Russell Roberts's Blog, page 364

Quotation of the Day…

(Don Boudreaux)

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… is from Thiry d’Holbach, as quoted on page 159 of Philipp Blom’s 2010 book, A Wicked Company:

Men will always deceive themselves by abandoning experience to follow imaginary systems.

DBx: If not literally all, certainly too many ‘men’ – too many people – are prone to behave in the fatal way as described by Holbach. Sad.

A Polarizing Myth

(Don Boudreaux)

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Here’s a letter to my incessant correspondent Nolan McKinney:

Mr. McKinney :

A part of Brink Lindsey’s and Samuel Hammond’s new paper that you find “among the most worrying” – and allege that I, in my earlier response, “conveniently overlook” – is on page 94. There they write that “rising job polarization has hollowed out the availability of ‘middle skill’ occupations, creating bifurcated labor markets in which ‘high skill’ professionals live side-by-side with ‘low skill’ service sector workers just barely scraping by.”

Admittedly, the impression given by their portrayal of this labor-market development is worrying. Fortunately, this impression is inaccurate. Here’s economist Michael Strain, writing earlier this year:

Recall that David Autor, the economist, calculated that over the four-and-a-half decades since 1970, middle-skill employment fell from about 38 percent to 23 percent of total employment. But this fall in the middle was offset by a rise in employment at the top. Employment in high-skill occupations grew from about 30 percent to 46 percent. At the same time, low-skill employment did not increase. On the whole, the hollowing out of the middle is a story of middle-skill employment being replaced by high-skill employment.*

Only if the additional workers today, compared to in the past, holding high-skill (and, hence, higher-paying) jobs would prefer to hold middle-skill (and, hence, lower-paying) jobs, the “job polarization” that Messrs. Lindsey and Hammond lament is an unambiguously good development – and one not made otherwise by the authors putting “job polarization” in italics.

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

* Michael R. Strain, The American Dream Is Not Dead (But Populism Could Kill It) (West Conshohocken, PA: Templeton Press, 2020), page 72.

UPDATE: In response to the above letter, Scott Lincicome sent to me the following in an e-mail:

Hey Don,

Even the Autor study is too pessimistic, because it tracks job categories instead of the wages of the actual people in those categories. I summarized the new research on the latter in a recent cato blog post (https://www.cato.org/blog/some-reasons-optimism-regarding-hollowing-out-americas-middle-class):

Second, a 2019 paper from Jennifer Hunt and Ryan Nunn provides similar conclusions when examining wages at the individual level (rather than occupation‐average wages) over time. They explain that “[w]hile occupations may provide reliable information about tasks and the nature of work at a point in time, average occupation wages are in general not appropriate proxies for individual wages, nor is the distribution of occupations by average wage very informative about the distribution of workers’ wages” (and thus wage inequality and polarization), in large part because wages can vary dramatically within occupations (even those classified as “low wage”).

Instead, they assign workers to real hourly wage “bins,” ignoring specific occupations and their average wages, and then track annual changes in the shares of workers in each bin between 1973 and 2018, again adjusting for inflation. The groups examined here are different from those used by Rose – the highest‐wage bin starts at $35.08 (equivalent to about $70,000 per year), and these individuals are not converted to 3‐person “family equivalents” – but the findings are nevertheless similar: low and middle‐wage jobs are slowly declining while higher‐wage jobs are increasing more quickly.

Pittsburgh Tribune-Review: “U.S. data, then & now”

(Don Boudreaux)

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In my column for the January 26th, 2011, edition of the Pittsburgh Tribune-Review, I reported some interesting data from American history. You can read my column beneath the fold

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Some Links

(Don Boudreaux)

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In today’s New York Times, my intrepid Mercatus Center colleague Veronique de Rugy writes sensibly about taxes and the U.S. tax code. A slice:

There are many aspirational visions for the tax code. If yours is a wildly complex, 2,600-page code of rules and frustration, you win, because that’s what we have now. If you desire a federal tax code that’s an archaeological record of special-interest politics, chiseled out over time with giveaways under the cover of achieving social goals like subsidized child care, homeownership, health care, higher education and more, you win again.

But if your vision is for a more equitable system that can actually be enforced by the I.R.S., what we really need is a simpler and fairer tax code. Some of the current rules are good, but many are political giveaways to special interests. Telling those rules apart is actually harder than it seems, but there are some obvious places to start.

Here’s a slice from Holman Jenkins’s latest column:

Which brings us to a second reason late October will be a red-letter moment in the annals of the administrative state. Ajit Pai, chief of the Federal Communications Commission, has scheduled an Oct. 27 vote to finalize repeal of a politicized Obama-era order turning the internet into a regulated utility. Has any furor in the history of the republic proved more fraudulent and illusory than the “death of the internet” hysteria whipped up by HBO twit John Oliver, Democrats and left-wing interest groups?

Since the Trump FCC acted, internet speeds have doubled in the U.S. The rate of new wireless cell site construction has increased sevenfold. The absence of utility-like regulation is a reason our internet, unlike Europe’s, has survived the pandemic without having to throttle speeds to accommodate millions working at home during the day and bingeing on Netflix at night.

I heartily agree with John Cochrane that the great Thomas Sowell deserves to win a Nobel Prize in Economics.

Caroline Breashears eloquently reminds us of Mary Shelley’s warning in Frankenstein. A slice:

A few modern theorists may be staring at their own chess boards, wondering how pieces started moving of their own volition. But that was always inevitable, as anyone who has read Frankenstein or Smith or Hayek would know. Imagining that we can plan great systems and have all the knowledge to control them is folly.

I am very sorry to learn that Sir Samuel Brittan has died.

Juliette Sellgren’s podcast with David Boaz is wonderful.

Does Russ Roberts deserve what he has (part III)? A slice:

If you start taxing wealth and if you tax income at really high rates, you’re probably going to get less of it. But it’s not just that the super-rich will have to share their money with the rest of us. They’re going to save and invest less because the tax system is going to take some of the gains away. If that happens, it won’t just hurt the rich. It will hurt people who benefit from the savings and investment that rich people make in making the rest of us more productive.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 128-129 of Matt Ridley’s insightful 2015 volume, The Evolution of Everything (original emphasis; link added):

It is the sea herself who fashions boats. It’s in this radical re-imagining the the new wave of thinking about the evolution of technology in the current century is turning the world upside down.

Indeed, as Peter Drucker wrote in his classic 1954 business book The Practice of Management, customers shape companies in much the same way: ‘It is the customer who determines what a business is. For it is the customer and he alone, who through being willing to pay for a good or for a service, converts economic resources into wealth, things into goods.’

DBx: This insight is important, yet typically overlooked.

No economic activity is valuable – no economic activity is truly economic – unless it serves, ultimately, some consumption end, whatever that end might be. The consumption end might be sybaritic, such as a massage or a cellar full of 1985 Chassagne-Montrachet, or it might be ‘higher,’ such as helping to build a new hiking trail for your neighborhood or accumulating savings to better secure your family’s economic future. Consumption is not a synonym for frivolity or experiencing sensual pleasure. (Persons who wish to dismiss the free-market case built on Adam Smithian economics often argue to the contrary, insisting mistakenly that those of us who support free markets do not understand that many people value experiences higher than maximizing hauls from malls.)

To the extent that government policy protects producers from the spending decisions of consumers, that policy prevents raw materials, intermediate inputs, and labor from being employed as productively as possible. The ‘value’ that appears to be produced as a result of tariffs or subsidies is artificial; it exists only because things of higher value are prevented from being produced.

…..

I do not go quite as far as Peter Drucker and say that the consumer alone ‘converts economic resources into wealth, things into goods.’ The creativity, willingness to take risks, and hard work of entrepreneurs should be given some credit. But Drucker is correct not only to note the crucial role that consumption decisions play in shaping the economy, but also to give primacy to consumption over production as the ultimate determinant of economic value.

Baker Bob might work tremendously hard to fill the shelves of his shop with anchovy-and-Froot-Loops pies, but if no one chooses to purchase these pies, Baker Bob has produced nothing of value – which means that, economically, Baker Bob has not produced; he has wasted. And if government restricts consumers’ freedom to purchase foods other than Baker Bob’s yucky pies, the resulting sales that Baker Bob makes of such pies, while celebrated by protectionists as evidence of the efficacy and brilliance of their policies, will of course in reality not represent a commendable economic outcome.

Category Error

(Don Boudreaux)

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In my latest column for AIER, I lament the fact that Covid-19 has come to be feared by so many people as posing a danger categorically different from most that we humans have endured. Here’s my final section:

My always wise friend and sometime co-author Lyle Albaugh has from the start understood that Covid, while certainly no nothingburger, is not remotely close to being the extraordinary monster that it has become in the popular mind. And so he’s having the following information printed on business-card-sized notices:

COVID-19 INFECTION SURVIVAL RATES (per CDC)

Ages 0-19:    99.997%

Ages 20-49:  99.98%

Ages 50-69:  99.5%

Ages 70+:     94.6%

Seasonal Flu Infection Survival Rate (for population as a whole): 99.90%

This single slice of information should be sufficient to put Covid-19 in proper perspective. It makes plain that the risk that this disease poses to humanity as a whole does not differ categorically from the risk of seasonal flu – or, for that matter, from any of the many other perils that we humans routinely encounter. And because these figures show the estimated chances of survival of those who are infected with Covid, even for persons 70 years of age or older Covid obviously is not a categorically unique threat.

And yet, again, humanity has reacted to Covid in a manner categorically unique. It’s as if a hornet rather than a honeybee found its way into our home, and so to protect ourselves from the somewhat-more-threatening invader we commenced to frantically scour every room of our home with a flamethrower.

But I despair that the information shared by Lyle – or even the more extensive information shared by my courageous colleagues at AIER – will have any noticeable impact. Very many people today seem almost eager to be misled about the danger posed by Covid. Much of humanity today appears to perversely enjoy being duped into the irrational fear that any one of us, regardless of age or health, is at the mercy of a brutal beast categorically more lethal than is any other danger that we’ve ever confronted. I hope that my despair proves misguided.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 122 of F.A. Hayek’s March 9th 1976 Daily Telegraph essay, “Adam Smith (1723-1790): His Message in Today’s Language,” as this essay is reprinted in the 1991 collection, The Trend of Economic Thinking, which is Vol. 3 in The Collected Works of F.A. Hayek:

And if we persevere in the atavism and, following the inherited instincts of the tribe, insist upon imposing upon the great society principles which presuppose the knowledge of all the particular circumstances which in that society the chief could know, back to the tribal society we shall go.

DBx: No name of an ideology is more ironic than is “progressivism.” Progressives, always seeking ever-more conscious control over social and economic processes, do not understand that such control is possible only by reducing the range of consequences of human actions to that which can be observed and understood by the conscious human mind. But to so diminish the range of consequences of human action would be to dramatically shrink society, literally, to the size of a pre-historic tribe. Such is the logical end-point of so-called “progressivism.”

Pittsburgh Tribune-Review: “The rights stuff”

(Don Boudreaux)

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In my column for the January 12th, 2011, edition of the Pittsburgh Tribune-Review I celebrated the great Nobel-laureate economist Ronald Coase (who just two years earlier had celebrated his 100th birthday; Coase was to live until September 2013). You can read my column beneath the fold.

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Some Links

(Don Boudreaux)

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George Leef makes the case for negative voting. Here’s his conclusion:

Last but not least, if Americans could vote against candidates, that might make them more inclined to think about the damage that government does to them, and less about the promises politicians make for supposedly beneficial new laws and programs.

It’s interesting to note that when the United Nations chooses a new secretary general, nations are allowed to vote against candidates they don’t want.

Voters in the United States ought to have the same ability.

And Katherine Mangu-Ward asks sensibly, why can’t Biden and Trump both lose the upcoming election.

“On Monday the Royal Swedish Academy of Sciences awarded the Nobel Prize in Economic Sciences to two American economists at Stanford, 83-year-old Robert B. Wilson and 72-year-old Paul R. Milgrom. The citation was ‘for improvements to auction theory and inventions of new auction formats.’” – so begins David Henderson’s Wall Street Journal write up on the 2020 Nobel-laureate economists.

AIER reprints, from 2001, this wise warning by Oxford Professor of Theoretical Epidemiology Sunetra Gupta against the misapplication of mathematics.

Andrew Stuttaford surveys some recent reports on the Covid lockdowns.

Scott Lincicome explains that a Covid-19 vaccine depends upon globalization. A slice:

Beyond the sheer size and scope of the U.S. effort, what’s perhaps most striking here is the extent to which the Trump administration jettisoned its economic nationalism in pursuit of a game‐​changing COVID-19 vaccine. Indeed, as shown in the chart below (based our own independent research), each of the vaccines that the United States has secured appears to be heavily reliant on globalization — of investment, manufacturing, testing, and research personnel — to produce the final doses at the absolute maximum speed and scale.

Help protect these little girls and their treehouse from Fairfax County’s petty tyrants.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 151-152 of the late, great Wesleyan University economic historian Stanley Lebergott’s insightful 1975 book, Wealth and Want:

Two important economic consequences flow from higher savings by the rich.

(1) The more they save, the less they consume. They thereby leave more of the current flow of goods and services to be consumed by those with lower incomes. Moreover, by not bidding for as many goods as their incomes would permit they, insofar forth, keep down the prices of the goods bought by those with lower incomes. Their saving, for their selfish purposes, results in more goods and lower prices for persons with lower incomes than if they had invaded the market with their full incomes.

DBx: The second consequence, identified by Lebergott, of saving by the rich is lower interest rates. And lower interest rates not only better enable non-rich persons and households to borrow, but also means that more resources are available for businesses to use to launch, to expand, to modernize, and to invest in other ways that improve productivity and, ultimately, increase outputs – thus further improving the standard of living for the non-rich.

Ironically, though, the more the rich increase their savings, the higher tends to be the measured inequality of wealth.

…..

Understanding the reality identified here by Lebergott does not require a degree in economics. It requires only common sense combined with a willingness to see reality rather than to wallow in emotionally satisfying illusions.