Russell Roberts's Blog, page 1491

The Effect of Trade on Income

This 2002 paper by Doug Irwin (of Dartmouth and the National Bureau of Economic Research) and Marko Tervio (of MIT) is just one (of many) examples of careful empirical work on the effect of international trade on income. That effect is positive.

Yes – Read Krugman

Commenting on this earlier post, Ronald Bingham recommends that we free traders read Paul Krugman – presumably Krugman's work in the 1970s and 1980s on "strategic trade policy."  This theory shows that it is possible for a government to employ a certain pattern of tariffs and trade restrictions in ways that raise the wealth of the nation higher than it would be if the government had instead pursued a policy of free trade.  (By the way, strategic trade policy has nothing to do with protecting people from job loss for the sake of protecting them from job loss.)

Note to Mr. Bingham: I have read Krugman – including his indispensable book Pop Internationalism.  In Chapter 7 of that book, Krugman issues this sound warning about strategic trade policy:

The rhetoric, if not the full intellectual depth, of strategic trade policy has become very popular among politicians and policy entrepreneurs interested in trade.  In general, however, we can say that most economists working on international trade have agreed that strategic trade policy can work in principle but have been highly skeptical about its importance and usefulness in practice [p. 110; emphasis added].

When a principal formulator of a theory warns that that theory's practical importance and usefulness are limited – perhaps even dangerous – I take that warning especially seriously.  (And my reaction is doubly strengthened by the fact that, in this case, the issuer of the warning – Krugman – is known for his general optimism in the ability of government officials to act in the public's best interest.)

Irresponsible, Baseless, Accusatory Political Rhetoric

Here's a letter to the Wall Street Journal:

You report that "No sooner has a new Congress arrived in Washington than the anti-China-trade rhetoric has started anew" ("The $6.50 Trade War," Jan. 11).

Protectionists' rhetoric is troubling – kindling, as it surely does, resentment in ordinary Americans whenever they hear elected officials such as Sen. Charles Schumer allege that, because of Chinese trade policies, "we lose wealth, we lose economic advantage, we lose jobs."  How irresponsible is it for Leo Gerard, head of the United Steelworkers union – when accusing the Chinese of unfair trade practices – to publicly thunder that "American workers, communities and industry have every right to expect their government to take action.  It is long, long overdue"?  Was it really necessary for Sen. John Kerry, during the 2004 presidential campaign, to risk stirring up hatred by labeling corporate executives who outsourced to foreign countries "Benedict Arnold CEOs"?  And what dangers lurk in inflammatory headlines such as this one from September: "US lawmakers to target China, grill Geithner"?

"TARGET China"….  "GRILL Geithner…."  Oh dear.  Such language – although perhaps not meant to incite violence against the Chinese or against government officials publicly accused of being too soft on China – stoke irrational resentments and are too likely to nudge unstable fanatics to go on shooting rampages against American corporations who outsource to China, or even against American consumers who shop at Pier 1 Imports.

Sincerely,

Donald J. Boudreaux

A History Lesson

ReasonTV explains that vitriolic political rhetoric is nothing new – consider, for example, the presidential campaign of 1800.  (HT Steven Hayward)

Will on the MSM on Violence

George Will's analysis of the reaction to Saturday's shootings in Tucson is George Will at his very best.

Marc Thiessen is also excellent on this matter.

Who Decides?

Here's a letter to USA Today:

While the term "death panels" is over-the-top, the concern that sparks its use is real and justified ("Nonsense about 'death panels' springs back to life," Jan. 10).

As you recognize, resources for supplying medical care are scarce, and will remain so forever.  This fact means that much medical care that would be provided in a world without scarcity must go unprovided in reality.  And so the question arises: who decides which medical treatments to undergo and which to forego?

To the extent that government is charged with supplying medical care – either directly or by paying for it – the entity that will unavoidably answer the above question is government.  Decisions about which treatments to pursue and for how long will, of necessity, be removed from patients and their families.  These decisions will instead be made by strangers.

Call this impersonal decision-making process what you will.  Government cannot be given greater responsibility for supplying health care without also being given greater power to deny life-saving treatments – and the duty, in many cases, to do so.

Sincerely,

Donald J. Boudreaux

F.H. Knight Reviews J.M. Keynes

Here's one of the 20th-century's premier economists,' Frank Knight's, review of Keynes's General Theory. It is a classic.  (Unfortunately, only those of you with access to JSTOR can access this splendid – if quite critical – review.)

An Open Letter to Nahila Campos

10 January 2011

Ms. Nahila Campos

Interim Haiti Recovery Commission

Dear Ms. Campos:

Thanks for e-mailing to me your organization's press release boasting that "Cleaning Up Haiti's Debris Creates Jobs and Opportunity for Haitians."*

Your press release enlightens persons who are so blinkered that they believe the myth that huge earthquakes, such as the one that struck Haiti last year, are unmitigated catastrophes.  Sure, many people are killed by the massive destruction.  But the shining bright side is all the "jobs and opportunity" that are bestowed on the survivors.

Let's pray that when the current clean-up effort is completed Haiti will be blessed with yet another earthquake – or, perhaps, a category-5 hurricane – so that her people will continue to enjoy "jobs and opportunity."  With enough devastating natural disasters, Haiti might even become a thriving, industrial, wealthy first-world economy.

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

* I searched for an on-line version of this press release, but have (so far) been unsuccessful at finding one.

…….

I suppose the presumption is that, absent the need to clear their homes and streets of rubble caused by natural disasters, Haitians are so well-supplied with all that they could possibly want in life that there are no opportunities for them to work at jobs meeting unmet human needs.

UPDATE: Check out Haitians' "jobs and opportunity."

And while I'm updating, why not include this passage from ?

Ancient Egypt was doubly fortunate and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid building as well as the search for precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance.  The Middle Ages built cathedrals and sang dirges.  Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York.

For the life of me I'll never understand why any serious thinker takes Keynes seriously as an economist.

Caldwell on Hayek

The latest EconTalk is an interview with Bruce Caldwell, the General Editor of Hayek's Collected Works. We talk about Hayek's life, his ideas, and what a newcomer to Hayek might start reading.

Scientism

There was some confusion about my recent post on what economics is good for. I think it's good for a lot of things. When I said it isn't like physics I agree that that isn't the end of the world. In one sense, who cares if it isn't like physics? The problem is that too many economists and others treat it as if it were like physics. And most of these applications are silly, non-scientific and meaningless. Today's Washington Post provides a good example:

According to Zandi's analysis, the payroll tax cut will boost economic growth by 0.5 percent for the year, with most of the growth occurring in the first half. Low- and middle- income households are expected to benefit the most, as the payroll tax is only assessed on the first $106,800 in earnings. The tax cut is likely to create 1 million new jobs, he said.

That sounds scientific. A forecast of growth (using a decimal point!) and an estimate softened by the word "likely." But it is a meaningless statement. It is scientism, the use of the language and tools of science to reach a conclusion that is not merited. The cut in the payroll tax could actually lead to more concerns about the deficit, discourage investment and risk-taking, and reduce employment in the future. Which view is right? This pessimistic view or Zandi's? My argument is that there is no way to know. This is an abuse of economics. Here is a more accurate statement that Zandi might have made:

My model of the macroeconomy which has proved to be very inaccurate in the past, predicts a million jobs will be created. I am confident that I have made enough corrections to the model to insure that this forecast is accurate even though there is no way after the fact to assess the accuracy of my forecast.

I am sure Zandi's forecast of job creation has some confidence interval around it. That is why he adds the work "likely." That changes nothing. In a way it makes it worse–more scientific-sounding lingo like "confidence interval" when in fact there is no more science and no confidence either.