Russell Roberts's Blog, page 15

Quotation of the Day…

(Don Boudreaux)

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… is from page 125 of Steve Landsburg’s wonderful 1997 book, Fair Play (original emphasis):

The other day, a bright nineteen-year-old woman told me that she would happily die at twenty-one if she could have unlimited income in the intervening two years. I told her that I didn’t believe her, because if income were that important to her, she’d be out earning it instead of chatting idly with me. She said – and this chilled me to the bone – that she’d be doing just that if only she could, but unfortunately there are very few opportunities in the area where she lives.

Very few opportunities! So this young woman had surveyed the world around her and found it perfect just as it was. There were no needs to fill, no improvements to offer, no contributions to be made. If we were all as oblivious as my young woman friend, she and the rest of us would live in caves instead of houses.

Quotation of the Day…

(Don Boudreaux)

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… is from page 20 of University of Connecticut economist Richard Langlois’s monumental forthcoming (2023) study, The Corporation and the Twentieth Century:

The hobbling of the country’s foreign competitors in the war had endowed American firms with a decided, if arguably artificial, comparative advantage in mass production, one that continued to generate rents for the manufacturing sector through the 1960s. This created a weak selection environment in which ineffective structures and practices, including those driven by antirust policy and industry-wide unionism, could endure unchallenged.

DBx: An especially wrongheaded and virulent myth is that the American economy and people were given a great advantage in the immediate post-WWII years by the war-damage done to economies in Europe and Asia. This myth is a perfect example of the fallacy of focusing only on that which is seen and ignoring that which is not seen.

That which is seen is the very real growth and flourishing during that era of particular kinds of firms and employment in America. American producers whose competitors were bombed to smithereens or lying bloody in their mass graves of course thrived. And we can and should applaud these producers for doing so even as we lament the cause of their thriving.

But there’s also that which is not seen.

Part of that which is not seen are the goods and services – some for consumption, others as inputs for production – that, because foreign producers were so hobbled, we Americans did not receive in exchange for our exports. Another part of that which is not seen are the entrepreneurial successes, businesses, and jobs – and higher real wages – that would have existed during that era in America but which, because resources available from our trading partners were less abundant than these would have been absent the ravages of war, never materialized.

And as Dick Langlois points out, also not seen are the inefficiencies of the post-war American economy that arose and persisted only because competition from foreign producers was then so anemic.

Here’s the bottom line: To wish to restore, or to move back to something closer to, the mid-20th century American economy is to wish to restore, or to move closer to, an economy that’s far less productive and, hence, one in which the material standards of living of – and economic opportunities for – ordinary people were much lower and fewer than these are today.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 247 of F.A. Hayek’s Spring 1933 memo – titled “Nazi-Socialism” – to William Beveridge, as this memo appears in the Appendix to the 2007 Definitive Edition (Bruce Caldwell, ed.) of F.A. Hayek’s classic and still-relevant 1944 book, The Road to Serfdom:

The inherent logic of collectivism makes it impossible to confine it to a limited sphere. Beyond certain limits collective action in the interest of all can only be made possible if all can be coerced into accepting as their common interest what those in power take it to be. At that point, coercion must extend to the individuals’ ultimate aims and ideas and must attempt to bring everyone’s Weltanschauung into line with the ideas of the rulers.

DBx: Hayek here puts his finger on the chief danger lurking in today’s calls by many conservatives for “common good capitalism.” The term (“common good capitalism”) sports a connotation that’s unambiguously lovely. Who, after all, opposes the common good? Yet the essence – and menace – of “common good capitalism” is in its prefix.

Their insistence on prefixing “capitalism” with “common good” implies that “common good capitalists” believe that the capitalist market order left to its own devices does not serve the common good. The operation of prefixing “capitalism” with “common good” is obviously meant to distinguish “capitalism” as proposed by the common-gooders from capitalism as understood and defended by capitalism’s most-acclaimed champions – scholars such as Adam Smith, Frédéric Bastiat, Ludwig von Mises, F.A. Hayek, W.H. Hutt, Fritz Machlup, Ronald Coase, Milton Friedman, Armen Alchian, James Buchanan, Leland Yeager, Vernon Smith, Israel Kirzner, Harold Demsetz, Thomas Sowell, Walter Williams, Dick Wagner, Deirdre McCloskey, and Robert Higgs.

The fundamental difference – and it is a categorical one – between capitalism unprefixed and “common good capitalism” is that only under the former are individuals allowed to choose their own concrete goals subject only to the equal right of everyone to do so. In contrast, under “common good capitalism” some concrete goals are elevated in importance over other concrete goals. Under “common good capitalism” the state will prevent certain peaceful actions and mandate others in an attempt to artificially encourage and enable the pursuit of those concrete ends favored by “common good capitalists.” The irony is that the “good” that is triumphantly described as “common” is nothing more than the particular “good” that is preferred by whichever “common good capitalists” happen to be in power.

Some “common good capitalists” are more open than are other such “capitalists” about their preferred concrete goals – about the particular economic arrangements and ‘outcomes’ that they hold as being necessary for the common good. Oren Cass, for example, wants more factory work and a smaller financial sector. He also wants the government to compel people in their roles as consumers to support people in their roles as producers. (Ignore here the fact that Cass doesn’t understand that all such compulsion turns the favored ‘producers’ into something quite the opposite of producers; it turns them into parasites.)

Other “common good capitalists” are frustratingly silent about just how their versions of “common good capitalism” differ from capitalism unprefixed. These “common good capitalists” assure us that “common good capitalism” is the way to go, but (at least so far) they’ve given us no details. They tell us nothing concrete. We’re to trust that the as-yet-unrevealed concrete ends that their version of “common good capitalism” would promote – ends that differ from the ends that prevail under capitalism unprefixed – serve the common good.

But whether spelled out or not, the concrete ends that would be promoted by “common good capitalism” are ends to be imposed by the state. With compulsion. No one would be permitted to choose or act in any ways that are believed to distract from the pursuit of the concrete ends that the rulers have somehow divined are ones that are most consistent with the common good.

“Common good capitalism,” in short, is illiberal. It is authoritarian even though many of its proponents sincerely do not believe themselves to be advocating for an authoritarian doctrine. “Common good capitalism,” therefore, is fundamentally inconsistent with capitalism as understood and championed by liberals such as Bastiat and Hayek.

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(Don Boudreaux)

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Brian Albrecht exposes the errors of Daron Acemoglu’s recent repetition of an old argument – namely, that with access to goo-gobs amount of computer power, central planners can overcome – can ‘solve’ – the knowledge problem as identified by Hayek. (HT Vernon Smith)

My intrepid Mercatus Center colleague, Veronique de Rugy, explains that America’s current fiscal woes cannot be solved by raising taxes on ‘the rich.’ Two slices:

Let’s be clear: America’s debt problem isn’t the result of former President Donald Trump’s tax cuts. While I believe these tax cuts should have been offset by closing some of our many loopholes and reducing government spending, they didn’t cause our fiscal problems. The fiscal imbalance is not because of reduced revenues. Last year, federal revenue as a share of the economy was a full percentage point above the historical average.

As the Cato Institute’s Adam Michel reminded Congress recently, “It’s new spending that drives the deficit. For example, President Biden has added about $5 trillion in unnecessary spending to the national debt. That’s more than three times the 10-year revenue reduction of the 2017 tax cuts.” Trump was no better. Before the pandemic, I often lamented ballooning budget deficits under the Trump administration. And there’s also plenty of justified blame for presidents before Trump.

Maybe more importantly, trying to reduce the deficit by raising taxes on the rich is unfair and ineffective. Rich people in America already pay a large amount of taxes. That is true regardless of whether you look at the total amounts they pay or relative amounts. That’s because the federal tax system is extremely progressive, even compared to European countries.

…..

The belief that we can reduce the deficit by taxing more revenue also overlooks the actual spending behavior of politicians. Regardless of how they justify a tax hike, when politicians get their hands on more revenue, they often use it to spend more. The result is rising, not reduced, deficits. Economist Richard Vedder and his co-authors, for instance, found that in the 1980s, every $1 raised by additional taxes generated $1.58 of additional spending. This study was revised at least three times (in 1991, 2007, and 2010) and each time produced the same results.

Samuel Gregg understandably doesn’t understand why the Nobel-laureate economist Angus Deaton is so worked up about inequality. A slice:

Given, however, Deaton’s focus on inequality, I was puzzled by the absence of a specified normative standpoint by which he assesses the justice or otherwise of varying forms of inequality. Simply stating that one or more inequalities exist between two or more groups isn’t enough to indicate whether they are just or unjust. Issues of merit, need, rights, process, intentionality, and obligations require attention.

Deaton tends to circle around these matters without directly coming to grips with them in the way that other Nobel economists like Amartya Sen and F. A. Hayek certainly did. Deaton notes that reducing economic inequalities was a major preoccupation of the Cambridge School of economics, and contrasts this with the Chicago school. The latter was, he argues, far less focused on such matters, with Milton Friedman in particular seeing many inequalities as natural or merited because they resulted from hard work. Deaton doesn’t, however, offer many thoughts about the normative rightness or wrongness of the respective foci of these schools or the philosophical apparatus underlying them.

In this letter to the editor of the Wall Street Journal, Phil Gramm and John Early expose a devious method by which Biden and and his fellow progressives are scheming “to keep the poverty rate high” (second link added):

Kevin Corinth’s op-ed “Will Biden Cross a Line on Poverty?” (May 23) highlights the Biden administration’s attempt to increase government spending by arbitrarily changing the definition of poverty. Using his regulatory authority, the president would define the poverty rate as the bottom third of income recipients and, without legislative authority, increase welfare spending by $124 billion over the next decade.

Under that new definition, economic growth that doubled incomes across the board wouldn’t reduce the poverty rate—even though families counted as poor would have seen a doubling of their incomes. Only a dramatic redistribution of income could ever lower the poverty rate.

With Congress beginning to consider legislation to force the Census to count all transfer payments as income to the recipients, an action shown in our book, “The Myth of American Inequality,” to reduce the official poverty rate by over 75%, the administration’s effort to redefine poverty is no surprise. If Congress forces the Census to stop overstating poverty by not counting food stamps, refundable tax credits and some 100 other transfer payments, the administration can keep poverty rates elevated by changing the definition.

No wonder Americans are cynical about their government. As a nation, we need to get our facts straight.

Phil Gramm and John Early
Helotes, Texas, and Mount Pleasant, S.C.

Here’s more from David Henderson on the late Nobel-laureate economist Robert Lucas.

Wall Street Journal columnist Kimberly Strassel explains that the “IRS needs a cage, not more cash.” A slice:

No agency with this track record deserves last year’s $80 billion reward, especially as the IRS is openly promising to use the cash to hire tens of thousands of new agents for draconian enforcement activity. If Democrats are so concerned about discretionary spending cuts, they ought to be forced to choose between a cash infusion aimed at taxpayer harassment and the domestic handouts they claim are vital.

“The European Commission’s Draft ‘Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents’ is Unnecessary and Harmful” – so explain my Mercatus Center colleagues Alden Abbott, Christine McDaniel, and Satya Marar.

Scott Lincicome identifies “the worst possible reason to support new AI regulation.” A slice:

Surely, not every regulation is embraced by large businesses, but there are obvious reasons why many are. Indeed, regardless of one’s views of a specific regulation or regulation more broadly, it’s hardly controversial to acknowledge that government economic rules can favor large, incumbent organizations (also known as “big business”) over new market entrants and thus act as an innovation-crippling “moat” between the latter and market viability. As George Mason University’s Tyler Cowen noted in a recent column, some of this is just common sense: Big firms “have more employees, bigger legal departments and are better suited to deal with governments,” whereas startups typically lack those resources. Thus, “as regulatory costs rise, the comparative advantage shifts to the larger firms” who can more easily handle the new costs.

The Wall Street Journal‘s Editorial Board applauds the U.S. Supreme Court’s ruling in Sackett v. EPA. A slice:

The Supreme Court issued another landmark decision pruning back an overgrown administrative state on Thursday in Sackett v. EPA. Don’t believe the cries that the 5-4 decision will despoil America’s precious wetlands. The majority simply stopped a regulatory land grab.

Michael and Chantell Sackett’s ordeal reveals how rule by an unfettered administrative state can cause significant cost and hardship. For 16 years the couple has been battling the bureaucracy to build a home. The Environmental Protection Agency and U.S. Army Corps of Engineers claim their dry property is a wetland subject to federal regulation.

The Clean Water Act (CWA) authorizes EPA to regulate only “navigable waters” in interstate commerce. Yet the EPA said the Sacketts’ property was connected to a wetland some 30 feet away, which was connected to a ditch that connected to a nonnavigable creek that connected to a lake. Follow that?

Quotation of the Day…

(Don Boudreaux)

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… is from page 52 of my late, great colleague Walter Williams’s 2011 book, Race & Economics:

Income-subsidy programs disguise the true effects of labor market restrictions created by unions and other economic agents by casting a few crumbs to those denied jobs in order to keep them quiet, thereby contributing to the creation of a permanent welfare class.

Getting Straight the Facts About Americans’ Economic Fortunes

(Don Boudreaux)

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My latest column for AIER is the first of a two-parter inspired by Phil Gramm’s, Robert Ekelund’s, and John Early’s splendid 2022 book, The Myth of American Inequality. A slice:

The picture gets even prettier when account is taken of the fact that higher-income households generally have more members than do lower-income households; specifically today, households in the top income quintile have an average of 3.10 members while households in the bottom income quintile have an average of only 1.69 members [quoting Gramm, Ekelund, and Early (GEE)]:

On a per capita basis the top quintile has only 2.2 times as much income per person living in the household as the bottom quintile, a considerably smaller difference than the 4.0 times as much without any adjustment for household size. But the blockbuster finding is that on a per capita basis the average bottom-quintile household receives over 10 percent more than the average second-quintile household and even 3 percent more than the average middle-income household!

About what they call “the blockbuster finding,” GEE correctly argue that it is evidence that government transfer payments dampen many Americans’ work incentives – a dampening that over time likely prevents these household-income figures from being even more encouraging than they already are.

What about absolute poverty? GEE make clear that in America it has been all but eliminated:

Among families defined as poor, hunger has been virtually eliminated, inadequate housing has all but disappeared, and the amenities of daily life have expanded. These data constitute definitive, independent verification of the vast historical reduction in poverty from 17.3 percent of our population as the War on Poverty began to only 2.5 percent in 2017.

These positive facts about the American economy, like those that I’ll report in my next column, are not welcomed by professors, pundits, and politicians who itch to subject the economy to greater government control. If the economy is doing well for almost all Americans rather than for only the superrich – if income inequality isn’t very high or growing – if absolute poverty is nearly conquered – the case for interventions such as income redistribution, industrial policy, and a larger welfare state collapses. So facts such as those that are amply reported by Phil Gramm, Bob Ekelund, and John Early must either be dismissed or ignored. Dismissing these facts is impossible, as these are assembled with scholarly integrity into a compelling picture of American economic success. The only remaining option is to ignore them – an option that I trust readers of this column will not choose.

The Gall

(Don Boudreaux)

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Here’s a letter to Sky News:

Editor:

You report that “France has banned short-haul flights where people are able to get a train instead, in a bid to reduce carbon emissions” (“France bans short-haul flights to tackle climate change,” May 24).

France’s great 19th-century economist Frédéric Bastiat would describe the resulting reduced carbon emissions as “that which is seen.” Bastiat would also criticize the French government for ignoring that which is unseen – here, the fact that, while this ban on short-haul flights will indeed encourage more people to travel by rail, it will also encourage more people to drive. Because driving is far more dangerous than is flying, this ban will result over time in greater numbers of people being killed or maimed while traveling.

In a fever to display its environmental creds, the French government almost certainly did not account for this significant downside of banning short-haul flights. It’s too bad that Bastiat is not around to reproach the government for this treacherous ban.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Some Links

(Don Boudreaux)

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My former Mercatus Center colleague Bob Graboyes expresses his justified skepticism of the “centralized empathy” and fatal conceit that marches under the banner “effective altruism.”

GMU Econ PhD candidate Patrick Horan remembers the late Nobel-laureate economist Robert Lucas. A slice:

As National Review’s Dominic Pino points out, if you have to read one piece by Lucas, read his short six-page lecture “What Economists Do,” where he remarked that economists are storytellers. Lucas then compared an amusement park to the U.S. economy, where amusement park tickets are money, and rides and concessions are goods and services. By manipulating the exchange rate for dollars to park tickets, he could cause the park’s economy to boom or bust. For example, suppose that 10 tickets initially cost $1.00. Then one morning, without warning, the price of tickets rises, so $1.00 buys only 8 tickets. Customers will likely be disappointed if not angry at the news. Some customers may turn around and go home. Others will buy fewer tickets. With fewer tickets purchased, the park’s money supply shrinks, and fewer people will spend money on rides and concessions. Thus, the park’s economy shrinks, too.

Lucas concludes that economists spend much of their time “in worlds of make believe.” However, this is not because they are trying to escape reality. Rather, the realm of imagination and ideas “is the only way … to think seriously about reality.”

Robert Lucas was someone whose imagination and ideas caused a sea change in understanding macroeconomics and public policy. Not all macroeconomists agree with Lucas’ theories and normative conclusions for public policy today, but they all must grapple with his insights and what they mean for their own models of the real world.

Eric Boehm has some sound advice for FTC bureaucrats who are now ‘investigating’ allegedly ‘anticompetitive’ baby-formula contracts.

Fiona Harrigan rightly criticizes “Arizona’s war on tamales.”

Amicus Brief of Zycher, Manne, Epstein, & Boudreaux in NTE Carolinas v Duke Energy. (DBx: Although I’m very happy to have my name on this amicus, I can take no credit for its contents, for my only contribution is to have signed it. It’s largely the product of the pen – or the keyboard – of Ben Zycher.)

Writing in the Wall Street Journal, John Sununu remembers the late C. Boyden Gray.

GMU Econ alums Jon Murphy and Andrew Humphries write that “Parmenides addresses Plato, as Adam Smith addresses us.” A slice:

Finally, Smith has Plato judge Parmenides, although they could not have been contemporaries. By imagining that such thinkers meet out of time, Smith may have been signaling that it is not the actual approval of any living man that he most deeply desired. The wise man seeks to be thought worthy by the best judges, those who would or ought to approve of our work, conduct, and character, no matter when that person is to be found. In other words, proper approval comes not simply from living spectators, but higher spectators who may be across time or even outside of time.

My colleague Pete Boettke, GMU PhD econ candidate Konstantin Zhukov, and the Fraser Institute’s (and GMU Econ alum) Matt Mitchell have a new book out on Poland’s economic history from 1939 through 2019.

Barry Brownstein explains how freedom is threatened by arrogance. A slice:

Humility brings us closer in touch with reality. We see more clearly just how dependent we are on the cooperation of others for our existence. We see how ignorant we are, how limited is our useful knowledge. We see how much we have been given compared to how much we have contributed; we are all users of what has been built by others living before us. We are in awe of the majesty of what spontaneous order has created. When we are in touch with reality, we can’t help but feel grateful. Misery follows when we live at odds with reality. When we turn our back on reality, humility helps reset our orientation.

Read David Henderson’s EconLog post titled “The Cost of Child Care Regulation.” Read also the comments (including David’s).

The proportion of charlatans relative to serious scholars and teachers seems to be increasing in the academy. (HT Phil Magness)

Quotation of the Day…

(Don Boudreaux)

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… is from page 8 of University of Connecticut economist Richard Langlois’s monumental forthcoming (2023) study, The Corporation and the Twentieth Century:

Planning could not foresee change, and administration could not cope with innovation.

DBx: Langlois here writes of economic planning during wartime, but the point of course holds more generally. And it’s a point that proponents of industrial policy ignore or discount. Industrial-policy proponents either do not understand or do not care that their schemes, if persistently pursued, would necessarily have to squelch all genuine economic change – implying, of course, that their schemes, if persistently pursued, would necessarily have to squelch all innovation.

More On America’s Mythical “Deindustrialization”

(Don Boudreaux)

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In response to this post from earlier today, Washington University economist Ian Fillmore sent to me the following e-mail, which I share here in full with Ian’s kind permission:

I suppose the U.S. has “de-industrialized” over the last few decades in the same sense that the U.S. has “de-agriculturized” over the last 150 years.  It is true that far fewer people have to work on farms today.  But the U.S. produces far more food than ever before.  Just as the production of food has become invisible to most of us, so too has the production of raw inputs like steel, or even manufactured goods like cars, become invisible.  But this is not a new observation.  Leonard Read pointed out years ago that none of us really knows how anything around us gets made.  Perhaps some folks find the invisibility of modern manufacturing distressing.  Not to worry, the market caters to their desires too!