Russell Roberts's Blog, page 362

A Stake Through the Heart of the Market System

(Don Boudreaux)

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Here’s a letter to a college student who e-mailed to wonder at my opposition to so-called “stakeholder capitalism.”

Ms. Baio:

Thanks for e-mailing.

I urge skepticism of calls for government to compel corporations to attend to the welfare of so-called “stakeholders” at the expense of the welfare of shareholders. The quotation at my blog from Deirdre McCloskey and Alberto Mingardi nicely summarizes many reasons for such skepticism. I stand by that quotation and encourage you to consider it more carefully. But I here add one more reason – one built on the truth of your wise recognition that “corporate decisions impact communities and families outside of ownership.”

Given this truth, should government, then, compel individuals and households to attend to the welfare of “stakeholders” at the expense of the welfare of the individual and members of the household? After all, if you choose to shop at Safeway rather than at Kroger, your decision contributes to possible job losses at Kroger. In light of this fact, would it be wise to enable government to compel you to shop at Kroger despite that store’s higher prices or greater inconvenience?

Or if your parents are considering moving to another town, should government be able to override their decision – forcing them to remain where they are – because the sale of their current home will depress property values in their town and, thus, negatively affect their neighbors?

My point is that every economic decision has impacts far beyond the individual decision-maker. This reality isn’t confined to corporations; it’s true of each and every economic decision that you personally make, that each household makes, that each small business makes. And it’s fundamental to an economy built on specialization and trade. To ensure that as many as possible of these impacts are positive rather than negative, market economies rely upon private property and contract rights as well upon economic competition and market prices. (To better understand how these institutions promote positive impacts and lessen negative ones, I recommend a well-taught course in principles of economics.)

And so – “Stakeholder capitalism” is not, contrary to Elizabeth Warren’s claim, a means of saving or improving the market economy. It’s a frontal assault on it. By allowing government to suppress private property and contract rights, we’d move, not in the direction of what you call “a more humane capitalism” but, instead, in the direction of a more arbitrary and, hence, authoritarian means of dictating the use of resources, including labor. The end result would not be what you expect and hope.

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

Quotation of the Day…

(Don Boudreaux)

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… is from page xviii of my emerita colleague Karen Vaughn’s “Introduction” to Liberty Fund’s 1981 edition of Trygve J.B. Hoff’s 1949 study, Economic Calculation in the Socialist Society (typo corrected):

Economic activity is the process of discovering alternatives which improve profitability and, hence, resource efficiency. It is part of entrepreneurship to identify superior resources and to combine them in more imaginative ways to produce a product, and it is this activity which adds to the information available in the market place. Furthermore, even if the information available to economic actors were objectively determinable apart from their actions it is also decentralized. It is through the process of buying and selling in markets that all the decentralized bits of knowledge can coalesce into a coordinated whole.

DBx: Yes. And so artificial obstacles and stimulants to trade – most notably, tariffs and subsidies – obstruct and distort the coalescing of economic knowledge. Proponents of industrial policy and other protectionists propose to obstruct and distort the competitive process that forms prices – that is, that convey economic knowledge. Proponents of industrial policy and other protectionists propose, in other words, to make the economy stupider.

The Great Matt Ridley…

(Don Boudreaux)

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… writes again on the calamitous response to Covid-19.

Unfortunately, most humans these days seem to be unable to escape the deafening echo-chamber of irrational histrionics in which they, apparently, are trapped. On these hysterical persons the wisdom of serious, knowledgeable thinkers such as Matt Ridley has no effect. So sad.

Here are two slices from Matt’s latest:

It is counterintuitive but the current spread of Covid may on balance be the least worst thing that could happen now. In the absence of a vaccine, and with no real prospect of eradicating the disease, the virus spreading among younger people, mostly without hitting the vulnerable, is creating immunity that will eventually slow the epidemic. The second wave is real, but it is not like the first. It would be a mistake to tackle it with compulsory lockdowns (even if called ‘circuit breakers’), whether national or local. The cure would be worse than the disease.

If you cannot extinguish an epidemic at the start, the best strategy is for the healthy to get infected first. Lockdowns ensure that the vulnerable and the healthy both get infected with similar probability. School closures, concluded a recent paper in the British Medical Journal, can paradoxically lead to more deaths by prioritising the protection of the least vulnerable.

In July the World Health Organisation said full lockdowns could be ‘the only option’ to prevent resurgence. But last week Dr David Nabarro, a WHO special envoy for Covid-19, told Andrew Neil on Spectator TV that ‘We in the WHO do not advocate lockdowns as the primary means of control of this virus… We really do appeal to all world leaders: stop using lockdown as your primary control method.’

…..

Or look at London, where just 34 people died of Covid in the first week of October, compared with more than 1,000 a week in early April. There isn’t much of a second wave there, despite — or because of — demonstrations and crowded tube trains during the summer. This is probably because London’s first wave was already well advanced when lockdown started. Given widespread immune responses to the four kinds of corona-caused common colds, and the skewed pattern of viral infection, whereby a few super-spreaders cause most of the new cases, it looks increasingly as if the virus is already finding it harder to spread in the capital this time round.

The alternative to lockdown is not ‘letting the virus rip’, as Boris Johnson puts it. The Great Barrington Declaration, signed by over 20,000 doctors and medical scientists (but disgracefully censored by Google’s search engine), calls for focused protection: help the elderly and vulnerable stay at home, but let the young and invulnerable go out and achieve immunity for us all, while earning a living. The extraordinary truth is that a student catching Covid might be saving Granny’s life rather than threatening it.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 102 of the May 9th, 2020, draft of the important monograph – forthcoming this month jointly from the Adam Smith Institute and AIER – by Deirdre McCloskey and Alberto Mingardi, The Myth of the Entrepreneurial State:

And why suppose that profit is inversely correlated with social values? The supposition is fundamental to the statist left: profit is seen as a sin, a pointless and indeed evil extraction by the bosses, when the whole average product of labor should go to labor alone. But no, it should not, not if the economic pie is to be as large as possible, giving the poor their 3,000 percent improvement. The owners of the company are last in line for payment, as most economist have understood, at the latest in 1921 from Frank Knight’s Risk, Uncertainty, and Profit. The wages, material costs, costs of routine management, and the cost of insurance against calculable risk are all pre-contracted, bought from the outside of the enterprise at their going prices. The stockholder-owners therefore bear the uncertainty of any enterprise, the very uncertainly that [Mariana] Mazzucato in her 2013 book claimed only the State could properly assume. (We do so wish, not for the first or last time, that the a professor of economics exhibited an acquaintance with the elements of economics.)

DBx: “Stakeholder capitalism” (so-called) is a recipe for economic calamity. Those who endorse it – those who call for corporations to aim to maximize the welfare of “stakeholders” rather than the profits of shareholders display an astonishing ignorance of basic economics (and also of advanced economics).

As with campaigns to “buy local,” campaigns for “stakeholder capitalism” are a litmus test: Anyone who supports such campaigns thereby reveals his or her economic ignorance.

A Diagnosis

(Don Boudreaux)

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Craig Pirrong makes an excellent diagnosis of the disease that now endangers so much of the world, including America. Two slices:

It’s more than fair to say that we are experiencing a pandemic, but not the one you hear about ad nauseum. No, the pandemic is not a virus, it is a pandemic outbreak of Munchausen’s Syndrome by Proxy which focuses its obsessions on the virus.

Munchausen’s Syndrome by Proxy is a mental illness in which the sufferer fantasizes that others–usually people in their charge, such as children–are suffering from serious illness and require drastic medical intervention.

Observe what has happened over the last 7 months, and what if anything is increasing in intensity today. The obsession with Covid-19. The monomaniacal focus on “cases” (usually the result of hypersensitive tests prone to false positives), with the belief that people who test positive are sick, and huge numbers of those who become sick will die.

Given the actual experience over the last several months, these beliefs are wildly exaggerated–imaginary, fantasized illnesses, with fantasized severity, just the kind of thing that a sufferer of MSbP does.

And there’s more to the diagnosis. MSbP sufferers subject the people whom they imagine are ill with suffocating attention and unnecessary, and often harmful, health-related interventions. You know, like lockdowns; draconian restrictions on movement, social contact, and other features of everyday life; the shutting down of schools and colleges; and strident demands to wear masks–even between bites of your meal if you are in California.

Look at so many governors and mayors, e.g., Gretchen Whitmer of Michigan, Gavin Gruesome–excuse me, Newsom–in California, J. B. Pritzker in Illinois, or Tim Walz in Minnesota. (I could go on. And on. And on. Believe me.) They constantly invoke their power over you. But it’s for your own good! Trust them! Mommy is protecting you! And if you object, you will be punished! How dare you defy Mommy’s tender mercies, you ungrateful brats? If you do, you will be punished! To get your minds right and realize just what danger you are in, and why you need to listen to Mommy and do exactly as she says!

…..

But it is beyond cavil that it [Covid-19] is nothing remotely like the last great pandemic disease, Spanish Influenza of 1918-1919. But that doesn’t stop severe cases of MSbP like Gov. Gretchen Ratched from justifying their actions by reference to that episode, and invoking laws passed during that real pandemic to control your life today.

In normal times, most of the objects of MSbP sufferers are children, who have limited power to resist. Often medical professionals are the ones who identify a MSbP situation, and intervene to protect the object.

But today, adults are overwhelmingly the objects. And too many medical professionals enable MSbP (and may indeed be sufferers themselves–just look at the lunatic Twitter timelines of many medicos FREAKING OUT over Trump’s remarks and behavior, i.e., acting like someone suffering the flu, or a cold).

Given the coercive powers of the most important MSbP sufferers, the said governors, mayors, bureaucrats, etc., this pandemic–the MSbP pandemic–is wreaking untold havoc. We need more people to say we aren’t going to take it. We need more people to push back. We should not be in the thrall of the mentally ill.

But alas, we are. Because there are so goddam many of them, and they infest the executive branches of government at every level.

Some Links

(Don Boudreaux)

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Matt Ridley joined eleven other British peers in sending this letter to The Times:

Sir, It is now clear that a policy of lockdown failed to bring the virus under control while having crippling economic and social side effects. Sweden has achieved a lower death rate from Covid-19 than the UK, with far less economic and social damage, despite being a slightly more urbanised society. If lockdown were a treatment undergoing a clinical trial, the trial would be halted because of the side effects. We suggest the government try a new approach, more in keeping with the Conservative philosophy of individual responsibility. Anyone who wishes to be locked down, whether because they are vulnerable or for other reasons, should be supported in doing so safely. Anyone who wishes to resume normal life, and take the risk of catching the virus, should be free to do so. The choice would be ours.

Lord Ridley; Lord Cavendish of Furness; Lord Dobbs; Lord Hamilton of Epsom; Lord Howard of Rising; Lord Lamont of Lerwick; Lord Lilley; Lord Mancroft; Baroness Meyer; Baroness Noakes; Lord Robathan; Lord Shinkwin; House of Lords

Jonas Herby finds more evidence for the “dry tinder” theory of why Sweden’s covid-19 death count is as high as it is. (HT Dan Klein)

Here’s Robert E. Wright on the John Snow Memorandum. A slice:

Lockdowners and critics of herd immunity have missed a couple of important details. The first is that covid [insert obligatory concession to it being a “serious” disease here] is simply NOT as deadly as once thought. Remember John Ioannidis, perhaps the greatest health scientist alive? He was pilloried for assembling studies that showed covid was not as deadly as once feared. Now the WHO, the World Health Organization not the British rock band, has published his now peer-reviewed piece “Infection Fatality Rate of COVID-19 Inferred from Seroprevalence Data” and endorsed its conclusion: “Inferred infection fatality rates tended to be much lower than the estimates made earlier in the pandemic.”

Ben Zycher writes that the Green New Deal, although truly awful, is thankfully unlikely.

Jeff Jacoby writes intelligently about the ridiculous furor over Gal Gadot being cast as Cleopatra.

Joe Kennedy debunks the now-popular assertion that monopolies in America are eroding labor’s share of national income. (HT Tyler Cowen)

Quotation of the Day…

(Don Boudreaux)

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… is from page 5 of the 5th edition (1966) of Karl Popper’s 1945 book, The Open Society and Its Enemies:

Why do all these social philosophies support the revolt against civilization? And what is the secret of their popularity? Why do they attract and seduce so many intellectuals? I am inclined to think that the reason is that they give expression to a deep-felt dissatisfaction with a world which does not, and cannot, live up to our moral ideals and to our dreams of perfection.

DBx: Unlike true liberalism, most social philosophies regard society as a science project, something to be engineered into its ideal condition by a higher power. The higher power might be god, it might be history, it might be the state. Some higher power must be assumed to carry out the engineering (with the state ever-ready to lend its services to the engineering effort). In short, adherents of most social philosophies other than true liberalism believe that it makes sense to talk about social “solutions”; they do not understand that it makes sense only to talk about trade-offs.

What Joakim Book Says

(Don Boudreaux)

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Joakim Book is a deep, nuanced, and wise thinker who, with every essay that he writes, earns more of my respect. His latest essay for AIER is a heart-rending must-read. Like him, I hope – oh do I hope! – that he’s mistaken. But I fear that his fears – his Robert Higgsian fears – are warranted. Humanity’s insane overreaction to covid-19 is an epic tragedy, one of the greatest errors in all of human history. Here’s a slice from Mr. Book’s essay:

It’s not about what works and what doesn’t, a disease or how best to combat it. It’s not even about weighing one set of ills against another. It’s about feeling good and about being in it together – suppressing everyone’s rights and freedoms together.

Air travel won’t return to its 2019 peak. Fewer people will fly, eschewing the wonders of Elsewhere for the safety of Somewhere. The prospects of mandatory quarantines, sometimes in both directions of travel, will sway all but the most dedicated people from traveling. Those who venture into these remarkably safe wonders of civilization will find themselves going through an additional ordeal – not unlike what happened after 9/11 (another set of freedoms never returned to us). We’ll be wearing masks for many years to come, possibly forever; food and drinks will not be served; hand sanitizers and wipers ensure that nothing ever touches your skin. The slight silver lining is some extra space as under no circumstances will seat neighbors be permitted – which means that airlines will struggle with profitability, see more future bailouts, and some of them probably nationalized.

The comparatively harmless plexiglass will be everywhere, as will the masks that make it impossible to read others’ facial expressions and on occasion hear what they’re saying. Social interaction will be inhibited, and not just physically. We’ll all make our purchases behind protective veils – or through the pseudo-anonymity of being online – losing the affectionate interactions that make market participants friendlier. Say goodbye to late-night rumblings through the streets – nightclubs and bars will stay closed, permanently, as such frivolity is most certainly not “essential.” If you’re even allowed outside, that is – which you won’t be – there will be few reasons for you to leave the safety of your home.

Vaccines will arrive, faster than ever before in human history, but the combination of not providing enough protection and a sizable portion of the population refusing to take them, will mean that corona restrictions remain in place.

The madness of 2020 has had a lot of extraordinary firsts: lines in the sand we never thought politicians would cross. We thought they’d never infringe on people’s freedom to walk outside, meet others, trade in perfectly harmless and mutually beneficial exchange. We were wrong: at the first sight of (slight) danger, we handed over freedoms left and right – and nobody really cared. Higgs’ thirty-year-old words are more relevant than ever.

When even free-marketeers like Tyler Cowen say that opening schools “just doesn’t seem worth it,” we don’t want to know what he thinks about other activities. In the early days of the pandemic, opponents of freedom said smugly that “There are no libertarians in a pandemic.” Perhaps, we reluctantly conceded as we all feared what we didn’t know, before we retorted that there would be no statists coming out of one. Liberty’s proponents seem to be losing that one too.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from pages 111-112 of Kristian Niemietz’s excellent 2019 book, Socialism: The Failed Idea That Never Dies:

Western intellectuals had lavishly heaped praise on China when millions of Chinese people were starving or worked to death in forced labour camps. But when a programme of relative liberalisation lifted millions of people out of poverty, those intellectuals were conspicuous by their silence. Market-based reform programmes, no matter how successful, will never inspire privileges. They may, in a narrow sense, ‘work’. But they will never capture the imagination of Western intellectuals.

DBx: Western intellectuals pride themselves on their extraordinary ability to detect deviations from abstract and universal perfection in individuals and institutions central to (classical) liberalism. And (shocker!) finding some imperfections – some of which even are real, and a few of which are very deep – these intellectuals then leap illogically to the conclusion that any and all remaining fruits of western liberalism are evil and corrupt to the core.

Yet many of these same intellectuals support socialism, or expansions of government control over human lives that come quite close to be socialistic. Why isn’t the very idea of socialism tainted in their minds with the vile deeds of the likes of Stalin, Mao, Pol Pot, Castro, and Chavez? Is human brutality and slavery bad only when it is carried out for some purpose other than the ostensible one of building heaven on earth? Why do some of these intellectuals not criticize their students who proudly (if stupidly) wear t-shirts adorned with the face of the murderous Che?

How many are the intellectuals today who, relying on the ridiculous fallacies in the New York Times‘s “1619 Project” or on the realities of the Triangle Shirtwaist factory fire, insist that American capitalism is naturally evil and that it must be replaced with some system more akin to socialism?

Some Links

(Don Boudreaux)

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Here’s the second of David Henderson’s two-part reaction to Tyler Cowen’s dismissal of the Great Barrington Declaration. A slice:

Cowen is right that governments have reacted by scaring people. That’s one reason the Great Barrington Declaration is important. It seeks to tell people not to be so afraid unless they’re particularly vulnerable. Notice the statement in the Declaration that “Young low-risk adults should work normally, rather than from home.” The authors are not saying that they should be forced to; they’re saying they should. As I understand the Declaration, they’re trying to talk to young people as well as others and say, in effect, “Come in, the water’s fine.” Does Cowen object? If so, he doesn’t make clear and he doesn’t say why.

Members of the Wall Street Journal‘s editorial board continue to be a sober voice of reason amidst the shrieking, deranged hysteria over covid-19. A slice:

Leaders in most of the world put too much faith in lockdowns, and in experts who derided alternatives such as Sweden’s experiment with a more calibrated response that kept most of the economy and schools open.

Warren Meyer offers an interesting take on the consequences of the covid lockdowns.

Are women the beneficiaries of systemic sexism in American graduate schools?!

Ethan Yang reminds us of just how important is the late Warren Nutter’s 1969 book, The Strange World of Ivan Ivanov.

Michael Strain is no fan of Biden’s proposed taxes.

Don’t miss Juliette Sellgren’s podcast, on free-market environmentalism, with Terry Anderson.

David Friedman made what is likely his first monetary donation to a political campaign.

Megan McArdle wisely warns those on the political left that their heavy-handed and hypocritical use of their outsized influence in the mainstream media (old-school and social) might well backfire.