Russell Roberts's Blog, page 1447

Krugman Channels Trump

Here's a letter to the New York Times:

Paul Krugman writes about "the middle years of the last decade" that "Manufacturing, once America's greatest strength, seemed to be in terminal decline" ("Making Things in America," May 20).

A host of a reality-tv show can be forgiven for this misperception about manufacturing, but a Princeton economist cannot.  The real value of annual U.S. manufacturing output increased steadily and significantly for several decades up to 2007 when it reached an all-time high before the start of the current recession.  Nor was there any slowing of this increase in the years leading up to "the middle of the last decade."  Indeed, starting in the mid-1990s and continuing (save for the recession year of 2000) through 2007, there was a slight increase in the rate of growth of real annual U.S. manufacturing output.

So how can Mr. Krugman nevertheless write that U.S. manufacturing was "in terminal decline" by the middle of the last decade?  Answer: because he – without offering any justification – measures the health of the manufacturing sector by the number of workers it employs.  That number has indeed fallen over the years, chiefly because of relentless improvements in technology that raise workers' productivity.

So it's fair to ask: does Mr. Krugman mourn the reality of technological advance and higher worker productivity?  And does he believe that America's agricultural sector (also "once America's greatest strength") is now in especially lamentable shambles – despite its vast and growing output – simply because agriculture today employs a mere 2 percent of the U.S. work force even though it once employed 90 percent of working Americans?

Sincerely,

Donald J. Boudreaux

The number of flaw in today's Krugman column are far larger than the one I highlight in the above letter.

Capitalists never liked capitalism

Capitalists tend not to like capitalism. Milton Friedman pointed this out long ago. Too much competition. Too much risk. Much better to have the government keep out competitors and subsidize losses. Floyd Norris at the New York Times has just discovered this in an article called "Capitalists Who Fear Free Markets" (HT: Catherine Rampell):

Capitalism is supposed to produce losses on bad investments.

But all too often it has not.

In Tokyo this week, corporate executives were outraged when a Japanese government official suggested that banks might have to take losses on loans to the company that produced a nuclear catastrophe.

Yukio Edano, the chief cabinet secretary, had the temerity to say "the public will not support" the injection of government money into Tokyo Electric Power, also known as Tepco, unless banks share in the pain. Tepco says it would like to pay compensation to victims, but needs government cash to do so.

The president of Japan's largest bank, Mitsubishi UFJ Financial, was shocked by the very idea that a bank should lose money if it lent to a company that could not meet its obligations. Mr. Edano's remarks "came out of the blue," said the executive, Katsunori Nagayasu. "I felt there was something wrong about them."

Consumers like capitalism, not business people.

 

Israel, Part 2

My recent post on Israel generated over 225 comments. I understand there is a lot of anger on both sides and surely both sides have much to be angry about. But the level of vitriol was discouraging. I was called a bigot, prejudiced, and the author of a "stupid lament." I had betrayed my principles and disappointed my fans.

In my post I said it was strange that Obama pressures the Israelis rather than Israel's political enemies. I still find the political stakes for Obama interesting but I will leave that for another day. But the comments did not stick to this issue. (They rarely do.) So we went on a whirlwind tour of history and morality. A number of issues were raised and various accusations were made. I'd like to at least clear up my viewpoint and then we'll get back to economics.

For what it is worth, I do not think it is inherently immoral to allow your citizens to live on land and create new cities on that land that was taken in a defensive war, especially when those who want the land for themselves have vowed not just to retake that land but the entire state of Israel. I do not see that as expropriation. You can disagree with me. I understand there is another side.

Under US and international pressure, Israel gave Gaza away. Israel forced those who had settled there to abandon their homes and the greenhouses and other structures they had built. Nothing changed except that some people found it easier to launch rockets into Israel. Israel reacted by invading Gaza. All invasions are horrible. So is seeing your citizens attacked every day. There are few choices in that situation that leave you with a clean conscience. Of course some wars are conducted in more moral ways than others. Goldstone has repudiated the Goldstone report. But of course plenty of horrible things happened in Gaza.

I do not think the US government should give money to Israel. I think it is bad for the United States and bad for Israel. Nor should the US give money to Egypt or Pakistan or the Palestinians. I think the US should get out of Afghanistan and Iraq, and stop bombing Libya.

I'm a Jew. Not all Jews are sympathetic to Israel. I am. I have friends and family there. I've visited three times and will be going for a fourth visit in a few days. I'm glad there is one Jewish state in the world and I believe it has the right to defend its borders and its people as all nations do. So yes, I read the data and historical evidence in a particular way. That does not  mean I am wrong simply because I have a viewpoint. Nor does it allow me to denigrate Arabs or Muslims. I don't.

When I wrote about Israel's "enemies" or the "other side" I certainly did not mean all Arabs or all Muslims. When I spoke about the "other side" in the original post, I was talking about the political entities, Hamas and Fatah, that Obama might pressure instead of Israel. That's all. I assume that many (most?) everyday Arabs and Palestinians simply want to raise their families and live decently. I wrote about the difficulties of separating public statements by citizens and their actual attitudes, here.

I am aware that the Israeli government and individual Israelis and Jews have done many shameful things. Most Jews and Israelis condemn those acts and protest them. Israelis make movies highlighting Israel's flaws. I would never suggest that Israel should be above condemnation for despicable acts done by its government or its citizens.

Israel was created by the British. It is a very small piece of land. Most Israelis (and I presume many Israeli leaders and politicians) would be happy to coexist with a Palestinian state if the leaders of such a state would be happy coexisting with Israel. I think many individual Palestinians would be happy with such an outcome. Their leaders have never agreed to such an outcome. That is the world we live in. I don't think it needs to last forever. But that is the world we live in. I don't think President Obama's pressure on Israel is helping us get to a better place. As an American, I think he should leave the issue alone. His (and his predecessors') relentless focus on that very small piece of land must have domestic political benefits. Does it curry favor with the oil-producing nations in the Middle East? They too spend a lot of time worrying about the Palestinians for domestic political reasons.

I want to thank those who made thoughtful comments about the tension between having a refuge for Jews that is a nation state, and being a libertarian. Those are interesting issues.

I have closed comments on this post and the previous one. If you want to have  civil dialogue with me about these issues or to help educate me about aspects of this issue that I am missing or where my understanding is incomplete, you can do it via email–my address is russroberts at gmail dot com.

Abolish the IMF

Here's a letter to the Washington Post:

Rather than deliberate over which world-class bureaucrat will be the next head of the IMF ("Fight to succeed IMF head Strauss-Kahn may pit Europe against developing nations," May 19), why not simply abolish that misfit outfit?

The IMF's original purpose was to help cash-strapped governments maintain their currencies' fixed exchange rates as directed by the 1944 Bretton Wood system.  But that system gasped its dying breath in the summer of 1971, when – with Pres. Nixon's closing of Uncle Sam's gold window – all pretense of an international system of fixed exchange rates was abandoned.

Undeterred by the total disappearance of its purpose, the IMF – flush with continuing streams of subsidies, especially from American taxpayers – morphed into a "development" agency.  The quotation marks around "development" are no mistake.  There's no evidence that the IMF's efforts as a development agency have had any positive effects, unless by "positive effects" you include creating among many poor countries a culture of dependency upon foreign "aid," along with propping up authoritarian regimes.*

As my great teacher Leland Yeager observed, "self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid."

Isn't it time to close the window on funding for the IMF?

Sincerely,

Donald J. Boudreaux

* E.g.

Strine-accented macro

Here is a radio interview of me on the Australian Broadcasting Corporations radio program, Counterpoint, talking about Fight of the Century. It is worth listening to just to hear the host, Paul Comrie Thomson, read some of the lyrics in an Australian accent. Really beautiful.

700,000 views

The Fight of the Century is 20 days old and now has 700,000 views. Thank you and please keep watching and sharing it.

Israel

There is one thriving constitutional democracy in the Middle East. It is Israel. Arabs can vote in Israel. There are Arab members of the Israeli parliament. Why does the President of the United States put any pressure on Israel to make concessions to the other side–the side that does not recognize Israel's right to exist, the side where people danced in the streets on 9/11, the side that mourned the death of Osama Bin Laden. This is a political mystery I do not understand.

Here is David Harsanyi's take on the upcoming Obama speech on the Middle East.

The Morality of Profit

Here's the great Tom Palmer on the morality of profits.  Those who watch this video with an open mind will profit, handsomely.

DISGUSTING

I live in Montgomery County. The Washington Post reports:

Fans of cheap rotisserie chicken and bulk toilet paper can rejoice. It looks as if a new Costco will be coming to Wheaton in 2012.

The Montgomery County Council defeated a proposal Monday that would have blocked the county from giving millions in funding to shopping mall giant Westfield to help secure the deal.

The vote is a significant victory for County Executive Isiah Leggett (D), who had lobbied for a plan that will give Westfield $4 million over two years. The subsidy raised eyebrows in some quarters because it comes as the county faces a $300 million budget shortfall for its next fiscal year and is cutting a variety of programs.

Leggett's plan received reluctant approval from council members last fall, but momentum seemed to shift after two new members — Hans Riemer (D-At Large) andCraig Rice (D-Upcounty) — were elected in November.

The deal appeared to be in jeopardy last month, but the Leggett administration moved to make its case. Officials argued that pulling out of the agreement could damage the county's reputation and undermine efforts to attract businesses.

That seemed to sway Riemer and Rice as well as Council President Valerie Ervin (D-Silver Spring).

"I don't think [Westfield needs] the money to bring Costco to Wheaton," Riemer said Monday. "But the integrity of the county is at stake, and I don't think it's my right to jeopardize the integrity of the county."

I don't get it. Why is $4 million of taxpayer money going to a mall so that Costco will come to Wheaton?

Crony capitalists. Corrupt politicians.

Trade Adjustment Assistance?

The Washington Post today reports that

The White House is threatening to hold up final passage of three coveted free trade agreements unless lawmakers agree to expand retraining assistance for American workers who lose their jobs because of foreign competition.

Pres. Obama here seeks to subsidize certain workers against the downside of being part of an open, competitive, and dynamic market economy.  Preventing consumers from dealing more freely with foreigners until and unless Congress authorizes such subsidies, however, is economically unjustified because there's nothing unique about international trade in 'destroying' jobs.  Market activity of all sorts destroys some jobs and replaces them with other, usually better jobs.  More generally, any time consumers change their spending patterns, some jobs are 'destroyed' while other jobs – often far more difficult to identify than are the jobs that are destroyed – are created.

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border's?  Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers?  Ought government restrict consumers' access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

Or maybe Uncle Sam should have kept the Beatles and their recordings out of America until and unless Congress obliged American taxpayers to pay to retrain second-rate rockers from places such as Tennessee, Texas, and Illinois (not to mention the many poor barbers who lost their jobs!).

Fact is, the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed.