Russell Roberts's Blog, page 1458

Brainwashed?

Here's a letter to the Los Angeles Times:

You advocate a "fat tax" on grounds that it'll discourage people from acting in ways that make them unhealthy ("Should there be a 'fat tax'?" April 11).

Overlook here such a tax's merits or demerits.  It's curious that you accept without question the proposition that raising taxes on 'unhealthy-lifestyle' activities will significantly turn people away from unhealthy-lifestyle activities, while (judging from your editorials over the years) you reject without question the proposition that raising taxes on income-earning activities will significantly turn people away from income-earning activities.

Sincerely,

Donald J. Boudreaux

In the mid-1990s I was informed by a professor of philosophy – tenured at a major university – that anyone who believes that even a marginal income-tax rate as high as 94 percent has a significant negative effect on people's willingness to work to earn taxable income is "brainwashed."

Open Letter to Mike Norman

Mr. Mike Norman

Mike Norman Economics

Dear Mr. Norman:

Peter Parlapiano, a reader of my and Russ Roberts's blog, Café Hayek, sent me a link to your March 30 blog post in which you argue that no additional money (and, hence, no additional inflation) would be injected into the economy if Uncle Sam buys back all outstanding U.S. Treasuries with newly printed dollars.  You make your point – as "You" – with the following imaginary dialog:

….

"Debt monger: How are we going to pay it [Uncle Sam's debt] back?

"You: The government exchanges dollars for those Treasuries. Holders of the debt give back their Treasuries to the gov't in exchange for dollars and Voila! no more debt.

"Debt monger: You mean 'print money' to pay off the debt?

"You: That's precisely what I mean!

"Debt monger: Are you serious?? That will create hyperinflation!

"You: No it won't.

"Debt monger: What?? Are you crazy??

"You: Not at all. You are taking away one form of money–the Treasury–and simply replacing it with another form–US dollars.

"Debt monger: But Treasuries are not money!

"You: Oh really? If I had $10 million in cash and you had $10 million in Treasuries, would you consider yourself poorer than me?

"Debt monger: (Confused look, but you can tell he's thinking.)

"You: I rest my case."

….

Your imaginary dialog, Mr. Norman, fails to prove your point.  The reason is that you confuse wealth with money.  Let's extend the dialog a bit further:

…..

"Debt monger: Not so fast.  I'm not confused so much as startled by your question.  Let me ask if YOU believe that, say, a commercial building worth $10 million is money?  What about a $10 million plot of land?  How about an inventory of potting soil valued at $10 million?  Is that potting soil money?

"If You answer 'yes,' then You are fundamentally confused about the definition, nature, and function of money.

"But if, as I suspect, You answer 'no,' then surely You can see that a thing's exchangeability for money – including a U.S. Treasury note's exchangeability for money – does not make that thing money.

"I rest my case."

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

Some Links

Todd Zywicki, my colleague over at GMU Law, explains in this splendid essay how the rule of law is undermined – and state ("crony") capitalism promoted – by the auto bailout.

Bob Higgs blasts the drug war and its effects on levels of violence in Mexico.

Boston Globe columnist Jeff Jacoby defends freedom of association.  Here are Jeff's concluding paragraphs:

Free and competitive markets aren't thought of as promoting tolerance and reducing bigotry, yet they do so far more effectively than ever-more-detailed civil rights regulations. Writing in the 1730s, Voltaire famously described the London Stock Exchange as a place "where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mohammedan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts." Gary Becker earned the 1992 Nobel Prize in economics in part for demonstrating that discrimination is economically detrimental — free markets penalize an employer who discriminates for reasons unrelated to ability and productivity.

Freedom of association is indispensable to making a free society work. No culture is without unfairness. But where men and women are unfettered in their freedom to form or avoid relationships with others — socially and economically — tolerance and cooperation increase, and ugly prejudice recedes.

Steve Landsburg points out that Paul Krugman misses the point regarding introducing more market forces into the provision of medical care.

Mark Perry hopes that Wal-Mart eventually breaks through regulatory barriers to open banks in the United States.  I hope so, too.

Finally, here's a wonderful rarity: someone of the Left who seems genuinely to believe that poor people are capable of thinking soundly for themselves.  (HT Tom Hazlett)

Plane Common Sense

Here's a letter to the New York Times:

William McGee argues that F.A.A. budget cuts will make airline travel excessively dangerous ("Forcing the F.A.A. to Fly Blind," April 10).  The only evidence he musters for this claim is the obvious fact that airlines prefer to pay lower prices, rather than higher prices, for inspections and maintenance of their planes.

Contrary to Mr. McGee's presumption, however, this fact doesn't remotely mean that airlines operate safe fleets only because the F.A.A. forces them to do so.  No one has stronger incentives to keep multimillion dollar airplanes from crashing in flames than do the airlines themselves.  It's naïve to suppose that a privately owned airline will put its billions of dollars of investments in aircraft, ground equipment, pilot training, and reputation for safety at undue risk simply to save a few dollars.

Of course, it's possible that the F.A.A. compels airlines to supply more air-travel safety than the public would willingly pay for without government regulation.  But if THIS is the case, the resulting higher costs of flying (safety, after all, isn't free) might divert enough travelers into automobiles that the total fatality rate of traveling is higher than it would be with less strict F.A.A. regulations.

Either way, count me as one frequent flyer who isn't in the least worried about F.A.A. budget cuts.

Sincerely,

Donald J. Boudreaux

What a Joke

Suppose that in a mere three years your family's spending – spending, mind you, not income – jumps from $80,000 to $101,600.  You're now understandably worried about the debt you're piling up as a result of this 27 percent hike in spending.

So mom and dad, with much drama and angst and finger-pointing about each other's irresponsibility and insensitivity, stage marathon sessions of dinner-table talks to solve the problem.  They finally agree to reduce the family's annual spending from $101,600 to $100,584.

For this 1 percent cut in their spending, mom and dad congratulate each other.  And to emphasize that this spending cut shows that they are responsible stewards of the family's assets, they approvingly quote Sen. Harry Reid, who was party to similar negotiations that concluded last night on Capitol Hill – negotiations in which Congress agreed to cut 1 percent from a budget that rose 27 percent in just the past three years.  Said Sen. Reid: "Both sides have had to make tough choices.  But tough choices is what this job's all about."

What a joke.

The 'con' in econometrics made visible

Ed Leamer's brilliant paper, Let's Take the Con out of Econometrics makes the point that classical statistical tests don't hold when you go on a fishing expedition. This equally brilliant comic strip from xkcd makes the point with elegance. The tip is from John Allen Paulos who reminds the reader to count the number of tests.

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How Much Is a Dollar's Worth of Exports Worth?

Here's a letter to WTOP Radio:

During yesterday's 9am hour, your news anchors interviewed someone (from Politico, if I recall correctly) who praised Pres. Obama for pushing "a pro-export agenda."  The interviewee went on to pronounce that the experience of Asian countries "proves that exporting is a strong source of economic growth."

Bull.

Growth occurs whenever the quantity and quality of valuable outputs increase and consumers are free to bid for these outputs.  A dollar's worth of output sold abroad yields neither its producer nor the nation as a whole any premium over a dollar's worth of the same output sold domestically.

Or as the economist Deirdre McCloskey correctly and cleverly notes: if borders are an especially powerful engine of growth, we'd get more growth simply by Uncle Sam declaring all left-handed Americans to be foreigners* – a policy that would be just as sensible and effective as the one Mr. Obama proposes.

Sincerely,

Donald J. Boudreaux

* Deirdre N. McCloskey, Bourgeois Dignity (University of Chicago Press, 2010), p. 212.  Deirdre's example is of England; in my letter I change it to American.

Obama embraces regime uncertainty

From the Washington Post (HT: David Bieler):

At a town hall meeting near Philadelphia on Wednesday, President Obama warned that the uncertainty of a shutdown could slow the economic recovery.

"Companies don't like uncertainty, and if they start seeing that suddenly we may have a shutdown of our government, that could halt momentum right when we need to build it up — all because of politics," Obama said.

Great point, Mr. President. Maybe massive unspecified changes in the regulation of the health and financial sectors wasn't such a good idea in the middle of a recession.

Update: They're making some progress (HT: Drudge) actually filling in some of the details of the health care regulation. It's a little complicated.

Two Budgets

Arnold Kling points out the paradox of government:

Somehow, we could ratchet up spending by hundreds of billions at the drop of a hat. Reducing spending by less than $100 billion becomes Armageddon.

And he references this picture from John Taylor that says it all:

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The Administration proposal ratifies the past "emergency" measures as the new baseline.

Notice that the vertical axis starts at 18% of GDP which magnifies the difference between the two proposals. But the bottom line is 24% of GDP going through Washington versus something under 20%. That is a lot of money.

The other point to make is that even the House budget doesn't get close to that historical average until 2015.

Why can't we go back to the draconian, ancient days of 2007 when government was 19.5% or so of GDP sooner rather than later. We know the answer, alas. It is embodied in Arnold's observation that increases and decreases are not symmetrical politically.

Wisdom from Bryan Caplan

Bryan is now 40 and in honor of the occasion (and to prevent melancholy, or at least so he says), he lists 40 things he has learned. I think many of them are actually true. All of the list is worth reading. My favorite, I think, is this insight:

Democrats and Republicans are about as different as Catholics and Protestants – and 80% of the union of their mutual recriminations is true.

Earlier tonight I chanced upon this tweet from one CTLiberalMom:

@lcranston1939 it's not OUR future the Rethuglican't are worried about.The USA is one big corporate opportunity for them.

Of course Democrats raise a fair amount of money from business as well and Democrats overwhelmingly supported the bailouts of large financial institutions. On foreign policy, President Obama seems as adventurous, profligate, and oblivious to the future (days not weeks, no boots on the ground!) as a President McCain would have been. I wonder how much of our political problems come from misplaced partisanship. I am reminded of this Adam Smith quote from The Theory of Moral Sentiments:

So partial are the views of mankind with regard to the propriety of their own conduct, both at the time of action and after it; and so difficult is it for them to view it in the light in which any indifferent spectator would consider it. But if it was by a peculiar faculty, such as the moral sense is supposed to be, that they judged of their own conduct, if they were endued with a particular power of perception, which distinguished the beauty or deformity of passions and affections; as their own passions would be more immeDiately exposed to the view of this faculty, it would judge with more accuracy concerning them, than concerning those of other men, of which it had only a more distant prospect.

This self-deceit, this fatal weakness of mankind, is the source of half the disorders of human life. If we saw ourselves in the light in which othersseeus, or in which they would seeus if they knew all, a reformation would generally be unavoidable. We could not otherwise endure the sight.

Happy Birthday, Bryan.