… believes that Castro’s Cuba would have been even poorer had the United States government not done the people of that island the great good favor of enforcing an embargo against it.
The April 2004 Freeman contains one of my many attempts to bust the myth that a trade deficit – or a current-account deficit – necessarily is something to lament. In reality, such a “deficit” (It’s a deficit only by accounting definition, not in economic reality) is typically, in a market economy, evidence of relatively sound economic policies and of a relatively promising future. And such a “deficit” is itself never a cause of any economic damage; it is almost always a cause of economic improvement relative to what the situation would be absent the “deficit.” My column is below the fold.
… is from page 151-152 of the 1992 Liberty Fund edition of John Taylor‘s 1822 tract, Tyranny Unmasked:
Monopoly is a word sufficiently indefinite, to enable ingenuity to obscure its malignity, by extending it to property acquired by industry and free exchanges; and though private property begets civilization, society, and happiness, it is made, by calling it monopoly, to supply arguments for its own invasion. If monopoly, like money, does really reach every species of acquisition, yet it may also possess good and evil qualities; and a discrimination between them is necessary, to reap the good and avoid the evil. The monopolies obtained by industry, admitting the phrase to be correct, are, like earning money, beneficial to society; those obtained by exclusive privileges, like stealing money, are pernicious.
DBx: If a firm grows to be unusually large in a free market, it does so only because it is unusually good at satisfying consumer demands. But count on it: pundits, professors, and politicians will nevertheless complain bitterly of the “monopoly” harms that this firm is imagined to impose on the good people of the country. Yet if a firm is failing, or is not doing quite as well as its owners and workers desire it to do, many of these very same pundits, professors, and politicians insist that the good people of the country will be well-served only if the government arranges for this firm to grow larger by bestowing upon it artificial monopoly power in the form of penalties extracted from the good people of the country who purchase foreign-produced products instead of the products produced by this privileged firm.
It’s utterly bizarre to fear and complain about the genuine successes of firms achieved through what Deirdre McCloskey calls “market-tested competition” while simultaneously welcoming and celebrating the artificial ‘successes’ of firms achieved through the application of state privilege and force.
… is convinced that 5-1=6.
Here’s a letter to an economics graduate student who asked to remain anonymous:
Mr. T:
You accuse me of “doing a disservice” to you and other of my fellow economists by “over-simplifying our theoretical understanding of trade.” You insist that the “exceptions shown by theory to [the case for] free trade should not be ignored.”
With respect, while I appreciate your e-mail, I disagree with your assessment of my efforts. Nearly all of my writings on trade are for popular audiences. These writings appear on my blog and in newspaper and magazine columns. These audiences are not composed of my fellow economists who understand the elemental case for free trade. Instead, these audiences are composed of people many of whom do not understand the important basics that economists understand – people who do not understand, for example, that foreigners sell to us only because they wish to buy from us or to invest in our economy; that resources diverted to domestic industry X by a tariff are thereby diverted away from domestic industries Y and Z; that a rising U.S. trade deficit does not imply that Americans are going further into debt; that the low wages paid to many foreign workers – especially, but not only, because these low wages reflect low productivity – do not give low-wage countries an “unfair” advantage (or, for that matter, any advantage at all). Until and unless non-economists better understand these and other foundational truths, ordinary men and women will be unwitting victims of demagogues and cronyists.
You might respond that I’m nevertheless professionally obliged always to point out the ifs, ands, and buts that appear in textbooks and academic papers on trade. And I would disagree with your response, for four reasons.
First, the qualifications to the economists’ case for a policy of free trade are very few in number. Second, they are unlikely to arise in reality with sufficient frequency to justify our condoning government discretion to obstruct trade. Third, although we economists can describe these exceptions theoretically, we – and much more so politicians and other government officials – can be trusted neither to identify the existence of these exceptions in reality nor to respond to them apolitically and in ways that will actually improve matters.
Fourth and most importantly, to the extent that trade policy today falls short of what most economists would recommend, the reason is that ordinary people do not understand the basic case for free trade. In other words, actual problems with existing trade policy are not the result of a failure of policy-makers and the general public to appreciate and acknowledge the theoretical exceptions to the case for free trade; instead, these problems are the result of a failure of the general public to understand the case for free trade itself. Therefore, before any public discussion of exceptions to the case for free trade becomes important, the public must first have what it doesn’t now have: an adequate understanding of the case for free trade.
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
… believes that if the government successfully prevented red-headed consumers from patronizing any producers with hair color other than red, then red-headed people as a group would thereby be made more prosperous.
… believes that we Americans would be even wealthier than we now are if each of the 50 states were a sovereign nation that restricted its citizens’ abilities to import goods and services not only from Europe, Asia, and other far away places, but also from each of the other 49 states. After all, if creating artificial scarcities in the United States is key to increasing each American’s access to goods and services, imagine how much richer we Americans would be if we in Virginia enjoyed the artificial scarcities created by the government in Richmond obstructing our access not only to goods and services sold by the likes of Canadians and the Chinese, but also to goods and services sold by the likes of North Carolinians, Marylanders, Californians, Hawaiians, and Americans in other states. Ditto for Louisianans whose wise leaders in Baton Rouge obstructed their ability to import goods and services not only from places such as Mexico and Japan, but also from places such as Mississippi, Texas, New Jersey, and other U.S. states. Ditto also for Oklahomans, Nebraskans, Minnesotans, Floridians, Vermonters, Arizonans, Alaskans, and citizens of each of the other states.
Or put somewhat differently, a protectionist is someone who regards American courts as having visited upon Americans a curse rather than a blessing through these courts’ consistent interpretation of the U.S. Constitution as meant to create among these united states a free-trade zone.
….
See also here.
The Maduro Diet – in which you have legions of determined assistants to ensure that you keep your calorie count at levels that guarantee weight loss. (HT Morgan Frank)
In this 100th “Dead Wrong” video Johan Norberg celebrates human ingenuity.
With his usual and admirable realism, George Will remembers the late Billy Graham.
Max Borders warns of the dangers of a Universal Basic Income.
Here’s Damon Root’s most recent celebration of Frederick Douglass.
In the January/February 2004 Freeman I argued that in modern commercial societies the observable differences – those that are visible to the naked eye – between even the hyper-rich and ordinary people are today small and shrinking. My column is below the fold.
… is from David Hume’s essay “Of Commerce” (here from page 254 of the 1985 Liberty Fund collection of some of Hume’s essays, edited by the late Eugene Miller, Essays: Moral, Political, and Literary) (original emphasis):
But when we reason upon general subjects, one may justly affirm, that our speculations can scarcely ever be too fine, provided they be just; and that the difference between a common man and a man of genius is chiefly seen in the shallowness or depth of the principles upon which they proceed. General reasonings seem intricate, merely because they are general; nor is it easy for the bulk of mankind to distinguish, in a great number of particulars, that common circumstance in which they all agree, or to extract it, pure and unmixed, from the other superfluous circumstances. Every judgment or conclusion, with them, is particular. They cannot enlarge their view to those universal propositions, which comprehend under them an infinite number of individuals, and include a whole science in a single theorem. Their eye is confounded with such an extensive prospect; and the conclusions, derived from it, even though clearly expressed, seem intricate and obscure. But however intricate they may seem, it is certain, that general principles, if just and sound, must always prevail in the general course of things, though they may fail in particular cases; and it is the chief business of philosophers to regard the general course of things.
DBx: A common, pedestrian example of the flawed reasoning that Hume here warns against is the protectionist’s commission of the fallacy of composition when evaluating trade and trade restrictions. The protectionist sees what even a toddler can see – namely, that if the potential customers of some favored firms are penalized if and when they patronize the rivals of those favored firms, the business of the favored firms improves. The favored firms encounter a higher demand for their outputs. The favored firms produce more. The favored firm’ revenues rise. The favored firms employ more worker and purchase greater quantities of other inputs. The favored firms pay more in taxes.
As David Hume would not have actually said – but as he would certainly have agreed – “Well, duh.”
The protectionist then leaps victoriously to the conclusion that, therefore, protectionism paves the path to widespread prosperity. It’s a leap of ignorance.
What the protectionist doesn’t see is the reduced spending elsewhere in the domestic economy by consumers, both domestic and foreign. What the protectionist doesn’t see is the reduced investment elsewhere in the domestic economy by investors, both domestic and foreign. What the protectionist doesn’t see are the outputs not produced by domestic producers, and the jobs not performed by domestic workers, as a result of the artificial expansion of the protected firms. What the protectionist doesn’t see are the wage rates that didn’t rise because the trade restrictions tamp down the growth of worker productivity. What the protectionist doesn’t see is the greater difficulty of especially poorer households to stretch their budgets in ways that enable them to improve their standard of living. What the protectionist doesn’t see is the fact that, once government starts doling out such special privileges, entrepreneurs who would otherwise devote all of their time, effort, and resources to building better mousetraps spend more and more of their time, effort, and resources building better lobbying arrangements and schemes. What the protectionist doesn’t see is the danger to the rule of law and to freedom that lurks in government powers to dispense such special privileges.
The protectionist sees none of this because to see it requires a bit of abstract reasoning and knowledge of general principles. The protectionist rejects such reasoning and principles as girly, as academic, as not fit for a practical man of affairs – a man who knows only what he actually sees, and who sees only what is dancing immediately in front of his nose.
