Russell Roberts's Blog, page 1468

We're moving to WordPress!

Yes, starting this afternoon the transition will begin.  It may mean no blogging this weekend, the first break we have taken from MR since the very beginning.  It depends how long the transition takes, but possibly there will be no new posts this weekend.  If there are any glitches, we apologize in advance, please bear with us.  We wish to be back blogging as soon as possible.

You won't need to change your bookmarks, RSS feeds, nada.  Just be yourselves.

There will be cool new features and we will explain these in due time, yet the blog still will be easy to load.

For the push to WordPress, I thank Chris F. Masse, Chug, Joanna, and Cord, among others.

File under "Pareto improvements."

Economic lessons of the Kobe earthquake

You will find a George Horwich paper here, gated to some of you.  Here is a good paper on the political economy of earthquakes.  Here is the famous paper on how Japanese cities recovered after Allied bombing.  Here are Becker and Posner on the economics of tsunamis.

Some Links

Bryan Caplan defends libertarians against the charge of being callous.

Writing in the Wall Street Journal Europe, Jamie Whyte properly criticizes British P.M. David Cameron's embrace of mercantilism.  A key passage:

The benefits of trade are not increased by the presence of a national border between those who do it. Suppose that the pattern of trade between the United States and Britain remained unchanged but that, seeing the error of their fateful decision 235 years ago, the Americans successfully sought reunification with Britain. Would those of us in what is now Britain be worse off because of the sudden decrease in their exports and increase in internal trade? Mr. Cameron surely cannot think so; he cannot believe that borders create value. Why, then, does he act as a salesman for British firms selling abroad but not for those selling at home?

Charles Krauthammer explains the fraud that is the so-called "Social Security trust fund."  (Question: if Jack Lew were CFO for a private corporation, would he be charged with criminal fraud?)  See also here.

John Stossel discusses Sen. Bernie Sanders's lament that too little of the American economy is devoted to manufacturing low-value trinkets.

Applauding Judge Napolitano

"Freedom Watch"'s Judge Andrew Napolitano is a man of principle – a most admirable man whose intellect and character seem to me to be second to none.  Here's evidence in support of my high opinion of Judge Napolitano.

Like a Biologist Asking 'Who Runs Evolution?'

Here's a comment that I submitted to Paul Krugman's blog:

You [Paul Krugman] are appropriately disgusted at Newt Gingrich's excuse that his patriotic devotion to his work on behalf of America is what prompted him to leave his first wife and also his second wife.

Then, with Gingrich in mind, you ask "How did people like this end up running America?"

This is a very strange question to be asked by an economist – someone who should especially understand that countries aren't "run" by politicians or by any other so-called "leaders."  Any remotely successful country (or society or economy) operates overwhelmingly without central direction.  No one is in charge or could possibly be in charge.  This insight, of course, comes from ECON 101.

Who directed you to write this blog post?  Speaker Boehner?  I'm guessing not; you wrote it of your own accord.  Ditto for your decision to study economics.  Princeton's and the NYT's decisions to hire you – and your decision to work for them – are similarly the products of private considerations, negotiations, and actions rather than the consequence of orders handed down from the state.

Now you'll likely respond that I'm reading your comment too literally; you mean – not run "America" – just run the government.  But if this is what you mean, why are you among today's leading voices calling for ever-more government power to "run" the country?  Even if it were possible that incorruptible saints could somehow "run" a country better than do the spontaneous forces of the market and of civil society, the fact that highly flawed human beings such as Newt Gingrich (and too many others to name) routinely rise to positions of great authority in government should cause you to pause from your incessant campaign to transfer more and more decision-making power from individuals to government.

Perhaps you should re-read Mary Shelley's most-famous novel.

Wahoo!

Congratulations to the Young Americans for Liberty chapter at the University of Virginia for winning the Center for Freedom & Prosperity's 2010 Free Market Video Contest.  Here's their winning entry, egging us all on to greater freedom of choice.

The Rule of Law is Weakened

Paul Jacob rightly applauds Judge Andrew Napolitano's public objection to Pres. Obama's recent refusal to strip his office of the awful power to order the indefinite detention – i.e., imprisonment without conviction – of suspected terrorists.  Candidate Obama was right to criticize Pres. Bush for claiming such power; Pres. Obama is wrong not to follow candidate Obama's counsel.

The Earth Does APPEAR to be Flat….

Here's a letter to MSNBC.com (HT Nick Mueller):

Martin Crutsinger asserts that "A widening trade deficit hurts the U.S. economy.  When imports outpace exports, more jobs go to foreign workers than to U.S. workers" ("U.S. trade deficit widens as price of oil surges," March 10).

Although Mr. Crutsinger makes this assertion frequently, I challenge him to do what I don't recall him ever doing – namely, offering supporting evidence.

He'll have difficulty finding any.

Evidence to the contrary, however, is abundant.  For example, America ran a trade deficit for only 18 of the 120 months of the greatly depressed decade of the 1930s.  For the 1930s as a whole, the U.S. trade surplus of $4.92 billion means that U.S. exports during that decade were 23 percent higher than U.S. imports.  Yet U.S. unemployment remained unprecedentedly high.

More recently (according to data reported by Daniel Griswold in Fig. 5.2 of his book Mad About Trade), between 1982 and 2008 America's unemployment rate rose over spans of months when America's trade deficit fell, and the unemployment rate fell over spans of months when America's trade deficit rose.*

True, data showing that U.S. trade deficits are correlated positively with low, rather than high, rates of unemployment don't prove that Mr. Crutsinger is mistaken.  But in light of these data – and in light of the fact that higher U.S. trade deficits mean that more capital flows into the U.S. and, therefore, plausibly promotes economic growth – for Mr. Crutsinger to 'report' as if it's an established fact that "a widening trade deficit hurts the U.S. economy" is professional malfeasance.

Sincerely,

Donald J. Boudreaux

* Data here

The Price of the Price of Everything

I noted yesterday that Amazon, for reasons I did not understand, has chosen to discount my book, The Price of Everything by 47% and is selling it for $8.99. Some commenters noted with humor or irony that the author of The Price of Everything did not understand the price of his own book. One wag suggested an explanation for the low price–a lack of demand. (FWIW–Amazon discounts bestsellers between 45% and 50%. TPOE is not a bestseller though yesterday's mention here did help.) One commenter wondered about the puny royalty paid to an author of a book selling for less than $9.

I am happy that it is cheap. True, I don't make much money on it, but I want people to read the book and I actually believe demand curves slope downward.

By the way, the book is not about explaining the price of everything. It is about understanding how the price of everything affects our lives and the role of emergent order. One of the themes of the book is how beautiful an economic system can be in that it works well even when no one understands how the price of anything is determined. We only know our little corner of the economic world and we respond to the prices of the items we care about with our own specialized knowledge. I like all my books, but The Price of Everything is my favorite, at least for now. It tries to capture what I think is the deepest idea I have learned in economics–the idea of emergent order in complex systems and the implications of that order for policy, behavior, and just understanding what appears to be the chaos of the world around us. In fact, it is not so chaotic.

One of the goals of the book is to sensitize the reader to the pervasiveness of order and complexity. Once you see it, it changes the way you look at organizations, organizational change, your family, and of course, economics and politics. Of course as the author, I may be a tad oversensitive to seeing emergent order all around me.

The book is still $8.99 today. The Kindle version is $8.09.

If you are a teacher considering using it in the classroom, here are some excellent discussion questions from Art Carden who was using it in his Econ 101 class. And here is my graphical analysis of emergent order and the role of prices using a supply and demand framework. Please share either of these resources with your students if they are helpful.

Biden deeply critical of recent US policy. Not.

In a speech before a university audience, Vice-President Joe Biden was deeply critical of the direction of recent US policy:

Vice President Joe Biden, in the centerpiece of his revised policy position, told a university audience that business and investment in the United States are being held back by corruption, lapses in the rule of law and impediments to true democracy.

In the area of corruption, Biden was referring to the influence of the financial sector on government policy. "When Hank Paulson talks to his successor at Goldman Sachs 24 times the week before the AIG bailout–when Goldman is worried about the $9 billion that AIG owes them–you know something stinks," Biden asserted.

On the rule of law, Biden will discuss the Fed's relentless interventions to prop up creditors of insolvent institutions, the US ownership stake in GM that pushed bondholders to the back of the line in favor of unions, and the ad hoc delays in implementing ObamaCare via waivers the administration has been doling out haphazardly.

"Where do I start?" Biden asks plaintively, about the impediments to true democracy. "What kind of democracy do we have when the Fed, a group of unelected officials with little or no accountability can spread trillions of dollars throughout our economy, sometimes benefiting specific banks with liquidity in the name of stability? Or the delegation by Congress in the writing of legislation to the agencies, a much less transparent process with little accountability and huge potential for special interest mischief? We have to get back to real capitalism and real democracy," Biden said.

Given the uncertainty in the policy environment, "is it any wonder that businesses are sitting on the sidelines and that investment is so anemic?" Biden concluded.

Actually, that's not what Biden said. Here's the real news story from the WSJ:

Vice President Joe Biden, in the centerpiece of his European swing, will tell a university audience here that business and investment in Russia are being held back by corruption, lapses in the rule of law and impediments to true democracy, senior U.S. administration officials say.

Maybe he ought to spend more time at home and pay more attention.