Russell Roberts's Blog, page 27

Phil Magness Debates Woody Holton on the ‘1619 Project’

(Don Boudreaux)

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Phil is here, as usual, very persuasive.

Protectionists Are Losers

(Don Boudreaux)

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Here’s a letter to someone who’s completing his junior year at Oregon State.

Mr. B__:

Thanks for your e-mail.

You wonder if your professor is wrong to argue that (as you put it) “the justification for free trade requires the losers be compensated when tariffs are cut.”

Yes, your professor is wrong. As I tried to show in a 2022 paper (“Should Trade’s ‘Losers’ Be Compensated?: An Exploration Of the Welfare Economics Of the Losses and Costs Of Economic Change”), this argument is the product of sloppy thinking.

While I’d be honored if you were to read my paper in full, let me here summarize, with an example, its main point, which is this: While free trade has costs, it has no losers.

Free trade would have losers only if it were to deny to someone something to which he or she is entitled. But free trade does no such thing. When an American consumer, say, in 2013 bought a U.S-made automobile from G.M., that consumer did not thereby also agree to buy in the future all of his or her automobiles from G.M. So when that American buys in 2023 a new automobile from a non-American automaker rather than from G.M., that consumer doesn’t take from G.M. anything to which G.M. or its workers is entitled.

When it sold the car to this consumer in 2013, G.M. could have demanded, as a term of the sale, that this consumer contractually commit to buy all of his or her future automobiles from G.M. This consumer, though, would have agreed to this contractual term – that is, would have agreed to restrict his or her future automobile-buying options – only in exchange for some consideration from G.M. This consideration could take many forms, but would most likely take the form of a lower price on the automobile sold in 2013. This contractual term would have read along these lines: “G.M. agrees to cut the price of the automobile that it sells today to Mr. or Ms. Consumer in exchange for Mr. or Ms. Consumer’s agreement to buy all of his or her future automobiles from G.M.”

But of course in reality G.M. demands no such contractual agreement. When someone buys an automobile from an American automaker that person doesn’t also thereby commit to buy all of his or her future automobiles from that company. It follows that when an American buys a foreign-made car, American automobile producers lose nothing to which they are entitled and for which they must be compensated.

Note that by not including the above-mentioned contractual term in the sales agreement, G.M. was able in 2013 to sell the car at a higher price than it would have fetched had it insisted that the buyer agree to commit to this contractual term. This higher price can be thought of as G.M.’s ‘compensation’ for agreeing to play by the rules of the free market – which rules include the legal and moral right of consumers to spend their incomes in whatever peaceful ways they choose.

The policy, therefore, that ethically requires compensation isn’t free trade; it’s protectionism. Unlike free trade, protectionism strips people – specifically, people in their capacity as consumers – of a right to which they are entitled, namely, the right to spend their incomes in whatever peaceful ways they choose.

Protectionists squawk about free trade requiring ‘compensation’ of ‘losers’ only because, being sloppy thinkers, they implicitly presume that the incomes earned by consumers belong, not to the consumers who earn those incomes, but instead to the politically powerful producers who greedily covet it.

Intellectually, protectionists are losers.

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

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My intrepid Mercatus Center colleague, Veronique de Rugy, isn’t buying Joe Biden’s claims of fiscal responsibility. A slice:

Government debt as a share of the U.S. economy is falling. This must mean President Joe Biden’s administration and Congress are practicing fiscal responsibility, right? No, it doesn’t. The main driver behind the reduction is inflation—inflation that politicians in Washington created with their irresponsible spending and refusal to engage in austerity after the COVID-19 crisis.

The Wall Street Journal‘s James Taranto carefully and thoroughly exposes the shoddy (to put it mildly) ‘reporting’ and opining of late about Justice Clarence Thomas. A slice:

I would never attack good journalists, if only for fear of harming an endangered species. My contention is that the ProPublica troika’s work is a travesty of journalism, and I am increasingly disinclined to credit them with practicing journalism at all. Instead, they function as political opposition researchers. They follow the facts only far enough to find a plausible complaint that Justice Thomas did something wrong, which they baselessly frame as evidence of corruption, then move on to the next accusation. (They were also less clear than I was in identifying his actual error, palming that opinion off on “four ethics experts.” They identified only two of those so-called experts, both of whom expressed prejudicial views about Thomas. One had a 14-page letter demanding an investigation—replete with factual errors—ready to go the day after the ProPublica piece ran.)

…..

Over the weekend a team of four reporters at the Washington Post—Shawn Boburg and Emma Brown, with Jonathan O’Connell and Alice Crites listed as having “contributed”—uncovered another Thomas error. This one is a doozy. According to the 1,240-word story, which appeared on the front page of Monday’s paper, Justice Thomas “for years” has claimed income from a company that “has not existed since 2006.” That firm, Ginger Ltd. Partnership, managed real estate in Nebraska and was founded by his wife, Ginni Thomas, and her relatives. Seventeen years ago it was dissolved and its holdings were transferred to a new entity, Ginger Holdings LLC.

That’s it. The company changed legal form but kept the same name and address. There’s no suggestion that its business has changed or that Justice Thomas failed to disclose any income. “The previously unreported misstatement might be dismissed as a paperwork error,” the Post quartet allow. “But it is among a series of errors and omissions that Thomas has made.” It’s admittedly trivial but fits the pre-established narrative, so the Post runs with it.

James Hohman explains some of the damage done by protectionism.

National Review‘s Andrew Stuttaford argues that Margaret Thatcher would be no fan of “common good capitalism.”

The immorality and stupidity of this policy requires no further comment: (HT Ross Kaminsky)

As part of the Federal Housing Finance Agency’s push for affordable housing, homebuyers with good credit will soon have to pay higher mortgage rates and fees to subsidize people with riskier credit ratings, according to a report by The Washington Times.

John O. McGinnis sings the praises of Laura Ingalls Wilder’s Little House series. A slice:

Of all the books my wife and I have read to our now seven-year-old daughter, none has taught as much about life and liberty as the Little House series by Laura Ingalls Wilder. Most literature that enthralls children, like The Lord of the Rings and Harry Potter, is fantasy, but this series, being a memoir of the Ingalls family when Wilder was growing up, is based in fact—even if softened by a degree of nostalgia with a modified timeline and composite characters. Her family members cannot call on magic but only on their own inner strengths to survive in a world of outer scarcity.

This austere setting makes the series the best introduction for a child to virtues indispensable to liberty—self-reliance, personal responsibility, and respect for individual choice. The difficult life her family led also naturally prompts discussion of how and why our lives have become so much more comfortable today. While these transformations may seem akin to magic, they have been brought about by capitalism—another important lesson for a child.

I’m eager to read my GMU Econ colleague Bryan Caplan’s new book, Voters as Mad Scientists.

“Under the WHO’s Autocratic New Powers Sweden Would Not Be Allowed to Dissent.”

Sanjeev Sabhlok tweets: (HT Jay Bhattacharya)

The benefit of living in modern society is that one can expect to live to 80+.

The disadvantage of living in such a society is that we cannot isolate sufficiently from ordinary respiratory viruses.

We need to give up on the ISOLATION DELUSION – or go back to hunting-gathering.

This piece – headlined “China’s ‘zero Covid’ policy was a mass imprisonment campaign” – appears in, of all places, The Guardian. Two slices:

As I see it, Xi Jinping’s measures have very little to do with public health. They have been a masterclass in dictatorship with an underlying theme of “how to more effectively control society after a disaster strikes”. The primary objective is not protecting people’s lives and health, but protecting and expanding his power as much as possible. Totalitarian pandemic-prevention policies have no obvious efficacy other than to wreak havoc on hundreds of millions of people. Such policies do not merit any praise. They are the source of an anti-scientific humanitarian catastrophe.

Before 7 December 2022, Xi’s government pushed a “zero Covid” policy. That is not as benign as it sounds. In essence, it is a mass imprisonment campaign. In my book Deadly Quiet City: True Stories from Wuhan, I report on how the Chinese government turned Wuhan, a city of 11 million people, into a massive and miserable prison.

Then Xi obviously realized that the anti-pandemic measures brought him benefits. He doggedly expanded the policy to encompass the whole country. In many places, just one positive case or sometimes not a single positive case, resulted in a district or even an entire city being completely locked down, transportation links severed, shops closed, and residents confined behind layers of fences topped with razor wire. No one could leave their homes even to exercise their most basic of rights – the right to food and to seek medical attention.

…..

China’s pandemic-prevention policies led to countless deaths and tragedies: ill seniors killing themselves because they couldn’t get medical treatment; youth jumping off buildings because they couldn’t make a living; unborn babies dying in their mother’s wombs while their mothers awaited treatment. When a fire broke out in an apartment building in the far western city of Urumqi, on 24 November 2022, the pandemic prevention policy of turning residential zones into prisons prevented fire engines gaining access. Residents struggled to escape the inferno. Ten died and many more were injured.

Quotation of the Day…

(Don Boudreaux)

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… is from page 243 of my colleagues Virgil Storr’s and Ginny Choi’s superb 2019 book, Do Markets Corrupt Our Morals? (references and footnote deleted):

People in market societies are wealthier, healthier, happier, and better connected than people in nonmarket societies. Markets are positively correlated with economic growth. Measures of social capital are also higher in market societies than they are in nonmarket societies. Additionally, the benefits of markets do not only accrue to the most advantaged in these societies. Market societies have higher social mobility and lower income inequality than nonmarket societies. Other studies show that people in market societies have higher levels of subjective well-being and quality of life as measured by literacy and life expectancy. Limiting access to markets and restricting the range of markets are, thus, likely to be (materially and socially) costly.

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Joel Zinberg and Casey Mulligan, writing at National Review, report that lockdown states fared worse than did states that didn’t lock down so gruesomely. Two slices:

We recently co-authored a study with colleagues at the Paragon Health Institute showing that states such as Illinois and California that imposed lockdown measures, such as closing business and schools, did not significantly improve health outcomes but had much worse economic and educational outcomes. States such as Florida that rejected lockdowns did much better.

…..

[J.B.] Pritzker and [Gavin] Newsom, along with other Democratic governors such as New York’s Andrew Cuomo, their allies in the press, and the public-health establishment, have consistently vilified Florida and its governor, Ron DeSantis. But as John Adams observed, “facts are stubborn things.” The evidence indicates that when the next pandemic comes, Americans would be well advised to follow leaders like Governor DeSantis, who insisted that there is no virtue in self-imposed economic, educational, and social costs that do not yield clear health dividends.

Jay Bhattacharya tweets:

There was no “evolution of the science”. Many scientists worldwide knew that the vax does not stop transmission by spring/summer 2021. The 2020 clinical trials did not check for transmission-blocking.

GMU law professor Josh Wright defends Section 230. A slice:

The point is to encourage content moderation by websites, and by extension to encourage variation in content moderation across the internet. Section 230 is why the modern internet features heavily moderated websites and less moderated websites, and users can devote their time and attention to the websites they like best — and advertisers can make choices about the websites they patronize based upon these decisions by users. We are witnessing this dynamic in real time as Twitter, now owned by Elon Musk, makes various changes to the platform to which both users and advertisers react — market forces at work.

The Economist is understandably impressed with “America’s astonishing economic record.” Two slices:

Yet the anxiety obscures a stunning success story—one of enduring but underappreciated outperformance. America remains the world’s richest, most productive and most innovative big economy. By an impressive number of measures, it is leaving its peers ever further in the dust.

Start with the familiar measure of economic success: GDP. In 1990 America accounted for a quarter of the world’s output, at market exchange rates. Thirty years on, that share is almost unchanged, even as China has gained economic clout. America’s dominance of the rich world is startling. Today it accounts for 58% of the G7’s GDP, compared with 40% in 1990. Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person. Average incomes have grown much faster than in western Europe or Japan. Also adjusted for purchasing power, they exceed $50,000 in Mississippi, America’s poorest state—higher than in France.

…..

American firms own more than a fifth of patents registered abroad, more than China and Germany put together. All of the five biggest corporate sources of research and development (R&D) are American; in the past year they have spent $200bn. Consumers everywhere have benefited from their innovations in everything from the laptop and the iPhone to artificial-intelligence chatbots. Investors who put $100 into the S&P 500 in 1990 would have more than $2,000 today, four times what they would have earned had they invested elsewhere in the rich world.

Here’s GMU Econ alum Dominic Pino’s summary of the above Economist report.

Also from Dominic Pino is this report on work by serious scholars debunking the uninformed narrative – most lately pressed by Princeton University sociologist Matthew Desmond – that poverty in America is unconscionably high. A slice:

Today at the American Enterprise Institute, poverty scholars spoke against Desmond’s argument and the negative narrative about American antipoverty programs in general. Kevin Corinth, an AEI senior fellow who previously served at the Joint Economic Committee in Congress and the Council of Economic Advisers at the White House, said of Desmond’s book, “I have read every word, and it’s not good.”

Desmond’s argument, that the last 50 years have seen no progress in America against poverty, is based on the official government measure of poverty. It is true that the official poverty rate has fluctuated between 10 and 15 percent for the past 50 years.

But there’s a problem with that interpretation of the data. “It’s for a very simple reason that serious researchers have known for a very long time: The official poverty measure does not include much of the government assistance,” Corinth said. “If you were to include all the benefits we provide, you get a much different picture of poverty.”

Corinth and other researchers have calculated the “full-income poverty rate,” which includes all the government assistance poor people receive. Where the official poverty rate was 10.5 percent in 2019, the full-income poverty rate was 1.6 percent. The full-income poverty rate was around 19 percent in 1963, around 7 percent 20 years later, and gradually declining to 1.6 percent since then — a long-running decline, contrary to Desmond’s portrayal.

Scott Winship, director of AEI’s Center of Opportunity and Social Mobility, illustrated the absurdity of Desmond’s use of the official poverty number by running it in reverse. He said, “If you use today’s official poverty line, the poverty rate in 1963 would have been 70 percent.”

The F.T.C. should not prohibit non-compete clauses.

I very much enjoyed my recent conversation with my friend and TFAS president Roger Ream.

George Will isn’t surprised by declining enrollments in American institutions of “higher learning.” A slice:

There are powerful, immediate financial incentives to study, say, computer science rather than Victorian literature, but economic incentives only partially explain today’s flight from the humanities. Why study history when it is presented as a prolonged indictment — ax-grinding about the past’s failure to be as progressive as today’s professors? Who wants a literature major that is mostly about abstruse literary theories — “deconstruction,” etc.?

Recently the New Yorker magazine disturbed the academic pond with writer Nathan Heller’s 10,232-word attempt to explain plummeting enrollments in humanities classes and majors (“The End of the English Major”). Heller’s nuanced investigation suggests various explanations, including this:

Time was, Heller says, a student might have studied Jane Austen’s “Mansfield Park” for its “form, references, style, and special marks of authorial genius.” But now a student “might write a paper about how the text enacts a tension by both constructing and subtly undermining the imperial patriarchy through its descriptions of landscape.” Heller adds: “What does this have to do with how most humans read?”

Nothing. But it has everything to do with the saturation of academia with progressive politics.

Quotation of the Day…

(Don Boudreaux)

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… is from page 40 of the 1981 Liberty Fund edition of Felix Morley‘s 1959 volume, Freedom and Federalism:

Morally speaking, it is reactionary rather than progressive whenever the state expands its authority at the expense of society. Government handouts, subsidies and interventions of every kind, no matter how dressed up with a specious humanitarianism, are essentially coercive measures by the state, encroaching more on more on the voluntary action of society.

DBx: Pictured here is Felix Morley (1894-1982).

To Repeat: Industrial Policy Is Naive and Blind Arrogance

(Don Boudreaux)

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Here’s a letter to National Review:

Editor:

Ryan Bourne eloquently exposes the political naivete of Oren Cass and other ‘national conservatives’ who champion the use of industrial policy as a means of improving the American economy (“National Conservatives Can’t Wish Away Political Realities,” April 17). To be surprised, as Mr. Cass & Co. are, by the frequency of rent-seeking and the fulfillment of political fetishes when politicians have the authority to allocate resources is akin to being surprised by the frequency of fornication and the fulfillment of sexual fetishes when ladies of the night have the authority to operate brothels.

But the case for industrial policy suffers a second flaw, one that dooms industrial policy to failure even if government officials were miraculously rendered apolitical. The second flaw is inescapable ignorance. Mr. Cass might well successfully instruct government on how to achieve some particular concrete outcome, such as increased employment in manufacturing. But neither he nor anyone else can possibly know that the net effect of this government-engineered reallocation of resources would be a net positive for the country.

When government uses industrial policy to allocate resources into the particular kinds of manufacturing operations favored by industrial-policy designers, ask: How many of these resources come from other manufacturing operations? How many come from the service sector? How many come from agriculture and the extractive industries? The unfathomable complexity of a modern economy makes acquisition of such knowledge impossible. Yet even if we did know that X tons of steel, Y acres of land, and Z hours of labor were diverted from the service sector (say, from the building and staffing of medical-research facilities and on-line-retailer warehouses), how can we know that this altered allocation of resources will redound to the country’s net benefit? How can we know that the value of the outputs lost from these diminished service-sector operations isn’t greater than the value of the outputs made possible in the manufacturing sector? How can we know that the particular jobs destroyed in the service sector are inferior to the particular jobs created in the manufacturing sector? How can we know what effect this forced reallocation of resources will have on innovation in the manufacturing sector or in other sectors? (Are we to expect subsidized and protected firms to become more innovative?) And how can we know what effect will be visited on the country’s overall well-being by this changed pattern of innovation?

We can’t know. No one can. There is literally no source of information that reveals to Oren Cass or to anyone else that the net results of any industrial-policy scheme will be economic improvement for the country.

In a free market, in which people spend and invest their own (and only their own) money, resources are allocated by market prices and asset values that convey at least some information about consumers’ preferences, resource scarcities, and expected economic changes. This information isn’t perfect, but at least it’s real, objective, and – judging by the success of market economies compared to nonmarket ones – pretty darn good. In contrast, with industrial policy the only ‘knowledge’ used to allocate resources is the mix of personal preferences and hunches of politicians, bureaucrats, and their intellectual shamans.

Industrial policy censors the vital information that markets continually extract from the economic actions of millions of market participants and replaces it with the armchair speculations of a handful of individuals who arrogantly believe that they possess the God-like power not only to fully enough survey the present but also, from their think-tank suites or political chambers, to accurately foresee the future in all of its unfathomable detail.

Let’s give the last word to Adam Smith:

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.*

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

* See Book IV, chapter 2, paragraph 10 of Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776).

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Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey Manne took a look at alarms raised over years about mergers. A slice:

Against this backdrop of increasingly alarmist merger claims, this paper analyzes whether previous doomsday merger scenarios have materialized, or whether the critics’ claims missed the mark. Our retrospective analysis shows that many of the alarmist predictions of the past were completely untethered from prevailing market realities, as well as far removed from the outcomes that emerged after the mergers.

And here’s more from Brian Albrecht on his paper with Auer, Fruits, and Manne. A slice:

Unfortunately, some of the most vocal merger critics are no longer at the fringes of the antitrust debate, but core members of the Biden administration. Back in 2017, for example, Lina Khan was a legal fellow at the Open Markets Institute (OMI). Despite making strange arguments suggesting that the purchase of Whole Foods would expand Amazon’s “fief” — which is to say that, in Khan’s worldview, Amazon is the equivalent of a feudal lord — today she is chair of the Federal Trade Commission (FTC), one of two federal agencies charged with challenging merger cases.

Meanwhile, Tim Wu — who served until recently as President Joe Biden’s so-called competition czar — warned in a now-deleted tweet that the Amazon–Whole Foods merger would create a “super-monopoly.” His implication was clear: Whole Foods, a grocery monopoly, should not be allowed to combine with Amazon, a retail monopoly. Barry Lynn, OMI’s executive director and Khan’s boss at the time, also got in on the action. He charged Amazon with “monopolizing commerce in the United States.”

As it turns out, Khan and company were wrong. Since the acquisition, many large retailers have grown faster in market valuation than Amazon. Meanwhile, Whole Foods’ market share has barely budged. While Khan predicted in 2017 that the deal “would allow Amazon to potentially thwart future innovations,” in reality the grocery industry has experienced a boom in innovation over the past five years. Indeed, other grocers had to match Amazon’s model of easy online shopping with quick delivery. Competition can do that.

Scott Lincicome busts some myths about industrial policy in Germany and South Korea. A slice:

Both cases provide some broader lessons about using government policy to tilt the economic scales toward preferred sectors or industries:

First, using industrial policy to pick “strategic” winners and losers isn’t just a problem when the government picks the wrong sector, industry, or product (though that certainly is a problem). It can also bite when the government actually picks a winner, for example by creating an economy that’s too economically (and politically) reliant on the winning companies and ends up losing even bigger when, for whatever reason, the national champions face tough times. In Korea’s case, it may have seemed smart in, say, 2019 to funnel so many finite resources toward electronics, but that “success” also sowed the seeds for future problems when global demand for those products collapsed and an entirely different set of “unfavored” goods or services was suddenly in high demand. It also raises the question of the policies’ opportunity cost: Would Korea actually have been better off today if all those government-directed resources had been deployed differently and the economy wasn’t so “overexposed”?

In this regard, consider the more diversified—and, up until very recently, less industrial policy-inclined—United States. We might have looked like an economic laggard last decade but sure look better (and more “resilient”) these days, with world-class production of suddenly important goods like vaccines and petroleum products (which, by the way, have been exported to Korea), new innovations like generative artificial intelligence (e.g., ChatGPT), and a still-growing services-based economy. The collapse of one important sector or industry will still hurt (see, e.g., banking today), but—barring some sort of major contagion—probably won’t collapse the economy because lots of other sectors will keep humming along. And as long as overall productive capacity is high (spoiler: it is) and the economy remains open, market actors—consumers, producers, investors, etc.—will adjust to whatever comes our way

GMU Econ alum Liya Palagashvili wisely endorses the abundance agenda.

Wall Street Journal columnist Barton Swaim defends Harlan Crow from the libel and slander now being hurled at him. A slice:

Mr. Crow is clearly uncomfortable talking to the press. He says he agreed to speak because a few influential people are saying terrible things about him in an attempt to hurt Justice Thomas. “I’m collateral damage, I realize that,” he says.

Mr. Crow takes me for a walk around the campus. He shows me innumerable paintings, statues, artifacts and stone-engraved quotations: a statue of Harriet Tubman, a framed letter from Thomas Jefferson, a lapidary quotation by Tocqueville, a commissioned painting of Martin Luther King Jr., a painting of the Wright Brothers—and so, dizzyingly, on.

Not ideal material on which to base an allegation of crypto-fascism, one would have thought.

Reason‘s Eric Boehm reasonably describes the debate conducted by politicians over the debt ceiling as unreasonable. A slice:

Notably absent from Monday’s speech was any promise about balancing the budget in 10 years, something that had been part of the House GOP’s earlier list of demands for the debt ceiling negotiations. As Reason has previously noted, it’s pretty much impossible to make the budget balance in a decade without making serious alternations to entitlement programs including Social Security and Medicare, and McCarthy has promised not to touch those as part of the debt ceiling package.

Richard Rahn tells the history of “destructive capital gains taxes and inflation.”

Where did your tax dollars go?

Jay Bhattacharya tweets:

Given the fact that resources (money, time, knowledge, attention, information…) are limited, public health embrace of divisive, low-yield outcomes like masks, mandates, school closures led to many avoidable deaths. Focused protection of the vulnerable would have been smarter.

Quotation of the Day…

(Don Boudreaux)

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… is from page 10 of William Gladstone’s January 1890 contribution to a debate, with James G. Blaine of Maine, on free trade versus protectionism; these remarks are published in volume CCCXCVIII of the North American Review:

The argument of the Free-Trader is that the legislator ought never to interfere, or only to interfere so far as imperative fiscal necessity may require it, with this natural law of distribution.

All interference with it by a government in order to encourage some dearer method of production at home, in preference to a cheaper method of production abroad, may fairly be termed artificial. And every such interference means simply a diminution of the national wealth. If region A grows corn at home for fifty shillings with which region B can supply it at forty, and region B manufactures cloth at twenty shillings with which region A can supply it at fifteen, the national wealth of each is diminished by the ten and the five shillings respectively.

And the capitalists and laborers in each of these countries have so much the less to divide into their respective shares, in that competition between capital and labor which determines the distribution between them of the price brought in the market by commodities.

In my view, and I may say for my countrymen in our view, protection, however dignified by the source from which it proceeds, is essentially an invitation to waste, promulgated with the authority of law.

DBx: Indeed. Protectionism, were it to wear a more accurate name, would be called “wasteism.”

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 15 of William Gladstone’s January 1890 contribution to a debate, with James G. Blaine of Maine, on free trade versus protectionism; these remarks are published in volume CCCXCVIII of the North American Review:

I shall boldly contend that the whole of this doctrine – that capital should be tempted into an area of dear production for the sake or under the notion of keeping it at home – is a delusion from top to bottom. It says to the capitalist, Invest (say) a million dollars in mills or factories to produce yarn and cloth which we could obtain more cheaply from abroad – that is, be it remembered, which could be produced abroad and sent here at a smaller cost of production, or, in other words, with less waste ; for all expenditure in production beyond the measure of necessity – call it what we may – is simple waste. To induce him to do this, you promise that he shall receive an artificial instead of a natural price; and, in order that the foreigner may not drive him from the market, this artificial price shall be saddled, through the operation of an import duty, upon the competing foreign commodity; not in order to meet the wants of the state, which is the sole justifying purpose of an import duty, but in order to cover the loss on wasteful domestic production, and to make it yield a profit.

DBx: Yes.

Protectionism is wasteism – wasteism that artificially enriches the few at the larger expense of the many.