Russell Roberts's Blog, page 392

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(Don Boudreaux)

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Jonah Goldberg is correct: among the main players in today’s ‘protest’ scene are no heroes.

Jeffrey Tucker rightly decries what he calls “the bloodless political class.”

Christian Britschgi exposes the loathsome reality of mask mandates. A slice:

One could make a libertarian case for government mask mandates during a pandemic, on the grounds that no one has an inherent right to cough deadly pathogens on another person. But that theoretical case has to be weighed against the reality of policing in America, where cops frequently resort to petty and overaggressive enforcement.

To judge from these reports in Miami, the pandemic has done little to change how such officers go about enforcing the law.

Katherine Kersten wisely warns of the mindless, mad Jacobinism – a modern, ignorant puritanism – now on the loose in the land. (HT Mark Perry) A slice:

Yet something is profoundly amiss in the frenzied movement that has America in its grip. This movement elevates passion over reason and dogma over data. It contemptuously rejects, and attempts to silence, calls for objective analysis as self-evidently racist.

David Simon rightly celebrates the great Thomas Sowell for removing color from the success equation. A slice:

In his new book, “Charter Schools and Their Enemies,” Sowell compared the performance of the overwhelmingly poor Black and Hispanic students in charter schools “in Harlem and other low-income minority communities in New York City” with that of students in the same grades in traditional public schools housed in the same buildings.

He found that these charter school students “pass the statewide mathematics tests at a rate more than 6 times the rate at which traditional public school students, housed in the same buildings, pass the same test.”

GMU Econ alum Wayne Brough reviews Adam Thierer’s Evasive Entrepreneurs and the Future of Governance. A slice:

Thierer goes on to make an even more important point: evasive entrepreneurialism is actually a form of dissent, and new technologies offer exit strategies from heavily regulated markets and the ossified status quo. In this sense, innovation is a political as well as an economic force that provides avenues for economic growth as well as opportunities to challenge abusive and inefficient government practices.

Evasive entrepreneurs and the technological disobedience they can generate are an important check on government power that facilitates economic growth and innovation. And as technologies provide more mobility, evasive entrepreneurs gain even more leverage. By voting with their feet, they elude the heavy hand of government regulators.

And here’s Adam Thierer himself, writing with Trace Mitchell, in the Dallas Morning News on the importance of evading – or, better, eliminating – obstructive government ‘regulations.’.

Quotation of the Day…

(Don Boudreaux)

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… is from page 15 of Joseph Epstein’s 2008 essay “A Literary Education: On Being Well-Versed in Literature,” as this essay is reprinted in Epstein’s 2014 collection, A Literary Education and Other Essays:

“To create a concept,” wrote Ortega y Gasset, “is to leave reality behind.” Ortega is saying that no concept, no mere idea, is sufficiently comprehensive to capture the reality of the phenomena it seeks to describe. Concepts do, true enough, serve the function of distracting our minds from the richness of the reality that generally manages to evade us.

DBx: Yes, and thus we’re faced with an unavoidable challenge: Theoretical concepts are absolutely indispensable for gaining a useful understanding of reality. Imagine the confusion of a mind that, for example, is unable to understand that gravity affects airplanes no less than it affects apples. Yet concepts – and the physical things that we use to make them more real to us, things such as words, and graphs, and equations, and data-deluged spreadsheets – necessarily simplify. That’s both a feature and a bug of concepts and their instantiations.

To draw useful knowledge from concepts and their instantiations requires smarts. Of course it does. But much more important are judgment and wisdom, blessings that depend heavily on experience, open-mindedness, and a knack for asking probing questions. (If you don’t like the word “knack” as used here, you’re not alone. But I don’t know what else to call it.)

The greatest economists in my estimation – scholars such as Adam Smith, F.A. Hayek, Ronald Coase, Armen Alchian, James Buchanan, Harold Demsetz, and Julian Simon – brilliantly formulated concepts but never mistook their words, their graphs, or their equations as capturing more than the slenderest slice of relevant reality. For them, economics is an effort to make better sense of – to better understand – the logic of emergent social orders but in a way that makes clear that these orders are made up of details the fullness of which no human mind can discover and catalog, or manipulate with some systemwide goal in mind without wreaking havoc.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 162 of Steven Pinker’s important 2018 book, Enlightenment Now (footnote deleted):

[M]any Enlightenment thinkers advanced the theory of gentle commerce, according to which international trade should make war less appealing. Sure enough, trade as a proportion of GDP shot up in the postwar era, and quantitative analyses have confirmed that trading countries are less likely to go to war, holding all else constant.

DBx: Whatever the merits of, and success at, restricting trade in products X, Y, and Z – products asserted to be ‘critical’ for national security – recognize that such restrictions, by reducing the mutual dependence that trading countries have on each other, push in some real ways toward making the home country less secure by diminishing the peace-inducing ties of trade.

Pittsburgh Tribune-Review: “Rising costs? You bet!”

(Don Boudreaux)

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In my column for the March 31st, 2010, edition of the Pittsburgh Tribune-Review, I offered to make a bet with Peter Orszag and Nancy-Ann DeParle regarding the projected cost of Obamacare, but neither person took me up on my offer. You can read my column beneath the fold.

(more…)

Three Ways In Which Workers Might be Underpaid

(Don Boudreaux)

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In my latest column for AIER I distinguish three ways in which workers might legitimately be said to be underpaid. Here are my opening few paragraphs:

There are three ways that a worker – call him Joe – can legitimately be said to be underpaid. One way – the way that is identified in modern economics textbooks – is for Joe’s pay (wage plus fringe benefits) to be below the value of his marginal product (“VMP”). If Joe is one of four janitors employed by Acme Inc. and is – like his co-workers – paid $70 per day, Joe is underpaid if his daily contribution to Acme Inc.’s revenues is more than $70. Call this kind of underpayment “Strict Economic Textbook” underpayment.

A second way for Joe to be underpaid is if he’s willing to work at a better job at which an employer offers to employ him, but coercion is used to stop him from taking that better job. Suppose Aunt Esmerelda’s Pizza Emporium offers to employ Joe at $75 per day and Joe accepts. But neighborhood thugs immediately threaten to cage Aunt Esmerelda if she employs Joe. She withdraws her offer of employment. Joe is stuck in his current job. He is here underpaid, even if in his current job his pay is equal to the value of his marginal product. Call this kind of underpayment “Denied the Best Option” underpayment.

A third way for a worker to be underpaid is for that worker to be forcibly or fraudulently prevented from improving his or her marketable skills. Suppose that Joe was, because of his religion or skin color, not allowed to attend college. As a consequence, Joe winds up working as a janitor. Even if Joe’s wage as a janitor equals the value of his marginal product, and even if he is today not prevented from accepting other job offers, Joe can legitimately be said to be underpaid.

In the current period Joe is not technically underpaid. That is, Joe isn’t underpaid according to the strict economic meaning of the term: his pay equals the value of his marginal product, and employers are allowed freely to compete for his services. But stepping back to examine the processes that operated over time we see that Joe, by going to college, would have increased his skills but was forcibly stopped from doing so. As a result Joe is stuck today with fewer skills and, thus, with lower-paying employment. Joe is here, in a real sense, underpaid despite the fact that today’s labor market is operating just as it should. Call this kind of underpayment “Kept Less Skilled” underpayment.

Some Links

(Don Boudreaux)

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My Mercatus Center colleague Adam Thierer rightly lambastes absurd restrictions on commerce in liquor – and celebrates the entrepreneurship that evades these restrictions. A slice:

When governments pass laws that defy common sense, people often find ways to work around them. That is a major theme explored in my latest book, Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. America’s crazy quilt of liquor laws, many of which are vestiges of the Prohibition Era, provide a particularly good example because such regulations create powerful incentives for people to behave evasively. When people want to enjoy a drink, they are likely going to find a way to get one.

Arnold Kling offers an intriguing hypothesis about an effect of social media.

Ethan Yang is favorably impressed with my colleague Peter Boettke’s new book published by AIER, The Four Pillars of Economic Understanding.

“Trump’s new Fair Housing Rule prioritizes toxic culture war politics over deregulation” – so reports Reason’s Christian Britschgi.

In this paper from 2018, P.J. Hill explores the ideological origins of the rule of law. (HT Tyler Cowen)

The Rational Optimist is now optimistic that the covid-19 calamity will soon be behind us.

Mason Gaffney has died. (Many years ago, Mason gave to me a beautiful bound set of the complete works of Henry George. While I never became a Georgist, I find much value in George’s writings – especially in his skilled and nuanced defense of free trade.)

Iain Murray opposes efforts to cancel Aristotle.

Hoping that Bezos, Cook, Pichai, and Zuckerberg Stand Their Ground Proudly

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Amazon’s Jeff Bezos, Apple’s Tim Cook, Google’s Sundar Pichai, and Facebook’s Mark Zuckerberg should heed Andy Kessler’s wise counsel and stand their ground unapologetically when they testify before the House Judiciary Antitrust Subcommittee (“Tech CEOs Deserve an Apology,” July 27). These executives create and maintain their companies’ successes under the intense pressure of competitive markets in which individuals, as investors and as consumers, spend their own money – a display of fortitude and talents in stark contrast to that of their interlocutors, whose business model is based on spending other people’s money.

Yet I’m pessimistic. I fear that Joseph Schumpeter was correct when he lamented nearly 80 years ago that

“the most striking feature of the picture is the extent to which the bourgeoisie, besides educating its own enemies, allows itself in turn to be educated by them. It absorbs the slogans of current radicalism and seems quite willing to undergo a process of conversion to a creed hostile to its very existence….

This is verified by the very characteristic manner in which particular capitalist interests and bourgeoisie as a whole behave when facing direct attack. They talk and plead – or hire people to do it for them; they snatch at every chance of compromise; they are ever ready to give in; they never put up a fight under the flag of their own ideals and interests.”*

Here’s hoping that my pessimism and Schumpeter’s lament prove to be misplaced.

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

* Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: HarperPerennial, 1950 [1942]), page 161.

Quotation of the Day…

(Don Boudreaux)

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… is from page 99 of the 1975 HarperPerennial printing of the third (1950) edition of Joseph Schumpeter’s profound 1942 volume, Capitalism, Socialism, and Democracy (original emphasis):

[P]ure cases of long-run monopoly must be of the rarest occurrence…. The power to exploit at pleasure a given pattern of demand – or one that changes independently of the monopolist’s actions and of the reactions it provokes – can under the conditions of intact capitalism hardly persist for a period long enough to matter for the analysis of total output, unless buttressed by public authority. A modern business concern not so protected … and yet wielding that power (except temporarily) is not easy to find or even to imagine.

DBx: Schumpeter correctly observes that history provides few, if any, instances of true monopoly power arising on free markets – that is, of free markets fostering the power of suppliers to profit while nevertheless failing to improve consumer welfare as much as possible.

History does provide countless examples of free markets holding suppliers’ feet to the competitive fires, and of many suppliers thus complaining that this competition is “unfair” or “predatory.” History does provide many examples of firms growing large and profitable by being unusually creative and adept at satisfying consumers’ demands. And, of course, history also provides many examples of both the innocently uninformed and of the venal seekers of rents alleging that today’s successful competitors are really “monopolists” that, unless they be suppressed by the mighty forces of the angelic and genius state, will wreak havoc on the economy for decades to come.

But, again, history provides no examples of sustained monopoly power arising out of any source other than government-granted special privileges.

…..

Some readers might be surprised that I chose to use above an image of Standard Oil. This surprise, however, owes not to actual history but to history misrepresented. Standard Oil, even at its peak – and even on the eve of being “busted” by the U.S. government (when, by the way, its economic peak had long since passed) – never had monopoly power.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 283 of the 1999 Liberty Fund edition of my late colleagues James M. Buchanan’s and Gordon Tullock’s seminal 1962 book, The Calculus of Consent:

Empirical reality must have its ultimate effect on analytical models, even if this reality contains implications about human behavior that scholars with strongly held ethical ideals find difficult to accept.

DBx: Election to political office does not transform ordinary human beings into saintly demigods or demigoddesses. Appointment to high government office does not impart superhuman knowledge or wisdom or rectitude to those appointed.

Of course, you say “Of course.” But examine any of the many proposals for government to do this or that – to reduce inequality, to promote “the industries of the future,” to repatriate “supply chains,” to “protect” the middle-class, to meddle in the economy in ways that, We the People are assured, will bring to all of us riches, equity, security, fulfillment, dignity, and pride. Examine them. Nearly all such schemes – whether offered by profs on the left, pols in the center, or pundits on the right – presume angelic demigods and demigoddesses.

Childishness reigns.

Why I Repeat Myself

(Don Boudreaux)

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A criticism often aimed at my work – and especially at my blogging here at Cafe Hayek – is that it’s repetitive. This criticism is valid. I do address certain issues repeatedly. And while I try to do so each time with some different particular point, angle, or reference to facts or history, I’m aware that I do not always succeed in this effort.

One reason for my repetition is that it’s good for my soul. This reason is selfish, for it’s about me and not about those persons who might read my pedestrian prose. Whenever I encounter rank economic ignorance, the experience is for me very much like hearing fingernails scraping across a chalkboard. (Young people: look it up.) To relieve myself of the grating annoyance I must write something in response. Even if I’m protesting only into the void, the very act of articulating a protest makes me feel better.

But another reason for my repetition is less selfish than the first, although it’s undoubtedly more arrogant: If I use my voice, then someone – maybe multiple someones – might hear it and be prompted to think a bit differently, a bit more rationally, about economic reality.

A third reason for my repetition is related to the second: economic ignorance repeats itself. Almost all that I write here at Cafe Hayek is offered in response to something that I encounter in newspapers, on other blogs, or in my e-mailbox. Pundits, politicians, and other professors incessantly go on about how free trade impoverishes the home country, about how so-called “price gouging” is a crime against humanity that must be prohibited, about how minimum-wage diktats help low-skilled workers either at no cost or at costs only to people who can afford to have such costs inflicted upon them, and about how the American middle-class has stagnated economically since Richard Nixon turned the Oval Office over to Gerald Ford.

Relatively few people appear to be annoyed by the repetition of these, and several other similar, fallacies. Indeed, I’m astonished at the number of people who seem genuinely to believe that, say, the latest brief for protectionism expressed in some prominent newspaper, or the newest version of an argument in favor of industrial policy, is original. Yet none are. Robert Reich, Marco Rubio, Oren Cass, Elizabeth Warren, Bernie Sanders, Joe Biden, Donald Trump, Sherrod Brown, Ian Fletcher, the Peters Navarro and Morici – these and other opponents of free trade say nothing that is new. Nothing whatsoever. Each is as original as is the most trite and tired cliché, but with none of the cliché’s kernel of truth. Everything written or said by such people has been written and said countless times in the past, in many cases dating back centuries. All has been shown, repeatedly, to be false. But history seems not to matter: Let the likes of Julius Krein or Robert Lighthizer utter a justification for protective tariffs and it’s heard by many as if it’s a brilliant, stunning, wonderful, and irrefutable insight, one never before encountered.

And so I, exercising my tadpole-sized ‘talents,’ enter the fray and repeat the arguments against these incessantly repeated fallacies.