Russell Roberts's Blog, page 120
July 19, 2022
On Why Bilateral Trade Accounts are Meaningless
Here’s a letter to a long-time, protectionist correspondent, Mr. Nolan McKinney:
Mr. McKinney:
You find “unbelievable” my claim that in a world of more than two countries there is no reason to expect any pair of countries to have ‘balanced’ trade with each other – and, hence, no reason to worry about America’s so-called ‘trade deficit’ with China. “Common sense,” you insist, “tells us the US’s trade deficit with China works to China’s advantage at Americans’ expense.”
I’m afraid that your common sense here misleads you.
Suppose that in June Americans bought $1 billion worth of steel from China, and the Chinese immediately turned around and spent every last cent of these export earnings buying $1 billion worth of lumber from America. In this case trade between America and China would be ‘balanced,’ so supposedly you’d be unconcerned.
Suppose that in July, Americans again buy $1 billion worth of steel from China, but the Chinese, rather than buy lumber from America as they did the previous month, instead immediately spend this $1 billion buying coffee from Brazil. The Brazilians then immediately spend this $1 billion buying lumber from America. In this case, you and protectionists such as Robert Lighthizer, Donald Trump, and Bernie Sanders would flail your arms and cry that America is running a trade deficit with China. You’d raise alarms about lost American jobs, weakened American ‘competitiveness,’ and ‘unfair’ Chinese trade practices. Yet this reaction would be silly.
While it’s true that in July the Chinese purchase less from Americans than Americans purchase from the Chinese – thus creating in July a so-called American ‘trade deficit’ with China – the economic consequences for Americans are the same in July as in June. In each of the two months, the $1 billion of American purchases of Chinese-made steel result in $1 billion additional purchases by foreigners of American-made lumber. And of course the same number of jobs that are supported in the U.S. lumber industry when American mills export $1 billion of output to China are supported in the U.S. lumber industry when American mills export $1 billion of output instead to Brazil.
I could elaborate further, but the above example suffices to reveal that, in a world of more than two countries, the failure of trade between any pair of countries to ‘balance’ is economically meaningless. Therefore, when anyone uses such a ‘failure’ as a reason to agitate for protectionist policies, I conclude – with great confidence – that that person is either economically ignorant or is intentionally misleading his or her audience.
Sincerely,
Don
On the Economics of Trade, Lighthizer Is a Lightweight
Here’s a letter to the Wall Street Journal:
Editor:
Robert Lighthizer is right that cutting tariffs on imports from China will do little to reduce inflation, but everything else that he asserts is wrong (“Biden’s China Tariff Cuts Would Hurt the U.S.,” July 19).
First, the tariffs aren’t justified by allegations of Chinese theft of intellectual property. As Dan Griswold and I explain in a 2019 Mercatus Center paper,* protectionists exaggerate the extent of Chinese IP theft as they ignore alternative and less disruptive means – most notably, arbitration through the W.T.O. – of reducing what theft there actually is.
Second, contrary to Mr. Lighthizer’s insistence, America’s trade deficit with China is a meaningless statistic. There’s no more reason to expect any pair of the world’s 195 countries to have ‘balanced’ trade with each other than there is to expect any pair of the world’s many companies to have ‘balanced’ trade with each other. That Mr. Lighthizer offers America’s so-called ‘trade deficit’ with China as a reason for punitively taxing Americans who buy imports from China reveals an ignorance of economics that alone suffices to disqualify his pronouncements on trade from being taken seriously.
Third, like all protectionists, Mr. Lighthizer ignores the gains from trade reaped by American consumers, as well as by American producers whose markets are expanded by trade. Sympathizing only with the relatively few workers and firms protected by tariffs, Mr. Lighthizer is coldly indifferent to the countless consumers whose real incomes are reduced by tariffs, and to the many other workers who lose particular jobs – and to the many other firms that lose markets – as a result of tariffs.
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
* Daniel Griswold and Donald J. Boudreaux, “How the United States Should Respond to China’s Intellectual Property Practices,” Mercatus Center Policy Brief, April 2019.
Some Links
Industrial policy is back in fashion in Washington, or as it ought to be called, corporate welfare. The semiconductor industry is first in the queue, but it won’t be the last. Taxpayers should at least know they’ll be subsidizing highly profitable companies that don’t need the help and might end up regretting the political handcuffs they’re acquiring.
The bill that will head to the Senate floor as early as Tuesday includes $52.2 billion in grants to the computer chip industry. But wait, there’s more. Congress is also offering a 25% tax credit for semiconductor fabrication, which is estimated to cost about $24 billion over five years. That’s $76 billion for one industry.
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The other claim for the bill is that the U.S. must subsidize domestic chip-making to compete with China, but this also isn’t persuasive. The companies like to point out that the U.S. share of the world’s chips has fallen to 12% from 37% in 1990. They don’t mention that the U.S. leads in chip design (52%) and chip-making equipment (50%). Seven of the world’s 10 largest semiconductor companies are based in the U.S. China trails American companies by years in semiconductor technology.
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History shows that easy government money can undermine competitiveness. It often leads to inefficient spending and investment. The politicians will also attach their own strings, perhaps with limits on stock buybacks and dividends. Wait until Bernie Sanders is heard from on the Senate floor.
The chip bill isn’t needed to compete with China, and it will set a precedent that other industries will follow. Anybody who can throw up a China competition angle will ask for money. Why Republicans want to sign up for this is a mystery, especially when they might control both houses of Congress in six months.
. A slice:
The majority recognized that EPA’s seizure of life and death control over the power plants of America is “eyebrow raising,” invoking a well-established line of precedent which rejects such self-conferred expansions of agency power. For example, in 2000, the FDA could not self-assert power to regulate tobacco. More recently, the Court ruled that the Centers for Disease Control had been given no power by Congress to regulate state housing policy and invalidated CDC’s shocking nationwide shutdown of state court evictions. The Court must enforce these guardrails, or our polity will be at the mercy of bureaucrats gone wild, as our national experience of the plague years vividly demonstrated, at incalculable and continuing cost to Americans.
Mr. Gensler has also signaled interest in restricting the ability of retail brokers to receive payments from wholesale brokers that handle orders, a system known as “payment for order flow.” The SEC would substitute an entirely new and untested system of auctions for retail orders. The new process would likely result in the return of brokerage commissions, which served as a barrier to young and low-income investors’ entry into the stock market. Mr. Gensler has also stated that the SEC may soon mandate disclosures of corporate board diversity. And former Commissioner Allison Lee has suggested that the SEC may limit the ability of private companies to raise capital from private-equity and venture-capital funds by effectively reducing the number of investors in private companies—a matter now on its official agenda.
What can be done to save capital markets from this assault? Congress should exercise its oversight authority over the SEC by demanding that Mr. Gensler halt his high-speed regulatory attack until the commission evaluates the overall impact of its proposals on U.S. capital markets. A recent release by the Committee on Capital Markets Regulation shows that, while 11 SEC proposals apply to public companies and 10 apply to mutual funds, the SEC has failed to evaluate the overall burden and overlapping requirements of these proposals on these companies or funds.
Did pandemic stimulus payments harm lower-income Americans? That’s the implication of a new study by social scientists at Harvard and the University of Exeter.
Liberals [DBx: Progressives] argue that no-strings-attached handouts encourage better financial decisions and healthier lifestyles. The theory is that low-income folks become more future-oriented if they’re less stressed about making ends meet. The Harvard study put this hypothesis to the test and found the opposite.
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More plausible, the payments made work less rewarding, which reduced feelings of personal well-being. Cash recipients reported less earned income and felt worse about their work. It’s no surprise that people who received a large percentage of their monthly income for doing nothing were less motivated to work and less satisfied with their work. Earning a paycheck can give workers a sense of personal agency that encourages them to make better financial and health decisions. Receiving a handout may do the opposite.
(DBx: Until I breathe my final breath I’ll continue the admittedly quixotic quest to help restore the word “liberal” to its true meaning. There is precious little that is liberal – and much that is arrogant, intolerant, and authoritarian – about the Progressives and statists who today in the United States are so very misleadingly called “liberal.”)
Brendan O’Neill writes about Britain that “[t]he heatwave green hysteria is out of control.”
Eric Boehm reports that tariffs make Summer fun more expensive and less safe. Here’s his conclusion:
Tariffs on pool fencing and bike helmets make about as much sense as the tariffs on personal protective equipment that left American hospitals less prepared, in winter 2020, to combat the COVID-19 pandemic. They’re also a useful illustration of how both Trump and Biden trade policies could actively harm Americans in ways that go beyond higher prices.
Over two years, the pattern at the Times has been the same:
Attribute terrible economic, educational, and cultural fallout not to the lockdowns but to the virus;Attribute virus fallout to the failure not to lock down and mandate enough;Deliberately confuse readers about the difference between tests, cases, and deaths, while obscuring any downside to mass mandated vaccinations;Never focus on the incredibly obvious demographics of C19 death: average age of expected death with underlying conditions;Ignore completely the primary victims of lockdowns: especially small businesses, the poor and minority groups, marginalized communities, artists, immigrant communities, small towns, small theaters, and so on;Do not publish anything that speaks of the path that all civilized countries prior dealt with new viruses: the vulnerable protect themselves while everyone else gets exposed with resulting immunity (Sweden did as well as any country because it refused to violate human rights, while lockdowns everywhere else flopped);Dismiss any alternative to lockdown as crazy, unscientific, and cruel, while acting as if Fauci speaks for the whole of the scientific community;Presume without evidence that all the interventions work in principle, including masks and travel and capacity restrictions;Put down and disparage repurposed therapeutics as if the evidence of their effectiveness did not exist.Never raise doubts about vaccine effectiveness, much less harms, while ignoring the carnage of the mandates on poor communities and labor markets as hundreds of thousands are fired.
(DBx: It should be added that a refreshing exception to the NYT‘s mostly appalling reporting and opining on covid is that paper’s columnist David Leonhardt, who often pushed back – for example, here – against at least some covid misinformation.)
In deciding whether the UK’s response to the pandemic was appropriate, the most important question to consider is not whether the Government locked down the country at precisely the right moment, but rather whether lockdowns and other restrictive measures were justified at all, given the uncertainties that existed at the time concerning their efficacy in containing the spread of SARS-CoV-2 and the negative knock-on effects on the health and wellbeing of the population.
We now know that many of the measures imposed during the pandemic did not have a significant effect on reducing the spread of the virus and led to an entirely predictable set of concerning outcomes of extraordinary proportions among the most vulnerable sectors – children, the elderly, and the economically deprived.
This is because, as any standard epidemiology text will tell you, measures restricting activity are unlikely to stall the spread of a novel virus in the long term. Such interventions, however, will alter the dynamics of endemic diseases (such as RSV, influenza, adenovirus) causing them to transiently disappear and subsequently re-emerge at unusual times with some attendant perverse consequences.
Russ Roberts talks with Vinay Prasad about covid, covid vaccines, and covid policy.
Political Activism: The Reality
On his Facebook page, philosopher Mike Huemer shares this cartoon conveying much truth. The sort of activism on display here, of course, is not the kind that’s aimed at keeping the power of government from expanding. Instead, the activism here on display is that of people who wish to use government’s coercive powers to attempt to reconfigure reality to suit the whims of the “activists.”
Quotation of the Day…
… is from page 105 of Deirdre McCloskey’s insight-filled 2022 volume, Beyond Positivism, Behaviorism, and Neoinstitutionalism in Economics:
Liberty and dignity are not easy to achieve. They require accepting commercial profit, rejecting tribal protectionism, resisting the temptations of reasonable sounding “planning” or “regulation,” and embracing an ideology of equality for women and the poor and low-status castes that traditional societies and even some modern societies fiercely resist.
July 18, 2022
Bonus Quotation of the Day…
… is from page 220 of Randy Simmons’s 2011 Revised Edition of his and the late William Mitchell’s 1994 volume, Beyond Politics, which is a superb primer on public-choice scholarship and research:
Government officials may well rest their authority on the premise that since they are elected or otherwise chosen by constitutional rule no one is being coerced or taken advantage of. But that is a weak formality. The more important point is that citizens can be exploited by their governments because of two highly important factors. First, decisions can and are made with less than unanimity, meaning that majorities (including those constituted by transient log-roll deals) are enabled to exploit minorities. There are, then, winners and losers. Second, opportunistic behavior is difficult to counter because the costs of organizing collective action against political opportunists is costly, as is exiting a jurisdiction.
DBx: Yes.
Contrary to the grade-school view of democracy, “the people” is not a sentient being with a will or set of preferences. Therefore, even the best-designed method of voting will not discover “the will of the people,” for that which does not exist cannot be discovered. That which does not exist can, however, be falsely portrayed as existing and then used as an excuse for tyranny.
Some Links
Toby Green and Thomas Fazi, writing at UnHerd, decry “the return of covid fearmongering.” Three slices:
None of this is surprising: there never really was a scientific case for universal masking. This was obvious based on the pre-pandemic literature, which is why the WHO (alongside the CDC and high-profile public health experts such as Anthony Fauci) initially advised against mass masking; subsequent studies have confirmed that “existing data do not support universal, often improper, face mask use in the general population as a protective measure against Covid-19”. Even the New York Times has at least partially accepted this, running a piece on 31 May entitled “Why Masks Work, but Mandates Haven’t”. As for contact tracing, the pre-2020 consensus was even more trenchant, with the WHO’s 2019 report on “Non-pharmaceutical public health measures for mitigating the risk and impact of epidemic and pandemic influenza” claiming that “under no circumstances” should it be adopted, due to its limited effectiveness. (There is also no evidence that lockdowns had any enduring influence on the spread of Covid-19. In fact, they may have worsened it.)
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Still, many argue that previous infection confers practically no immunity against BA.5 — and that, therefore, we should all be ready for another round of vaccination. In fact, the data shows no such thing; population-level data shows us unequivocally that prior infection confers immunity. In fact, the most recent study on the subject, published in the world-leading New England Journal of Medicine, shows that prior Covid infection conferred better protection against symptomatic Omicron (BA.1 and BA.2 subvariants) more than a year after infection than three doses of vaccine more than one month after the final dose.
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Of course, vaccines are key in preventing serious illness and death in those at great risk from Covid — but this was always, in truth, a comparatively small section of the population, as study after study has shown. Now that it is clear that vaccines do not prevent infection, it’s time to shift the focus to the kind of early-stage treatments that are vital in preventing potential LC [long covid] from developing. Insisting on the same restrictions and vaccine-centric strategy of the past few years and expecting a different result is, as Einstein might have said, simply insane.
Noah Carl identifies a flaw in the W.H.O.’s means of measuring excess deaths.
Jordan Schachtel tweets: (HT Jay Bhattacharya)
Birx engaged in relentless deceit. Instead of doing the honorable thing & resigning, she abused power, lied when confronted, and then bragged about it in her book.
GMU Econ alum Caleb Fuller explains that Google has no monopoly power. A slice:
Google (excuse me, Alphabet) doesn’t have a monopoly.
Not by any sensible definition of the word. Is Google the only way to “search” to find information? No, there are libraries full of books, and there are other people, many of whom know things.
Is Google the only way to communicate with a distant person? Again no, there are other email providers (Outlook, Proton, etc.), cell phones, landlines, regular face-to-face interaction (if you can imagine that), hand-written snail mail, shouting, and smoke signals.
Is Google the only way to navigate? Nope, Garmin still exists (just checked), as do the stars (just checked), which guided navigation for millennia.
Is Google the only browser? No, it’s just the preferred browser.
What about advertising—is there any other way? Of course, as evidenced by the billions of dollars spent on non-digital advertising each year (nor is Google the sole conduit for all digital advertising).
Try this logic on any of the other myriad services (i.e., YouTube) Google offers. The results are the same—substitutes, though generally perceived as inferior, abound.
Soaring oil and natural gas prices. Electricity grids on the brink of failure. Energy shortages in Europe, with worse to come. The free world’s growing strategic vulnerability to Vladimir Putin and other dictators.
These are some of the unfolding results in the last year caused by the West’s utopian dream to punish fossil fuels and sprint to a world driven solely by renewable energy. It’s time for political leaders to recognize this manifest debacle and admit that, short of a technological breakthrough, the world will need an ample supply of carbon fuel for decades to remain prosperous and free.
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Do Western leaders recognize or care that their climate monomania is endangering living standards in democracies and empowering authoritarians? Historian Arnold Toynbee argued that civilizations die from suicide, not murder. The West’s climate self-destruction may prove him right.
Writing in the Wall Street Journal, Institute for Justice lawyers Alexa Gervasi and Anya Bidwell rightly criticize Arizona’s prohibition of recording “law-enforcement officers from within 8 feet of police activity.” Here’s their conclusion:
Peacefully recording police in a public space without interfering with their activity can’t be subject to any restrictions. The law, which takes effect in September, will eliminate access to information, make government less accountable, sweep police wrongdoing under the rug, and penalize civic engagement.
David Henderson presents yet more evidence of unheralded economic growth for the middle class.
Tim Worstall captures economist Mariana Mazzucato exposing her inexplicable ignorance of basic economics. (DBx: The commission of this error by Mazzucato is alone sufficient reason to distrust any and all advice that she offers for economic policy.)
Quotation of the Day…
… is from a blurb contributed by William W. Hogan (who is Research Professor of Global Energy Policy at Harvard’s Kennedy School) to Steven Koonin’s 2021 book, Unsettled? What Climate Science Tells Us, What It Doesn’t, and Why It Matters:
The science of climate is neither settled nor sufficient to dictate policy.
DBx: To be clear, the science does seem settled (insofar as science can ever legitimately be said to be ‘settled’) that the earth is warming and that human industrial activity contributes to this warming. Yet many important questions remain unsettled. Among these unsettled questions are (1) Just how much of this warming is contributed by human activity? (2) What will be the actual consequences, for humans and for the earth, of this warming? and (3) What should we humans do about this warming?
July 17, 2022
Bonus Quotation of the Day…
… is from page 239 of Joseph Epstein’s 1999 book, Narcissus Leaves the Pool:
The genius of England, as [Joseph] Conrad knew, had much to do with its parochialism, a parochialism that refused to go flying off in pursuit of millennialist dreams at the expense of its integrity. This integrity derived from centuries of good humor, courage, and common sense….
Retailing Nonsense
Here’s a letter to the New York Times:
Editor:
In his critical analysis of Kathryn Judge’s skeptical assessment of middlemen – by which she seems to mostly mean “retailers” – Peter Coy is, well, too coy (“Are Middlemen Really Profit-Making Parasites?” July 15).
For example, when he reports that Prof. Judge “worries that middlemen can make outsize profits by taking advantage of their indispensable position in transactions,” Mr. Coy should have noted that, because in nearly all cases consumers are free to offer to buy directly from producers, it’s simply untrue that any retailer’s position in transactions is “indispensable.” Apart from the relatively few cases in which government regulations restrict consumers’ abilities to circumvent retailers, each retailer’s position exists only because, and insofar as, consumers find it less costly or more convenient to purchase through retailers than to spend time, effort, and money traveling about to purchase directly from producers or wholesalers.
It happens that Prof. Judge’s book, Direct, is selling reasonably well at Amazon.com despite the (in this case easy) ability of buyers to purchase it directly from its publisher. Clearly, Amazon’s position as a book retailer isn’t “indispensable.” The same is true for Amazon’s – and Home Depot’s, and Ikea’s, and Target’s, and Kroger’s, and PetSmart’s, and other retailers’ – sales of home appliances, clothing, furniture, groceries, and almost all of the countless other goods that consumers eagerly buy from retailers.
A more-accurate description of Prof. Judge’s position is that she “worries that middlemen can make profits by so significantly reducing consumers’ costs of obtaining goods that consumers almost never even think of not using retailers’ services.”
Prof. Judge as a book author – and she and the rest of us as consumers – should be grateful that retailers have made themselves so “indispensable.”
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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