Russell Roberts's Blog, page 119

The World Would Be a Better Place Without Any International Trade and Finance Accounting

(Don Boudreaux)

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Here’s a letter to a new patron of Café Hayek:

Mr. H__:

Thanks for your e-mail prompted by my recent post on so-called ‘bilateral trade deficits.’

Although you “grant a US trade deficit with another country isn’t the worst thing in the world” you “can’t help but feel that if we arranged our trade to be more equal with each trading partner our economy would be better off.”

With respect, I disagree.

Would your economic situation be better off if you arranged for your trade to be more equal with each of your trading partners? Would you enrich yourself and your family, or make yourself more economically secure, if you start purchasing from your employer an amount of goods and services equal to the value of labor that your employer purchases from you? Would your economic prospects improve if you manage to sell to your supermarket goods or services equal in value to the value of groceries that you purchase from your supermarket? What about selling each to your dentist, your automobile insurer, your internet-service provider, and Amazon.com an amount equal in value to that which you purchase from each? Would you thereby enrich yourself and your family?

Obviously not. You’d find the task of arranging such equality of monetary exchanges with each trading partner practically impossible.

More importantly, you and each of your trading partners would have to forego the enormous benefits of specialization. Because in the bizarre world described just above you’d have no income from your employer left over to spend on the likes of groceries, medical care, or insurance, in order to acquire these goods and services you’d have to spend time producing goods or services that are desired by your grocer, then by your physician, and then by your insurer. You and everyone else would soon be pauperized.

The same logic applies to countries because countries are comprised of individuals. Just as there’s no reason to expect you to have ‘balanced’ trade (as it’s called) with each person with whom you trade, there’s no reason to expect the collection of individuals in any one country, such as the United States, to have ‘balanced’ trade with the collection of individuals in any other country, such as China. And for government to try to compel any such ‘balance’ would reflect a most grotesque economic ignorance while it robs us of material well-being by dramatically reducing international specialization.

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

Some Economics of True Price Floors

(Don Boudreaux)

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In my latest column for AIER, I review some basic economics of true price floors. A slice:

Suppose that the government imposes a true price floor in the market for pickles. The government declares illegal all purchases and sales of pickles at prices below, say, $10 per pound (which price, let’s assume, is above the market price that would prevail absent the price floor).

The first and most obvious effect of this price floor is that the quantity of pickles that consumers are willing to buy will fall; the quantity that consumers demand will be driven lower than it would be without the price floor. If pickle producers are economically naïve, this price floor will create a physical surplus of pickles as producers, attracted by the higher price, increase their production of pickles. But even the most naïve pickle producers will soon learn that consumers are willing to buy at the high price-floor not only fewer pickles than producers are willing to produce and sell at that high floored price, but even fewer than consumers were willing to buy at prices lower than the floored price.

Discovering themselves unable to sell all of the output they are willing to sell at the price floor, pickle producers reduce their production. They produce no greater amount of pickles than consumers are willing to buy at the high price floor. So while price ceilings always create shortages, price floors don’t always create physical surpluses.

Nevertheless, because price floors do always reduce the quantities that buyers wish to buy while increasing sellers’ willingness to produce and sell, price floors create a second negative consequence – namely, the need for some means to determine which sellers will be among the lucky ones to sell at the higher price and which sellers will not be able to take advantage of the higher price by actually selling units of output at that price.

This determination might be done by luck or random chance. Perhaps only those sellers who encounter consumers early will be able to sell, while sellers who get to market too late find no more buyers.

But luck or random chance is unlikely to operate for long. Eager to sell at the high price floor, sellers will compete for buyers in ways other than cutting prices. A third negative consequence of a price floor is, thus, that the quality of the price-floored good rises. Pickle producers might attach to each jar they sell “free” coupons for discounts on crackers or deli meats or beer. These producers might work harder to make their pickles even tastier. Such non-price competition for consumer patronage is an inevitable result of price floors.

Unlike with the quality reductions caused by price ceilings, the impetus to quality improvements caused by price floors perhaps seems to be a positive consequence rather than, as I’ve described it, a negative one. But negative it is when compared to what the situation would be absent the price floor.

It’s true that, given that consumers aren’t allowed to buy pickles at any price below $10 per pound, they like their pickles being even tastier or sold with discount coupons. But what consumers would like even more is to pay a lower price for a lower-quality product. Were there no price floor in place, consumers would reveal through their spending that the higher quality isn’t worth the higher price. Yet because lower prices are unlawful – that is, because consumers must pay the higher price if they want pickles – consumers settle for the second-best outcome of paying this higher price for a higher-quality product.

Price floors, in short, compel consumers to buy too few units but too much quality.

Floridians and Covid

(Don Boudreaux)

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Written by Sean Malone:

Some Links

(Don Boudreaux)

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Ben Zycher’s letter in the Wall Street Journal is spot-on:

Mr. [Holman] Jenkins is not correct that a carbon tax would “bring us all the energy we want . . . without running a gantlet of environmentalists trying to shut [fossil energy] down.” The opposition to oil and gas is fundamentally ideological, derived from opposition to modern industrial society, which would be impossible without fossil fuels. The left opposes a carbon tax because the revenues will expand the political coalition favoring robust fossil-fuel production and carbon-tax revenues over the long run.

Besides, a reduction in capital taxation financed with an increase in energy costs is not viable politically. Even a carbon tax adopted on an international basis would have an impact on climate phenomena close to zero. Efforts to minimize the adverse competitive effects of a carbon tax in the context of international trade would be hugely complex, and would engender a massive shift toward resource allocation driven by government.

Benjamin Zycher
American Enterprise Institute
Long Beach, Wash.

Reason‘s Ron Bailey puts the climate ’emergency’ (so-called) into perspective. A slice:

But are hurricanes, tornadoes, wildfires, and droughts in the U.S. getting worse? University of Colorado climate change policy researcher Roger Pielke, Jr. notes that the number of landfalling hurricanes hitting the continental United States has been falling since 1900. The Intergovernmental Panel on Climate Change’s latest report observes that the annual average number of tornadoes in the U.S. has remained constant since the 1970s, although their location appears to be shifting from the Great Plains toward the mid-South. The president is right that wildfires have burned larger areas in recent years, although longer-term data show the area burnt by wildfires in the first half of the 20th century was similar to today’s extent. With respect to droughts, the Southwestern U.S. is experiencing its worst drought in 12 centuries. However, the Environmental Protection Agency reports that since 1900 “the overall trend has been toward wetter conditions” nationally.

What about the $145 billion in weather damages last year? Pielke notes that figure is about the average to be expected given the increase in infrastructure and housing exposed to weather events. He adds that the overall trend in global weather losses as percent of global GDP has been falling since 1990.

My intrepid Mercatus Center colleague Veronique de Rugy wisely warns of economic damage destined to be done by the further expansion of antitrust regulation. A slice:

Nobel-laureate economist F.A. Hayek insightfully observed that “economic planning, regulation, and intervention pave the way to totalitarianism by building a power structure that will inevitably be seized by the most power-hungry and unscrupulous.” Granting unelected bureaucrats expanded powers over the companies that drive economic growth is economically and politically dangerous. The risk is simply too great that government will abuse this power by compelling companies to bow to the whims of organized interest groups, including the administrative state itself. The subsequent suppression of decision-making based on profit and loss will result in inefficiency and stagnation.

GMU Econ alum Raymond Niles explains a reality what should be – but to too many people isn’t – obvious, namely, the best tool for making energy more abundant isn’t coercion.

My GMU Econ colleague Bryan Caplan is optimistic about what the fate of the United States would be under a policy of open borders.

Scott Lincicome and Alfredo Carrillo Obregon report that “politics, not economics, motivates semiconductor subsidies.” A slice:

As a policy matter, however, the already‐​weak economic case for the subsidies that we detailed last December has become even weaker. For starters, there has been even more chipmaking investment dedicated to the U.S. market, even as federal subsidies have languished. Construction is now underway at four major U.S. facilities and will continue with or without subsidies—something even Intel reluctantly acknowledged when it delayed the groundbreaking ceremony on its much‐​ballyhooed Ohio facility to protest congressional inaction. This is because, as numerous experts have explained over the last year, there are real economic and geopolitical reasons to invest in additional U.S. semiconductor production—no federal subsidies needed.

Nick Gillespie talks with Glenn Greenwald.

Jonah Goldberg explains why Joe Manchin is popular while Joe Biden is not.

David Bell argues that “human rights cannot be dependent on compliance with public health officials.”

Will Jones: “Study Confirms Omicron Infection Provides Strong Natural Immunity and Imperial’s Professor Altmann is Wrong to Scare People By Claiming Otherwise.”

The Spectator warns against the lockdown instinct.

Thorsteinn Siglaugsson is justly critical of “the man in the mask” – each of the many men and women masking themselves outdoors. A slice:

What does it take for people to do something like this, completely pointless and also inconvenient for them? There are only two possibilities; obedience, or unfounded fear, coupled with an irrational belief. Obedience is out of the question; there is no mask mandate in Iceland. The only possibility therefore, is unfounded fear, coupled with the irrational belief that a mask will protect a lone man outdoors from the object of his fear, when the object of his fear isn’t even anywhere near him.

Unfounded fear and irrational beliefs are signs of insanity. The man with the mask has succumbed to a pandemic of mass-insanity. For he is not alone. He is just one of hundreds of millions around the world.

(DBx: To be clear: I believe that people should be just as free to wear masks – and face shields, latex gloves, and hazmat suits – as they are to wear baseball caps, Birkenstocks, blue jeans, or Bozo costumes. But this freedom does not come along with immunity from appropriate criticism of the sort here leveled by Mr. Siglaugsson.)

Daniel Hadas tweets: (HT Jay Bhattacharya)

Many practices and discourses from the early days of Covid persist in a zombie form, not because there remains any serious hope of “beating” or “controlling” Covid, but because the continuation of these practices and discourses makes political sense.

Quotation of the Day…

(Don Boudreaux)

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… is from page 7 of the 2022 paperback edition of C. Bradley Thompson’s excellent 2019 book, America’s Revolutionary Mind:

All American revolutionaries believed that there are moral and political truths – truths absolute, certain, universal, permanent, and immutable – that can be known by reason and acted on. Such was the purpose of the Declaration of Independence – to declare certain self-evident truths thought to be accessible to all men everywhere.

I Hope That Ms. Ruben Isn’t a Teacher of Economics or of Logic

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Beth Ruben argues that teachers’ unions oppose charter schools because such schools “pay significantly less than public or even private schools” (Letters, July 21). She then concludes that “[a] charter school may have special perks such as smaller class sizes and mandatory parental involvement, but that won’t pay the rent.”

Ms. Ruben’s argument runs afoul of reality. If employment at charter schools really were so unappealing as to not attract enough teachers, charter schools would either raise their pay or become defunct – and in either case rid teachers’ unions of their alleged justification for opposing charter schools. The fact that these unions continue to vigorously oppose charter schools implies that these schools are in fact attracting enough high-quality teachers without paying them the inflated salaries doled out to too many K-12 public-school teachers.

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

Bilateral ‘Trade Deficits’ and Money

(Don Boudreaux)

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Cafe Hayek reader “Camper” – prompted by my recent letter on Robert Lighthizer’s latest exhibition of economic nonsense – sent to me the following e-mail. I share it with Camper’s kind permission. Camper’s observation is spot-on and brilliant – indeed, it’s downright Bastiatian. I wish that I’d have thought of it, but am delighted that Camper did!

Maybe remind Mr. Lighthizer that if bilateral trade deficits are harmful, then the use of money itself is harmful and we should return to a two-way barter economy?

A market with money is a market with continually recurring bilateral trade deficits. Every sale of current goods adds to the trade deficit of the buyer.

Cheers,
Camper

Some Links

(Don Boudreaux)

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The Wall Street Journal‘s Editorial Board applauds the private citizen – Elisjsha Dicken – whose quick action prevented a mass shooting from being even worse. A slice:

Police have now identified Elisjsha Dicken as the 22-year-old who stopped a mass shooting Sunday evening at an Indiana mall. At 5:56 p.m., a 20-year-old attacker exited a mall bathroom and began shooting a rifle into a food court. Three people were killed. Two others were wounded, including a 12-year-old girl. Yet it’s horrific to imagine how much worse this could have been.

The attacker, whose name we won’t give more notoriety, had several magazines and over 100 rounds of ammunition. He’d spent two years practicing at a firing range. But police said that Mr. Dicken swiftly drew his own pistol and engaged. He was at the mall in Greenwood, south of Indianapolis, shopping with his girlfriend, and he was legally carrying his weapon. Police recovered 24 rifle rounds, plus 10 from Mr. Dicken’s handgun.

Thanks to his quick action, the mass shooting ended within seconds. “I will say his actions were nothing short of heroic,” said Greenwood Police Chief James Ison. “He engaged the gunman from quite a distance with a handgun, was very proficient in that, very tactically sound, and as he moved to close in on the suspect, he was also motioning for people to exit behind him. To our knowledge, he has no police training and no military background.”

David Henderson blogs on a little known, but telling, ‘great moment’ in the use of industrial policy.

I’m proud to be among the signers of this open letter opposing more vigorous antitrust enforcement.

Gary Galles identifies important benefits of free markets. A slice:

That is one great advantage of market systems in a complicated world. Anyone who thinks a cause-and-effect relationship exists between two variables, and that he could make a profit by utilizing that relationship, can put that belief to the market test, and what works better can be revealed by that process. But government agencies are typically monopolies, neither subject to the market test of profitability nor facing the potential of bankruptcy (other than in the moral sense). This opens up a far greater possibility of public policies being implemented with the absence of a reliable understanding of the cause-and-effect mechanisms in play. Thomas Sowell characterized the difference as “replacing what worked with what sounded good,” as illustrated by the fact that “In area after area–crime, education, housing, race relations–the situation has gotten worse after the bright new theories were put into operation. The amazing thing is that this history of failure and disaster has neither discouraged the social engineers nor discredited them.”

Here’s the latest installment in George Selgin’s important history of the New Deal.

Here’s Jon Sanders’s mid-July 2022 “covid threat-free update.”

Jeffrey Tucker looks back on the Hong Kong flu pandemic of 1968-69.

Here’s a headline from the news section of today’s Wall Street Journal: “Covid-19 Complication Among Children Fades in Latest Wave of Virus.” (DBx: And keep in mind that, even at its worst, covid never posed much of a risk to children.)

The Real Danger Is Hysteria

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

You correctly identify reasons – not least that the reality of global warming has been known for decades – why Americans today confront no emergency of the sort contemplated by Congress when it enacted the National Emergencies Act of 1976 (“The ‘Beast Mode’ Presidency?” July 20). A Biden administration declaration of a “national climate emergency” would thus indeed be a dangerous assault on the rule of law.

Many Progressives, of course, will protest that we’ve no time to attend to legal niceties. Yet this protest seems credible only to those who are trapped in the climate-hysteria echo chamber. Those persons seeking a balanced and data-rich assessment of the climate situation should consult NYU physicist – and former Obama administration official – Steven Koonin’s eye-opening 2021 book, Unsettled? What Climate Science Tells Us, What It Doesn’t, and Why It Matters. As William Hogan, Research Professor of Global Energy Policy at Harvard’s Kennedy School, observed in his blurb for this book, “[t]he science of climate is neither settled nor sufficient to dictate policy.”

We absolutely do not face an emergency requiring extraordinary executive discretion and action.

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

Quotation of the Day…

(Don Boudreaux)

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… is from page 188 of former Caltech physics professor and provost – and former Energy Department undersecretary during the Obama administration – Steven Koonin’s excellent 2021 book, Unsettled? What Climate Science Tells Us, What It Doesn’t, and Why It Matters:

Politicians on the left find it inconvenient to discuss scientific uncertainties or the magnitude of the challenge in reducing human influences. Instead, they declare the science settled and label anyone who questions that conclusion “a denier,” lumping conscientious scientists advocating for less persuasion and more research in with those openly hostile to science itself.

DBx: Indeed so. And of course the anti-scientific stance here described by Koonin is at work not only on questions of the climate, but also on questions of covid.