discuss climate change while ignoring economics. A slice:

Limiting temperatures to 2.7 degrees Fahrenheit above preindustrial levels, as the U.N.’s Intergovernmental Panel on Climate Change urges, is economically and practically impossible—as [Nobel-laureate] Mr. [William] Nordhaus’s work shows. The IPCC report significantly underestimates the costs of getting to zero emissions. Fossil fuels provide cheap, efficient power, whereas green energy remains mostly uncompetitive. Switching to more expensive, less efficient technology slows development. In poor nations that means fewer people lifted out of poverty. In rich ones it means the most vulnerable are hit by higher energy bills.

This new video from Jim Epstein exposes yet another of the many ill-consequences unleashed by minimum-wage legislation.

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Here’s a letter to a new Cafe Hayek reader:

Mr. David Epstein

Mr. Epstein:

Thanks for your e-mail.

With respect, I disagree that Pres. Trump’s expression of desire for a world of zero tariffs “proves that he is a free trader at heart.” While recognizing the desirability of a world of zero tariffs is a necessary characteristic of all true free traders, it is hardly a sufficient characteristic. A genuine free trader supports a policy of free trade at home regardless of the trade policies of other governments. That is, the appellation “free trader” applies only to those who support a policy of what is, perhaps confusingly, called “unilateral free trade.”

Pres. Trump obviously is no proponent of unilateral free trade. For years, every word out of his mouth about trade has revealed him to be an unreconstructed mercantilist. To their credit, mercantilists do not advocate autarky; they support international trade. But mercantilists support international trade for a reason wholly different from free-traders’ economic reason for supporting international trade. Mercantilists see international trade as a means by which the home country acquires more money for accumulation; free traders see international trade as a means by which the home country acquires more goods and services for consumption.

It’s perfectly reasonable for a mercantilist to call for a world of zero tariffs if that mercantilist believes that, with a move to zero tariffs worldwide, the resulting increase in his country’s exports will exceed any increase in his country’s imports. Given all that Trump has ever said about trade, it is clear that, if Trump really does want a world of zero tariffs, he predicts that such a world would be one in which the value of American exports consistently and significantly exceeds the value of American imports.

But not only is Trump’s prediction about the outcome of zero worldwide tariffs almost certainly mistaken, his desired outcome – namely, that we Americans produce as much as possible for the consumption of non-Americans while we Americans receive from non-Americans as little as possible for our own consumption – is regarded by all true free traders as utterly undesirable.

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 October 11, 2018

in Legal Issues, Politics, Virginia Political Economy

… is from page 11 of the 2000 Liberty Fund reissue of Geoffrey Brennan’s and James M. Buchanan’s 1980 volume, The Power to Tax:

[I]n all practically relevant cases, governments – or more accurately the individuals involved in governmental process – do possess the power to coerce. They do exercise genuinely discretionary power, and it is both empirically reasonable and analytically necessary to assume that over some range they will exploit that power for their own purposes, whatever these may be.

DBx: Throughout all of modernity this insight was – and was correctly regarded to be – a mark of prudence, maturity, and seriousness of thought about the nature of humans and of politics. Yet there seems to be today an increasingly large number of people who childishly interpret such statements as evidence of a secret scheme to enrich oligarchs and to disenfranchise and virtually enslave the masses. Examples of these people include the atrociously ignorant, utterly misinformed Nancy MacLean and the distressingly large number of ‘scholars’ who find merit in her dumpster-fire book of fallacies, Democracy in Chains.

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