Russell Roberts's Blog, page 1433

Quotation of the Day…

… is from the final sentence of Stanford University economist Gavin Wright's September 1990 American Economic Review article "The Origins of American Industrial Success, 1879-1940″ (reprinted as Chapter 13 in Robert Whaples and Dianne C. Betts, eds., Historical Perspectives on the American Economy: Selected Readings [Cambridge: Cambridge University Press, 1995], pp. 455-479; the following quotation is on page 476 of the Whaples-Betts reader):

[H]istorical resource abundance was itself largely an outgrowth of American industrial success.

Note carefully the direction of causality.  Julian Simon, I fancy, nods approvingly.

Damn Those Innovative and Cost-Cutting Monopolists!

In preparing some of my letters-to-the-editor for publication in book form, I ran across this one, to the Washington Post, that I somehow failed to post here at the Cafe back when it was first written in February of last year:

Barry Lynn complains that Reagan-era easing of antitrust regulations has resulted in oppressive monopolies: "The seemingly endless variety of products in our stores is controlled by an ever smaller number of immense trading companies that, increasingly, charge us higher prices" ("American small businesses needn't go extinct," Feb. 21).

Mr. Lynn's reasoning and facts are shaky.

First, true monopolists – having no need to attend carefully to consumers' desires – don't bother offering an "endless variety of products."

Second, as a quick perusal of Table 3 in the attached document from the Bureau of Labor Statistics will show, inflation-adjusted prices of a great many goods and services are today lower than they were 25 years ago.  The real price of household furniture, for example, is down 43 percent over the past quarter-century; that of household appliances is down 64 percent; that of tools and hardware is down 60 percent; that of new cars is down 36 percent; that of apparel is down 46 percent; that of nonprescription drugs is down 54 percent; and – get this! – the real price of information technology, hardware, and services is down a whopping 96 percent.

Sincerely,
Donald J. Boudreaux

Costs are Not Benefits

Here's a letter to the New York Times:

New York Farm Bureau president Dean Norton rightly seeks approval of free-trade pacts with countries such as South Korea (Letters, July 12).  But he wrongly justifies freer trade by emphasizing that "Without approval, the United States could lose nearly $2.3 billion a year in additional agriculture exports."

Protectionism does reduce U.S. exports.  The resulting loss to Americans, though, isn't the valuable goods and services that Americans don't ship to foreigners; instead, it's the valuable goods and services that foreigners don't ship to Americans.

Consider the U.S. exports that Mr. Norton mentions.  Directly or indirectly, South Koreans purchase these exports with South Korean won.  Of what use are won to Americans except as currency for purchasing goods and services from South Korea?  If South Koreans refuse to pay for exports received from America – or insist on paying for these exports only with Monopoly money – no one would regard Americans' failure to export to South Korea as a loss to America.

Americans' losses from protectionist policies are measured exclusively in the value of the imports that those policies prevent us from receiving.

Sincerely,
Donald J. Boudreaux

Quotation of the Day…

… is from Matt Ridley's May 22, 2010, Wall Street Journal article entitled "Humans: Why They Triumphed." (HT Jim Dorn, editor of the Cato Journal):

The story of the human race has been a gradual spread of specialization and exchange….  Prosperity consists of getting more and more narrow in what you make and more and more diverse in what you buy.  Self-sufficiency – subsistence – is poverty.

So Good of the Likes of Sen. Schumer to Care So Deeply for Ordinary Chinese Citizens

Here's a letter to the Wall Street Journal:

You report that "China's critics, including members of the U.S. Congress, say an undervalued currency unfairly helps Chinese exporters" ("China Boosts Lead in Global Exports," July 11).

Indeed.  If Beijing truly is pursuing such a policy, that government is beyond doubt unfairly enriching some people at the expense of others.  And the people unfairly enriched do include a few Chinese exporters.  Overwhelmingly, though, the beneficiaries are non-Chinese consumers (including Americans) of China's subsidized exports.  In contrast, the people unfairly burdened are exclusively Chinese citizens – both as consumers forced to pay higher prices at home, and as taxpayers forced to fund Beijing's practice of purchasing U.S. dollars in order to depress the price of the yuan against the dollar.

It is, in fact, obscenely unfair for Beijing to oblige the Chinese people to hand over chunks of their wealth to Americans, even the poorest of whom is far richer than is the typical man or woman in China.

Sincerely,
Donald J. Boudreaux

American producers, of course, are no more 'unfairly' harmed by Beijing's policy of driving down the price of Chinese exports by suppressing the price of the yuan than these American producers are 'unfairly' harmed by Beijing's policy of driving down the price of Chinese exports by building highways and wharves in Qingdao

Quotation of the Day…

… is from page 614 of Will Durant's 1950 book, The Age of Faith:

Every cultural flowering finds root and nourishment in an expansion of commerce and industry.

Ignoring the Elephant

In today's New York Times, education guru Diane Ravitch and seven letter-writers combine to compose 1,800 words on the parlous state of K-12 education.  In this geyser of platitudes mixed with opinions on testing, charter schools, and class size, never mentioned is the word "competition" or any of its variants.  Not once.  ("Choice" appears twice, irrelevantly: first in the phrase "college of their choice"; second in the term "multiple-choice tests.")

Debating how to improve education, the writers focus only the relative merits of testing, various funding formulas, and class size while ignoring the fact that each government school has a captive pool of students, and that government schools get their revenues not from paying customers but from taxed property owners.

This debate is as useful to the cause of education reform as would be a debate on how to rescue occupants of a burning building that focuses only on the relative merits of the various sorts of fire-retardant clothing that these occupants might be given while ignoring the possibility of breaking openings in the building to create escape routes.

Enough Already with Namby-Pamby Liberalism

Here's a letter to the Wall Street Journal:

Writing admiringly that "The autocratic Chinese leadership gets things done fast," Robert Herbold compares the U.S. to China and, in the process, reveals a disturbing infatuation with autocracy ("China vs. America: Which Is the Developing Country?" July 9).  Does Mr. Herbold truly believe that the U.S. government's refusal to block "pornography and antigovernment points-of-view from our youth and citizens" is an offense, much less one comparable to Beijing's routine imprisonment of political dissenters and its suppression of free speech?

And downright obscene is Mr. Herbold's ignorance of history.  Praising Beijing's latest five-year plan, Mr. Herbold giddily announces that "This is the 12th five-year plan and it was announced in March 2011."  He then snarls: "Can you imagine the U.S. Congress and president emerging with a unified five-year plan that they actually achieve (like China typically does)?"

Thankfully, I cannot.

During the first half of the 60-year period governed by the five-year plans that Mr. Herbold so admires, not only did Mao's policies trap hundreds of millions of Chinese people in dire poverty, the Chinese government slaughtered or starved to death between 49 and 77 million of its own citizens.  During the past 30 years, China's economy has indeed grown, but not because of any five-year plans.  It has grown because of privatization and the freeing of markets – decentralization of decision-making authority of the very sort that Mr. Herbold evidently regards as ineffective, contemptible, and sissified.

Sincerely,
Donald J. Boudreaux

Replicators a Reality

Recently I posed this far-out scenario as a means of stimulating careful thought about economic progress and the way that progress is measured using conventional concepts and national-income-accounting categories.

Turns out that my scenario isn't as far-fetched as I assumed.  (HT to the more-than-a-dozen people who've sent me links to this video)  Wow.  Wow!  Wow ten-thousand times over!

Watching this remarkable technology, I can't help but reflect on the importance of Matt Ridley's point that progress is fueled by ideas having sex with each other; the resulting creativity makes optimism rational.

The Curse of Nationalism

Here's a letter to the editor of Economist.com:

How distressing that you and three-quarters of your readers believe the proposition that, as you put it, "an economy cannot succeed without a big manufacturing base" (Economist Debates, June 28-July 8).

While Jagdish Bhagwati argued splendidly against this proposition – and against Ha-Joon Chang's defense of it – an elementary flaw in your proposition was only barely alluded to, namely, the ambiguity of the word "economy" as used in your proposition.

We might agree that prosperity requires that a great deal of manufacturing occur somewhere.  But as long as there is "a big manufacturing base" in the world economy, what need is there for "a big manufacturing base" in the economy of each political entity classified as a nation?  If a nation has such a substantial comparative advantage in services that it satisfies with imports so many of its demands for manufactured goods that no manufacturing takes place within its borders, where's the harm?  Answer: nowhere.  What Prof. Chang, you, and most of your readers see as harmful is a mirage created by the fallacy, in a world with trade, of mistaking a nation for an economy.

Consider Professor Chang's own household.  It is, I'm sure, fully specialized in services; it manufactures nothing.  Yet the 'Changese,' as we may call Mr. Chang and his family, consume countless manufactured goods produced by the non-Changese.  The Changese acquire these manufactured goods in exchange for their services.  Does Mr. Chang fret over the fact that the Changese economy has no "manufacturing base"?  I'll wager not.  So why does he insist that for each political entity called a "nation" to prosper it must have its own manufacturing base?

Sincerely,
Donald J. Boudreaux