Russell Roberts's Blog, page 1504

Misunderstanding of Free Trade: Instance 23,784

Here's a letter sent yesterday to Washington's WTOP radio:

During today's 1:00pm hour your news anchor interviewed a Wall Street economist who asserted that free trade "works" only when the economy "is at or near full employment."

The notion is that the greater is the American consumer's access to outputs made abroad, the lower is the demand for American workers to produce outputs made in America.  So – this economist concludes – during recessions government should raise the cost to consumers of buying goods and services that are made available on the market by any means other than the current employment of American workers.

If this economist is correct, why slap higher tariffs only on imports?  Why not also impose tariffs on used cars?  After all, in 2010, consumer expenditures on 1999 Fords and 2007 Cadillacs employ no more American workers than do expenditures on brand new Hyundais and Kias.  And why not also slap tariffs on goods sold at flea markets and garage sales?  Consumer purchases of second-hand clothing and used furniture deflect demand from newly produced American clothing and furniture no less than do consumer purchases of new clothing and furniture imported from abroad.

Sincerely,

Donald J. Boudreaux

And as Bob Higgs suggests in an e-mail to me, "Better yet, slap a high tax on the purchase of used houses. That policy ought to do wonders to restore the depressed construction industry."

Open Letter to Rep. Mike Pence

30 November 2010

Rep. Mike Pence (R-IN)

U.S. House of Representatives

Capitol Hill

Dear Rep. Pence:

I applaud your recent speech to the Detroit Economic Club.  Your economic good sense is far too rare on Capitol Hill.  But your proposal for a Spending Limits Amendment – one that would cap federal-government spending at a maximum of 20 percent of U.S. GDP – is dangerous.

The idea is dangerous not because Americans would suffer were government spending as a share of GDP kept permanently lower; quite the contrary.  And it's dangerous not so much because Congress and the administration would have stronger incentives to move expenditures off-budget.

Your proposed Spending Limits Amendment is dangerous chiefly because of the inevitable need, that you recognize, for express exceptions that would release government from the spending cap – especially the exception that you mention: war.

If your Spending Limits Amendment is ratified, Congress's and the administration's incentives to wage war – hot and cold – would intensify.  As Thomas Paine wrote in The Rights of Man, "War is the common harvest of all those who participate in the division and expenditure of public money, in all countries.  It is the art of conquering at home: the object of it is an increase of revenue; and as revenue cannot be increased without taxes, a pretence must be made for expenditures.  In reviewing the history of the English government, its wars and its taxes, a by-stander, not blinded by prejudice, nor warped by interest, would declare, that taxes were not raised to carry on wars, but that wars were raised to carry on taxes."

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

The Pilgrims experiment with communal property

Here is my take on what the Pilgrims learned about communal property:

Watch the latest video at video.foxbusiness.com

Here is Don's take on the issue of whether the right has misunderstood the significance of this historical episode.

We all fall down

I was watching some football on Sunday and saw this moving ad, set to piano music about not giving up. At first I thought it was an Apple ad, or a Nike ad, maybe. No narration, just a set of images and film clips about people coming back from adversity: Evel Knievel, Popeye, Harry Truman, a boxer knocked to his knees and so on. Then the ending:

We all fall down.

Thank you for helping us get back up.

Followed by the GM logo.

You can watch it here:

Thank you for helping us get back up? That's what you say to someone who extends a helping hand. A person who cares. It's not really the right message to someone who was forced to help you out after years of misbehavior and failure. An apology would have been more appropriate. An ending that would go something like this:

We messed up.

We're sorry we forced you to clean up the mess.

Or maybe this one:

We made lousy products.

Sorry that we made you pay for them anyway.

Or this one:

We should have lost a lot of money.

Sorry that we ruined incentives for other losers in the future by flexing our political muscle.

Write your own version in the comments. And when the YouTube parodies of the ad get done, please send them to me.

Does Trade 'Loot' Jobs?

Commenting critically on this recent blog-post, Sethstorm writes that trade with China has "enabled the looting of states like Ohio of jobs."

Here are some thoughts and questions for Sethstorm:

Your – Sethstorm's – remark implies that workers in Ohio own their jobs.  If these jobs truly are owned by Ohioans currently employed in them, then these jobs should be protected not only from foreign trade, but from any changes that might eliminate jobs in Ohio.

For example, if an aluminum factory in California devises a method for producing stronger yet lighter aluminum at lower cost, that factory's innovation should be outlawed.  The reason is that such sturdier aluminum sold at lower prices will cause automakers to substitute aluminum for steel in the production of cars and trucks.  Consequently, that California innovation will cause at least some Ohio steel workers to lose their jobs – jobs that, you feel, are owned by those steel workers.  And if it's theft for Chinese producers to eliminate Ohioans' jobs, then it's also theft for innovative Californians to do so.

Or suppose that Americans become more cholesterol conscious and cut back significantly on their consumption of eggs.  This change in consumer demand will eliminate some jobs in Ohio's egg industry.  Do you believe that consumers who reduce their egg purchases are thereby looting jobs from Ohio?  Should Uncle Sam prevent consumers from buying fewer eggs?

If not, what's the status of your claim that American trade has "enabled the looting of states like Ohio of jobs?"

Capitalist Oasis

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

Thanks so much for your e-mail in response to my letter on Bill Gates missing Julian Simon's point.

You question my use of Chad as evidence for the validity of Simon's thesis.  You write: "It is true that Chad is poor and is sparsely populated, but much of Chad is a desert.  People cannot survive in deserts, so that land area in Chad doesn't count really."

You're correct that much of Chad is a desert, but incorrect that people cannot survive in deserts.  Consider Las Vegas.

That city is all desert, yet it's one of the richest places on the globe.  Vegas's riches come from market-friendly institutions: secure property rights and free trade with people who live outside of Vegas.  Las Vegas imports citrus fruit from California; water and electricity from Lake Mead; vegetables and grains from around the U.S. and the globe; clothing from Asia and Canada; lumber from Oregon and Alabama; insurance coverage from Hartford and London; airline services from Chicago and Dallas….. the list is practically endless.

Market-friendly institutions and trade make great wealth possible even in the hostile environment of deserts.

If Las Vegas can support a large population at high standard of living, there's no reason why Chad cannot do the same.

Sincerely,

Donald J. Boudreaux

(Note: No need to remind me that Vegas's water – and, I suspect, also electricity – are subsidized.  While I oppose these subsidies, their existence does not undermine my point here – which is that, in a society with sufficiently extensive and robust market-oriented institutions, the natural environment of a place loses much of its ability to influence the standard of living of its denizens.)

Anthony Comstock, Progressive

George Will channels H.L. Mencken.  The result is beautiful to behold.

Simonizing Bill Gates

Here are two letters to the Wall Street Journal:

Bill Gates writes that "slowing population growth" has "proven … to be critical to long-term economic growth" ("Africa Needs Aid, Not Flawed Theories," Nov. 27).  What's the evidence for this claim?

Did Hong Kong grow as a result of slowing population growth?  No.  What about Taiwan over the past 60 years?  No.  Was slowing population growth key to England's unprecedented economic blossoming during the industrial revolution?  No.  Did population growth in America slow before its economy began to grow?  No.

Did the great 20th century migration to California cause that state's economy to languish?  No.  Do the high population densities of Manhattan, London, Sydney, and Toyko keep people in those cities poor?  No.  What about high population densities of countries such as South Korea, Netherlands, and Belgium – are their citizens poor as a consequence?  No.  Do low population densities in the Republic of Congo, Chad, and Bolivia keep people in those countries rich?  No.

It's disappointing that Mr. Gates, visionary entrepreneur that he is, so readily accepts the pop myth that population growth is a drag on economic growth.

Sincerely,

Donald J. Boudreaux

And

Bill Gates writes that "slowing population growth" has "proven … to be critical to long-term economic growth" ("Africa Needs Aid, Not Flawed Theories," Nov. 27).  What's the evidence for this claim?

It's true that higher per-capita incomes can give people more time and resources to invest for the future – investments that are key to economic growth.  It's true also that higher per-capita incomes can indeed result from declining population growth.

But slower population growth is neither necessary nor sufficient for faster economic growth.  Private investments that spark growth can come from outside – and WILL come from outside if public policies and institutions in the poor country become more friendly to commerce and competitive markets.  More importantly, without private investments attracted by improved policies and institutions, any slowing of population growth results, not in faster economic growth but, rather, in total output falling until per-capita incomes are again where they were before population growth slowed.

Sincerely,

Donald J. Boudreaux

And s Steve Horwitz points out to me in a private e-mail, Gates has the correlation right: high economic growth is correlated with slowing population growth, but the latter is the result of the former rather than its cause.

If Only Peter Bauer Were Around to Act as Judge

In today's Wall Street Journal, Bill Gates debates Matt Ridley on the role of foreign aid, the sources of innovation, and other topics.  Great stuff!

On Posner on Antitrust

Back in 2002 I reviewed, for The Antitrust Source, the second edition of Richard Posner's Antitrust Law – but only today did I discover that this review is available online.  (HT Thomas Harrigan)