Russell Roberts's Blog, page 17

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 10 of the 1991 Pantheon edition of the 1958 translation by Max Hayward and Manya Harari of Boris Pasternak’s great 1957 novel, Dr. Zhivago; the words are spoken by the character Nikolai Nikolaievich to Ivan Ivanovich:

Goodness, what a view, you lucky devil. Though I suppose as you live with it every day you don’t see it.

DBx: Although Nikolaivich is referring to the view of the physical landscape, his understanding applies more generally. It applies also, for example, to our view of our economic reality.

The view that we denizens of the modern global economy have of our economic is really something spectacular. We see every day automobiles whizzing by, countless miles of paved and spacious roads, commercial jetliners etching the sky, cell phones sending out and taking in communications from friends, lovers, co-workers, and family members far, far out of earshot, no starvation, sturdy homes, businesses, and tall buildings all with hard roofs and hard floors and indoor plumbing and electric lighting and air-conditioning and wi-fi (and in the case of nearly every commercial building that’s taller than one story, elevators), restaurants catering to every taste and budget, appliance stores, department stores, and supermarkets.

The economic reality that we daily get to behold is the economic equivalent of – you name your favorite geographic or ‘natural’ view – the Grand Canyon, Niagara Falls, the Atlantic from Cape Cod at sunrise, the Pacific from Big Sur at sunset, fields of lavender in Provence, the Northern Lights. Breathtaking sights all. But of course if we were to see any of these natural beauties all day and every day, their ‘stunningness’ would soon disappear. They would appear normal, or even mundane. We would fail, as might be said by Nikolai Nikolaievich, to “see it.”

I submit that this same ‘blinding’ effect operates on those of us who live, work, and play in the modern global economy. Were an ancestor from 50,000, or 5,000, or 500 years ago – indeed, in many cases from a mere 50 years ago – to be resurrected and given a tour of the economy as daily seen and experienced today by ordinary Americans, that ancestor would be overwhelmed by the beauty, splendor, and seeming magic of what he or she would behold for the first time. “What a view!” that ancestor would exclaim. And correctly so.

But we don’t see it. Or, rather, we see it only with vision distorted by familiarity, as well as by ignorance of the hideous view of economic reality what was – and remains for many people – the norm.

We moderns inhabit a world of marvels. This world isn’t perfect (obviously). But many of its avoidable flaws and problems are caused by our failure to appreciate the reality of modern economic marvelousness – a failure that prompts economic interventions that threaten to turn economic reality again into the ugliness that it was for almost all of human existence.

Quotation of the Day…

(Don Boudreaux)

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… is from page 186 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

What is called “capitalism” might more accurately be called consumerism. It is the consumers who call the tune, and those capitalists who want to remain capitalists have to learn to dance with it.

The ‘Theory’ of “Greedflation” Is Rank Nonsense

(Don Boudreaux)

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Here’s a letter to Axios:

Editor:

According to Emily Peck, “greedflation” is finally receiving the serious attention that it deserves as an explanation of inflation (“Once a fringe theory, ‘greedflation’ gets its due,” May 18). Renamed “sellers’ inflation” to avoid critics who correctly note that there’s no reason to suppose that corporations have only recently grown more greedy, this ‘theory’ holds that today’s inflation is caused by corporations greedily raising prices in order to pad their profits.

Alas, Ms. Peck is confused on several particulars, but one confusion looms above all: she ignores economists’ dominant theory of inflation. This widely and long-accepted theory – colloquially called “demand-pull” – explains inflation as the result of an increase in the supply of money relative to the demand to hold money. With excess money holdings, buyers bid prices up across the board. All sellers are able to charge higher prices only because the monetary authority has injected into the economy excess spending power.

For the theory of “sellers’ inflation” to work, therefore, it would have to explain observed inflation better than does the demand-pull theory. Yet Ms. Peck compares “sellers’ inflation,” not to the demand-pull theory, but only to the long-discredited “cost-push” theory of inflation. Indeed, “sellers’ inflation” is nothing more than a new twist on the “cost-push” theory.

It’s true that there’s no evidence that inflation is being caused by rising wages and input prices pushing output prices upward. But there’s also no evidence that today’s inflation is fueled by sellers’ intensifying greed pushing output prices upward. No matter how intense is sellers’ ‘greed’ for higher profits, consumers cannot pay higher prices across the board without additional money to do so – additional money that happens to have been injected into the economy by the Federal Reserve just as the rate of inflation accelerated. Sellers are raising prices across the board only because the Fed, by increasing the money supply, is giving consumers excessive amounts of money to spend.

Ms. Peck concludes that, because rising wages and input prices don’t explain today’s inflation, today’s inflation is best explained by corporate greed. This reasoning makes no more sense than would the conclusion that, because the Lamarckian theory of evolution doesn’t explain observed physical and behavioral traits of living creatures, these physical and behavioral traits are best explained by creationism.

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

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from pages 109-110 of the late Christopher Hitchens’s excellent 2001 tract, Letters to a Young Contrarian:

It especially annoys me when racists are accused of “discrimination.” The ability to discriminate is a precious faculty; by judging all members of one “race” to be the same, the racist precisely shows himself incapable of discrimination.

Some Links

(Don Boudreaux)

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David Henderson writes about The Beatles’s – specifically, George Harrison’s – Taxman. A slice:

In the United States, we don’t have the high tax rates that George Harrison wrote about in 1966. But we do have pretty high rates. The top combined federal and state tax rates for a Californian is 37 percent federal, plus 13.3 percent state, plus 3.8 percent on net investment income, for a total of 54.1 percent. If President Biden got his way, which, fortunately, he probably won’t, the top federal income tax rate would be 39.6 percent. That would bring the top marginal tax rate for a Californian with investment income to 56.7 percent.

Mitch Daniels shares some facts from Phil Gramm’s, Robert Ekelund’s, and John Early’s excellent 2022 book, The Myth of American Inequality. Two slices:

Just as powerfully refuted, yet every bit as immune to plain factual evidence, are various reflex responses in the catechism of today’s political left. Aren’t more than 12 percent of Americans living in poverty? Isn’t income wildly unequal in the country and becoming more so? Aren’t U.S. living standards lower and less equal than those in other developed countries?

The answers, every bit as documented as the last election’s results, are no, no and no. The difference is that our political “narratives,” and those shaping them, routinely label the election denials as false or even “lies,” but ignorantly (I’m making the charitable assumption here) and uncritically parrot these nostrums, though they’ve been disprovedcontinuously over many years.

The latest, and most comprehensive, demolition of these shibboleths comes from the doubly credible former senator Phil Gramm, who before public life was a professor of economics. From both careers, Gramm is vastly more knowledgeable and familiar with the facts about poverty and income distribution than most national legislators, let alone those who inform, and misinform, the public about those topics.

In “The Myth of American Inequality,” Gramm and his two co-authors – Robert Ekelund and John Early, both deeply experienced economic scholars – assemble an overwhelming sledgehammer of facts to establish that we overstate true poverty by a factor of 5 or more. A corollary is that the “Gini coefficients” and other measures of inequality are grossly distorted in the official published numbers.

The primary culprit is the Census Bureau and its archaic and truly astonishing refusal to take account of the hundreds of billions of dollars the government takes in taxes (and borrows) from middle- and upper-income citizens and transfers to those at lower income levels. Other methodological distortions — such as the bureau’s ignoring of fringe benefits and its overstatement of inflation, practices rejected by a broad consensus of statisticians — compound the inaccuracy.

…..

We should keep debating the right means and right amounts of assistance to send from some Americans to others. But constantly misrepresenting and understating what we do for each other, and the results achieved, disrespect the taxpayers who fund this assistance, and foster misimpressions as societally poisonous as other political assertions now routinely labeled as untrue.

Arnold Kling performs a useful mental experiment with the Daniel Penny case.

Anthony Gill offers advice to Taylor Swift. A slice:

And when it comes to monopoly pricing, let me just say this – taxes. Unlike the typical Taylor Swift fan who can choose not to attend a concert if it is priced beyond his liking, the government compels individuals to purchase a variety of public goods and services that those individuals may not want. And while in democracies one might claim that through the ballot box consumers of these goods may have some say in what they pay for and how much, in reality we are often forced to pay for things at rates we do not voluntarily accept. Unless there is unanimity in a vote over how to use resources, at least some minority (and sometimes a majority) may be required to purchase goods and services they don’t want.

Granted, to everyone except the most ardent of anarchists, there may be a case to be made for some level of compulsory taxation to provide the most basic of public goods, namely social order. Thomas Hobbes, Adam Smith, and even James Buchanan have all made that case. But the scope and level of government activities have long surpassed these most basic services.

As for hidden fees, the wide variety of taxes that are collected by government make it very difficult to know what we are purchasing at any given time. Indeed, these taxes are often given other names such as tariffs, licensing fees, levies, and the like. While we could quibble about definitional minutiae, at the end of the day they are all government-mandated financial contributions from individuals. Of course, you may have a choice to avoid some of these taxes, but that choice may come at the cost of not being able to pursue other opportunities. Consider licensing fees that make it cost prohibitive to pursue a career as a hairdresser. If that sounds like services charges on tickets making it difficult to attend a concert, that is because it is the same principle at work.

The Wall Street Journal‘s Editorial Board criticizes the FTC’s increasingly ludicrous interventions on the antitrust front. Two slices:

Yet the FTC claims that if a smaller company were to someday gain approval for a competing drug, Amgen might then offer PBMs larger rebates for its other drugs in return for giving Horizon’s treatments preferred placement on insurer formularies. It says this potential scenario might discourage potential competition.

The Khan FTC has been seeking to revive the ancient antitrust theory of “potential competition,” which was long ago shown to be flawed by antitrust legal scholars and has been discounted in the courts. In the Amgen case, the agency is taking an even greater logical leap in extending what qualifies as a potential antitrust violation.

The FTC doesn’t even attempt to show consumer harm, which is the modern standard for blocking mergers. If the scenario the FTC describes did occur, patients would probably benefit because PBMs use drug maker rebates to reduce insurance premiums.

…..

Investors fund start-ups on the expectation they will be acquired. Ms. [FTC Chairwoman Lina] Khan’s lawsuit will disrupt their calculations and hamper investment and innovation, especially in treatments for rare diseases. The Amgen-Horizon lawsuit may be Ms. Khan’s biggest and most destructive legal overreach so far, and apparently she thinks this is a compliment.

Jacob Sullum is not impressed with Ross Douthat’s and Charles Fain Lehman’s arguments in opposition to the legalization of marijuana.

“Tennessee leads the way in removing barriers to foreign doctors.” And “Tennessee becomes the latest state to remove barriers to assistant physicians.”

The Naked Emperor exposes the mix of arrogance, ignorance, and foolishness of those persons who have “lockdown nostalgia.” A slice:

Many of the laptop class, those who could work from home, actually enjoyed their freedoms being taken away from them. Sad. Their lives were in such a mess, so exhausting and so stressful that they needed someone to imprison them to feel better about themselves. Instead of taking control of their own existence, by changing things that weren’t working for them, they required society to lock them up. Pathetic.

In some sense I feel sorry for these people. Nobody should feel that their lives are so out of control that they need something as extreme as lockdowns to subdue the chaos. It’s ironic that the worldwide chaos caused by lockdowns actually returned order to those whose lives were already in chaos.

Marty Makary tweets: (HT Jay Bhattacharya)

Over a 100,000 nurses. In NY state alone, 34K quit or were fired due to the vax mandate and yes many had natural immunity. Now hospitals are paying 2-3X more for traveling nurses and passing on the cost to patients in the form of ⬆️ medical bill$$. We should have seen this coming

Quotation of the Day…

(Don Boudreaux)

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… is from page 631 of Will Durant’s 1957 book, The Reformation (footnote deleted):

Antwerp was becoming – would be by 1550 – the richest, busiest city in Europe. To that hectic port on the broad and navigable Scheldt international trade and finance were drawn by low import and export dues, by the political connection with Spain, and by a bourse dedicated, its inscription said, ad usum mercatorum cuiusque gentis ac linguae – “to the use of merchants of every land and tongue.”

DBx: Commerce enlightens and civilizes.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 143 of the 2015 Mercatus Center reprint of my late colleague Don Lavoie’s insightful 1985 book Rivalry and Central Planning:

Since rule-following behavior cannot legitimately be inferred from the existence of a published rule, the analyst must apply choice theory to explain the self-motivated actions that people are likely to take when confronted with the rules under consideration. As soon as a rule is proposed as a substitute for directly self-motivated action, such issues as how to distinguish compliance from disobedience, how to provide sanctions for disobedience and rewards for compliance, and the extent to which desired actions can be articulated in explicit rules must be examined.

The fundamental difference between the self-directed action of profit seeking and the other-directed action of rule obedience is completely overlooked in the market socialists’ discussion. Nothing is said of the allocation of responsibility that would have to supplant the legal institutions of private ownership. No justification is made for the implicit claim that this ruled behavior will conform to the intentions of the rule makers.

DBx: Don here pointed out one of the many flaws in the arguments offered by so-called “market socialists” – a group of economists active in the second quarter of the 20th century who insisted that government officials are capable of out-performing the market at allocating resources in ways to achieve desired economic efficiency. Although the details of the proposals and arguments of today’s advocates of industrial policy differ from the details of the proposals and arguments of “market socialists,” at root the two groups of interventionists are identical. Both believe that the free market cannot be trusted to bring about optimal economic outcomes and, therefore, government can and should intervene to bring about desired outcomes by design.

Yet as demonstrated conclusively by, most notably, Ludwig von Mises, F.A. Hayek, Trygve J. B. Hoff, and Don Lavoie, proponents of such intervention naively assume away many of the essential problems that any economic process must ‘solve.’ The largest of these problems is the challenge of gathering and effectively using information dispersed in bits across millions of minds and square miles. Industrial-policy advocates no more than socialists have managed to explain how their schemes will ‘solve’ the challenge of gathering information and ensuring that it is used in ways that improve the general welfare. (Actually, in the case of industrial-policy advocates, they haven’t even bothered to try to explain how their schemes deal with this problem. Industrial-policy advocates simply assume – if only implicitly – this problem away.)

But there are other problems in addition to the information one. One of these other problems is identified in the above quotation from Don Lavoie (who is pictured above).

The Super Market

(Don Boudreaux)

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In response to this post on the marvelousness of supermarkets, David Boaz and a few other people reminded me of something that I’d completely forgotten: Boris Yeltin’s visit to an American supermarket. Among the people to remind me is Tom Altman, who sent this e-mail (which I share with his kind permission; photo and links added):

The additional suggestion would be to reference Boris Yeltsin’s famous 1989 visit — following one to the nearby NASA Johnson Space Center — to a Randall’s supermarket in the Houston suburb of Clear Lake, where he was reportedly astounded at the options available there and how incredibly better they were than those available, even to members of the Politburo, in the Soviet Union. I’ve seen several articles describing that experience and would suggest one by Jon Miltimore (“How a Russian’s Grocery Store Trip in 1989 Exposed the Lie of Socialism,” The Federalist, 11/13/19) as a good, compact addition to your suggested reading for anyone even tempted by socialism. I also like one from the local newspaper (Craig Hlavaty, “When Boris Yeltsin Went Grocery Shopping in Clear Lake,” Houston Chronicle, 4/7/14) which includes the memorable observations “it wasn’t all the screens, dials, and wonder at NASA that blew up his skirt, it was the unscheduled trip inside a nearby Randall’s location” and “a Yeltsin biographer later wrote that on the plane ride to Yeltsin’s next destination, Miami, he was despondent. He couldn’t stop thinking about the plentiful food at the grocery store and what his countrymen had to subsist on in Russia. In Yeltsin’s own autobiography, he wrote about the experience at Randall’s, which shattered his view of communism.” A very nice confirmation of your comment “I know of no better and more accessible proof of capitalism’s success than the supermarket.”

Some Links

(Don Boudreaux)

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Writing about Joe Biden, Bruce Yandle explains that “no amount of experience can solve the ‘knowledge problem.'” A slice:

We all recognize that a person who’s lived 80 years will have had more life experiences than one who has trod the planet for 70, 60 or 50 years. And it’s easy to see that Mr. Biden, who has devoted his entire adult life to politics, is armed with countless stories and lessons learned about the nation’s political economy. But granting this does not support the idea that Biden knows more than the vast majority of us, all topics considered. Nor does any of this matter much if his administration consistently fails to account for the vast majority of the people’s knowledge taken together.

As one who will turn 90 in a few months, I’m more inclined to think that life’s experiences make us realize how little we really know about the way the world works. Yes, we may excel at Trivial Pursuit over time, but I sympathize more with the character Ernest in J. M. Barrie’s comic play The Admirable Crichton. When asked to explain why he’s unaware of some important events, Ernest responds: “I am not young enough to know everything.” Anyone calling on a great grandson to help set up a new smartphone can relate.

Biden’s comment raises fundamental questions about what type of knowledge we need from a president. Writing in the 1940s, Friedrich Hayek penned what became a classic article: “The Use of Knowledge in Society.” Hayek, who later received the Nobel Prize in economics, explained that human communities face a severe knowledge problem; knowledge is dispersed across countless individuals, each of whom knows more about his particular circumstances than can anyone else.

The point is simple, but profound: Neither Biden nor any other person has sufficient knowledge of material extraction, refining, manufacturing, transport, and on and on, to make an automobile tire, ballpoint pen, or even a paperclip from scratch. I emphasize “from scratch,” a point made famous by Leonard Read in his 1958 essay, “I, Pencil.” Anyone creating even so simple a product must find ways to tap into humanity’s collective knowledge. Cooperation, interaction, and trade across a vast number of people is required. Not even a presidential administration can duplicate the efforts of so many involved players, or even know who every player is.

My intrepid Mercatus Center colleague Veronique de Rugy wonders why so many conservatives are infatuated with “common good capitalism.” Three slices:

“Common-good capitalism” is all the rage these days with national conservatives. But what exactly is it, you may ask? That’s a good question. As far as I can tell, it’s a lovely sounding name for imposing one’s preferred economic and social policies on Americans while pretending to be “improving” capitalism. If common-good capitalism’s criticisms of the free-market and prescriptions for its improvement were ice cream, it would be identical in all but its serving container to what much of the Left has been dishing up for decades.

…..

For instance, common-good advocates’ complaints about no-prefix capitalism often include excessive income inequality caused by greedy, cosmopolitan capitalists who heartlessly offshore jobs to low-wage foreign countries, or gripes about corporations somehow simultaneously charging monopolistically high prices that hurt consumers and low prices that threaten small firms and damage local communities. I wouldn’t blame you if you thought these complaints were coming from the likes of Sens. Bernie Sanders and Elizabeth Warren.

While I don’t dismiss some of their complaints about the underperformance of the economy — specifically the hardships suffered by some workers and families — common-good capitalists make the same mistakes as their counterparts on the Left. They start by mistaking problems caused by government intervention for problems inherent in the free market. They end by offering up even more government interventions as supposed solutions.

…..

At every turn, common-good capitalism implies a greater role for government in regulating and directing the market to achieve the fancies of common-good capitalists. Who truly believes that such interventions won’t result in more inefficiency, corruption and political capture by special interests? I don’t. I also worry that common-good capitalists won’t be interested in balancing the rights and the freedoms of those persons who disagree with their economic and social designs.

Kevin Corcoran aptly summarizes a main theme of Randy Holcombe’s new book, Following Their Leaders. A slice:

Holcombe argues that voters have both instrumental preferences, which are about the outcomes they prefer, and expressive preferences, which are about what voters prefer to express. But expressive preferences and instrumental preferences are not always the same. Since casting a vote does not create an outcome, voters will tend to act expressively, not instrumentally, when casting their vote. Because elections aggregate expressive preferences, not instrumental preferences, we cannot make valid inferences about the outcomes voters actually prefer by referencing election results. Additionally, voter preferences tend to be anchored on a key point – a single issue, a political identity, party loyalty, a particular leader – and the vast majority of a given voter’s preference on political issues will be derived from that anchor. Someone may anchor on the identity of being a patriotic American, decide that the Republican party values patriotism more, and will then tend to adopt whatever the Republican party line is for most political issues – and if the official party line changes, they will change their opinion right along with it.

Gary Galles is not impressed with arguments made in favor of legislation to shorten the work week. A slice:

[Rep. Mark] Takano starts, however, from an often-repeated false premise: “For decades, workers have been working longer hours while productivity has skyrocketed — yet, in that same period, wages have remained stagnant.” Craig Duddy, after a useful discussion of several of the reasons why, summarized it very differently: “Thus, after accounting for as many relevant factors as possible, there exists little to no gap between total compensation and productivity.” And a false premise cannot logically justify what might follow if it were true.

That doesn’t stop the proposal’s supporters, however. They simply echo the false premise, then conclude, as did Rep. Pramila Jayapal (D-WA), a co-sponsor who is Chair of the Congressional Progressive Caucus, that it conclusively demonstrates that “For too long, our country has prioritized corporate profits over working people and Americans have been forced to work longer hours, sacrificing time with loved ones.”

Such a conclusion, however, ignores the fact that compensation for increased productivity can be taken as either higher income or increased leisure, and workers are already free to seek whichever combination of hours and pay they value more. No legal coercion is necessary. All that is necessary is mutual agreement between employer and employee.

Some companies have tested a four-day workweek and have decided to switch, which supporters overgeneralize to imply that all workers would gain from mandating it. But those firms which have chosen to try it were not a random sample. They were those that faced circumstances where it was most likely to work well. So the generalization does not follow, because if employers and employees thought they would benefit from a 32-hour work week, there is no law preventing them from advancing their interests by doing so. If they do not choose that option, they reveal that they believe it would worsen their circumstances.

Here’s John Stossel on Vivek Ramaswamy.

George Will rightly criticizes the U.S. Supreme Court’s recent National Pork Producers Council ruling. Here’s his conclusion:

Last week, the court ratified California’s itch to export the progressivism — the moralistic micromanaging of life — that partly explains the state’s accelerating export of residents. Eventually, the court should acknowledge that James Madison was, as usual, right: The practice of states restricting commerce with other states is “adverse to the spirit of the Union, and tends to beget retaliatory regulations.” And it violates Madison’s Constitution, which was written in part to prevent this.

In response to someone – someone obviously still suffering from Covid Derangement Syndrome – who claims to have “lockdown nostalgia,” Allison Pearson tweets: (HT Jay Bhattacharya)

Nostalgia? What a thoughtless, idiotic view.
Lockdown caused immense harm, especially to children.
A million kids on waiting list for mental health services.
Children were murdered by psycho parents because of lockdown.
Nostalgia that.

Quotation of the Day…

(Don Boudreaux)

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… is from page 186 of Thomas Sowell’s August 8th, 2006, column “A Glimmer of Hope.” as this essay is reprinted in Sowell’s 2010 collection, Dismantling America:

Minimum wage laws play Russian roulette with people who need jobs and the work experience that will enable them to rise to higher pay levels.