Russell Roberts's Blog, page 1472

Open Letter to Rush Limbaugh

2 March 2011

Mr. Rush Limbaugh

EIB Network

New York, NY

Dear Mr. Limbaugh:

During your radio interview yesterday of Donald Trump, you missed several opportunities to ask probing questions – questions that would have exposed the sheer ignorance that underlies The Donald's economic pronouncements.  For example:

- "Donald, you say that America 'doesn't make things any more.'  Are you unaware that, in 2009 (the latest year for which we have data), the value of U.S. manufacturing output was nearly 30 percent higher than that of China, the world's second-ranking country in terms of manufactured output?"

- "Donald, did you know that the inflation-adjusted value of America's manufacturing output in 2009 was 120 percent higher than it was in 1970?"

- "Donald, why do you ignore the fact that over the ten-year span 2000 through 2009, the total amount of foreign direct investment received by China was $686 billion, while the total amount of FDI received by America was 162 percent higher at $1,799 billion?  How, exactly, do you square these investments with your hysterical claims that the U.S. economy is being battered by foreign trade?"

- "Donald, you complain about America's trade deficit.  Do you realize that another name for 'trade deficit' is 'capital-account surplus'?  Do you understand that every cent of the U.S. trade deficit is a cent of foreign savings invested in American assets – investments that increase the amount of productive capital at work in America?  Do these investments hurt Americans?"

- "Donald, you endlessly repeat that 'no one respects America any more.'  What do you mean?  If you're referring to our military, perhaps any decline in respect is a product of the fact that our troops and guns have too often been sent to accomplish goals that troops and guns are unfit to accomplish.  If you're referring to the U.S. economy – while you're right that Uncle Sam's fiscal diarrhea certainly is a problem that must be fixed – the strength and resiliency of our economy is surely respected worldwide, else why are all of those foreigners investing their savings in America more so than in any other country?  Are foreigners dissing us with these investments?"

- "Donald, am I correct in guessing that one reason you want to be a politician is that you're fond of making grand pronouncements on matters that you know absolutely nothing about?"

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

Ancient Wisdom

Washington Post columnist Ruth Marcus is disappointed that Pres. Obama is all soaring talk and too little audacious action.

The reason is plain: Obama is a politician.

Like most members of the species homo electedofficialus, Obama's expertise lies not in actually distinguishing real from imaginary problems, and then in forthrightly and sensibly addressing these.  Instead, he is expert only in what Plutarch called "the base and dishonest buffooneries of mob eloquence."*

The only mystery is why someone as intelligent as Ms. Marcus is surprised by this fact.

……….

* Plutarch, "Pericles," in Plutarch's Lives, Vol. 1 (New York: The Modern Library, 1992), p. 204.

Muammar D. el-Rockefeller?

Here's a letter to the New York Times (HT Dan Griswold):

Regardless of the ethics of the L.S.E. accepting money from the Qaddafi Foundation, it is obscene for Professor Meghnad Desai to try to justify the L.S.E.'s actions by saying that "Academic research needs money – Rockefeller was a robber baron once, but we take his money" ("London School of Economics Wrestles With Qaddafi Donation," March 1).

John D. Rockefeller earned every cent of his wealth honestly and peacefully – mostly by creating unprecedented efficiencies in the production and distribution of kerosene, the chief product extracted from petroleum during the 19th century.  Rockefeller's efficiencies drove the price of kerosene down from 26 cents per gallon in 1870 (the year Rockefeller founded Standard Oil) to 5.9 cents per gallon in 1897 (the year Rockefeller retired from Standard).  Rockefeller never once held a gun to anyone's head, much less dispatched goons and terrorists to kill untold numbers of innocent people.

The only people 'harmed' by Rockefeller were his competitors (such as Franklin Tarbell, father of Ida) who failed to keep up with Standard's innovations and cost-reducing techniques.  Meanwhile, Rockefeller improved the lives of literally tens of millions of people – not to mention also saving whales.

The Qaddafis, in contrast, are thieving, tyrannical, and murderous brutes.

Sincerely,

Donald J. Boudreaux

Hot Stove Economics

Just in time for the baseball season, check out J.C. Bradbury's Hot Stove Economics. It's a very nice application of economics to baseball and is written with great clarity and insight. The book opens with why it made sense for the Braves to trade Kevin Millwood, an apparent star, in exchange for Johnny Estrada, an apparent failed prospect. I found it quite illuminating particularly because it showed how the standard explanation for these kind of trades may often (always) be wrong. The standard explanation is that because everyone knew the Braves wanted to trade Millwood (for various financial reasons that Bradbury explains), the Braves were at a terrible bargaining position. So of course the best they could do was to get Estrada. Bradbury shows that the bargaining position had little to do with it–Millwood just wasn't worth that much, contrary to what most casual fans would think.

What Produces Losers is Protectionism

Ian Fletcher asserts that the economic case for free trade doesn't apply in the real world because it's impractical for free-trade's "winners" to compensate (as they do in some esoteric economic models) free-trade's "losers."

Fletcher slays merely a man of straw: the economic case for free trade does not require "winners" to compensate "losers."

More troubling is the foundational inconsistency in Fletcher's objections to free trade – an inconsistency he shares with most other protectionists. Fletcher correctly notes that changes in consumer tastes, no less than increased supplies of goods and services from foreign producers, cause some existing domestic jobs to be lost.  But he mysteriously singles out foreign trade as an institution that creates "winners" and "losers and, therefore, allegedly requires government intervention.

If Fletcher were to judge domestic trade by the same criteria that he applies to foreign trade, he'd be obliged to argue for special taxes on all new products, on all new services, and on all goods and services whose prices are cut or whose quality is improved, regardless of where these goods and services are produced.  In short, he'd have to argue for special taxes on competition and consumer choice – for the "winners" and "losers" that Fletcher thinks he sees only when patterns of foreign trade change exist no less when only patterns of domestic trade change.

Long-time Cafe patrons know that I argue that, when evaluated over relevant time horizons, trade has no losers.

Milked

Here's a letter to The Messenger Post (of Canandiagua, NY) (HT Chris Meisenzahl):

You report that "U.S. Sen. Kirsten Gillibrand will announce today plans to address the drop in the number of in dairy farms statewide.

  The state lost 23 percent of its dairy farms in five years.  Gillibrand will announce emergency steps such as preventing cuts to the Milk Income Loss program and fixing the milk-pricing system to create competitive pricing for New York dairy producers" ("Gillibrand today announces emergency plan to boost dairy farms," March 1).

Translation: "U.S. Sen. Kirsten Gillibrand will announce today plans to compel consumers to buy more milk than they want to buy from politically powerful New York dairy farms.  23 percent of that state's dairy farms operated so inefficiently over the past five years that they went out of business.  Gillibrand will announce emergency steps such as forcing taxpayers to guarantee minimum 'profits' – and rigging the milk-pricing system to create monopoly pricing – for politically powerful New York dairy producers."

Sincerely,

Donald J. Boudreaux

Were Jed Clampett's Economic Fortunes 'Hollow'?

Here's yet another letter to the Huffington Post:

Ian Fletcher asserts that "Much of our recent export growth has been hollow anyway, consisting largely in raw materials and intermediate goods destined to be manufactured into articles imported back into the U.S….  But this is obviously a losing race, as the value of a product's inputs can never exceed the value of a finished product sold at a profit" ("Trade Solutions That Won't Work," Feb. 27).

Really?  So it must also be true that an owner of an oil well leads a "hollow" economic existence, for he can never hope to profit from owning such a well.  After all, crude oil is a mere input into the production of finished products: the oil-well owner exports crude oil from his company to refiners and other producers who transform that oil into more highly valued final products – such as gasoline, plastics, and pharmaceuticals – that the oil-well owner then buys for his firm's continued operation, as well as for his and his family's own consumption.

Because, as Mr. Fletcher says, "the value of a product's inputs can never exceed the value of a finished product sold at a profit," supplying crude oil is surely an impoverishing experience because so very many of the final products that the oil-well owner buys contains oil that is sold back to him at prices higher than he received when he first sold it as crude.

Someone should alert Jed Clampett and his banker, Mr. Drysdale.

Sincerely,

Donald J. Boudreaux

Fletcher Doesn't Understand Trade

Here's a letter to the Huffington Post:

Ian Fletcher claims that "Much of our recent export growth has been hollow anyway, consisting largely in raw materials and intermediate goods destined to be manufactured into articles imported back into the U.S….  But this is obviously a losing race, as the value of a product's inputs can never exceed the value of a finished product sold at a profit" ("Trade Solutions That Won't Work," Feb. 27).

This claim is an avalanche of errors.  Here are only two.

First, Mr. Fletcher illegitimately assumes that every finished product produced in Mexico with inputs imported from America is sold in America.  But if, say, only 60 percent of shirts produced in Mexico from U.S. cotton are sold in America – with the remaining 40 percent sold to non-Americans – the amount of dollars that Americans earn by selling cotton to Mexican shirt producers can easily exceed the amount of dollars that Americans spend buying shirts from Mexico.

Second and more fundamentally, if Americans can produce cotton at a lower cost than can Mexicans, and if Mexicans can transform that cotton into finished shirts at a lower cost than can Americans, then Americans and Mexicans both gain by the current arrangement.  That we Americans might pay more dollars for finished shirts than we receive for cotton exported to Mexico is irrelevant.  The reason is that a finished shirt is more valuable to American consumers than is the raw cotton that is in it: Americans pay for receiving something of more value to us (finished shirts) by giving up something of less value to us (raw cotton). How is such trade harmful?

Sincerely,

Donald J. Boudreaux

Some Links

What a great resource is this new site from the Institute for Humane Studies (IHS) at GMU!  For example, here's a video of Steve Horwitz challenging the notion that we're running out of resources.

Larry Ribstein reflects on the politics of Hollywoodies.

Pejman Yousefzadeh reflects on Marxists.  (HT Andy Morriss)

Does the FDA save American lives?  Unclear. (HT John Breivogel)

Bryan Caplan reviews Amy Chua's World on Fire.

Apologies for Cafe Problems

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The problem is on our end.  We're working to fix it.

Thanks for your patience.