… is from page 114 of Steven Pinker’s excellent 2018 book, Enlightenment Now (all dollars below are 2014 dollars; link added):

The study found that in absolute terms, Americans have been moving on up. Between 1979 and 2014, the percentage of poor Americans dropped from 24 to 20, the percentage in the lower middle class dropped from 24 to 17, and the percentage in the middle class shrank from 32 to 30. Where did they go? Many ended up in the upper middle class ($100,000-$350,000), which grew from 13 to 30 percent of the population, and in the upper class, which grew from 0.1 percent to 2 percent. The middle class is being hollowed out in part because so many Americans are becoming affluent.

DBx: Note that the study to which Pinker here refers, one done by Stephen Rose, was published in 2016 by the Urban Institute – an organization not known for possessing any libertarian or conservative biases.

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Quotation of the Day…

by Don Boudreaux on June 9, 2018

in Doux Commerce, Trade

is Mark Perry’s closing on this recent post at Carpe Diem (original emphasis):

Conversely, protectionism is an agent of stagnation; it retards the arts and sciences; it destroys bonds of common interest; it corrodes the understanding of foreign peoples and appreciation of their merits; it lowers a commercial and moral barrier to war; and it diminishes the ideal of a world federation, the brotherhood of man.

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In the Fall 1990 issue of Regulation, I did my best to expose flaws in the bizarre and extreme twists of antitrust policy.

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Truly Medieval

by Don Boudreaux on June 9, 2018

in Adam Smith, Trade

Here’s a letter that I sent several days ago to the Washington Post:

Catherine Rampell is correct that Trump’s trade policies are a nest of fallacies that, as she says, were all the rage in the 1680s (“Trump’s trade policy is stuck in the ’80s – the 1680s,” June 1).

But these fallacies are far older than even that. They were current in the 1380s!  In 1381 Richard Leicester worried about the fact that the English were importing more than they were exporting and, therefore, were paying for these extra imports with money. Save for the archaic language in which it is couched (and that it refers to England rather than to the U.S.), Leicester’s solution to this non-problem sounds as if it were from a Trump White House press release: “Wherefore the remedy seems to me to be that each merchant bringing merchandise into England take out of the commodities of the land as much as his merchandise aforesaid shall amount to; and that none carry gold or silver beyond the sea, as it is ordained by statute.”*

What Adam Smith called the “absurd” doctrine of the balance of trade** is literally a medieval superstition.

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

* Quoted in Jacob Viner, Studies in the Theory of International Trade (1937), p. 6.

** Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Book IV, Chapter 3, paragraph 31.

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Some Links

by Don Boudreaux on June 8, 2018

in Myths and Fallacies, Reality Is Not Optional, Trade

Daniel McCarthy (for) and Matt Ridley (against) debate the merits of Trump’s tariffs. A slice from Matt Ridley’s essay:

But the impact of retaliation on American producers is in some ways the least of the problem. Consumers will suffer most from the tariffs, and everybody is a consumer, including, of course, those who work in the steel industry. Deliberately raising the price to the American economy of steel, a crucial ingredient in everything from cars to cables, is self-harm.

In my latest column in the Pittsburgh Tribune-Review I call for trade policy based on realistic assumptions. A slice:

Freedom to trade is nothing more than the freedom of those who earn incomes to spend their incomes as they choose regardless of the nationality of suppliers. Because your ultimate purpose of working to earn an income is for you to use that income to acquire goods and services that improve your family’s standard of living, if you choose to buy an import you obviously believe that your buying that import helps to raise your family’s standard of living. It follows that if you are prevented from buying that import, you are thereby prevented from using your income to maximum effect in raising your family’s standard of living.

So, as a rule, each of us should be free to spend our incomes as we judge best. As a rule, obstructions of this freedom make us poorer. And while a vivid imagination can concoct scenarios in which such obstructions make us richer, such scenarios are no more realistic than that of burglary being good for society.

Writing in the New York Times, Dan Ikenson counsels Republicans not to be patsies for Trump’s tariffs punitive taxes on Americans who buy imports. A slice:

Why don’t the president’s trade transgressions elicit meaningful resistance from party leadership? His trade views are disdainful of freedom and informed by economic fallacies, yet Republican leaders have watched quietly from the sidelines as Mr. Trump misappropriates his authorities to disrupt global supply chains, inflict pain on American trade partners, generate enormous amounts of domestic collateral damage and make the United States an international scofflaw.

David Henderson argues that even if Trump’s goal in raising U.S. tariffs is to make global trade freer – an “if” that I find to be unbelievable – he, Trump, is playing a horribly dangerous game.

Simon Lester correctly advises us to be wary of claims that Trump’s tariffs punitive taxes on Americans who buy imports are ‘working.

Here’s my Mercatus Center colleague Dan Griswold on the most-recent U.S. Commerce Department monthly report.

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Quotation of the Day…

by Don Boudreaux on June 8, 2018

in Seen and Unseen

… is from page 167 of the late University of Washington economist Paul Heyne‘s 1985 paper “The Concept of Economic Justice in Religious Discussion,” as this paper appears in the 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.):

Capitalism is thus by definition an impersonal system. It is not altogether an impersonal system, because the individuals within it do participate in families and small, face-to-face associations, where they can know other persons well enough to be concerned with and to care for their unique qualities. But the distinguishing characteristic of capitalism is the impersonal nature of the social interactions that make it up. It can be described paradoxically as a social system in which people do not care about most of those for whom they care. The farmer who feeds me does not even know I exist, and while he wishes me no ill, he does not and cannot care about me in any subjective sense. Nonetheless, he cares for me, and very effectively, in an objective sense.

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Mr. Decker:

A fellow economist sent to me today a Breitbart piece from February reporting with approval your fear that the U.S. trade deficit with China is (as the title of the piece says) “underwriting China’s military and infrastructure buildup.” In this piece you are quoted as asserting the following: “What are our dollars doing? We’re building, paying for, and underwriting [China’s] military buildup. We’re building their infrastructure We’re making their country stronger for the future, sort of at the long-term expense of our own. We’re not making the investments in our own infrastructure.”

Breitbart describes you as an “Asia expert.” Perhaps you are that. But your assertion that the U.S. trade deficit with China funds investment in China reveals that you clearly are no economics expert. You see, whenever the U.S. runs a trade deficit it necessarily is on the receiving end of global capital flows. A U.S. trade deficit – more precisely, current-account deficit – means that more investment funds are flowing into the U.S. than are flowing out of the U.S. In trade lingo, when the U.S. runs a current-account deficit it runs an identically sized capital-account surplus. Furthermore, China’s trade surplus implies that China is running a capital-account deficit – meaning that on net the Chinese invest more outside of China than foreigners invest within China and, thus, there is a net outflow of investment funds from China.

In short, your assertion that the U.S. trade deficit is funding investment in China is complete nonsense. The truth is exactly the opposite of what you assert.

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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Here’s a letter to one of two recent correspondents who accuse me of not trusting Trump. (The accusation is accurate, for I trust no politician.)

Mr. Ted O’Brien

Mr. O’Brien:

Thanks for your e-mail in which you upbraid me for, as you put it, “not trusting our President to work out better trade deals for us.”

You’re correct that I don’t trust Trump to work out better trade deals for us. You are incorrect to upbraid me for this distrust.

The fact is, I trust no one to “work out” better trade deals for us. Each and every trade to which an American voluntarily agrees is a trade – a “deal” – that that American believes makes him or her better off. Therefore, because each and every trade restraint blocks some of these trades, each and every trade restraint makes some Americans worse off.

Put differently, I trust each and every American to work out for himself and herself the trades that are best for him and her. And I trust only each and every American with this authority, and only over himself and herself. The very fact that Trump must use threats of force to obstruct countless voluntary trades – countless voluntary deals – that would otherwise occur is virtual proof that his trade obstructions harm Americans.

Far from ‘working out’ for each of us trade deals that are better, tariffs – regardless of who negotiates them – work out for us trade deals that are worse.

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 7, 2018

in Seen and Unseen, Trade, War

… is from page 127 of Martin Wolf’s great 2004 book, Why Globalization Works:

The collapse in trade was a major spur to the search for autarky and Lebensraum, most of all for Germany and Japan.

DBx: All who attempt to justify trade restrictions in the name of national defense should – but almost never do – weigh the sort of reactions described above against whatever real or imaginary benefits to national defense are said to arise from trade restrictions.

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Bonus Quotation of the Day…

by Don Boudreaux on June 6, 2018

in Hubris and humility

… is from page 390 of Joseph Epstein’s 2008 short essay “Negative Pleasures” as this essay is reprinted in the 2016 collection of Epstein’s short essays, Wind Sprints:

Another great negative pleasure I enjoy is not having a PhD. Some of the most deeply stupid people in the country have PhD’s.

DBx: Speaking as someone with a PhD, I fully concur with Epstein’s observation. Over the past 40 years of my life I’ve encountered – and in many cases gotten to know very well – people too many to count with PhDs. I’m not impressed.

I quickly add that some of these people are amazingly smart and wise – for example, Steve Davies, Roger Garrison, Tom Hazlett, Bob Higgs, Dan Klein, Dwight Lee, Hugh Macaulay, Deirdre McCloskey, Mario Rizzo, George Selgin, Vernon Smith, Walter Williams, and Leland Yeager, to name, almost at random, only a few. But the number of people without a PhD who I can name, and who I’ve personally known, whose intellects and judgment I respect comparably is also very high. This number includes Betsy Albaugh, Lyle Albaugh, David Boaz, Fred Dent, Donald Dewey, Dan Griswold, Dan Grossman, Methinks, Gerry Ohrstrom, Adam Pritchard, Candace Smith, John Stossel, Gordon Tullock, and Todd Zywicki. Were I to extend both lists each to its full length, this latter list would almost surely be longer – much longer – than the former list.

And were I to make a list of the people whom I’ve encountered with PhDs who spout utter idiocy, and a separate list of those whom I’ve encountered without PhDs who spout utter idiocy, the longer of the two lists would unquestionably be the former.

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