Russell Roberts's Blog, page 1470

A Lesson In Public Choice

Tim Carney writes (HT Arnold Kling):

Environmental policy is not driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens. Instead, it flows from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet.

Yep.

My Continuing Public Conversation with Ian Fletcher

7 March 2011

Mr. Ian Fletcher

Dear Ian:

In your latest essay at The Huffington Post, you allege that supporters of free trade are guilty of "social snobbery" ("The Social Snobbery of Free Trade," March 7).  You offer three, and only three, pieces of evidence for this proposition.  The first is a quotation from New York Times columnist Thomas Friedman, and the second is a quotation from Barack Obama – each suggesting that working-class people too quickly blame trade for whatever economic misfortunes they suffer.  The third piece of evidence is the fact that, while most members of the mainstream media are center-left on a majority of issues, they are well-paid and "lean right" on trade.

You masterfully massacre a straw man.  Contrary to your explicit claim in the case of Friedman, and your implication in the case of Obama, the pronouncements of economically confused journalists and professional politicians aren't even remotely appropriate examples of the best arguments for free trade.

Here's a challenge for you.  Search for examples of snobbery in the arguments for free trade made by scholars such as Adam Smith, Frederic Bastiat, Jagdish Bhagwati, Henry George, Daniel Griswold, Douglas Irwin, Fritz Machlup, Martin Wolf, and other economists and researchers who are recognized authorities on trade.  You'll come up empty.  (Note: pointing out that many people do not understand economics is not an instance of snobbery.)

If nothing else, you have chutzpah to pin the label "snobs" on free traders – who argue that individuals ought simply be left free to spend their money in whatever ways they choose – while you promote a policy of giving third-party strangers in Washington the power to obstruct, for some allegedly higher good, these private, individual consumption choices.

Sincerely,

Donald J. Boudreaux

U.S.A. #1!

Hooray?

Protectionists are to Economics What Astrologers are to Astrophysics

Here's a letter to the editor of the website Economy in Crisis:

Setting up a straw man for the slaughter, Dustin Ensinger asserts that "Proponents of unfettered free trade have long claimed that lowering trade barriers will allow America to export more and more goods, eventually leading to trade surpluses and economic prosperity" ("Exports Won't Solve America's Many Trade Woes," March 6).

Wrong.

Proponents of unfettered free trade have long claimed that lowering trade barriers will allow America to import more and more goods, eventually leading to greater economic prosperity.  Period.

Proponents of unfettered free trade – at least those who understand economics – don't give a damn about trade 'deficits' or 'surpluses.'  They agree with Adam Smith that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."*

Sincerely,

Donald J. Boudreaux

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776) Book IV, Chapter 3, paragraph 31

Dysfunctional

A very informative editorial from the New York Times that gives you some idea of what is going in New York with public employee compensation.

The Times observes:

In all, the salaries and benefits of state employees add up to $18.5 billion, or a fifth of New York's operating budget. Unless those costs are reined in, New York will find itself unable to provide even essential services.

To point out these alarming facts is not to be anti- union, or anti-worker. In recent weeks, Republican politicians in the Midwest have distorted what should be a serious discussion about state employees' benefits, cynically using it as a pretext to crush unions.

But after you read the editorial, you may actually come to conclude that the political power of unions could have something–maybe almost everything–to do with the problem. Here are some excerpts:

Negotiations begin this month, but so far union leaders have publicly resisted Mr. Cuomo's proposals…

Last April, in the midst of one of the worst financial crises that New York and the nation have ever faced, the state's unionized workers got a 4 percent pay raise that cost $400 million. It came on top of 3 percent raises in each of the previous three years. These raises were negotiated long before the recession began, by a Legislature that routinely gave in to unions that remain among the biggest political contributors in Albany…

During the same period, many private-sector workers had their pay or hours cut. Private-sector wages in New York dropped nearly 9 percent in 2008. In 2009, Gov. David Paterson pleaded with the unions to give up the raises to help the state out of its crisis. Union leaders attacked him in corrosive television ads, and Mr. Paterson eventually caved, settling for an agreement that reduced pension payments to new employees. The deal wasn't enough to address New York's serious fiscal problems…

A clause in the state labor law known as the Triborough Amendment allows contract provisions for all workers to proceed until a new contract is reached…

This clause, unique to New York, was a well-meaning attempt to give some balance to state unions, which by law are not allowed to strike and had no leverage to draw management to the table in flush years. The problem with the Triborough Amendment is that it gives the unions far less incentive to bargain, as we saw last year…

In 2000, employee pensions cost New York State taxpayers $100 million. They now cost $1.5 billion, and will be more than $2 billion in 2014. Wall Street's troubles are a big part of that. But so are state politics. The Legislature, ever eager to curry favor with powerful unions, added sweeteners to pensions and allowed employees to stop making contributions after 10 years…

Unlike Gov. Scott Walker of Wisconsin, Governor Cuomo is not trying to break the unions. He is pressing them to accept a salary freeze and a reduction in benefits for new workers. The unions need to negotiate seriously.

But do they need to negotiate seriously. What incentive do they have? Reading the Times's analysis, it appears that the public sector union relationship with the state is dysfunctional. Or maybe it is functional but only for one party.

Higgs Reviews Derek Leebaert's "Magic and Mayhem"

Bob Higgs's latest deserves to be read throughly.  And twice by Neocons.  Here's a key paragraph:

Leebaert focuses on several dimensions of what he calls the foreign policy makers' reliance on "magic"―a collection of assumptions and convictions about what the United States government can and should do in its dealings with the rest of the world. He calls it magic, he explains on page 1, because "shrewd, levelheaded people are so frequently bewitched into substituting passion, sloganeering, and haste for reflection, homework, and reasonable objectives." As Leebaert illustrates with a great variety of cases, decision makers forgo careful study, detailed, factual evaluation, and judicious evaluation of alternatives (including the alternative of doing nothing) and instead opt for plunging almost blindly into efforts that almost any serious, informed thinker could have told them were doomed to fail. They are supremely self-confident, notwithstanding their all-too-frequent lack of any real basis for such confidence.

What Would Mencken Do?

Here's a letter to the Boston Globe:

Jeff Jacoby eloquently exposes the pretentions and dangers lurking in the "What Would Jesus Cut?" ad campaign – a campaign, sponsored by the "liberal" Christian group Sojourners, that casts as immoral all efforts to cut funds from government programs that are ostensibly meant to help the poor ("Separation of Jesus and Congress," March 6).

The Sojourners – who blithely assume that the welfare state works as advertised (and that Jesus advocates it) – issue pronouncements that are perfect examples of what H.L. Mencken identified as "the empty babbling of men who mistake their mere feelings for thoughts."*

Sincerely,

Donald J. Boudreaux

* H.L. Mencken, Prejudices: A Selection (Baltimore: The Johns Hopkins University Press, 1996), p. 84.

George Will Puts the Ridiculous Gingrich and Huckabee In Their Place

Here's the incomparable George Will at his best.

Jacksonville IS the Biggest City in the U.S., Area-wise

Here's a letter to an e-mail corresondent:

5 March 2011

Mr./Ms. "Bill McKibben"

Dear Mr./Ms. "McKibben":

I assume that you aren't the Bill McKibben, but your choice of a nom de plume is revealing.

You ask, in response to my blog-post in which I criticize Jeff Sachs for his enviro-hysteria, how I can "be so lame and uninformed" as not to "realize" that the earth is "overcrowded; overused; over its limit of sustaining life."

My response is simple: show me hard evidence that humanity is on the verge of calamity.  Show me hard evidence of general resource depletion.  Show me hard evidence that the quality of human life is declining, or destined to decline, over time.  Show me hard evidence of overcrowding.

There's plenty of evidence against your propositions; show me some evidence to support them.

Actually, it's coincidental that you mention overcrowding.  Just this morning my friend Barry Connor sent me the following e-mail: "If all [7 billion] people on earth were given an area of 3.5 sq. ft. (18″ x 28″), they all could stand in the City of Jacksonville, Florida.  This calculation is accurate.  Check it out.  Literally, we have barely scratched the surface of the earth."

True, 3.5 square feet per person ain't much room, but Jacksonville is only a tiny fraction of all land in the U.S. – and its size is a rounding error in relation to the amount of land in the earth's temperate zones.

Do you have contrary evidence or arguments that the earth is, in fact, overcrowded?

Sincerely,

Donald J. Boudreaux

Williford on Perry

Here's a letter to the Wall Street Journal:

Struggling to refute Mark Perry's data showing that U.S. manufacturing output is growing, Sam Williford writes that "Nowhere does empirical evidence tell the story of a growing manufacturing sector" (Letters, March 5).  Mr. Williford's evidence?  "Manufacturing as a percent of GDP has dropped from 21% in 1980 to 13% in 2008.  The U.S. share of world manufacturing production has declined from 31% in 1980 to 24% in 2008.  While it is still true that the U.S. is the world's largest manufacturer, we are also by far the world's largest importer."

Let's take these two arguments in turn.

First, just because manufacturing as a percent of GDP is falling does not mean that U.S. manufacturing output isn't growing.  If I get a raise during the same year that my teenage son first enters the workforce, my income falls as a percent of my household's income, but my income is still properly described as "growing."  Ditto for U.S. manufacturing output as a percent of "world manufacturing production."

Second, it's hardly surprising that, being the world's largest manufacturer, the U.S. is also the world's largest importer.  One should expect nothing else.  Not only are at least one-third of U.S. imports used as inputs for U.S. manufactured goods, but also – being the world's largest suppliers of both manufactured and service outputs – Americans are wealthy.  And wealthy people can afford to spend lots money buying things from others.

Sincerely,

Donald J. Boudreaux

For purposes of length, I left out of my letter one other piece of evidence that Williford unthinkingly thinks he mustered against Mark's data:

Since 1975, America's trade deficit has increased at a rate faster than our increase in exports. A surplus of $12.4 million in 1975 turned into a $834 billion deficit by 2008.

Regular Cafe patrons know what I have to say about this 'argument.'  But, just for fun, in the comments section let's see how many different, sound reasons can be listed for why Williford's 'trade deficit' claim is not evidence against Mark Perry's proposition that U.S. manufacturing output is growing.