Russell Roberts's Blog, page 386
August 14, 2020
Will the Beirut Boom Cause a Beirut Boom?
The Fund for American Studies 
president Roger Ream e-mailed me a few days ago to draw my attention to this New York Times report on the recent devastating explosion in Beirut. Roger noted this passage specifically (emphasis added by Roger):
The consequences of yesterday’s explosion will be even more serious than the immediate casualties and property damage. The main grain silo, which holds some 85 percent of the country’s cereals, was destroyed. Even more, the port will no longer be able to receive goods. Lebanon imports 80 percent of what it consumes, including 90 percent of its wheat, which is used to make the bread that is the staple of most people’s diets. About 60 percent of those imports come through the port of Beirut. Or, at least, they did.
Commenting on this passage, Roger perceptively wrote in his e-mail:
Surely this explosion will accomplish what very high tariffs on imports could not, which is to reduce the country’s trade imbalance. This will be a test case to see if this destruction begins prosperity to the country.
If protectionists such as Donald Trump, Peter Navarro, Chuck Schumer, Bernie Sanders, Peter Morici, Ian Fletcher, and Warren Platts are correct in their understanding of trade, then Beirut’s recent boom should spark a Beirut economic boom.
…..
(I thank Roger for his kind permission for me to share here his e-mail.)
If Protectionists are So Smart, Why Ain’t They Rich?
Here’s another letter to Warren Platts. (Understand: I have no expectation of changing Mr. Platts’s mind. I occasionally respond publicly to him only because the arguments that he offers, although invariably tired and weak, are typical of those made by protectionists who are clever enough to recall scattered bits of economic jargon and, hence, who pose some risk of influencing the general public.)
Mr. Platts:
Responding to my request that you (or any other protectionist) identify at least one economically relevant distinction that separates domestic commerce from international commerce, you offer this comment at EconLog:
That’s easy! In domestic trade, American workers only have to compete against each other. In international trade, American workers must compete against workers making $2/hour, if not $2/day!
When told that wage rates in markets reflect worker productivity – meaning, wages of workers in poor countries are very low because those workers are much less productive than are the high-wage workers in America and other wealthy countries – you push back by answering that “Low wages are a reflection of a country’s average productivity.”
Interesting. An implication of your point is that in low-wage countries many workers are underpaid (that is, paid wages below the value of what they produce) while other workers are overpaid (that is, paid wages above the value of what they produce).
If you’re correct, you’ve identified a golden opportunity for personal profit! You should start businesses in Mexico and other poor countries and hire away to your enterprises all those underpaid workers. You’ll be able to employ them at wages that improve their well-being while still reaping for yourself a handsome profit. You can further increase your fortune by selling short – or by going into competition with – those firms that currently employ overpaid workers, as these firms are destined soon to bankrupt themselves.
You either truly do understand the implications of what you say and you believe these to be true or you don’t. If you do, prove it by putting your money where your mouth is. If, however, you refuse to put your money where your mouth is, you thereby supply sufficient evidence that you do not truly understand what you say or that you do not truly believe what you say. Either way, you then have no business calling on the U.S. government to coercively put our money where your mouth is by preventing the rest of us Americans from spending our incomes in whatever peaceful ways we choose.
In short, sir, put up or shut up.
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 Links
Vincent Geloso explains the importance of economic freedom for dealing successfully with pandemics. A slice:
This insight is what my friend Jamie Bologna Pavlik and I set out to test in a recently published article in Contemporary Economic Policy. We relied on the flu pandemic of 1918 to see if institutional flexibility mitigated the damages of the worst pandemic of the 20th century. We used economic freedom as our main variable of interest. Because the economic freedom variables produced by economic historians included measures of regulation, international trade barriers, property rights protection and sound money, we assumed it was a reliable proxy for this flexibility.
We found that economic freedom heavily mitigated the damages (measured by excess death rates) of the 1918 pandemic. In other words, an economically free country faced lower economic costs than less free countries with the same death rates. When we decomposed the effects into the different components of the economic freedom measure, regulation levels yielded consistent effects: more regulatory barriers and burdens meant greater economic damages from the pandemic.
For starters, contrary to the claims of pro-government spending proponents, economists are far from having reached a consensus about the actual return on government spending. While some economists find that a dollar spent by the government generates more of a return than the dollar spent, others find that the return is less than one dollar. And yet others find that if you take into account the future taxes needed to pay for the dollar that’s spent, the multiplier is actually negative, and the economy takes a hit.
After reviewing the recent academic literature for the Mercatus Center’s publication The Bridge, my colleague Jack Salmon and I found that most of “the empirical literature on fiscal multipliers conducted since then (2009) has found economic multipliers resulting from additional government spending ranging from a lower estimate of around 0.2 to an upper estimate of around 0.9.” We go on to explain that in “(p)ulling the results from two dozen academic studies, we calculate an average multiplier at the low end of 0.31 and an average multiplier at the high end of 0.66.”
Yet 97% of U.S. jobs in the aluminum industry are in downstream production or processing. The tariffs will raise costs for them as well as end-users like beer companies and auto makers. A Federal Reserve paper noted last December that Mr. Trump’s Section 232 and 301 tariffs in 2018 were associated with lower manufacturing employment and higher producer prices.
The pandemic’s uncertainty has burdened businesses, and border taxes won’t help. If the U.S. walks back on its trade commitments, how can it criticize China for doing the same? The aluminum tariff is Mr. Trump at his policy worst: He hurts U.S. industry and consumers, while telling America’s friends that his word on trade can’t be trusted.
Chris Edwards is rightly dismayed by biased reporting by the Wall Street Journal on state budgets.
Michael Huemer isn’t optimistic about democracy’s prospects.
Nick Gillespie reports on Nick Cave’s criticisms of cancel culture.
Here’s part 6 of George Selgin’s wonderful series on the New Deal.
Quotation of the Day…
… is from page 407 of the 2014 collection, The Market and Other Orders (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s previously unpublished 1961 lecture at the University of Virginia “Economics and Technology,” which is the third of four lectures that Hayek delivered in UVA’s Newcomb Hall during the Spring 1961 semester; the title of this lecture series by Hayek is “A New Look at Economic Theory” (original emphases):
[I]t is because a modern economy is so complex that nobody can know all the facts that it could not effectively be guided by a central plan but must be conducted on the basis of decentralization of decisions. This is worth emphasizing because it is sometimes argued that this very complexity, which in fact prevents effective planning, makes planning necessary.
DBx: Until I receive a substantive and cogent answer I will continue to put the following question to anyone who proposes to improve the economy with industrial policy: From where will government officials who are charged with allocating resources get the information they must have in order to allocate resources better than resources will be allocated by open, competitive markets?
Describing a happy outcome is not an answer. Noting that planning is done by some foreign governments is not an answer. Pointing to flaws – real or imagined – in the existing pattern of resource allocation is not an answer. Documenting increases in inequality, stagnation of wages, record trade deficits, falling manufacturing employment, depopulation of particular towns or counties, allegedly inadequate incomes of males, rising opioid overdoses, a worsening of the quality of Aunt Yvonne’s coq au vin, or whatever factual trend you fancy might be relevant is not an answer to the question “From where will government officials who are charged with allocating resources get the information they must have in order to allocate resources better than resources will be allocated by open, competitive markets?”
August 13, 2020
The Unenviable Lot of the Protectionist
Scott Sumner has an excellent new post at EconLog titled “Conservatives and the mythical third way.” I encourage you to read it.
Shyam, who is one of the commenters on Scott’s post, wrote in response the following:
It seems to me that the angst around the trade deficit is more about bringing back well-paying manufacturing jobs than the overall balance. I think a smarter conservatism would focus on that instead of slapping tariffs on Canadian aluminum.
Shyam’s view about “bringing back well-paying manufacturing jobs” – a view implying that such jobs have been unfortunately lost – is shared by many people. But it is flawed both empirically and theoretically.
Empirical flaw: Adjusting for inflation using the Personal Consumption Expenditures deflator, the real average hourly wage for production and nonsupervisory manufacturing workers is today (July 2020) at an all-time high. Today’s wage ($22.87 in 2020 dollars) is 10 percent higher than it was ($20.71) when China joined the World Trade Organization in December 2001; 12 percent higher than it was ($20.37) when the U.S. granted to China Permanent Normal Trade Relations (PNTR) status in October 2000; 21 percent higher than it was ($18.83) when NAFTA took effect in January 1994; and 60 percent higher than it was ($14.31) in December 1973 – the year middle America is alleged by many to have reached its economic zenith.
Also, contrary to popular misconception, there’s nothing special about manufacturing employment. On average, manufacturing employment pays less than service-sector employment. While the average hourly wage for production and nonsupervisory manufacturing workers is today $22.87, the average hourly wage for production and nonsupervisory service workers in the private sector is $24.45.
Theoretical flaw: A job in America – say, one producing widgets – will be ‘destroyed’ by trade only if foreigners supply Americans with widgets at a price lower than is Americans’ cost of producing widgets. And Americans’ cost of producing widgets includes the cost of American labor. This cost, in turn, is determined by the wages that widget-factory workers can earn in alternative employments. The higher the pay in alternative employments, the more likely are imports of widgets to destroy American widget-making jobs. Therefore, jobs ‘destroyed’ by trade are generally ones at which workers’ pay in alternative employments are higher than is their pay in the ‘destroyed’ jobs.
It follows that it would be just as accurate to describe American jobs destroyed by trade as jobs destroyed by improved alternative employment opportunities for American workers. But the latter description does nothing to drum up support for turning more power over to the state.
Protectionists, of course, refuse to accept this conclusion. But their only plausible response is one that relies upon labor-market frictions and imperfections – such as, for example, the reality that many workers acquire firm-specific skills the values of which are much lower in alternative employments.
That such frictions and ‘imperfections’ are commonplace in reality is undeniable. Equally undeniable, though, is the fact that international trade plays no unique role in causing these frictions and ‘imperfections’ to operate to the immediate detriment of some workers. Any change in spending causes demands for some outputs to fall while causing demands for other outputs to rise. Labor-market frictions and ‘imperfections’ are no more likely to result in some workers suffering job or income losses when imports increase than they are to result in such losses when labor-saving technology improves or when consumers simply change their tastes.
The economic case for protectionism will begin to make sense only when protectionists identify in international trade some relevant feature that is absent in purely domestic trade. Yet in the entire, centuries-long discussion of trade policy – and despite a great deal of effort – no such feature has been identified.
No protectionist has ever convincingly explained why jobs lost to imports are unacceptable while jobs lost to simple changes in consumer preferences are acceptable. No protectionist has ever persuasively demonstrated that job losses at home caused by foreign-government subsidies are any different from job losses at home caused by improved efficiency of foreign suppliers. No protectionist has ever compellingly shown that the same government officials who are incapable of intervening productively in purely domestic economic affairs are able to design tariffs and subsidies that increase the country’s economic welfare. No protectionist has ever believably revealed that labor-market frictions and ‘imperfections’ play a larger or more-destructive role when shifts in the demand for labor are caused by international trade than when caused by domestic changes.
It’s not that protectionists haven’t tried to offer explanations of how commerce that crosses political borders differs in essential economic ways from commerce that doesn’t. It’s that all such explanations have failed. When probed, these explanations make no more sense than would explanations of how, say, commerce among men and women differs in essential economic ways from commerce of men only with men and of women only with women. Such differences can easily be built into hypotheticals, but none can credibly be shown to exist in reality.
Protectionism Is Malignant
Here’s yet another letter to “proud Trump man” Nolan McKinney:
Mr. McKinney:
Unhappy with my criticism of Warren Platts, you ask in your most-recent e-mail: “What difference does it make HOW high wage jobs are created. If tariffs create more high wage jobs they ARE good policy.”
You’re mistaken on at least two counts.
First, tariffs ‘create’ high-wage jobs by destroying higher-wage jobs. Tariffs divert demand artificially to protected activities that are made profitable only by being shielded from competition. This demand is diverted away from activities that, without the tariffs, would prove to be more productive than are the activities protected by tariffs.
Second, your and Mr. Platts’s logic implies the following: Because oncologists are paid high wages, we Americans would be enriched if government arranged for more of us to be afflicted with cancer. If you would, as I hope, oppose a U.S. government policy meant to enrich Americans by afflicting us with cancer – that is, by afflicting us with an artificial scarcity of good health – you should oppose also a U.S. government policy meant to enrich Americans by afflicting us with artificial scarcities of the likes of steel, automobiles, sugar, and other goods and services that foreigners are willing to sell to us at prices below the costs that we must incur to produce these things ourselves.
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 Links
Anthony Fauci is fact-checked by Phil Magness. A slice:
In sum, there’s no clear evidence that aligns with Fauci’s claims about European lockdown stringency. On the whole, the US locked down at a comparable level to several European countries according to the Oxford index, with the exception of the hardest-hit locales – and those locales only surpassed us during their peak outbreaks of March and April, followed by a much more rapid relaxation of the restrictions. Meanwhile the US has clearly retained its lockdown policies for longer than almost all of Europe, and continues to stall behind Europe’s reopening process.
I have testified in dozens of government oversight hearings. Capitol Hill features hundreds of such hearings each year. For what? As far as I can tell, these hearings are mostly an exercise in getting soundbites for press releases to be issued by the members of Congress who attend them. Even when all of the witnesses agree that a program is wasteful or not performing as expected, appropriators then turn around and fund the program.
In this short video, John Stossel thanks fossil fuels.
Nick Gillespie shares Ricky Gervais’s slamming of cancel culture.
My Mercatus Center colleague Adam Thierer decries unprincipled conservatives who oppose free speech. A slice:
But all hope is not lost. There are still brave voices in Republican and conservative circles who continue to stand up the the First Amendment, freedom of speech, and limits on federal regulatory meddling with speech platforms and outcomes. Commissioner O’Reilly basically lost his job because he acted as the equivalent of an intellectual whistle-blower; he called out the ideological rot seen in recent statements and actions by the White House, Senator Josh Hawley, and many other Republicans.
There is nothing remotely “conservative” about calls for reinvigorating the Fairness Doctrine and FCC speech controls. That represents repressive regulation that betrays the First Amendment and which will ultimately backfire badly and come back to haunt conservatives down the road.
Quotation of the Day…
… is from page 4 of the 1950 Augustus M. Kelley reprint of Philip Wicksteed’s magnificent 1910 work, The Common Sense of Political Economy (available here without charge):
We shall find that the economic relations constitute a machinery by which men devote their energies to the immediate accomplishment of each other’s purposes in order to secure the ultimate accomplishment of their own, irrespective of what those purposes of their own may be, and therefore irrespective of the egoistic or altruistic nature of the motives which dictate them and which stimulate efforts to accomplish them.
DBx: A market economy emerges when individuals are free to peacefully trade with each other and to the extent that individuals exercise this freedom. These exchanges can be ‘simple,’ as when Bill buys a loaf of bread from Betsy’s store, or complex, as when Bill, Betsy, Beatrice, and Bryan agree on the rules for their book club – or as when Bill, Betsy, Beatrice, Bryan, Bob, Beth, Ben, and Bettina agree to pool their funds in order to drain a mosquito-infested ditch that runs past each of their homes. (The range of contractual complexity is vast.)
One feature common to each and every market exchange is that each party furthers his or her own goals by agreeing to help other parties to the exchange further their own goals. What could be more sociable? What could be more humane? What could be more civilized, beautiful even?
August 12, 2020
Bonus Quotation of the Day…
… is from pages 314-315 of George Will’s great 2019 book, The Conservative Sensibility:
America’s poverty problem is not one of material scarcities but of abundant bad behavior. Data demonstrate that there are three simple behavioral rules for avoiding poverty: finish high school, produce no child before marrying or before age twenty. Only 8 percent of families who conform to all three rules are poor; 79 percent of those who do not conform are poor. And recent social learning includes this: The trajectory of a child’s life is largely determined in the early years.
DBx: I don’t wish to come across as self-flattering, but as I’ve written before, I cannot help but draw some lessons from my own personal experience. I was born in 1958 into a thoroughly working-class American family. My mother, Carolyn, graduated from high-school. (I, the oldest of her four children, was born when she was 20.) My father, Buddy, dropped out of school in 6th grade. When I was born he, at the age of 23, was driving a bus for New Orleans Public Service (“NOPSI” as it was called). He soon afterward got a job as a pipe fitter at Avondale Shipyards, where he worked until he retired in January 2001. On more than one occasion dad was laid off from his job before being called back.
While growing up I didn’t think of us as being poor, although I was well aware that we were far from rich. And when my parents died – mom in March 2008 and dad in April 2009 – sure enough the monetary inheritance was meager.
But my family was loving and stable. Dad was always with his family when he wasn’t at work. He and mom drank very little and took no illicit drugs. My siblings and I were disciplined in the manner of the day – which means that sometimes we got physically spanked. Yet there was never a doubt in my mind – or in the minds of any of my three siblings – that we were loved.
Most importantly, my parents instilled in us a deep belief that the world owes us nothing and that we are responsible for our lives. Excuses for bad grades or bad behavior were simply not tolerated. Ever. There was, further, no tolerance for feeling sorry for ourselves. The notion of envying other people – and we encountered many – who were materially more prosperous than us was out of the question.
My parents were loving, not harsh. They were judgmental only about deviance from acting in accordance with basic life skills and fundamental values – skills and values such as being polite, being punctual, being honest, never being boastful, working hard, and, again, avoiding envy and self-pity as if these sentiments are genuinely dangerous plagues (which these sentiments in fact are).
All four of my parents’ children today lead productive lives. None is poor by American standards. Each has raised their own productive and responsible children.
Among the absolute worst curses that can afflict a person is to grow up slathered with the belief that the world owes something positive to him or her, and not be firmly discouraged from blaming one’s current condition in life on others or on the fates.
Protectionists Are Deeply Confused
Here’s a letter to the full-throated protectionist who posts publicly under the name “Warren Platts.”
Mr. Platts:
Commenting on Pierre Lemieux’s recent EconLog post “Flaaen et al. on Washing Machine Tariffs in the A.E.R.,” you write (and I quote verbatim):
You economists continue to baffle me. Why should a high cost to consumers be a bad thing? “Cost to consumers per job” is literally means the same as “labor productivity.” Thus a high cost to consumers per job means that job is highly productive.
In follow-up comments, Pierre, along with my student Jon Murphy, responded well to your misunderstanding. I here emphasize one fundamental point: You confuse ends with means.
In markets, high wages are rewards paid to means (namely, skilled labor) used to achieve especially urgent ends (namely, satisfaction of especially intense consumer demands). Consumers don’t purchase in order to serve workers; instead, workers work to serve consumers. And society grows more prosperous the greater is the satisfaction of these consumer demands.
You and other protectionists miss this reality by mistaking high wages themselves as being sources of prosperity (instead of what such wages are, namely, rewards for creating prosperity). You are led by your failure to understand that prosperity grows from the satisfaction of consumer desires to the utterly bizarre conclusion that society is made more prosperous the greater is the number of urgent needs – urgent consumer desires – government artificially creates by imposing tariffs and other protectionist obstructions.
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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