Russell Roberts's Blog, page 1523

October 3, 2010

An Open Letter to A Correspondent

3 October 2010


Mr. Jason C________


Dear Mr. C________:


Thanks for your e-mail.  You are, however, mistaken to accuse me, when I defend free trade, of caring "only about low prices and narrow economic facts."


It's true that I often point out that free trade keeps prices in the domestic market low.  I do so chiefly because opponents of free trade frequently overlook this fact, and discount both its immediate as well as its longer-run importance to consumers' standard of living.


In fact, though, my case for free trade is not exclusively, or even ultimately, an economic one.  A deeper justification for free trade is that it civilizes and enlightens.  Consider, for example, Thomas Cahill's description of ancient Athens when that city opened itself to trade: "As these familiar clustered settlements, known to agricultural societies throughout the world, grew into cities – with demarcated streets, temples and other official buildings, marketplaces and other gathering centers, import-export warehouses, and docks where exotic cargoes and even more exotic foreigners were unloaded – power shifted somewhat from landed aristocrats to the better-placed urbanites, who controlled trade and who in the diversity of their experience began to think new thoughts."*


But the most fundamental reason I support free trade is that it is immoral for me to tell you how to spend your money and for you to tell me how to spend my money.  And it is immoral for the likes of Pres. Obama or Sen. Graham to tell you and me and other Americans how to spend our money.  For me, defense of free trade is ultimately a defense of right over wrong, peace over force, and mutual respect and tolerance over self-righteous condescension, intolerance, and greed camouflaged as dispassionate economic policy.


Sincerely,

Donald J. Boudreaux


* Thomas Cahill, Sailing the Wine-Dark Sea: Why the Greeks Matter (New York: Anchor Books, 2003), p. 109.



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Published on October 03, 2010 07:01

October 2, 2010

Real-Cash-Balance Effect

Here's a letter that my GMU Econ colleague Larry White and I sent to the New York Times yesterday:


Paul Krugman wants Uncle Sam to get tough on the Chinese government for subsidizing Americans' purchases of goods from China, on the grounds that "these subsidized exports are hurting employment" in the U.S. ("Taking On China," Oct. 1).  How does Beijing do this subsidizing?  By purchasing, as Mr. Krugman says, "$2.4 trillion in foreign currency" – including oodles of U.S. dollar-denominated bonds.  By purchasing and holding U.S. dollar debts rather than letting the renminbi rise in value against the dollar, Beijing keeps the prices of Chinese imports lower than otherwise for Americans.


This policy – whatever are its merits or demerits for the Chinese people – does not, contrary to Mr. Krugman's claim, hurt U.S. employment.  Mr. Krugman blames unemployment on inadequate aggregate demand, so he thinks that less-expensive imports keep aggregate demand in the U.S. too low.  They don't.


Beijing's policy makes all consumer prices in the U.S. lower than they would otherwise be.  Therefore, any given volume of dollar spending allows Americans to purchase more real goods.  The volume of dollar aggregate demand depends most importantly on Federal Reserve policy, not on the Chinese.


In short, the purchasing power that the Chinese refuse to use does not disappear; it is transferred into the purses and wallets of Americans.


Sincerely,

Donald J. Boudreaux

&

Lawrence H. White

Professors of Economics

George Mason University

Fairfax, VA 22030



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Published on October 02, 2010 15:44

And Also, What Would be the Point of The Oath of Office?

Here's a letter to the New York Post:


Jonah Goldberg is absolutely correct to criticize pundits who insist that any effort by members of the legislative and executive branches of government to assess the constitutionality of a statute (in the words of Newsweek's Ben Adler) "constitutes an encroachment on the judiciary" ("A supreme fetish," Oct. 2).


As one maverick opined, "the candid citizen must confess that if the policy of the government upon vital questions, affecting the whole people, is to be irrevocably fixed by decisions of the Supreme Court, the instant they are made, in ordinary litigation between parties, in personal actions, the people will have ceased to be their own rulers, having to that extent practically resigned their government into the hands of that eminent tribunal."


That maverick was Abraham Lincoln, delivering his first inaugural address.  And as Yale law professor Robert Burt explained in his 1992 book The Constitution in Conflict, Lincoln's point was that "the Court's claim to supremacy over the Congress in constitutional interpretation made it, in effect, a slavemaster and imposed a form of involuntary servitude upon the people" [p. 2].


Sincerely,

Donald J. Boudreaux



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Published on October 02, 2010 11:28

Long-ago Texts

Here's a letter to the New York Times:


The headline of Kate Zernike's October 2nd report – "Movement of the Moment Looks to Long-Ago Texts" – made me suppose that she was referring to Congress's and "Progressives'" current hysteria for protectionism.  After all, that hysteria – which causes its victims to shriek about "unbalanced" trade and to lament imports and to long for more exports – was all the rage among scholars until about 250 years ago.  As the great student of economic ideas Jacob Viner wrote, "prior to Adam Smith, the most pervasive and the most emphasized doctrine is the importance of having an excess of exports over imports" – a doctrine that, Viner correctly said, makes sense only if "all goods other than money were worthless, or were of value only as they served as means of securing money."*


So imagine my surprise when I read on to discover that one of the most prominently mentioned "long-ago texts" is not some now-discredited 17th century tome for tariffs being praised by Senators Graham and Schumer, but, rather, a best-seller, praised by Glenn Beck, written by a scholar who died in 1992.  F.A. Hayek's 1944 book The Road to Serfdom is indeed attracting new readers today.  But to suggest, as Ms. Zernike does, that the ideas in that book are outdated is absurd – unless, of course, it's outdated to worry that government power can be abused, to argue that economic growth can be suffocated by excessive regulation and taxation, and to believe that individual freedom is inherently valuable.


Sincerely,

Donald J. Boudreaux


* Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros., 1937), p. 3 and p. 17.



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Published on October 02, 2010 09:17

October 1, 2010

Why Stop With Such A Modest Measure?

Here's a letter to USA Today:


Arguing for punitive taxes to be levied on Americans who buy goods from China, AFL-CIO President Richard Trumka says that "Conservative and progressive economists agree that a 25% to 40% revaluation in the renminbi would reduce the U.S. trade deficit by $100 billion to $150 billion a year, adding up to 1 million jobs to American payrolls" ("Opposing view on international trade: 'It's time for action'," Oct. 1).


No doubt.


But even greater job 'gains' would be guaranteed if Congress enacts legislation prohibiting the use of labor-saving technologies such as internal-combustion and turbine engines.  Horse-breeders, blacksmiths, and saddle-makers will all find much higher demands for their services.  So, too, will local farmers and merchants who would no longer face job-destroying competition from distant rivals.  A ban on internal-combustion and turbine engines would also correct the long-standing trade deficit that Americans have with these machines, for the inexpensive flood of outputs that these engines have made available to us over the years far exceeds in value the outputs that they (or their producers) have purchased from us in return.


Sincerely,

Donald J. Boudreaux



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Published on October 01, 2010 16:58

Paradox

Ms. Kate Fried

Senior Communications Manager

Food & Water Watch

1616 P Street NW, Suite 300

Washington, DC 20036


Dear Ms. Fried:


In your e-mail seeking to enlist my opposition to a policy of allocating water by market pricing, you write: "Moreover, because most residential water consumption goes towards essential uses like drinking, cooking and sanitation, consumer demand for water is unlikely to change regardless of price."  That is, every drop of water is so essential to every household that even substantially higher water prices will not reduce residential water use.


But then you say "water pricing is most likely to negatively affect low-income consumers.  Raising water prices could mean that some households are denied access."  That is, higher prices for water will cause low-income consumers not only to use less water in their homes but to stop using water in their homes altogether.


So which is it?  Will market pricing of water affect consumer demand or will it not?


In fact, neither of your scenarios is remotely plausible.  If your first scenario were realistic, then bottled-water suppliers such as Evian could double, triple, or even quintuple their prices without reducing the demand for their products.  If your second scenario were realistic, low-income consumers would prefer to lose all access to water in their homes rather than spend even moderately less on clothing, cell phones, and even pets.


Sincerely,


Donald J. Boudreaux



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Published on October 01, 2010 06:09

September 30, 2010

Duh

Here's a letter to USA Today:


The headline of your Sept. 28 editorial reads "Who's buying this election?  Who knows?"


I know.  Incumbent politicians.


Not all of them will succeed in their shopping sprees, thankfully.  But farm subsidies, tariffs, export assistance, funding for science, funding for the arts, funding for education, bloated military procurements, bailouts of Detroit and Wall Street, and politically directed 'stimulus' spending are just some of the expenditures – all of money taken from both present and future taxpayers – made by sitting politicians to buy the election.  Reducing the amounts that private citizens spend of their own money to influence elections will only worsen the consequences of this detestable reality.


Sincerely,

Donald J. Boudreaux


My colleague Dan Klein responds: "Remembering HLM's adage about campaign promises as an advance auction of stolen goods, it's not clear that you should limit it to the incumbents."  Dan is correct.



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Published on September 30, 2010 14:35

September 29, 2010

Take That, Xiānshēng!

Here's a letter to the New York Times:


In his op-ed on U.S -China trade relations and the allegedly undervalued renminbi, Stephen Roach notes that "President Obama, in a private meeting with Prime Minister Wen Jiabao, was reported to have made it very clear that the United States is, indeed, prepared to take forceful actions if China doesn't budge on this critical issue" ("Cultivating the Chinese Consumer," Sept. 29).


Translation of Mr. Obama's threat to the Chinese Prime Minister: "If you don't stop abusively taxing your citizens in order to grant unjust privileges to your favorite industries, we will more-abusively tax our citizens in order to grant unjust privileges to our favorite industries."


Sincerely,

Donald J. Boudreaux



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Published on September 29, 2010 13:08

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