Russell Roberts's Blog, page 1515

C+I+G+(X-M) Hides All the Action

Daniel Kuehn will not like my latest column in the Pittsburgh Tribune-Review, in which I criticize modern macroeconomists' – and, particularly, Keynesians' – naive aggregates.

C+I+G+(X-I) Hides All the Action

Daniel Kuehn will not like my latest column in the Pittsburgh Tribune-Review, in which I criticize modern macroeconomists' – and, particularly, Keynesians' – naive aggregates.

Some Links

Carpe Diem's Mark Perry offers a much-needed tutorial on the mirror-'imageness' of the capital-account with the current-account.  (I am convinced that collecting national data on international trade and financial flows has done net harm to people around the globe.)

I predict that some of my libertarian friends will disapprove of what I say in my most recent column in The Freeman.

Greg Mankiw posts a picture of an achievement of central planning.

Bann-ed Together

Here's a letter to the Wall Street Journal:

Clearly exposing the dangers lurking in Treasury Secretary Geithner's proposal to centrally control trade "imbalances," John Cochrane notes that "There is at work here a strange marriage of Keynesianism and mercantilism" ("Geithner's Global Central Planning," Oct. 26).

Alas, this marriage isn't so strange.  In Chapter 23 of his General Theory, Lord Keynes himself explicitly praised mercantilist thinkers while he criticized classical economists for dismissing, as "a puerile obsession," mercantilists' concerns with the balance of payments.

Keynes was in this matter, as in so many others, led to frightfully wrong conclusions by what we might fairly describe as his puerile obsession with aggregate demand.

Sincerely,

Donald J. Boudreaux

Managing to Screw-Up Trade

Here's a letter to the New York Times:

You open a report today with this line: "The Obama administration on Friday urged the world's biggest economies to set a numerical limit on their trade imbalances" ("U.S. Proposes Benchmark for Limiting Trade Imbalances," Oct. 22).

Because the concern here obviously is with the U.S current-account deficit – and because a U.S. current-account deficit is simply another name for a U.S. capital-account surplus (that is, a net inflow of capital into the U.S.) – we can translate the opening line of your report to make it more meaningful: "The Obama administration on Friday urged the world's biggest economies to set a numerical limit on the amounts that their citizens invest in the U.S. economy."

I await the White House's explanation for how limitations on investments in the American economy promote Americans' economic well-being.

Sincerely,

Donald J. Boudreaux

John Cochrane, in today's Wall Street Journal, offers a different but complementary criticism of this very, very bad White House proposal.

Hey, What's the Big Idea?!

Here's a letter to the New York Times Book Review:

A theme that runs with approval throughout Jonathan Alter's review of recent books on modern "liberalism" is that "liberals," in contrast to their mindless Cro-Magnon opposites, overflow with ideas ("The State of Liberalism," Oct. 24).

Indeed they do.  But these ideas are almost exclusively about how other people should live their lives.  These are ideas about how one group of people (the politically successful) should engineer everyone else's contracts, social relations, diets, habits, and even moral sentiments.

Put differently, modern "liberalism's" ideas are about replacing an unimaginably large multitude of diverse and competing ideas – each one individually chosen, practiced, assessed, and modified in light of what F.A. Hayek called "the particular circumstances of time and place" – with a relatively paltry set of 'Big Ideas' that are politically selected, centrally imposed, and enforced not by the natural give, take, and compromise of the everyday interactions of millions of people but, rather, by guns wielded by those whose overriding 'idea' is among the most simple-minded and antediluvian notions in history, namely, that those with the power of the sword are anointed to lord it over the rest of us.

Sincerely,

Donald J. Boudreaux

The Choking "Yolk" of Protectionism

Here's a letter to the Washington Times:

Jim Powell offers a long list of some of the many trade-destroying retaliatory tariffs that foreign governments imposed on their citizens in response to Uncle Sam's 1930 Smoot-Hawley tariff ("The tempting path of protectionism," Oct. 24).  I offer here yet another candidate for that list: Canada's tariff on American eggs.

Harvard government professor Jeffry Frieden explains that "Smoot-Hawley raised the tariff on egg imports into the U.S. from eight cents to ten cents per dozen. This higher tariff caused egg imports from Canada to fall by 40 percent.  In response, Canadian authorities increased the tariff on U.S. eggs exported to Canada; this tariff went from three cents per dozen to ten cents per dozen.  The result was that American egg exports to Canada fell by 98 percent – from 11 million annually just before Smoot-Hawley to a mere 200,000."*

That worked well.

Sincerely,

Donald J. Boudreaux

* Jeffry A. Frieden, Global Capitalism (New York: W.W. Norton, 2006), p. 255.

Sneak Preview

John Papola and I will be at the Buttonwood Gathering (a conference of The Economist magazine) unveiling a sample from our next rap video. It's tomorrow (Monday, the 25th). Live performance at 5:15 pm. You can register for the event here. Readers of this blog get a discount, knocking $1000 off the registration fee for the conference. (Because the student registration fee is already under $1000, I assumed the discount only applies to the non-student fee…)

Perhaps the Gulf Stream Is to Blame

Here's a letter to the New York Times:

Paul Krugman foresees dire economic times ahead for the British if their government proceeds with its plans to cut its budget ("British Fashion Victims," Oct. 22).  These cuts of some $131 billion (spread out over the course of several years) amount to 6.0% of the U.K.'s 2010 GDP.

It is, therefore, curious that Mr. Krugman is forever arguing that U.S. stimulus spending is far too small a portion of U.S. GDP to have any significant impact on the American economy.  After all, Pres. Obama's $862 billion stimulus package alone amounts to 5.9% of 2010 U.S. GDP.  (If we include also Pres. Bush's somewhat more 'modest' stimulus package, stimulus spending in the U.S. during this recession is now at 7.5 percent of 2010 U.S. GDP.)

How can it be that a government-spending cut in one country will cause grievous economic harm while a nearly identically proportioned government-spending increase in another country will yield only meager benefits?

Sincerely,

Donald J. Boudreaux

I Just Want to Celebrate Market-Driven Human Creativity

Unfortunately, there was one nonrenewable resource that we've sadly run out of: the late Julian Simon.  Although, as this report in Slate shows, the concern with running out of 'nonrenewable' resources is economically baseless. (HT Dan Rothschild)

And speaking of rare-earth minerals, Tim Worstall offers some important facts.