Russell Roberts's Blog, page 1511

Mausoleum

i was recently in a Barnes and Noble waiting while my car got repaired. Two things struck me about the experience. One was that the Starbuck's attached to the Barnes and Noble was packed. I was sitting there drinking a Naked Juice and working on my iPad. Most of the other people were doing the same thing. They were sitting there drinking a cup of coffee and treating the place like a public park. A public park with wifi. The bookstore was nearly empty.

As I walked through the bookstore, I passed stacks and stacks of books. Barnes and Noble used to carry around 100,000 titles. I don't know how many they stock now, but they have a lot of books. I love books. I probably have something around 1000 books in my personal library. But I was struck by how strange all those books looked, all piled up, taking up so much….space. Books have lost much of their appeal for me. I like reading on my iPad. And seeing all those books piled up everywhere seemed so strange looking, like some wasteful warehouse.

I recently read Nicholas Negroponte say that books will disappear int he next five years. Don't know if he's right, but surely print is in big trouble.

Roundabout Means of Production

Here's a letter to AlterNet:

Arguing for policies that artificially enhance the profits of U.S. corporations by preventing consumers from buying foreign goods, William Greider writes, as you describe it in a lead-in to his article, that "America must start producing for itself" ("With the World Economy on the Brink, America Must Start Producing for Itself Again," Nov. 5).

America already does produce – everything – for itself.  Just as Mr. Greider produces for himself by writing books that he then exchanges for his home, his car, and his clothing, we Americans produce things for ourselves by specializing as producers in what each of us does best and then exchanging the fruits of our efforts for all of the goods and services that we consume.  Trade is simply another stage in the production process by which we transform the particular things we form with our hands and minds into the wide variety of goods and services that we consume.

As University of Rochester economist Steve Landsburg points out, Iowa farmland is planted thick with acre upon acre of cars – cars that grow from the ground looking like corn but which, when put on ocean-going ships, are transformed forthwith into Toyotas, Volkswagens, and Kias.

Sincerely,

Donald J. Boudreaux

Mill v. Thaler

In today's New York Times, economist Richard Thaler writes that "it is incorrect to say the estate tax amounts to double taxation.  The wealth in many large estates has never been taxed because it is largely in the form of unrealized – therefore untaxed – capital gains."

It's Thaler who is incorrect.  John Stuart Mill first and famously pointed out in 1848 that, because under an income-tax system any invested funds that yield capital gains were already taxed as income when earned by households, to tax the resulting capital gains is double taxation.*  Or as University of Southern California law professor Edward McCaffery explains, "Income taxes, by their very nature, run into John Stuart Mill's noted 'double tax' criticism when it comes to savings, because an income tax falls both on the initial receipt of wealth and on the subsequent yield to savings, that is, nonconsumed wealth.  Savers are taxed more heavily than spenders."**

Regardless of the merits or demerits of an estate tax (which tax, by the way, was supported by Mill), it's mistaken to claim that, under an income-tax system, wealth in the form of unrealized capital gains has not been taxed.

………

* John Stuart Mill, Principles of Political Economy (1848), Bk. V., Ch. 2, para. 22.

** Edward J. McCaffery, "Good Hybrids/Bad Hybrids," Tax Notes, June 2005.

One Small Seed

You never know what will grow from a very small seed. Did the Rick Santelli rant create the Tea Party movement? Maybe:

Tea Party Patriots wishes to extend a special thank you to Rick Santelli for his rant on February 19, 2009, which started this entire movement. Without Rick's rant, this movement would never have started. Many others will try to take credit but don't be fooled. He was the spark that began this fire.

HT: Jerry Ellig

No Neo-Cons

A big round of applause for George Will's Sunday, Nov. 7th, column in the Washington Post - and especially for the final two paragraphs:

Finally, give a thought to a subject almost no one has wanted to talk about this autumn. The nation is in the 10th year of its longest war and in what has been for American forces the deadliest year of that war. Do not assume that all freshman Republicans will support the current strategy and objectives – whatever they are – in Afghanistan.

The flavorful ingredients in the simmering stew that is the Tea Party impulse include a dash of the foreign policy skepticism associated with the Robert Taft tradition of conservatism. The Ohio senator died in 1953; the need for his prudence did not.

I have no idea how many Tea Partiers are skeptics of U.S. military intervention abroad.  No matter.  Such skepticism is the proper attitude – and I hope that whatever powers be ascending in Washington are duly (that is, highly) skeptical of such intervention.  Neo-conservatism in this arena reflects a hubris that neither America nor the world can endure.

Uncle Sam cannot balance his own budget or adequately run the crown jewel of his own military hospitals.  How in the world can he build nations?

Beware Policies that are Pro-Business

The New York Times reports that Pres. Obama's export-promoting trip to Asia is partly "an attempt to ease tensions with America's chief executives, many of whom spent the recent campaign accusing the White House of being antibusiness."

There are two ways for a government to be 'pro-business.'  The first way is to avoid interfering in capitalist acts among consenting adults – that is, to keep taxes low, regulations few, and subsidies non-existent.  This 'pro-business' stance promotes widespread prosperity because in reality it isn't so much pro-business as it is pro-consumer.  When this way is pursued, businesses are rewarded for pleasing consumers, and only for pleasing consumers.

The second, and very different, way for government to be pro-business is to bestow favors and privileges on politically connected firms.  Such favors, such as tariffs and export subsidies, invariably oblige consumers to pay more – either directly in the form of higher prices, or indirectly in the form of higher taxes – for goods and services.  This way of being pro-business reduces the nation's prosperity by relieving businesses of the need to satisfy consumers.  When this second way is pursued, businesses are rewarded for pleasing politicians.  Competition for consumers' dollars is replaced by competition for political favors.

The fact that more than 200 American business executives are in India with the President is cause to fear that any pro-business policies he might adopt will be of the second, impoverishing sort.

The Year of the Mercantilist

Here's a letter to the New York Times:

I applaud Pres. Obama's endeavor to further liberalize trade between America and Asia, but his explanation of his efforts reveals that he doesn't know what he's doing economically (if not politically) ("Exporting Our Way to Stability," Nov. 6).  Most worrying is this sentence: "We want to expand our trade relationships in the region, including through the Trans-Pacific Partnership, to make sure that we're not ceding markets, exports and the jobs they support to other nations."

When international trade expands, some home markets and jobs are necessarily "ceded" to "other nations."  It is in the very nature of expanding trade that foreign producers specialize in supplying to the home market some goods and services that previously were supplied by domestic producers, and vice-versa.

The mercantilist tone of Mr. Obama's essay – its bear-like embrace of the fallacy that trade's success is measured by how much the home country exports rather than by how much it imports – suggests that any trade agreements that he reaches with other governments will do far less to increase the prosperity of ordinary Americans than to enhance the monopolistic privileges and profits of politically influential U.S. corporations and unions.

Sincerely,

Donald J. Boudreaux

Krugman Reviews a Glib, If Unwitting, Frontman for Rent-Seeking Corporations

Back when Paul Krugman was an economist – as recently as the closing years of the 20th century – he wrote this incisive review of William Greider's absurd book One World, Ready or Not: The Manic Logic of Global Capitalism.  What happened to this guy?  (Krugman, I mean [not Greider, who was never a serious thinker].)

Four Different Ways to Spend Money

Please pardon me for being unable to recall if either Russ or I have previously linked to the short video of Milton Friedman, near the end of his long and well-lived life, explaining the four different ways that people can spend money.  I don't think that either Russ or I have posted this video (but I could be mistaken).

Either way, it's well worth posting again.  The video quality is poor – no matter, for it is the audio-conveyed ideas that are timeless and indisputable.

An Alternative Tariff

Here's a letter to CNN's Fareed Zakaria:

On your October 30th show, former IBM CEO Lou Gerstner lamented that we Americans now "can have things made in India and China that are of the quality you could find in the U.S. at a significant lower cost.  And that is of course one of the problems for the American economy."

I wish that you would have challenged Mr. Gerstner with the following question: "Lou, are you saying that we Americans would be better off if Indian and Chinese goods were shoddier and more dangerous?  Would our prosperity be enhanced if Uncle Sam deployed agents to every port in the U.S. with instructions to damage Indian and Chinese imports – say, by ripping holes in imported clothing, spraying salmonella on imported foods, and attaching small, tasty-looking, detachable parts to children's toys?  And if you don't think that such a policy of enforced import shoddiness would be good for America, why do you conclude that good quality imports are a 'problem' for America?"

Sincerely,

Donald J. Boudreaux

(HT Tibor Machan)

It's interesting that some critics of free trade point to the alleged shoddiness of imports as a reason for restricting consumers' freedom to spend their money as they choose, while others point to the improving quality of imports as a problem for the U.S. economy.