Russell Roberts's Blog, page 1442

THIS Was the Heart of What Hayek Warned Against in his 'Road to Serfdom'

Here's a letter to the Washington Post:

Challenging George Will's case against trade-adjustment assistance, Eric Salonen analogizes such assistance to compensation that government pays to people whose properties are taken by the building of a hydroelectric dam (Letters, June 14).  This analogy is faulty.  Unlike with land, almost no one has a property right to a job (we tenured professors being the unjustified exceptions to this sound rule) – for to have a property right to a job would be to have a property right to the manner in which other people spend their money.  Such a 'property right' spread across the economy would completely suffocate the economy's competitiveness and dynamism and, thus, over time impoverish us all.

Moreover, Mr. Salonen's analogy doesn't answer the question posed by Mr. Will: Why should workers who lose their jobs because consumers start buying more imports be treated differently than workers who lose their jobs for any of the many other reasons, unrelated to imports, that workers lose their jobs?  Just as it's unjust to force taxpayers to 'compensate,' say, the brewery worker who loses her job because consumers buy less beer from St. Louis and more wine from Sonoma, it's unjust to 'compensate' the brewery worker who loses her job because consumers buy less beer from St. Louis and more wine from South Africa.

Sincerely,

Donald J. Boudreaux

And further: Does Smith – by purchasing Jones's services today – thereby commit to purchase Jones's services tomorrow and into the future until and unless Jones releases Smith from such an obligation?  No.  And any reasonably informed Jones would not want such an arrangement because, as that Jones understands, if Smith knows that by hiring Jones today he cannot fire Jones tomorrow, Smith is less likely to hire Jones today (or, if he does hire Jones, Smith will do so only at a lower wag

Theatre of the Absurd

Here's a letter to Washington DC's WTOP radio:

In today's 3pm hour you reported on the "pilgrimage" (your reporter's word) that many Americans make every summer to DC "to witness democracy in action first hand."

Your reporter's reverential tone implies that tourists to DC behold here something hallowed.  I disagree.  Too much of what tourists to DC witness first hand is theater – marble and monuments meant to mobilize the spirit; buildings and boulevards built to bedazzle; ceremonies and celebrations suggesting the sacred.  But behind it all are venal politicians grasping for more power and hoping that the stage-props scattered about DC will dupe ordinary people to buy into the ridiculous notion that government officials are saints whose genius is matched only by their grand goodwill.

In fact it's mostly fraudulent – the gaudy props of the power-hungry hungrily and cynically enchanting their victims with the illusion of earthly salvation by flesh-and-blood saints.  As dramatist David Mamet writes in his new book The Secret Knowledge, "Having spent my life in the theatre, I knew that people could be formed into an audience, that is, a group which surrenders for two hours, part of its rationality, in order to enjoy an illusion.  As I began reading and thinking about politics I saw, to my horror, how easily people could also assemble themselves into a mob, which would either attract or be called into being by those who profited from the surrender of reason and liberty – and these people are called politicians."*

DC is a stage on which the greedy fool credulous audiences into self-destructive subservience.

Sincerely,

Donald J. Boudreaux

* David Mamet, The Secret Knowledge (New York: Sentinel, 2011), p. 9.

And So Many More Questions In Addition to These….

Here's a letter to the Wall Street Journal:

GE's Jeff Immelt's and American Express's Ken Chenault's essay on how the President's Jobs and Competitiveness Council – on which these CEOs serve – will create jobs and "improve America's competitiveness" is little more than a whoop-tee-do of proposals designed to titillate policy-wonks in ways that sexting porn stars titillate certain Congressmen ("How We're Meeting the Job Creation Challenge," June 13).  It prompts many questions, such as:

Among their Council's few (potentially) sensible proposals is that America be made a more attractive destination for foreign direct investment.  If this proposal succeeds, one result will be a higher U.S. trade deficit.  Will Messrs. Immelt and Chenault then explain to politicians and the American public that the higher trade deficit should be celebrated rather than decried?

Messrs. Immelt and Chenault identify "construction, manufacturing, health care and tourism" as being among those U.S. industries that their Council wishes to promote.  Are they aware that propping up specific industries involves shrinking others?  How will government officials weigh the policy-induced gains in these and other favored industries against losses in, say, IT or forestry?  And what if it turns out – as it very well might – that expanding employment in their favored industries can be done only by forcing those industries to adopt less-efficient but more labor-intensive production methods?  Will Washington then applaud the higher employment in these industries?  Or will it decry these industries' loss of 'competitiveness'?

Sincerely,

Donald J. Boudreaux

Note that in the letter I resisted pointing out the hilarity of having the CEOs of two companies that each received billions of dollars in government bailout funds holding forth on how to make America more "competitive."

Some Links

George Selgin continues to set the record and our thinking straight about fractional-reserve vs. 100%-reserve banking.

Cato's David Boaz is now blogging at the Encyclopaedia Brittanica blog.

Here's part of a talk that former Cleveland Fed President Jerry Jordan delivered on how currency debasement undermines the rule of law.

In the Guardian, my brilliant younger colleague Bryan Caplan debates Tiger Mom Amy Chua.

Mark Perry brings us this video of Judge Jim Gray; Judge Gray is an eloquent and passionate opponent of the 'war on drugs' war on peaceful people who choose to use intoxicants that the government disapproves of.

After reading George Will's superb column in yesterday's Washington Post, I'm more convinced that ever that we should bring back, and 'Locke' in, the nondelegation doctrine.

Chapman University philosopher Tibor Machan ponders Paul Krugman.

Back in April Mark Perry offered this useful and revealing table on how "American" are various makes of automobiles.

Finally, Henry Manne reminds me of this video – "The Government Can" – from August 2009 by comedian Tim Hawkins.  I'm pretty sure that I linked to this video earlier here at the Cafe, but it's worth re-linking.  Not only is it entertaining, but perhaps the single best way to protect our liberties is to reveal politicians to be the buffoonish objects of ridicule that they truly are.  In this way, laughter is indeed the best medicine.

Theory and Facts

Here's a letter to the Washington Post:

Dana Milbank praises Barack Obama's outgoing economic advisor Austan Goolsbee for allegedly rejecting "hifalutin theory" in favor of "cold, hard facts" ("With Goolsbee's departure, Obama losing a voice of reason," June 12).  While rightly lamenting the administration's loss of Mr. Goolsbee's reasonable voice, Mr. Milbank wrongly supposes that economic policy can be guided exclusively by "cold, hard facts" unprocessed by some theory about what data mean and how they relate to each other.

There are good theories and there are bad theories, but there are no 'no-theories.'  Evidence for this fact (!) is given by Mr. Milbank himself when he writes that "Goolsbee endorsed many of the extreme measures Obama took two years ago, because the private sector was in free-fall and massive government spending was the only option."

Correct or not, the belief that "government spending was the only option" to keep the economy from imploding is itself a theory.  No data independent of some economic theory scream with crystalline clarity that increased government spending must substitute for collapsing private spending.  That Mr. Milbank believes that increased government spending "was the only option" means only that Mr. Milbank accepts Keynesian theory so unthinkingly that he mistakes it for a cold, hard fact, and thus causes him to be unaware of other theories that counsel very different responses from government.

Sincerely,

Donald J. Boudreaux

Harry Johnson on Keynes

Daniel Kuehn's apparent surprise that any serious scholar – for example, Joseph Schumpeter or Thomas McCraw (or any gadfly; for example, Don Boudreaux) – would regard Keynes as a stagnationist got my brain racing.  Where, where, where did I long ago first encounter a mainstream economist who identified Keynes as a stagnationist?  Fortunately, my mind raced fast enough to remind me of the late Harry Johnson.  Johnson was (partly) a Chicagoan, it's true, but hardly a Hayekian or Austrian, and certainly no ideologue.

So I found my long-neglected 1975 collection of some of Johnson's best essays, On Economics and Society, and reviewed for the first time in more than 15 years the fascinating readings collected therein.  Here's from Johnson's 1960 address at the American Economic Association's annual meeting; the address (published in the May 1961 issue of the AER) is entitled "The General Theory After 25 Years":

A more relevant question is whether large-scale unemployment is the typical situation of the advanced capitalist economy, as the theme and prevailing tone of the General Theory imply, and as the stagnationists of the 1930s insisted.

By the way, Johnson in a later, a 1973, essay ("Keynes and British Economics") noted that

the 'new economics' won acceptance in the United States only as recently as the tax cut of 1964….

Just FYI.

Schumpeter on Keynesians

While searching through Thomas McCraw's superb 2007 biography of Joseph Schumpeter (Prophet of Innovation) for a passage I recall in which McCraw mentions that Schumpeter's teaching load at Harvard included Saturday classes (!) – a passage that I've yet to find – I reread McCraw's treatment of Schumpeter's reaction to Keynes's General Theory.

Schumpeter disliked Keynes's book.  McCraw unconvincingly attributes much of Schumpeter's negative reaction to The General Theory to the alleged fact that Schumpeter envied Keynes (an envy that intensified, we are told, with the relative failure of Schumpeter's own 1939 book Business Cycles).

I suspect that Schumpeter reacted negatively to The General Theory because it's a book that deserved a negative reaction, especially from an economist as insightful as Schumpeter – an economist who, quite the opposite from Keynes, understood that the capitalist economies were not in the 1930s (and would not be in the future) exhausted of opportunities for innovation and investment.

Quoting from Schumpeter's 1948 presidential address to the American Economic Association, McCraw writes on page 481 of his biography of Schumpeter:

But their [the young economists of the late 1930s and 1940s] focus on the techniques of Keynesian macroeconomics – which are amenable to mathematical modeling and very useful in the new methods of national income accounting – had diverted attention from the vision that underlay the whole apparatus.  Even though the Keynesian creed of stagnationism "has petered out with the situation that had made it convincing" – the Great Depression having given way to unprecedented prosperity – most economists had remained so enthralled with Keynesian technique that they seemed "bound to drift into one of those positions of which it is hard to say whether they involve renunciation, reinterpretation, or misunderstanding of the original message."  And in taking this tack, as Schumpeter had said many times before, most economists had lost sight of the heart of the capitalist process, which in its endless dynamism was the opposite of Keynesian stagnationism.

Widespread Prosperity Through Breach of Contract

Here's a letter to the New York Times:

Paul Krugman laments that "debt relief for homeowners – which could have done a lot to promote overall economic recovery – has simply dropped off the agenda" ("Rule by Rentiers," June 10).

If Mr. Krugman truly believes that slumping economies can be buoyed by relieving people from the obligation to pay for at least part of what they consume, why focus on mortgage debtors?  Why not instead, or also, a policy to relieve grocery buyers from having to pay for poultry and dairy products?  Or a policy to relieve Las Vegas vacationers from having to pay airfare and gambling debts?  Or – my favorite! – a policy to relieve wine drinkers from having to pay for bottles of premier cru Bordeaux?

Surely the objections that people slower-witted than Mr. Krugman will raise to such policies – objections such as 'Those policies will artificially and unsustainably cause people to consume too much milk, chicken, Vegas vacations, or exquisite French wines – can be shown by Mr. Krugman to be as unfounded as is the oh-so-bourgeois objection that mortgage-debt relief will artificially and unsustainably cause people to consume too much housing.

Sincerely,

Donald J. Boudreaux

Some Links

George Selgin expands even further our knowledge of banking (and of history and of economics).

Man, the June 2011 issue of The Freeman is loaded with good stuff.  But I want here to single out Bob Higgs's deeply profound analysis – "James Buchananian," I would say – of how economic theory often sets itself up to be used (and misused) to unleash mischief.  Here's a central selection:

Had economic theorists [in the 1960s] rested content with using the microeconomics of the Neoclassical Synthesis strictly as a conceptual device employed in abstract reasoning, it might have done little damage. However, as I have already suggested, this type of theory cried out for application—which, in practice, was nearly always misapplication. The idealized conditions required for theoretical general-equilibrium efficiency could not possibly obtain in the real world; yet the economists readily endorsed government measures aimed at coercively pounding the real world into conformity with these impossible theoretical conditions.

Closely examined, such efforts represented a form of madness. As the great economist James Buchanan has observed, the economists' obsession with general equilibrium gives rise to "the most sophisticated fallacy in [neoclassical] economic theory, the notion that because certain relationships hold in equilibrium the forced interferences designed to implement these relationships will, in fact, be desirable."

Speaking of "Buchananian" political economy, one of Jim's premier students from Jim's time at the University of Virginia, Dick Wagner (one of my colleagues at GMU Econ), explores in this paper the complexity of political fiscal-decision-making in democratic societies.

Jonah Goldberg takes on the dangerous and fact-challenged notions that motivate Thomas Friedman's recent – and indescribably awful – New York Times column entitled "The Earth is Full."  If time allows, I plan my own response to Friedman's historically uninformed and economically idiotic fear-mongering.  Where O where is today's Julian Simon?!

John Stossel raises awarness of the need for a cure for the cancer of government regulation.

'The Honorable' – My Arse!

Here's a letter to Politico:

You report that [any-decent-person-in-his-shoes-would-be-disgraced U.S. Rep. Anthony] "Weiner has also complained to friends that he wasn't sure how he would make a living if he were to leave Congress and its $174,000 annual salary.  'He's worried about money and how to pay his bills,' said a Democratic insider.  'He's very concerned about that'" ("Weiner shows no signs of quitting," June 9).

Overlook the fact that, by admitting this reason for clinging to political office, any professions that Mr. Weiner has made in the past or will make in the future about his 'devotion to public service,' his 'love of country,' or his 'loyalty to the Democratic party' should be seen as the self-serving lies that they are.

Instead, ask this simple question: why should Americans trust Mr. Weiner with substantial power to decide how to annually spend $3.8 trillion dollars of other people's money if he, a 46-year-old college graduate who's earned a six-figure salary for each of at least the past 12 years, has neither saved enough to pay his bills should he be unemployed for a while nor developed any skills that would allow him to earn a decent living in the private sector?

Sincerely,

Donald J. Boudreaux