Russell Roberts's Blog, page 24

Some Links

(Don Boudreaux)

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Juliette Sellgren talks with Samuel Gregg about “the next American economy.”

Mike Munger continues to write brilliantly about economics. A slice:

To tell the truth, I often try to take this kind of approach when some of my Duke colleagues whine about capitalism. When I say that the market system provides well for US citizens in absolute terms, I am condescendingly told that poverty should be defined in relative terms. Okay, let’s play: if a minimum wage job in the US means “poor” to you, then you are claiming that it’s better to be poor in the US than to be middle class in most of the world. That’s a plausible argument since so many people want to move to the US. But then the person who wants to argue for “relative wealth” measures faces a problem of logic: if you really want to compare rich and poor, you have to compare the US to the other systems in the world. And by any plausible measure, everyone in the US is rich. Everyone who has a job, even at minimum wage, is in the top 15 percent of the world income distribution.

If our system is so unfair and “exploitative,” then why are tens of thousands of people every year willing to risk their health, even their lives, to try to get here? It’s because even poor people are rich, by comparative standards. The US is a marvel, but our friends on the left have to deny that, because admitting it would mean that their imaginary utopias are not actually better than the system we already have.

“Controlled economies are failed economies.”

Kevin Corcoran draws from Arrow’s Impossibility Theorem – or ‘Condorcet’s paradox’ – exactly the same fundamental lesson that I draw from it.

My Mercatus Center colleague Gary Leff describes “the path to abundant air travel.”

Steven Pinker and Bertha Madras explain why they launched Harvard’s Academic Freedom Council. (HT Arnold Kling)

This letter in the Wall Street Journal from Ari Weitzner, M.D., is excellent:

In “Why I Wore a Mask in My Car, Contra Holman Jenkins” (Letters, April 15), Dr. Scott Sundheim unwittingly confirms Mr. Jenkins’s observation that our response to Covid has been unscientific. The good doctor suggests that wearing a mask in his car, prior to picking up his immunocompromised aunt, would decrease the amount of infectious aerosols in the car. Surely, leaving the windows open for a few seconds would be more effective.

In hindsight, we know that Covid spread to nearly all Americans, regardless of mask mandates, which varied among the states. I predicted this, as I noticed that almost everyone’s glasses were getting fogged.

Scientists are supposed to change the theory when evidence contradicts it—that’s the scientific method. The eschewing of common sense and the scientific method by scientists has destroyed my faith in the profession.

Ari Weitzner, M.D.
New York

Scott Jennings was right to be hard on Randi Weingarten.

After reading David Wallace-Wells’s New York Times interview with Fauci, Cockburn writes that “[t]he doctor, once again, proved himself a master of illusion and obfuscation.” A slice:

By far the most irritating for Cockburn, though, is the moralizing and grumbling about the public’s skepticism of the public health establishment and its recommendations. At the beginning of the condensed interview, Fauci mentions the “smoldering anti-science feeling, a divisiveness that’s palpable politically in this country.” The irony is that Fauci is at the epicenter of the crisis that caused that very “smoldering anti-science feeling.”

Take the mask debacle. At the beginning, in March 2020, Fauci argued that masking was unnecessary, that “there’s no reason to be walking around with a mask.” The argument — which, it turns out, was correct — was that masks were not effective enough to wear. Underlying that contention, though, was what those in government felt was a noble lie: the masks were not recommended not because they did not work, but because they wanted to make sure healthcare workers had access to them, primarily the N95. Then, all of a sudden, the guidance did a 180 and masks were not only protective, but mandated. Even when evidence began to pour in that cloth and surgical masks were not effective enough to warrant mandating them, nothing changed. This is why there is a crisis of trust, a “smoldering anti-science feeling”; it is not so much anti-science as it is skepticism of government claims to science.

And then there was the lockdown policy. The doctor said in the interview that “somehow or other, the general public didn’t get that feeling that the vulnerable are really, really heavily weighted toward the elderly. Like 85 percent of the hospitalizations are there.” Why was that the case? It happened because the public health establishment failed to communicate. Fauci would likely disagree: “Did we say that the elderly were much more vulnerable? Yes. Did we say it over and over and over again? Yes, yes, yes.” Fair enough, but the public health institutions paired those warnings with policy recommendations that said the contrary. Why was he suggesting that students still be masked mid-2021? Why were the teachers’ unions so involved in crafting school reopening processes? Where was Fauci when a voice of reason was needed in the school reopening process? He can point to a few meek comments, but where was the pandemic warrior he likes to portray himself as? It was this kind of behavior that helped produce an “anti-science feeling” in the country; it was a lack of honesty, a lack of consistency and the appearance of foul play.

Quotation of the Day…

(Don Boudreaux)

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… is this comment, on a Facebook post, by Richard Fulmer:

A leader with the power to redistribute wealth to the poor has the power to redistribute it to himself.

There Is No Saving Industrial Policy

(Don Boudreaux)

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Here’s another letter to the correspondent to whom I wrote earlier in the day. (This letter is rather wonky, but it’s important to untangle these deep misunderstandings.)

Mr. F__:

After reading my previous letter in which it was said that only market signals can give producers knowledge of the preferences of consumers, you write that my “criticism of industrial policy doesn’t apply to Oren Cass given he explicitly says he wants to raise the value of work and not consumption.”

While you’re correct about Oren’s stated goal, you’re incorrect that this goal is immune to the economic case against industrial policy.

When economists use the word “consumption” we mean by it the ultimate ends of economic activity, whatever these might be. Oren insists that the ability to get and remain secure in manufacturing jobs is not merely a means of earning income to buy consumption goods, but is itself an economic end – that is to say, a consumption good. Yet even if we grant that on this matter Oren is correct, his case for industrial policy remains invalid.

Consumption goods must be traded off against each other; buying a larger house means sacrificing, say, more restaurant meals or more leisure. Each of these things is a good, but being a ‘good’ alone tells us nothing about how many units of each to acquire because acquiring more units of one good necessarily means acquiring fewer units of others. In a free market, prices and wages guide producers to produce, and consumers – spending their own incomes – to consume, the ‘correct’ mix of the countless different kinds of consumption goods.

But under Oren’s industrial policy, the number of manufacturing jobs would be artificially increased with subsidies and tariffs. Even granting that these jobs are (as Oren believes them to be) consumption goods, replacing market signals with government commands eliminates the information necessary to know how the value of additional manufacturing jobs compares with the value of the other consumption goods necessarily sacrificed to make those jobs possible. With market signals overridden, all we have is Oren Cass’s, or some government officials’, hunches about what is the proper mix of manufacturing jobs with other consumption goods.

Hunches, alas, are not information.

Oren’s only escape from this problem is to assert that every additional manufacturing job, regardless of how many such jobs already exist, is worth whatever is sacrificed to make that job a reality. But I doubt that even Oren believes that ever-more manufacturing employment should be pursued at the cost of casting every American into impoverishment.

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

It’s Not Just An Austrian Position

(Don Boudreaux)

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Here’s a letter to a new correspondent:

Mr. F__:

Displeased with what you call my “excessive antagonism even to mild industrial policy,” you allege that I “espouse an extreme rendering, only believed by apostles of von Mises, of limits on government planners’ capability of knowing how they may allocate resources to improve the economy’s health.”

Well.

Here’s a pop quiz: Who wrote the following?

Because scarcity exists, competition is inevitable; some allocation must be made. If price competition is restricted or suppressed, political competition of one form or another will occur. When prices are arrived at by the free interaction of producers and consumers, it is possible to ascertain worth to consumers. When distribution of scarce goods and services is made by nonprice political criteria, worth to consumers remains unknowable.

Answer: The above passage was written by the late UCLA economists Armen Alchian and William R. Allen, neither of whom can credibly be accused of having been an apostle to anyone, and certainly not to Mises. This passage appears on page 416 of Alchian’s and Allen’s Universal Economics (which is the 2018 version of their famous textbook, University Economics) – a book that never, in its 716 pages, mentions Mises.

I’m sure, however, that Alchian and Allen accepted Mises’s – and Hayek’s (and, later, Don Lavoie’s) – brilliant demonstration that attempts to improve the overall economy by allocating resources in ignorance of market signals are doomed to fail. But this acceptance was hardly an “extreme” position. It was rooted in a widely held appreciation of the unfathomable complexity of modern market economies – an appreciation had not only by economists who label themselves “Austrian,” but also by many economists who do not, including Milton Friedman, Ronald Coase, Harold Demsetz, Vernon Smith, Thomas Sowell, and Deirdre McCloskey.

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 David Hume’s 1742 essay “Of the Middle Station of Life” (here from page 550 of the 1985 Liberty Fund collection of some of Hume’s essays, edited by the late Eugene F. Miller, Essays: Moral, Political, and Literary):

If no Man were allow’d to write Verses, but who was, before-hand, nam’d to be laureat, cou’d we expect a Poet in ten thousand Years?

DBx: Industrial policyists and others who endorse rule-by-‘experts’ would be wise to ponder this question. Such pondering, if done wisely, leads to his conclusion: Government’s use of tariffs and subsidies to pick ‘winners’ results inevitably in government picking and protecting losers – this despite the fact that, because of the absence of competition, the losers might sometimes appear to be ‘winners.’

Some Links

(Don Boudreaux)

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Mark Jamison reports that “Biden’s antitrust team is tossing aside the rule of law.” A slice:

So why do Biden’s antitrust regulators think that it is okay to dismiss America’s laws and become laws unto themselves when it comes to antitrust? This weakens rule of law, and the American economy will suffer.

The latest incident involves the Department of Justice (DOJ) and the Federal Trade Commission (FTC) sending people to Europe to help the European Union implement its Digital Markets Act (DMA). The DMA is an EU regulation that takes control of some of the most successful business models in history and remakes them so that at least the American companies affected are less profitable, less focused on customers, and less formidable when competing with European rivals.

The US regulators characterize the assistance as being part of a long history of cooperation between antitrust enforcers across the pond and as a natural extension of the US-EU Joint Technology Competition Policy Dialogue. It is true that US regulators have talked with their international counterparts for years, in part to teach about the US system and to share experiences.

But US regulators assisting the EU to implement its DMA is more than the US being an informative neighbor. It is using US taxpayer dollars to execute laws that Congress has not passed, and that are intended to drain US resources and disadvantage US companies.

Writing in the Wall Street Journal, John Tamny explains the FTC’s lethality. A slice:

Pancreatic cancer is almost always fatal because it’s already in late stages by the time it’s caught. Imagine being able to diagnose it while it’s still at stage 1. That can now be done thanks to Grail, a company with a mission to detect cancer early, when it can still be cured.

But Grail’s potential to save lives is seemingly lost on Federal Trade Commission Chairman Lina Khan. She is making unceasing efforts, wrapped in antitrust language, to block Illumina’s acquisition of Grail, a company it spun off in 2016. Based on past applications of antitrust law, there’s no case against the combination. Given the numerous forms of cancer, and how defenseless we are against so many of them, it’s difficult to make the argument that the merger of Illumina and Grail would amount to a monopoly. How can a service (early cancer detection) that doesn’t yet exist amount to a monopoly?

None of this seems to matter to Ms. Khan, whose main objective appears to be restraining the growth of successful businesses. The FTC’s in-house administrative-law judge ruled against her arguments and approved the merger, but Ms. Khan overruled that decision this month. In the meantime, Illumina is prohibited from working to improve access to cancer detection.

Eric Boehm warns that “Biden is pushing federal regulatory powers into uncharted territory.” A slice:

It took more than two years for the other shoe to drop, but earlier this month it did. In an executive order signed on April 6, Biden fleshed out the details of how the new regulatory regime will operate. There are three major changes.

First, the executive order changes the threshold for what counts as an “economically significant” regulation from $100 million to $200 million—and orders the new, higher threshold to continue rising with inflation. Because regulations deemed to have economically significant costs are subject to additional layers of scrutiny before being approved, this change would expand the number of regulations that could be approved without that additional oversight.

It’s also a bit laughable to declare that a new regulation costing $199 million is somehow not economically significant—but at least it will ease the burden on the poor put-upon bureaucrats responsible for drafting those rules. About time someone thought of them.

Secondly, Biden’s new rules instruct federal agencies to “promote equitable and meaningful participation by a range of interested or affected parties, including underserved communities.” This push for greater equity is so complicated that it requires a separate 10-page memo explaining how to implement it. That includes new guidance for how the White House’s Office for Information and Regulatory Affairs should “facilitate the initiation of meeting requests” from groups that have “not historically requested such meetings, including those from underserved communities.”

My intrepid Mercatus Center colleague Veronique de Rugy busts already-popular myths spread by participants and partisans in today’s debt-ceiling fracas.

Yet story after story in the media alerts readers of the horrible things that could happen if these paltry cuts are implemented. Flight delays would mount due to air traffic control budget reductions; hunger would afflict children; suicides would skyrocket. Woe would sweep over the republic.

Really? I don’t recall chronic flight delays or a food crisis in, say, 2019. Yet at the time discretionary spending was $1.338 trillion, or some $320 billion less than what Republicans want that side of the budget to be after their cuts. I wish people would stop fearmongering for a second so we can have a real conversation about our fiscal future.

George Will takes stock of 2024’s U.S. presidential race. Here’s his conclusion:

One or both of the major parties might, depending on their calculations of a third candidate’s appeal, accuse No Labels of being a spoiler. Let those parties try to explain how today’s politics could be spoiled.

Brett Orrell talks with Scott Lincicome about empowering the new American worker.

Gary Galles is consistently wise and insightful. A slice:

Alternatively, think of the demand and supply curves not as typically shown in economics textbooks — well-defined and known — but as relationships surrounded by clouds of indeterminacy. At the time real-world producers must decide their price and output plans, they do not, in fact, know what the demand curve will be, a typically unnoticed-but-false assumption snuck in by drawing a specific, implicitly assumed-to-be-known, demand curve at the beginning of the analysis.

Without such a well-defined demand curve, known in advance, a producer cannot actually know how much total revenue will change for an additional unit of output (the marginal revenue, which microeconomics books assume producers will adjust output until it equals marginal cost). With uncertainty, marginal cost can’t be known in advance, either. Many unanticipated things could change it, from disasters to health problems for workers to accidents to hacking attacks to changes in government policy. As a result, the neat MR = MC equation of economics principles texts can no longer tell a producer what to do in order to successfully maximize his profits, as Armen Alchian pointed out long ago in his“Uncertainty, Evolution, and Economic Theory.” And I can still remember what he said to my graduate school class in summarizing this point: “I have been an economist long enough to recognize that ‘I don’t know’ is an intellectually respectable answer.”

Consequently, as Paul Heyne noted in his The Economic Way of Thinking textbook, economists know far more about what not to do, because some choices are clearly inferior to other options, than what to do, which requires we know the absolutely best choice in a situation.

Covid hysteria and tyranny are interwoven with wokeism.

I have new respect for Woody Harrelson and Tim Robbins.

Vinay Prasad tweets: (HT Jay Bhattacharya)

They didn’t want to open schools because they were scared for their own safety. They ignored the experience of Sweden. And they made impossible demands to reopen. Including Ashish jha. They kept saying safely, but the standards could never be sated. Ultimately nothing was needed

Quotation of the Day…

(Don Boudreaux)

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… is from page 166 of economists Phil Gramm’s, Robert Ekelund’s, and John Early’s important and data-rich 2022 book, The Myth of American Inequality: How Government Biases Policy Debate (footnote deleted):

Antiquity and the world that would spring from it are  replete with examples of self-serving leaders who obtained power in the name of redistribution only to serve their own interests. Plutarch saw the struggle for power in the name of income and wealth redistribution  as the “inveterate disease.”

Ian Fillmore on Industrial Policyists

(Don Boudreaux)

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Prompted by this Cafe Hayek post, Washington University economist Ian Fillmore sent to me the e-mail below, which I share here with his kind permission.

Hi Don,

I admire your perseverance in explaining (again and again) why industrial policy is such folly. Alas, I’m afraid that those who advocate for industrial policy have understood neither the arguments against it nor the evidence underlying those arguments. I suspect people believe in industrial policy because, for pre-rational reasons, they want to believe in it. They’ll look up the arguments later.

Now why do they want, so badly, to believe in industrial policy? That’s a great question. Perhaps if we could figure this out, we’d have a better idea of how to persuade them. Perhaps… but my cynical side wonders if people are entirely animated by pre-rational motivations, and their rational arguments are just window dressing that they use to justify things they were going to do, or say, or believe anyway. But then I remember my classically liberal commitment to reason and persuasion and repent of my evil ways.

So as I said, I admire your perseverance and your rejection of cynicism and despair. Keep up the good fight!

Ian Fillmore

Some Thoughts on A Twitter Thread

(Don Boudreaux)

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I’m not, and never have been, on Twitter. And each time I visit Twitter, I am reassured that my decision never to be on Twitter is wise.

Because I linked yesterday to a splendid assessment – by my intrepid Mercatus Center colleague, Veronique de Rugy – of a recent American Compass study purporting to show an example of successful industrial policy, a couple of people (not Vero) e-mailed to me this link. It’s to a Twitter thread started by the study’s author, Gabriela Rodriguez, in response to Vero’s demolition of her (Ms. Rodriguez’s) argument and conclusion.

A couple of things strike me about this thread. One is a reminder of how consistently weak are the arguments offered by advocates of protective tariffs and industrial subsidies. It should be embarrassing for people such as Ms. Rodriguez to miss the core of the argument offered by Vero. Yet miss it she does, and by several thousand miles. As Vero says in her response, on Twitter (see below), to Ms. Rodriguez, no serious opponent of industrial policy has ever denied the possibility that government can create a successful firm or even whole industry if the government shovels into that firm or industry enough subsidies and other special privileges.

The argument against industrial policy – an argument that, astonishingly, Ms. Rodriguez seems to be unaware of – is that (1) there’s a cost to using industrial policy to create and sustain a successful firm or industry, and (2) because the forced allocation of resources carried out by industrial policy isn’t guided by market signals, the information that guides resource allocation under industrial policy isn’t as reliable as is the information that guides entrepreneurs and investors in markets, (3) there’s every reason to believe that the cost to the people of the country of creating and sustaining, with industrial policy, the successful firm or industry is higher than is the value to the people of the country of that firm or industry.

For Ms. Rodriguez’s argument to be sound, she would have had, first, to acknowledge the correct case against industrial policy, and, second, then at least to have attempted to present argument or evidence to the effect that the benefits to the people of the country from industrial policy outweigh the costs to the people of the country. Yet she does no such thing. Instead, what we get on Twitter from Ms. Rodriguez is this confirmation of her cluelessness:

The reason libertarians like @veroderugy go on at such length in response to clear examples of successful industrial policy is they *KNOW* the examples are fatal to their ideology.

The reason you get to the end & think “Ok, but it seems like the policy worked” is b/c it did.

As Vero appropriately tweets in reply to Ms. Rodriguez:

This is an unserious response. No one denies that you can produce a company that is viable with hundreds of billions of subsidies and special treatments for decades, especially in a market with few competitors and where politics plays such a large role. The question is “it works but at what costs to taxpayers, consumers, growth, innovation, workers and investors in other industries? Show me this was good for France’s economy overall or Europe’s economy. Not just Airbus’ shareholders, suppliers and workers. And while at it address the trade war consequences of the subsidies and the corruption issue, both common features of industrial policy.

And as Scott Lincicome tweets in reply to Ms. Rodriguez:

Coming soon: “My Arctic Greenhouse Policy Is a Great Success Just Look at All These Oranges”

(Note, by the way, that Vero’s initial response – like her Twitter response – to Ms. Rodriguez isn’t so much “libertarian” or ideological as it is straightforward economics pointing out objective realities.)

The second thing that struck me as I read this Twitter thread is this Tweet, aimed at Vero, by one Towgc:

To be clear, you’re at Mercatus, which is funded by the Koch Bros family, which made it from oil, which is one of the most subsidized industries in US history. Lol and you wonder why no one takes you seriously.

Seriously? If all you’ve got is ad hominem, then you ain’t got anything. (That this particular spasm of ad hominem inaccurately suggests that the Mercatus Center gets most of its funding from the Kochs is here beside the point. Persons who rely upon ad hominem argumentation, not being fussy about logic, tend also not to be fussy about facts.)

Protectionism Is Indeed Economic Parasitism

(Don Boudreaux)

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Here’s yet another letter to a long-time, hostile correspondent:

Mr. McKinney:

“Aghast” at my description of protectionism as parasitism, you accuse me of failing to “appreciate that  plenty of jobs have intrinsic value to workers which justifies being protected.”

I plead not guilty. I don’t deny that some people – say, Jones and Jackson – find intrinsic value in holding particular jobs. My argument is simply that other people – say, Smith, Adams, and Williams – should not be forced to pay for Jones and Jackson to enjoy that intrinsic value.

If this value is real and sufficiently high to Jones and Jackson, let them pay for this value, if necessary, by taking pay cuts. After all, this intrinsic value accrues not to Smith, Adams, and Williams, but to Jones and Jackson. If, when imports reduce the demand for the outputs that Jones and Jackson produce in their intrinsically valuable jobs, Jones and Jackson refuse to take the pay cuts necessary for them to continue in those jobs, then Jones and Jackson thereby prove that the intrinsic value to them of those jobs is less than is the value to them of higher wages.

For Jones and Jackson to keep their wages in those jobs from falling by enlisting the state to restrict Smith’s, Adams’s, and Williams’s freedom to buy imports is for Jones and Jackson to act parasitically on Smith, Adams, and Williams.

There is no way to avoid the conclusion that protectionism is economic parasitism. By its very nature, protectionism artificially restricts some people’s economic options – thus making them poorer as they are denied what rightfully belongs to them – in order to artificially bloat the economic options and riches available to the protected producers, that is, to the parasites. No society can be fully free or fully civilized as long as it tolerates protectionism.

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