Russell Roberts's Blog, page 296
March 23, 2021
The Mischief of “Pecuniary Externalities”
But there’s a group of third-party effects that, merely by giving them a technical name, economists have fooled themselves into mistakenly thinking are relevant and deserving of special consideration. The technical name is “pecuniary externalities.”
This impressive-sounding term refers to the effects that Sarah’s buying, selling, or investment actions have on the market value of Silas’s property.
Everyone agrees that if Sarah negligently drives her car physically into Silas’s car and thereby inflicts on it $1,000 worth of damage, Sarah violates Silas’s property right in his car and should compensate him for the damage. But suppose, instead, that Sarah, by agreeing to put her car up for sale, causes the price for which Silas can sell his car to fall by $1,000. Although the negative effect in the second example of Sarah’s action on Silas’s welfare is identical to the negative effect of Sarah’s action in the first example, only in the first example does Sarah incur an obligation to take account of the consequences on Silas of her action.
Impressed by this difference separating example one from example two, economists call the consequence of the first of Sarah’s actions – her negligently causing physical damage to Silas’s property – a “technological externality,” while calling the consequence of the second of her actions a “pecuniary externality.”
Economists then proceed to wonder why the law requires compensation only for technological externalities but not for pecuniary externalities. After all, in both cases Sarah’s action harms Silas without his permission.
The answer economists give is this: The benefits to society from actions that cause technological externalities are generally lower than are the costs to persons who suffer technological externalities, while the benefits to society from actions that cause pecuniary externalities are generally higher than are the costs to persons who suffer pecuniary externalities. And so to ensure maximum possible economic growth – or, to increase the social welfare – the law punishes technological externalities but tolerates pecuniary ones.
Economists are here correct in their cost-benefit assessments. But they cause themselves and their audiences unnecessary confusion with this labeling. The reality is that, even though it does cause the market value of his car to fall, Sarah’s decision to sell her car imposes on Silas no externality of any sort.
The chief basis for this correct conclusion that no pecuniary externality exists is that, by putting her car up for sale, Sarah takes from Silas nothing to which Silas is entitled. Yes, Sarah’s decision to sell her car decreased the market value of Silas’s car. But Silas has no property claim to his car’s previous market value. Silas, being a reasonable person (as we must assume him to be), knows that the market value of his car can change in response to the economic decisions made by strangers. Stated differently, Silas expects, with some probability greater than zero, that the market value of his car will fall. Therefore, Sarah’s decision to sell her car was already “internalized” on Silas. He took account of this possibility in his earlier decisions regarding what kind of car to buy and how long to maintain his ownership of that vehicle.
But to show why “pecuniary externalities” is a mistaken concept, we need to do more than note that Silas’s expectations include the possibility that the market value of his car will fall because others might sell cars in competition with him. Another factor in play is that Silas would not want to be relieved of this expectation if such relief meant that everyone enjoyed relief of this expectation. To relieve everyone of the expectation of the possibility that the market value of their cars will fall would require that Silas himself no longer be free to offer his car for sale whenever doing so might cause a fall in the price of Sarah’s or Steve’s car.
Because Silas (it is reasonable to assume) wants the right to sell his car whenever he chooses and at whatever price he can fetch, he cannot legitimately assert ethical or legal standing to prevent Sarah from exercising the same right over her car. By giving this right to all persons, the law effectively recognizes that everyone under its jurisdiction agrees that all people have a right to sell their cars even if some car-selling actions harm some people at particular points in time by causing the market values of their cars to fall.
The law, therefore, doesn’t merely tolerate “pecuniary externalities” on the grounds that such toleration promotes economic growth. Rather, the law treats each person as ‘purchasing’ the right to sell his or her car by giving to all other persons the right to sell their cars. The law, in short – and unlike most economists – understands that “pecuniary externalities” are not externalities at all. They are mirages in economists’ minds.
Some Covid Links
George Dance ably defends the Great Barrington Declaration against attempts to discredit it. A slice:
This new FAQ may not be the best place to go for scientific advice about the disease; the ‘doctors’ behind it seem to mainly have doctorates in economics and psychology (though I have read that there is an anonymous scientist involved), and some of their claims, such as “Covid still has a high fatality rate among younger people”, seem supported more by semantics than by science. (“Younger” in context turns out to be “younger than 65”).
Jonathan Sumption writes with great insight and wisdom. Two slices:
The “sunk cost fallacy” is a well-known source of distortion in human decision-making. A decision is made which has destructive implications. The limited benefits and immense collateral damage gradually become apparent.
It is next to impossible for those involved in the decision to change their minds. No one wants to admit that it might all have been for nothing, even if that is the truth. They have invested too much in the decision to reverse out of the cul-de-sac. So they press on, more to avoid blame than to serve the public interest. This is what has happened to governments across Europe and to the dug-in body of specialists who advise them. Their recipe is simple: if lockdowns haven’t worked, there is nothing wrong with the concept. We just need more of them.
What we really need is a fresh look at the evidence by people who are not committed to their own past positions. This is what the Health Advisory and Recovery Team (HART), a group of more than 40 highly qualified scientists, psychologists, statisticians and health practitioners have provided in an “Overview of the Evidence” published last week. It is addressed to non-specialists, but is scrupulously referenced to specialist research. It will not change the minds of ministers or their advisers. But it should provoke thought among the rest of us. We cannot contribute to the science, but we can at least understand it. Those who are unwilling to do even that much have no moral right to demand coercive measures against their fellow citizens.
…..
We have been addled by the so-called precautionary principle, which holds that if we have no evidence of something, we should assume the worst. This marks the extreme point of our risk-averse world. The alternative view is that you must have good reasons backed by evidence if you are going to stop people satisfying the basic human need for social contact, destroy their businesses and jobs and wreck their children’s lives. If you don’t know, don’t do it.
Inspired by Phil Magness, Will Jones rightly criticizes the recklessness of Neil Ferguson. A slice:
Whatever the explanation, though, the data are unambiguous, and they do not validate Imperial’s modelling, either in terms of how many would die without restrictions or how few would die with them.
The trouble is that the assumptions behind the modelling – that lockdowns control the virus and without them hundreds of thousands more would die – have become accepted truth, to the point that journalists will just state it in their reporting as though it is undisputed fact, and politicians will instinctively impose or tighten restrictions as soon as positive cases start to rise with little or no opposition.
Covid tyranny continues to darken and enslave a once-free country.
David Paton reports on just how lethal and dangerous Covid Derangement Syndrome often is. A slice:
Roll forward to today and the government has easily exceeded its vaccination targets. Virtually all the most vulnerable groups have been offered a jab, and many have even had their second. Infections and hospitalisations have dropped by over 90 per cent from the peak, while Covid-related deaths in England have tumbled from an average of nearly 1,200 per day in mid-January to under 90 today.
Yet despite this, public protests (even those protesting for the right to protest) remain banned. Hitting a ball with a stick outdoors on a golf course remains a criminal offence for another week. Getting a haircut is illegal for another three weeks. And you have another eight weeks to go before you can legally sit down with a friend in a café over a cup of tea.
At the weekend, the government added more salt to rub in the wound. On the Sunday politics shows, there was no crying freedom to be seen. Instead, we had defence minister Ben Wallace signalling that the government was pretty much set to ban foreign holidays for another year. How devastating that must have been to hear for the many thousands whose jobs depend on the tourism sector. Many had taken at face value the government’s commitment to reopen as soon as the most vulnerable were protected.
And just in case we hadn’t got the message yet, Mary Ramsay from Public Health England announced that, irrespective of how many of us choose to get vaccinated, we can expect restrictions on travel and laws forcing people to wear masks and to practice social distancing to last ‘for years’. In normal times, we might have expected ministers to slap down such overreach from a public-health official. But the lack of response suggests she was representing the government’s view.
Jeremy Devine, writing in the Wall Street Journal, explores the “dubious origins of long Covid.” A slice:
But many of the survey respondents who attributed their symptoms to the aftermath of a Covid-19 infection likely never had the virus in the first place. Of those who self-identified as having persistent symptoms attributed to Covid and responded to the first survey, not even a quarter had tested positive for the virus. Nearly half (47.8%) never had testing and 27.5% tested negative for Covid-19. Body Politic publicized the results of a larger, second survey in December 2020. Of the 3,762 respondents, a mere 600, or 15.9%, had tested positive for the virus at any time.
Peter Hitchens decries the terrible turn that Britain took on March 23, 2020. A slice:
All the crudest weapons of despotism, the curfew, the presumption of guilt and the power of arbitrary arrest, are taking shape in the midst of what used to be a free country. And we, who like to boast of how calm we are in a crisis, seem to despise our ancient hard-bought freedom and actually want to rush into the warm, firm arms of Big Brother.
Imagine, police officers forcing you to be screened for a disease, and locking you up for 48 hours if you object. Is this China or Britain? Think how this power could be used against, literally, anybody.
The Bill also gives Ministers the authority to ban mass gatherings. It will enable police and public health workers to place restrictions on a person’s ‘movements and travel’, ‘activities’ and ‘contact with others’.
Many court cases will now take place via video-link, and if a coroner suspects someone has died of coronavirus there will be no inquest. They say this is temporary. They always do.
Well, is it justified? There is a document from a team at Imperial College in London which is being used to justify it. It warns of vast numbers of deaths if the country is not subjected to a medieval curfew.
But this is all speculation. It claims, in my view quite wrongly, that the coronavirus has ‘comparable lethality’ to the Spanish flu of 1918, which killed at least 17 million people and mainly attacked the young.
What can one say to this? In a pungent letter to The Times last week, a leading vet, Dick Sibley, cast doubt on the brilliance of the Imperial College scientists, saying that his heart sank when he learned they were advising the Government. Calling them a ‘team of doom-mongers’, he said their advice on the 2001 foot-and-mouth outbreak ‘led to what I believe to be the unnecessary slaughter of millions of healthy cattle and sheep’ until they were overruled by the then Chief Scientific Adviser, Sir David King.
On Friday, the judge denied the state’s request for an injunction to immediately close Gourmeltz restaurant in Fredericksburg, the station said, adding that the judge said the state failed to show the injunction was in the public interest or that the public would be harmed without it.
Restaurant owner Matt Strickland started things off in a food truck five years ago and has worked hard to grow his business, WUSA said. Now he refuses to comply with Northam’s mandates on mask-wearing and social distancing, saying they’re unconstitutional, the station reported.
(DBx: Even though Fredericksburg is an hour south of me by car, I think that I’ll drive down later today to Mr. Strickland’s restaurant for a meal.)
Quotation of the Day…
… is from page 146 of Liberty Fund’s 2011 Definitive Edition (Ronald Hamowy, ed.) of F.A. Hayek’s soaring 1960 book, The Constitution of Liberty (footnote deleted):
Responsibility, to be effective, must be individual responsibility…. As everybody’s property in effect is nobody’s property, so everybody’s responsibility is nobody’s responsibility.
DBx: Today – March 23, 2021 – is the 29th anniversary of Hayek’s death. Hayek was, when he died in 1992, about six weeks shy of his 93rd birthday.
March 22, 2021
They Don’t Make Movies Scenes Like This One Any More
People in my generation will be amused to see, in this scene, Gilligan’s Island “skipper,” Alan Hale, dressed in a business suit. But the truly interesting feature of this short clip is the spot-on economics lesson delivered by Donald Crisp in the span of four minutes. (HT Mark Steckbeck, and my colleague Dan Klein)
Bonus Quotation of the Day…
… is from page 21 of John Mueller’s excellent 1999 book, Capitalism, Democracy, & Ralph’s Pretty Good Grocery:
[C]apitalism systematically encourages and rewards business behavior that is honest, fair, civil, and compassionate, and it also encourages, and often rewards, behavior that in many cases should reasonably be considered heroic.
More On the Global Economy
Here’s a letter to a first-time correspondent:
Ms. ___:
Thanks for your e-mail and for your kind words about the Sears’ catalog series at my blog.
I don’t share your concern that most of the consumer goods that Americans today purchase are not “Made in America.” Such labels today are virtually meaningless. They indicate only the country in which the final assembly of each good occurred. Because of the enormous complexity of the globe-spanning supply web, even the most mundane of goods today contains inputs – physical and intellectual – from across the globe, including the United States.
Although most of the consumer goods we buy sport labels such as “Made in China” or “Made in Turkey,” these labels would be far more accurate if they instead read “Final Assembly Occurred in China” or “Final Assembly Occurred in Turkey.” Equally accurate would be simply “Made on Earth.”
“Made in…” labels mask the fact that very often today the bulk of inputs contained in any good are produced in countries, including the U.S., other than the country whose name appears on the “Made in…” label.
Although produced several years ago, this video narrated by Reason’s Nick Gillespie explains that “The Jeep Patriot, despite its name is actually less American than some Toyota products.”
Also note that the inflation-adjusted value of American manufacturing output, in February 2020, just before the Covid-19 lockdowns, was only two percent below the all-time high that it hit in December 2007, at the start of the Great Recession. As for American industrial capacity, on the eve of Covid it was at an all-time high.
By the way, above I use the term “supply web” purposefully. Contrary to common parlance, there are no “supply chains.” Nearly every kind of input contained in nearly every good produced in modern economies is used also in the production of dozens, hundreds, or even thousands of different kinds of goods and services.
In follow-up e-mails I’ll do my best to address your other concerns.
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
Some Covid Links
John Tierney looks at the evidence on Covid-19 lockdowns. Three slices:
Now that the 2020 figures have been properly tallied, there’s still no convincing evidence that strict lockdowns reduced the death toll from Covid-19. But one effect is clear: more deaths from other causes, especially among the young and middle-aged, minorities, and the less affluent.
The best gauge of the pandemic’s impact is what statisticians call “excess mortality,” which compares the overall number of deaths with the total in previous years. That measure rose among older Americans because of Covid-19, but it rose at an even sharper rate among people aged 15 to 54, and most of those excess deaths were not attributed to the virus.
…..
The number of excess deaths not involving Covid-19 has been especially high in U.S. counties with more low-income households and minority residents, who were disproportionately affected by lockdowns. Nearly 40 percent of workers in low-income households lost their jobs during the spring, triple the rate in high-income households. Minority-owned small businesses suffered more, too. During the spring, when it was estimated that 22 percent of all small businesses closed, 32 percent of Hispanic owners and 41 percent of black owners shut down. Martin Kulldorff, a professor at Harvard Medical School, summarized the impact: “Lockdowns have protected the laptop class of young low-risk journalists, scientists, teachers, politicians and lawyers, while throwing children, the working class and high-risk older people under the bus.”
The deadly impact of lockdowns will grow in future years, due to the lasting economic and educational consequences. The United States will experience more than 1 million excess deaths in the United States during the next two decades as a result of the massive “unemployment shock” last year, according to a team of researchers from Johns Hopkins and Duke, who analyzed the effects of past recessions on mortality. Other researchers, noting how educational levels affect income and life expectancy, have projected that the “learning loss” from school closures will ultimately cost this generation of students more years of life than have been lost by all the victims of the coronavirus.
…..
If a corporation behaved this way, continuing knowingly to sell an unproven drug or medical treatment with fatal side effects, its executives would be facing lawsuits, bankruptcy, and criminal charges. But the lockdown proponents are recklessly staying the course, still insisting that lockdowns work. The burden of proof rests with those imposing such a dangerous policy, and they haven’t met it. There’s still no proof that lockdowns save any lives—let alone enough to compensate for the lives they end.
Through their blog, the professors have each expressed concern that the scientific and policy-oriented discussions about COVID-19 have become excessively polarized. This, they worry, has resulted in self-censorship, and prevented real dialogue between scientists and policy makers about the different interpretations of COVID-19 data.
“There seems to be a real reluctance to voice anything but a certain narrow and well-worn set of views about the nature of this pandemic and about the appropriate response from political and educational authorities,” Staub said.
He and his fellow bloggers have expressed concerns that mainstream media outlets often present COVID-19 data without enough context and tend to draw conclusions in the absence of reliable enough evidence.
“There was a greater interest in sculpting what our behavior would be, as opposed to letting us know what was really happening,” Dallapiccola said. “It almost felt like they didn’t want us to know certain things because it might lead to not cautious enough behavior.”
Huber elaborated that “there is, for instance, a lot of emphasis on half a million deaths. And that is a phenomenally large number. But it has never been put into context, for instance, that every year, approximately half a million Americans die as a cause of smoking and the different things that can arise from smoking.”
Paul Alexander and co-authors ask why children are being vaccinated against Covid.
Robert Morton reports on heroic Covid-tyranny resistance in Burbank, CA. A slice:
Here’s the best part: a few days ago, the Burbank City Council of Ninnies told a kangaroo-court hearing, in which it was obvious they had already made up their minds, demanding that the restaurant stop serving. A few days later, they cut power to the restaurant.
So what happened? Patriots and patrons donated generators and other gear so that the restaurant could continue to operate. And customers are still coming to the restaurant.
We’re not done yet. The Burbank City Council of Ninnies ordered the doors of the restaurant to be locked. It just so happens that Tinhorn Flats is famous for its swinging doors, like the saloons of the Old West. They cover those over at night with two large doors – which they REMOVED to prevent them from being padlocked!
Somehow, the next day, the doors reappeared and were padlocked, and so was the side entrance. Tinhorn Flats then posted picture on their Facebook page showing the side door was open, that they were open for business, and that anyone could come. As I write this article, on the evening of St. Patrick’s Day, the place is hopping and packed both indoors and outdoors. I had a wonderful burger and fries there today.
By the way, all of this followed an order by another L.A. County judge requiring the county to show evidence that the ban was necessary. This the county failed to do, but the judge sadly didn’t overturn the ban. Yet it was this ruling that bolstered Tinhorn Flats’ position that every step being taken against the restaurant was illegal.
Quotation of the Day…
… is from page 13 of my late Nobel-laureate colleague James Buchanan’s 1970 book, co-authored with Nicos Devletoglou, Academia In Anarchy (a book that is not included in Buchanan’s Collected Works):
The genuine educational process does not “train.” It “transforms.” It provides the student with a different and new way of looking at the world, a new vision that is akin to that produced by religious conversion or an LSD trip.
DBx: Indeed.
(I thank GMU Econ student Dominic Pino for generously lending to me his copy of this book.)
March 21, 2021
Some Brits Stand Proudly for What Britain Was Once…,
… but too few do.
I applaud these unmasked, courageous protestors of the tyranny of lockdowns. (HT my great colleague Dan Klein)
Some Non-Covid Links
George Will writes about an upcoming U.S. Supreme Court case on the takings clause. Here are his concluding paragraphs:
Ratification of the Bill of Rights, including the takings clause, was effective Dec. 15, 1791. Three months later, in a newspaper article on property, James Madison quoted, as the Founders were wont to do, the English jurist William Blackstone, who said the property right means the“dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.”
The words “servitude” and “dominion” are apposite in takings clause jurisprudence. What the Supreme Court will hear Monday are arguments about property rights that the Founders considered foundational for political liberty.
Also writing on this takings case is the Cato Institute’s Trevor Burrus.
My intrepid Mercatus Center colleague Veronique de Rugy decries the pandemic of fiscal incontinence. Here’s her opening ‘graf:
Perhaps you’ve heard the story of the guy who – after jumping from the 50th floor of a skyscraper – is asked how he’s doing as he falls past the 20th floor. “So far, so good!” he replies. That blissfully unaware individual headed toward his doom is, my fellow Americans, us. And we’re heading there not because Dr. Seuss Enterprises decided to stop the publication of six books.
Also decrying the U.S. governments’ grotesquely irresponsible fiscal imprudence is David Henderson.
Eric Boehm reports on how Biden and the Democrats are locking in Trump’s protectionism. A slice:
During her confirmation hearing last month, U.S. Trade Representative Katherine Tai said she views tariffs as “a legitimate tool” to wield against China. While acknowledging that Trump’s trade policies caused “a lot of disruption and consternation,” Tai said she hoped to “accomplish similar goals in a more effective process.”
In practice, that likely means giving labor unions—which are typically not huge fans of free trade—greater control over U.S. trade policy. Tai previously worked as the congressional Democrats’ top negotiator on the United States–Mexico–Canada Agreement (USMCA) and helped shepherd some major union priorities into the deal. The AFL-CIO, which almost never endorses trade agreements, came out for the USMCA after some last-minute changes to artificially hike wages in Mexican automating plants and more strictly enforce labor standards in Mexico.
But it also likely means maintaining this charade about the effectiveness of tariffs, despite all evidence to the contrary. Because Biden’s top trade advisers are more polished than Trump’s, they’ll likely avoid making outlandish and easily disprovable claims like Navarro’s ridiculous “China is bearing the entire burden of the tariffs” promise. Instead, Raimondo and Tai are using vague talk about “effective” policy and “legitimate tools.” But don’t let the softer language fool you: They are just as wrong.
Robert Pondiscio reveals how the cancer of wokeness is destroying even K-12 private schooling. A slice:
A remarkable piece in the Manhattan Institute’s City Journal by ex-New York Times columnist Bari Weiss takes us to a backyard meeting of rebellious parents (but not too rebellious) whose children attend Harvard-Westlake, the most prestigious private school in Los Angeles. They are deeply troubled that the school’s plan to become an “anti-racist institution” is “making their kids fixate on race and attach importance to it in ways that strike them as grotesque,” she reports. These parents are awash in every conceivable form of privilege, including the ability to pay $50,000 in annual tuition. The school is forcing their children to speak, think, and behave in compliance with an ideological movement they find abhorrent, yet none are willing even to speak to Weiss on the record, let alone leave the school for one more aligned with their views and values.
Joakim Book wants you to tell him again why governments are “essential.”
Glenn Greenwald rightly criticizes mainstream journalists for no longer being champions of freedom of expression. (HT Arnold Kling) A slice:
First, look how they grant themselves license to use their platforms to attack the journalists they dislike and generate hatred and harassment toward us. I really need someone to explain this to me: why is it permissible for Ryan Broderick to write articles attacking me and maligning my work, and for New York Times front-page reporter Taylor Lorenz to use her large Twitter platform and recruit all her media friends to attack me as well (or Taibbi, Weiss, Singal, Sullivan, etc.), but we are not allowed to write critiques of their work because doing so constitutes dangerous harassment that must be silenced?
George Selgin writes about my GMU Econ colleague Larry White writing about the private coinage of gold. Here’s George’s opening:
Every hoary myth about the private market’s unfitness to supply means of exchange has roots that trace back to the hoariest monetary platitude of all, namely, the claim that governments alone, whether republican or absolutist or otherwise, are fit to coin money.
That commonplace credendum dates from ancient times, and was a staple of medieval and early-modern monetary writings. Paradoxically enough, after stating the standard dogma, most of those writings go on to describe in lurid detail, and vigorously condemn, sovereigns’ frequent and flagrant abuse of their coining privileges!
Juliette Sellgren’s podcast with law-and-economics scholar Todd Zywicki is wonderful.
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