Russell Roberts's Blog, page 1437

Quotation of the Day…

… is the closing two sentences of Thomas Sowell's 1980 magnum opus Knowledge and Decisions; for many years this quotation adorned my office door:

Freedom is not simply the right of intellectuals to circulate their merchandise.  It is, above all, the right of ordinary people to find elbow room for themselves and a refuge from the rampaging presumptions of their "betters."

Quotation of the Day…

… is from page 242 of what is perhaps the most indispensable volume on my bookshelves, A Mencken Chrestomathy; Mencken is here writing about T.R. Roosevelt:

What ailed him was the fact that his lust for glory, when it came to a struggle, was always vastly more powerful than his lust for the eternal verities.  Tempted sufficiently, he would sacrifice anything to get applause.

Open Letter to the President of UAW Local 599

27 June 2011

Mr. Bill Jordan, President

UAW Local 599

812 Leith St.

Flint, MI 48505

Dear Mr. Jordan:

The blog Carpe Diem today features a photo of a sign in the parking lot of (what I assume to be) your Michigan headquarters.  That sign reads: "Only American-Union Made Automobiles, Trucks & Motorcycles Are Allowed In This Parking Lot.  Violators Will Be Towed."

You seek to punish those who, by purchasing substitutes for the vehicles that your members currently are employed to produce, reduce the demand for unionized autoworkers and, thereby, destroy some jobs in unionized U.S. auto plants.

Of course, you may exclude from your parking lot whomever you wish, for whatever reasons you wish.  But I'm curious: do you also threaten to tow away old American-made automobiles?  The person who drives, say, a 1991 Buick Regal – whether he bought it new 20 years ago or bought it used yesterday – opts, no less than does the person who drives a 2011 Toyota Camry, not to buy a newly made American automobile.  Both persons spend their money now in ways that keep demand for new American-made automobiles lower than it would otherwise be.  The spending choices of the owner of the 1991 Buick harm your members no less than – and for exactly the same reasons as – do the spending choices of the owner of the 2011 Toyota.

In light of this reality, do you and your members want Uncle Sam to impose a special tax on Americans who buy used cars?  How about a tax on each American who keeps the same automobile for, say, more than five years?  After all, someone who keeps her car in good repair and, as a result, lets many years pass between the time she bought her last car and the time she buys another, contributes to the decline of the U.S. auto industry in precisely the same way as does the most fanatical buyer of shiny new Volkswagens or Hondas.

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

Bhagwati on the Morality of Free Trade

Today's dean of international-trade economists – Columbia University's Jagdish Bhagwati – explains that the case for free trade is not merely a powerful materialistic one; it's also a stupendously powerful moral one.  (HT Bryan Riley).  Here's a key passage:

But then critics shift ground and argue that trade-driven growth benefits only the elites and not the poor; it is not "inclusive". In India, however, the shift to accelerated growth after reforms that included trade liberalisation has pulled nearly 200 million people out of poverty. In China, which grew faster, it is estimated that more than 300 million people have moved above the poverty line since the start of reforms.

In fact, developed countries also benefit from trade's effect on poverty reduction. Contrary to much popular opinion, trade with poor countries does not pauperise rich countries. The opposite is true. It is unskilled, labour-saving technical change that is putting pressure on the wages of workers, whereas imports of cheaper, labour-intensive goods from developing countries help the poor who consume them.

If freer trade reduces poverty, it is presumptuous for critics to claim greater virtue. In truth, the free traders control the moral high ground: with at least 1 billion people still living in poverty, what greater moral imperative do we have than to reduce that number? Talk about "social justice" is intoxicating, but actually doing something about it is difficult. Here the free traders have a distinct edge.

As the historian Frank Trentmann has demonstrated, the case for free trade was made in 19th-century Britain in moral terms: it was held to promote not just economic prosperity, but also peace.

Quotation of the Day…

… is from page 20 of Deirdre McCloskey's 2002 monograph The Secret Sins of Economics:

It's amazing that most professors and journalists since about 1900 have not even heard of the arguments against turning the economy over to police and jailers and bureaucrats, and are scandalized when some boorish Chicago-School economist comes along and suggests that pot should be legalized and national borders opened and government schools made to compete with each other [original emphasis].

Economic Growth Does Not Eliminate Scarcity

The understandable question arises: if resources are not necessarily finite in economic terms, are resources therefore not scarce?

No.  Resources will always be scarce.  A thing is not scarce if and only if that thing is instantly and fully available without requiring of each and every consumer of that thing any choices or conscious actions directed at acquiring that thing.

Salt was once a precious commodity – so precious that salaries in ancient times were sometimes paid in salt.  Today salt is much more abundant than it was in ancient times; the economic supplies of salt are today much greater than they were in the past.  But salt remains scarce today, just as it was scarce in ancient times.  Even today, salt is not immediately and costlessly available to each and every person who wants it in whatever quantities each and every person would want it if each and every person were freed from the necessity of expending any effort or resources to acquire salt.

One helpful economic heuristic devise is the production-possibilities curve.  (You'll find several images of this curve here.)  The production-possibilities curve (or "frontier") shows that, for an economy operating on the curve, to get more of good X in a given period of time requires producing fewer units of good Y – for producing more of X requires that more resources be devoted to the production of X, resources that, in the framework of the production-possibilities curve, must be removed from the production of good Y. To produce more guns today means producing less butter today.

Guns and butter are scarce because to get more of one means giving up some of the other.

But over time the production-possibilities curve can (and, especially over the past 200 years in the capitalist world, does) shift outward.  Combinations of quanties of X and Y that were earlier impossible to produce become possible to produce.

A well-recognized cause for a 'shifting-out' of the production-possibilities curve is an increase in the supply of resources.  The brilliant scientist in my earlier post who figures out a low-cost way to quadruple the amount of energy extracted from each ounce of petroleum makes possible an increase in the quantities produced of both X and Y.  Yet goods X and Y both remain scarce – to get more of one requires sacrificing some of the other.  And petroleum, too, remains scarce: acquiring more of it requires sacrificing the production (and consumption) of other goods and services that could have been produced were not resources used instead to bring more petroleum to market.

On the Finiteness of Resources

Commenting on Mark Perry's post that makes the same Simonesque point that I make here – namely, that humanity's  stock of 'natural resources' is not finite economically over time – one morganovich writes:

this seems like sort of a tricky exercise in semantics.

there is only a certain amount of coal in the ground, no matter how good we get at extracting it. if you took the whole earth and broke it up into piles of it's constituent components, there would be X amount of coal. the amount we can use will always be kX where k

The point is not that the number of atoms (or molecules, or whatever other physical form or substance you wish to name) available on earth to human beings is not finite or unable to be enlarged.  Of course these things are finite.  Instead, the point is that "resources" is not, ultimately, a physical concept; it's an economic concept.  And to be limited physically is not necessarily to be limited economically.

What is and isn't a resource is determined by human ingenuity.  Likewise, human ingenuity determines how much "utility" – satisfaction; gratification; pleasure; relief-of-felt-uneasiness (call it what you will) – can be gotten at any moment in time from any given unit of physical stuff.  As long as human ingenuiity is free to create, there is no necessary practical limit to the amount of any 'natural' resource that is available for humans to use productively.

Consider petroleum.  Is its stock strictly limited?  For a physicist the answer is yes.  But not so for an economist, who asks different questions than does the physicist.  The economist asks: "How available is this particular substance – petroleum – for the continuing satisfaction of human desires?"

Suppose a brilliant physical scientist invents a very low-cost means of powering cars, airplanes, boats, and electricity-generating plants with seawater, and also a means to turn seawater into plastics and lubricants – indeed, a means to replace all uses of petroleum.  The available economic supplies of petroleum would fall quickly to zero.  Petroleum would become worthless; it would no longer be a resource.  It's physical presence in the earth – as measured by weight or volume – wouldn't change.  But its status as a resource would change.

Now consider a different scenario.  The brilliant scientist invents not a means of turning seawater into a near-perfect and dirt-cheap substitute for petroleum, but, instead, a low-cost means of quadrupling the amount of energy that can be extracted from each ounce of petroleum.  Economically the stock of the 'natural resource' we call petroleum is thus multiplied by four.  Both history and some not-terribly far-fetched economic theorizing tell us that there is no reason to believe that petroleum (or any other resource) is finite in an economic sense.

Celebrating Control

Here's a letter to the New York Times:

From the intro to Joe Nocera's paean to G.M.'s new electric car we learn that "The thrill of driving the Chevrolet Volt comes from being in control of how much gasoline you use" ("Is This Our Future?" June 26).

Mr. Nocera rightly celebrates individual control.  But what about the many thrills that G.M. and its subsidizing-happy cronies in Washington deny to American taxpayers by preventing us from being in control of how much money we spend on G.M. products?  Why is that control and its attendant thrills unworthy of the same celebration?

More generally, why does the prospect of each individual being in greater control of how his or her money is spent elicit so often in your pages, not celebration, but scorn?

Sincerely,

Donald J. Boudreaux

Quotation of the Day…

… is from page 24 of Julian Simon's still-indispensable 1996 book The Ultimate Resource 2:

"[N]atural resources are not finite in any meaningful economic sense, mind-boggling though this assertion may be.  The stocks of them are not fixed but rather are expanding through human ingenuity."

If you doubt the truth of Julian's undoubtedly true claim, ask yourself: what is it, exactly, that makes petroleum a 'natural' resource?  Or that makes such of trees?  Or of the electromagnetic spectrum?  Or of land itself?  The unavoidable answer is human ingenuity.

The Most Dangerous Delusion and Addiction of All

Here's a letter to the Washington Post:

Regarding the graphic pictures that, by government decree, will adorn all cigarette packs sold in America, Christopher Buckley writes: "I'm not against the new cigarette labels, but I'm not sure I'm for them.  Cigarettes kill – no argument there.  So does alcohol.  If that pack of Marlboros is going to look like a page from a medical textbook, shouldn't bottles of Bud carry pictures of car crashes, or cirrhotic livers, or beaten wives?  Shouldn't Big Macs come with photos of early contestants from 'The Biggest Loser'?" ("Thank you for not warning me about smoking," June 24).

True dat.  But why not also require that graphic warning pictures be draped over government buildings?  The Federal Reserve building, for example, might be covered with a huge picture of a graph showing that, since the Fed's creation, the dollar has lost 96 percent of its value.  Truth in advertising would be further promoted if the U.S. Capitol's exterior featured a supersized photo of Rep. Barney Frank who, after applauding Fannie and Freddie for promoting more home-ownership than would be promoted by the market, proclaimed in 2003 "I want to roll the dice a little bit more in this situation towards subsidized housing."

And from the roof of the White House to its lawn, let hang ginormous photographs of American troops returning home in body bags from Vietnam, Iraq, and other theaters of war in which Uncle Sam had no business acting.

Sincerely,

Donald J. Boudreaux