Russell Roberts's Blog, page 1434

July 8, 2011

When dogmas collide

Ezra Klein writes on Twitter:


The job numbers should change the debt ceiling debate. Economy needs more support now, austerity should wait. They won't.


Funny, I see things in a different light. Seems to me that there is no evidence that having the federal government borrow lots of money and spending it has been very effective. Certainly, the predictions of the effect of that spending by its proponents have been very inaccurate.


I'm with the Hayek character from the rap video:


We brought out the shovels and we're still in a ditch…

And still digging. don't you think that it's time for a switch…

From that hair of the dog. Friend, the party is over.

The long run is here. It's time to get sober!


Having the government return to the level of spending of say, 2007, isn't austerity. It doesn't even imply that there will be a reduction in overall spending. My dogma says that when government spending grows dramatically via borrowing and the money is spent on mostly unproductive stuff, that actually discourages consumer spending. Reducing government spending might encourage confidence in the future and encourage employers to hire more workers. It happened in 1945. That confirms my belief in my dogma. I wonder what the Keynesians are holding onto to confirm their worldview.



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Published on July 08, 2011 10:29

July 7, 2011

Consumer surplus

Whether you measure it by willingness to pay or how much you'd have to be compensated to go without something, the emergent harmony of the market gives us such a good deal most of the time.




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Published on July 07, 2011 17:17

A theory of government

You can think of two theories of government. One theory is that government exists to correct externalities and provide public goods. The other is that government uses the language of helping people to justify giving stuff to the politically powerful out of the pockets of the rest of us. Here's some evidence for the second theory.




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Published on July 07, 2011 17:02

Pulling back the curtain

Every once in a while, a news story comes along that lets you see how the world really works. After NAFTA was passed 17 years ago, one provision was never implemented fully–the ability of Mexican trucking firms to operate in the US. This provision was held up because the Teamsters and others didn't want the competition. But you can't say that. So the issue that the Teamsters and others used was safety, presumably because there was some provision in NAFTA that required imports to be safe. Or maybe it was on pure political grounds. At any rate, the US has now supposedly agreed to let the trucks to operate freely though it is still subject to some kind of Congressional approval:


The United States and Mexico on Wednesday signed an agreement aimed at resolving a cross-border trucking dispute. The longstanding disagreement had come to symbolize growing resistance, especially in the US Congress, to free-trade provisions with America's southern neighbor.


The accord, signed in Mexico City by US and Mexican transportation officials, would end a 15-year-old controversy that on the US side featured fears of unsafe Mexican trucks barreling along US highways, driven by unprofessional Mexican truckers.


On the Mexican side, outrage over the American disregard for a NAFTA provision led to retaliatory tariffs on US goods ranging from pork to consumer care products – which cost the US as much as $2 billion in exports.


The accord was greeted warmly by US trade, farm, and business organizations – but condemned by US trucking organizations, a sign the agreement could face trouble in Congress.


The reporter, Howard LaFranchi, frames it clearly just the way the Teamsters would want it framed. Who wants to let in unsafe trucks? The safety issue is the concern of the United States. But is it? Who is worried about it, really? How unsafe are the trucks and drivers? There is no mention of the self-interest of the US trucking industry. There is no mention of consumers in the US who might prefer the lower prices that usually come with competition.


The reporter is not unusual. Every news story that I have seen treats the safety issue as a legitimate concern without wondering if there is anything to it. Turns out that according to a government study, 41% of inspected trucks crossing into the Mexican border were found to be unsafe. But how was that number collected? What does it really mean?


Ten years ago, I wrote an article trying to find out. It's still on line at EconLib. There are things I would have said differently were I to write it today. But the bottom line is that the whole issue was weird–the safety problem could have been solved at any time the way it has been solved today–by requiring Mexican trucks to comply with US safety standards. And don't they have to comply with those standards anyway?


The lesson here is how easy it is to get what you want politically by making the issue one of safety or the children. This is not the precise bootlegger and baptist argument but it's a variant.



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Published on July 07, 2011 09:41

Quotation of the Day…

… is from page 99 of the late Yale Brozen's 1982 book Concentration, Mergers, and Public Policy:


[S]uppressing competition can cause [industrial] concentration to decline.  In 1953, Judge Wyzanski ruled that United Shoe Machinery had monopolized the shoe machinery industry, although all its practices were "honestly industrial."  He ordered, as a remedy, that United stop competing.  These, of course, were not the literal words of the order.  He ordered the cessation of "practices which without being predatory, abusive or coercive were in economic effect exclusionary."  Since all successful competitive acts and practices are "exclusionary" in the sense that they divert business toward the firm and away from its rivals, he, in effect, ordered United to stop competing.  The only basis for finding United guilty of monopolizing was its 85 percent share of the market for major machines.  Since the decree, affirmed in 1954 by the Supreme Court, provided for a 1965 review by the Court, the only way for United to avoid further penalties on review was to stop being so competitive and allow its market share to diwindle.


As ordered by the Court, United stopped the provision of free repair service for its machines.



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Published on July 07, 2011 07:14

July 6, 2011

A Source of Wealth or Stagnation?

Here's a familiar but fun scenario to ponder:


Suppose a replicator, similar to the one in Star Trek, is invented.  And what an invention it is!  Each replicator can itself be produced for only pennies.  Its inventor – either out of carelessness or magnanimity – doesn't patent it.  Competition among replicator producers soon drives the price of replicators down to $7.99 each.


Each replicator allows its owner to produce a wide assortment not only of foods and drinks at near-zero cost, but also flowers, clothing, detergents and other cleaning materials, paints and inks, personal-hygiene products such as soap and toothpaste, contact lenses and eyeglasses, and even antibiotics and other medicines.  Within a couple of years, nearly every household in America has its own replicator.


One plausible consequence of this invention – and the material wealth it makes possible – is that Americans' demand for leisure rises significantly.


What happens to GDP?  Would the replicator's failure to 'create' lots of jobs cause it to be thought an innovation not quite on par with, say, the assembly line or the automobile?


Should we lament the invention and near-universal use of the replicator?



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Published on July 06, 2011 08:18

Down is Not Up

Here's Mark Perry's take on David Brooks's belief that, to quote Brooks, it's among America's "problems" that "[m]anufacturing employment is cratering even as output rises."  (We might cite also Pres. Obama's concern that technologies such as ATMs 'destroy' jobs.)


And here's more on this very topic from Frederic Bastiat (1801-1850) – chapter 3 ("Effort and Result") of his Economic Sophisms.  Paragraphs 24 and 25 of this essay are especially relevant (original emphasis):


I have also cited the opinion of another Minister of Commerce, M. d'Argout. It deserves our attention for a moment. In an effort to strike a blow at the sugar-beet industry, he said:


Doubtless the cultivation of the sugar beet is useful, but its usefulness is limited. Its potentialities fall far short of the gigantic developments that people are fond of predicting for it. To be convinced of this, one need only note that its cultivation will of necessity be confined to the limits set by the demands of the consumers. Double, triple if you will, the present consumption of sugar in France; you will still find that a very small portion of the land will be enough to satisfy the needs of the consumers. [Now, there's a remarkable complaint!] Do you desire proof of this? How many hectares were planted in sugar beets in 1828? A total of 3,130, or 1/10,540 of the arable land. How many are there today, when native sugar supplies one third of our consumption? A total of 16,700 hectares, or 1/1,978 of the arable land, or forty-five centiares per commune.22* Even if we assume that native sugar were to supply the whole of our consumption, we should still have only 48,000 hectares cultivated in sugar beets, or 1/689 of the arable land.23*



There are two elements to be noted in this quotation: the facts and the doctrine. The facts tend to establish that it takes little land, capital, and manual labor to produce a great deal of sugar, and that every commune in France would provide itself with an abundant supply by devoting one hectare of its area to cultivating the sugar beet. The doctrine consists in regarding this circumstance as harmful, and in seeing in the very efficiency and productiveness of the new industry a limit to its usefulness.

Plus ça change, plus c'est la même chose.


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Published on July 06, 2011 03:42

July 5, 2011

Quotation of the Day…

… is from page 17 of Frederic Bastiat's Economic Sophisms:


So true is this that our protective tariffs have no other purpose than to hinder all these things from reaching us, to restrict the supply, and prevent low prices and abundance.


.

Now I would ask, Are the people who live under our laws better fed because there is less bread, meat, and sugar in the country? Are they better clothed because there is less cloth and linen? Better warmed because there is less coal? Better assisted in their labor because there are fewer tools and less iron, copper, and machinery?



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Published on July 05, 2011 19:00

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