Quotation of the Day…

by Don Boudreaux on June 13, 2019

in Growth, Myths and Fallacies

… is from page 303 of Columbia University economics professor Arvind Panagariya’s excellent 2019 book, Free Trade and Prosperity:

[A]dvocates of protectionism have provided no compelling evidence that interventions ubiquitous in the 1980s or 1990s were essential to sustaining the double-digit growth that China experienced. On the contrary, progressive liberalization allowed China to sustain and even accelerate growth in per capita incomes.

DBx: Yep.

If economic growth in China in the decades following Mao’s death is the result of state intervention and control – or, as is frequently asserted, the ‘enslavement’ of workers in China – then this growth post-Mao ought to be a fraction as fast as was economic growth in China during Mao’s reign. Of course, quite the opposite is true.

Opponents – left and right – of free markets are fond of attributing many or most (and sometimes even all) improvements in the living standards of us ordinary people in markets, not to the markets in which we conduct our commerce, but instead to the various and mostly hodge-podge economic obstructions, distortions, and diktats thrown into markets by governments.

If these same market skeptics observed swimmers all enjoying themselves in a swimming pool on a hot summer day, these skeptics would attribute the swimmers’ buoyancy in the water, their relishing the pool-water’s refreshing temperature, and, indeed, all the pleasure and exercise the swimmers experience not to the pool being filled with water that’s mostly clean and clear but, instead, to the relatively few bits of detritus thrown into the pool by unruly neighborhood brats.

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Freedomist

by Don Boudreaux on June 12, 2019

in Philosophy of Freedom, Trade

Here’s another letter to my new correspondent, Tony Dye:

Mr. Dye:

Thank you for your follow-up e-mail.

Because I support free trade, you attempt to discredit me and my preferred policy of free trade by calling me names – specifically, a “globalist.”

You miss my motive. If I must be labelled, I am a freedomist.

I support a policy of free trade, ultimately, because I believe to my bones that each income earner should be free to spend his or her income as he or she sees fit. I reject out of hand and unconditionally the superstition that a country’s “leaders” are ethically entitled to obstruct peaceful, voluntary commerce amongst adults simply because that commerce crosses political borders.

Of course I recognize that, in practice, a policy of free trade results in citizens of the home country becoming tied ever more closely, economically and culturally, with citizens of foreign countries. This outcome – this globalization – is also one that I celebrate. But contrary to your allegation, my support for free trade, at bottom, is not driven by a desire for a globe-spanning economy or for any diminution of Uncle Sam’s sovereignty relative to that of other governments. Instead, my support for free trade is rooted, ultimately, in my love of freedom. Period.

My government has no business obstructing my freedom to trade simply because some of the persons with whom I wish to trade are residents of political jurisdictions that are ruled by states different than the one that claims sovereignty over me. And what I hold to be true for me, I hold to be true for every person on earth.

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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Low Productivity is a Handicap

by Don Boudreaux on June 12, 2019

in Myths and Fallacies, Trade

Here’s a letter to Cafe Hayek reader Tony Dye:

Mr. Dye:

Thanks for your e-mail.

You aren’t alone in believing that (as you put it) “It’s unfair to make Americans compete against cheap Chinese labor.” With respect, however, you are mistaken. Wages in China are lower than in America because worker productivity in China is lower. Therefore, low Chinese wages do not give workers there an unfair advantage; instead, low Chinese wages reflect Chinese workers’ unfortunate disadvantages.

For high-wage Americans to fear competition with low-wage foreigners makes no more sense than for high-wage Americans to fear competition with low-wage workers who are handicapped by physical or mental disabilities. The handicaps suffered by these unfortunate latter workers prevent them from producing as much value per hour as is produced by healthy workers. Wages earned by handicapped workers are thus lower. But surely you don’t believe that these workers thereby enjoy an unfair advantage over healthy workers, or that it’s unfair to healthy workers to allow “cheap” handicapped workers to compete in the market.

Ordinary workers in China are also handicapped relative to their American counterparts – handicapped not by physical or mental disabilities but, instead, by having less capital to work with, by having less infrastructure, by having weaker market-supporting institutions, and by a state more arbitrary and oppressive than is government in the U.S. While China is improving on all fronts but this last – and while on this last front the U.S. government is getting worse – workers in China, relative to workers here, remain disadvantaged by real economic handicaps – handicaps that keep their wages lower than are the wages that we Americans earn because of our great advantages.

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 June 12, 2019

in Growth, Trade

… is from page 324 of Columbia University economics professor Arvind Panagariya’s superb 2019 volume, Free Trade and Prosperity (link added):

Just as the French economist Frederic Bastiat said 170 years ago in his brilliant book Economic Sophisms, proponents of free trade have to work a lot harder to defend their case than their opponents. They must expose the falsehood of the conclusions derived from half-truths by the latter while also producing positive evidence in support of their case….

The cross-country evidence gathered in this volume reveals a strong association between trade openness and growth. Rapidly expanding trade almost always accompanies sustained rapid growth.

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Misreading Scott Lincicome

by Don Boudreaux on June 11, 2019

in Myths and Fallacies, Trade

Here’s a letter to the Washington Post:

Editor:

Seeking to justify Trump’s protectionism, Henry Olsen alleges that the case for free trade is ethically deficient (“Conservative elites love to defend market orthodoxy. Don’t fall for it.,” June 11). A key piece of his evidence is this quotation from free-trade advocate Scott Lincicome: “Why should certain American industries and workers have a moral claim to government protection? Why should government prioritize those workers’ living standards above their fellow citizens?” – about which Olsen comments “If there is no moral standard against which we can measure market outcomes, then Lincicome is right to protest. But if there is such a standard, then market interventions are not only morally justified, they become morally mandatory.”

Olsen seriously distorts Linciome’s meaning. Lincicome never wrote that there is no moral standard against which we can measure market outcomes. Quite the contrary. Lincicome’s point begins with the reality that protectionism artificially helps some American industries and workers only by artificially damaging others. And so protectionism is unethical because it elevates the welfare of those who reap the benefits of protectionism over that of those who necessarily suffer – and protectionism performs this inequitable elevation for no reason other than the fact that its beneficiaries possess more political power or saliency than do its victims.

Lincicome’s, and all free-traders’, moral standard is one of equity: no one gets special favors. The fact that Olsen misses this core element of the case for free trade reveals the intellectual weakness of those who struggle to do the impossible, namely, to supply credible ethical and economic justification for Trump’s economic nationalism.

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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… is from page 14 of the 1936 English-language edition (translated from German by Alfred Stonier and Frederic Benham) of Gottfried Haberler’s classic 1933 work, The Theory of International Trade With Its Application to Commercial Policy:

One speaks, for short, of ‘British’ exports’ and ‘Germany’s balance of trade.’ But to analyze these conceptions one must split them up into their component parts, i.e., into the actions of individuals.

DBx: Yes.

Trade is not carried out by countries as such. Or by regions. Or by societies. Or by governments (except when they buy and sell, in the same way that private companies buy and sell, each to provision itself as an organization). Trade is carried out only by individuals, each with his or her own distinct preferences (including risk-tolerances) as well as unique knowledge of time, place, and circumstances.

In any society that can reasonably be described as free, the result of the countless on-going decisions by individuals to trade, and of just how to do so in each instance, is a vastly complex yet unplanned (and unplannable) pattern of ‘outcomes.’ This complex pattern can be called, for linguistic convenience, say, “the American economy” or (more accurately) “the global economy.”

But it is not really an economy. The “it” as such – that which we call “the American economy” – serves no purpose in the sense of “it” being aimed to achieve some overall goal toward which each of its component actors is meant, or intends, to promote.

Americans do not work – do not produce, invest, consume, or “allocate resources” – in order to maximize American GDP, to “win” some always-imaginary game of global economic competition against some other country or countries, or to achieve any other aggregate or national goal. And so to attempt to evaluate the American economy according to any such criterion is a fundamental error.

To commit this error is to commit the same error that someone would fall into who, upon observing from a helicopter the flow of traffic along the I-95 corridor near Philadelphia, speaks of “the” purpose of the observed traffic pattern. Each driver has a purpose. And an observer from on high marvels as the orderliness of the pattern’s flow. Further, this observer speaks of “the traffic,” as if it is a thing unto itself. But “the” traffic – being merely a name for a complex and unplanned order that is the result of countess individual decisions – has no purpose. It is not an entity that can possibly possess a purpose.

The ‘traffic’ of human commerce – the human “economy” – has no purpose. “The” [fill-in-this-blank with “American,” “Dutch,” “Chinese,” “global,” you name it] economy is merely a name that we give to a complex, emergent order the operation of which increases the prospects of each purposeful individual better achieving his or her individual goals. But “it” has no goals.

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In my latest column for AIER I offer some reasons to dismiss the absurd assertion that Trump’s long-term goal is a world of freer trade. A slice:

Trump has pontificated on trade for decades, and every word out of his mouth clearly reveals a man who knows nothing about the economics of trade and who is as clichéd an economic nationalist as can be imagined.

Behold this line from a 1990 interview he did in Playboy: “The Japanese double-screw the US, a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.”

Let’s examine this unalloyed gem of economic witlessness.

Overlooking Trump’s outrageous exaggerations, such as his claim that the Japanese buy up “all” of Manhattan, we start by stating an obvious truth: the voluntary purchase of a good is not a transaction in which the buyer is “screwed” or has his or her money “taken.” Instead, the buyer’s money is voluntarily spent. While every person of good sense sees a foreign seller who makes attractive offers to domestic buyers as someone who improves the well-being of each buyer who accepts the offer, Trump sees this seller as a con artist or thief.

And so Trump ignores the value to Americans of the imports we purchase. In typical mercantilist fashion, he believes that the ultimate purpose of trade is to send out as many exports as possible in exchange for as much money as possible — money that in Trump’s ideal world is never spent on imports. His view on this matter is even more bizarre than that of ordinary mercantilists. For Trump, imports are not merely costs that we endure in order to export, they are actual losses. (Although it goes without saying, I’ll say it nevertheless: Trump does not understand that imports are benefits and that exports are costs.)

Furthermore, by describing the money spent on imports as “our money,” Trump reveals his belief that money earned by each American does not belong to that individual but, instead, to the collective.

Also in the fashion of the typical mercantilist, the presumption is that the nation is akin to a gigantic household whose members all share in and collectively own its money. And just as Dad justly superintends little Emma’s and Bobby’s spending to ensure that they don’t dissipate the family’s wealth, Uncle Sam must superintend his subjects’ spending in order to ensure that we don’t dissipate the nation’s wealth.

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Here’s a letter to National Review:

Editor:

Kevin Williamson, with his usual eloquence, exposes the pretensions and fallacies that infest Elizabeth Warren’s scheme of “economic patriotism” (“Colbert Reports,” June 9). And Mr. Williamson is exactly correct to note that this policy – far from being cool, cutting-edge, and ‘progressive’ – was perfected by French Minister of Finance Jean-Baptiste Colbert in the 17thcentury. These policies, as Mr. Williamson wryly notes, “did not do much for France.”

With equal understatement, Adam Smith – in his 1776 An Inquiry Into the Nature and Causes of the Wealth of Nations [p. 467] – passed an identical judgment on M. Colbert’s economic patriotism:

“The French have been particularly forward to favour their own manufactures by restraining the importation of such foreign goods as could come into competition with them. In this consisted a great part of the policy of Mr. Colbert, who, notwithstanding his great abilities, seems in this case to have been imposed upon by the sophistry of merchants and manufacturers, who are always demanding a monopoly against their countrymen. It is at present the opinion of the most intelligent men in France that his operations of this kind have not been beneficial to his country.”

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 June 10, 2019

in Trade

… is from page 359 of the 1978 collection, edited by Eric Mack, of Auberon Herbert’s writings, The Right and Wrong of Compulsion by the State; specifically, it’s from Herbert’s 1908 essay, “A Plea for Voluntaryism”:

It is only the coward’s policy to kneel down in the dust, and wail, and confess inferiority, as regards the producers of other nations.

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Scott Sumner offers an important clarification to discussions of so-called “currency manipulation,” and in the process joins in the criticism of a recent Treasury department document meant to justify Trump’s lunatic trade policy. A slice:

In fact, the US government policy is far worse than what one might infer from the previous discussion.  The Treasury Department’s accusations of currency manipulation are based in part on the level of bilateral trade deficits, a concept almost universally regarded by economists (including Bergsten and Gagnon) as being utterly meaningless.  It’s hard to overstate the craziness of implementing US policy that is aimed at harming other countries and that is based on the economic equivalent of astrology.

On Trump’s trade policy, see also Tim Worstall.

Jeffrey Tucker documents Trump’s trade-war’s new level of bizarreness. A slice:

There will be no new tariffs against Mexico, for now. However, the hiatus might only be temporary. “The tariff threat is not gone,” one Trump administration official (who is probably Peter Navarro) told the New York Times. “It’s suspended.”

And that raises a serious problem for businesses on both sides of the border. Can or should they continue to make deals and investments, or should they look for other markets? This regime uncertainty can be as costly as tariffs themselves.

Even stranger, there was no relationship between the stated problem (a migrant crisis and a drug problem in Mexico) and the proposed solution (taxing Americans). Even more bizarre, taxing Americans for buying goods will harm economic health in both countries, which will likely intensify problems at the border.

Elizabeth Nolan Brown disses Tucker Carlson for his Trump-like unprincipled opposition to free markets. A slice:

Like many Republicans in the Trump era, Carlson has been trending away from limited-government rhetoric for a while, using his show to “yammer on” about why tariffs are good while still fearmongering about liberals and “socialists” (a category very broadly defined in the Fox world). But drape that “socialism” in a flag, and you just might win him over.

Rich Vedder calls for the privatization of state colleges.

Art Carden explains why Thanos is a poor economist.

Arnold Kling is correct: “The attempt to divide all income between labor and capital is a fool’s errand.

George Will writes with nuance and wisdom about the SAT’s new “adversity index.

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