Russell Roberts's Blog, page 398

Strata of the Unseen

(Don Boudreaux)

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In my latest column for AIER, I identify three different levels of “what is unseen.” A slice:

More deeply than unseen opportunity costs is the modern economy’s unseen complexity. This complexity remains unseen even by some economists.

The market economy’s daily manifestations are always in sight of everyone. People see full supermarket shelves (at least when governments haven’t mandated economic lockdowns!). They see countless goods and services for sale online. People see lights go on when they flip switches, toilets flush when they press handles, and automobiles move when they press accelerators.

And economists see statistics. The unemployment rate. The annual change in the price level. The percentage of workers employed in manufacturing. The number of firms in the domestic furniture-producing industry. The ‘distribution’ of income.

But no amount of marveling at the workings of modern wonders such as artificial lighting and indoor plumbing, and no amount of pondering statistics, reveals the vast, complex order of economic processes that generate these visible surface phenomena. Each pair of socks you wear, each cup of coffee you drink, and each hamburger or sushi roll you eat is the product of countless innovations – some dating back millennia (such as the wheel), others much more recently (such as your coffee-maker’s heating element). Nearly every one of the goods and services that we today routinely consume is produced with inputs that come from all across the globe and are themselves produced only through the efforts of hundreds of millions of specialized producers.

Making all this innovation and consumption possible are markets, guided chiefly by prices, profits, and losses. People operating in markets, of course, use infrastructure, some of which is physical (such as highways) and other of which is ‘institutional’ (such as dispute-resolution systems). Some infrastructure is privately produced; other of it is government-produced. Also necessary is law – the set of expectations that govern human interactions. A tiny fraction of this law is codified and available to be read in books and online.

See What Is Unseen

(Don Boudreaux)

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Here’s a letter to a new reader of Café Hayek:

Mr. Vanyo:

Thanks for your e-mail, in which you write that “examples of successful picking of winners are numerous enough to prohibit a straight-out argument opposing industrial policy.”

I disagree for many reasons. Here are just two, one ethical and one economic.

The ethical: Individuals should be allowed to spend and invest their incomes in whatever peaceful ways they choose. The burden of persuasion that must be met to justify the use of coercion to override these choices is very heavy; it’s one that neither the theoretical arguments for, nor the historical instances of, industrial policy begin to meet.

The economic: The factual record is clear that the more free and open an economy, the more prosperous are the people in that economy and the more does that economy grow. This reality, of course, doesn’t mean that a government cannot, by deploying sufficient force, artificially arrange for some industry to thrive more than it would in a free market. But what no government can do is to achieve such an outcome without causing some other industry or industries – unknown and unseen – to artificially wither. Worse, because industrial policy necessarily stifles genuine innovation – true creativity, by its nature, disrupts government’s plans – the firms, products, and jobs that would have been, but are never, created increase in number yet remain invisible.

To point today to industries that succeed because of industrial policy and then conclude that freedom of trade doesn’t work makes no more sense than to point during the Spanish Inquisition to Catholic churches full of praying congregants and conclude that freedom of religion doesn’t work.

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

(Don Boudreaux)

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This essay by Steven Landsburg (“The Science of Risk”) is Landsburg at his very best – which is jaw-droppingly excellent.

GMU Econ alums Diana Thomas and Michael Thomas explain that “safety first is a bad ideology.”

Last week in the Wall Street Journal Peter Rex explained why he’s moving his company from the west coast to Texas. A slice:

Even in normal times, San Francisco and Seattle go to great lengths to make life hard for families. Both cities, with governments dominated by cryptosocialists, are notorious for enacting policies that raise the price of housing, drive out jobs and punish innovative companies in ways that hurt workers. With the Seattle area as a whole becoming more radical on economics by the year, it seems foolish to hope that the situation will improve for my company’s workers and their families.

Inspired by the work of the late Jim Buchanan, Steve Horwitz writes wisely about cost and genuine choice.

Nick Gillespie rightly warns of the dangers of government indebtedness.

Here’s the third entry in George Selgin’s excellent series on the New Deal. A slice:

Why, despite the New Deal, didn’t government spending—and federal government spending in particular—grow more than it did? And why was the growth of federal deficit spending even more modest?

The answer to both questions is that, despite frequent claims to the contrary, the New Deal did not usher in a Keynesian fiscal revolution, or anything close. Instead, as Julian Keliser (p. 125) remarks in his brilliant essay on the subject, “fiscal conservatism…remained normative for most of the New Deal.” FDR himself held fairly orthodox views about fiscal policy, and he made a point of picking Treasury secretaries whose views were even more orthodox. The chairs of almost all the key Senate and House committees, mostly southern Democrats, were also fiscal conservatives, as were some progressive Democratic representatives. Only after 1938, when the economy had been laid low by the 1937-8 depression and the New Deal was drawing to a close, did the Roosevelt administration finally abandon its commitment to limited spending and a balanced budget.

Quotation of the Day…

(Don Boudreaux)

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… is from page 60 of the May 9th, 2020, draft of the important forthcoming monograph from Deirdre McCloskey and Alberto Mingardi, The Illiberal and Anti-Entrepreneurial State of Mariana Mazzucato (original emphasis):

In the United States, of course the Exact Perfection Store is staffed not by Bismarcks or Lenins or Mussolinis but by amiable regulation lawyers such as Elizabeth Warren and amiable economic theorists such as Richard Thaler and amiable policy economists such as Mariana Mazzucato. All are specialized in imagining failures in the polity or the economy, and raising the alarm, qualitatively. Qualia, not quanta. None of them, that is, pause to measure how important for the nation, or Lake Wobegon, the failures are in quantitative fact. In the dim twilight of reality, of course, imperfections are ubiquitous and will remain so. But, we repeat, since 1800 an imperfect world, inspired by liberalism, has yielded astonishing economic growth, and, while we’re at it, astonishing spiritual growth, too.

Quotation of the Day…

(Don Boudreaux)

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… is from page 95 of the late Stanford University economic historian Nathan Rosenberg’s insightful 1992 paper “Economic Experiments,” as this paper is reprinted in Rosenberg’s 1994 book, Exploring the Black Box: Technology, Economics, and History:

One of the less-heralded but considerable virtues of competitive capitalism has been the speed with which firms have unsentimentally cut their losses as it became apparent that a particular direction of research was likely to prove unfruitful. Where funds come from the public sector, by contrast, monies are likely to be spent on unpromising projects for rather longer. Inertia and the reluctance to admit failure publicly play important roles here, but so does the fact that the decision-makers in government are not personally concerned over the financial losses involved.

DBx: Yep.

When advocates of active state direction of economic activity say, as Marianna Mazzucato says, that “There is nothing in the DNA of the public sector that makes it less innovative than the private sector” they are mistaken. Such a statement reveals a failure to compare the incentive structures that are inherent in political decision-making to those that are inherent in private market settings. And while it’s true that incentives in each sector can be tweaked – and true also that incentives in neither sector are wholly imperfect nor wholly perfect – many of the incentives confronting political decision-makers differ fundamentally from those confronting decision-makers in the private sector. Indeed, the very rationale that the more-serious advocates of greater politicization of society offer for their proposals is that decision-makers in government have better – i.e., different – incentives from those that push and pull decision-makers in the private sector.

The full set of socially beneficial incentives that cause private markets to work well simply cannot be injected into the public sector. One can say or hope or imagine that public-sector decision-makers can be given all of the good incentives that are confronted regularly by private-sector decision-makers but without any of the incentives that people such as Marianna Mazzucato suppose – sometimes correctly, sometimes incorrectly – operate anti-socially in the private sector. But any such statement or hope or imagination points to a reality that is no more credible than is one in which cats bark, pigs fly, and ham sandwiches are kosher.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 285 of Matt Ridley’s marvelous new (2020) book, How Innovation Works: And Why It Flourishes in Freedom (link added):

Britain, too, was slow to provide public support for science compared with France and Germany, but as [Terence] Kealey observes: ‘the continent supposed markets failed in science, the UK supposed they did not, and the industrial revolution was British, not French or German.’

DBx: Yes.

Only one error is more commonplace than to underestimate the creativity and abilities of people acting voluntarily – that is, acting in ways that each individual chooses, uncoerced by other human beings. That more-commonplace error is to vastly overestimate the creativity and abilities of people possessing the power to coerce fellow human beings.

Hong Kong Safe Harbor Act

(Don Boudreaux)

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On this 4th of July, I can think of no more appropriate means by which Americans can commemorate the immortal words of the Declaration of Independence by supporting the Hong Kong Safe Harbor Act.

Here’s David Bier:

The Hong Kong Safe Harbor Act would directly support protesters by telling them that they can risk their lives in Hong Kong knowing that they have a backup plan in case they are targeted. The Chinese party is already clearly concerned about this type of offer, denouncing the United Kingdom’s similar proposal to allow up to 3 million Hong Kongers to enter and work in the UK and claim UK citizenship.

This proposal would also benefit the United States by providing it with talented new Americans committed to freedom and democracy (a commitment too few U.S.-born Americans share). The program would support U.S. diplomatic efforts to defend democracy and freedom in Hong Kong, and it would embolden freedom fighters the world over.

Quotation of the Day…

(Don Boudreaux)

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… is from page 23 of George Will’s 2019 book, The Conservative Sensibility:

America was born with an epistemological assertion: The important political truths are not merely knowable, they are known. They are self-evident in that they are obvious to any mind not clouded by ignorance or superstition. It is, the Declaration says, self-evidently true that “all men are created equal” not only in their access to the important political truths, but also in being endowed with certain unalienable rights, including the rights to life, liberty, and the pursuit of happiness.

…..

(Pictured here is Charles Édouard Armand-Dumaresq’s 1873 painting of the signing of the Declaration of Independence.)

Another Open Letter to Peter Navarro

(Don Boudreaux)

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July 3, 2020

Peter Navarro

White House

Washington, DC

Mr. Navarro:

Today on MSNBC you asserted (without evidence) that Beijing “spawned” the novel coronavirus in a laboratory in order to intentionally infect Americans. Hmmm….

You famously believe that China grew rich at the expense of other countries, especially the United States, by deviously expanding its exports and simultaneously restricting its imports. Putting aside here the head-scratcher of how a country grows rich by continuing to ship lots of goods and services to foreigners while refusing to receive goods and services in exchange from foreigners, I’ve this question: Given your economic theory, why would the Chinese government intentionally seek to kill its country’s customers?

If the secret sauce of China’s economic success is its “export-led growth,” that country needs people abroad to buy its exports. Killing Americans would thus – again, on your own theory – do serious damage to the Chinese economy.

Have leaders in Beijing lost interest in increasing their country’s wealth? Or have they suddenly gone stupid? What, do tell, is your explanation for why the Chinese – who are so utterly dependent upon American consumers – would aim to rid themselves of this lucrative customer base? Are they mad? Masochistic? What?

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

…..

The irony is that Navarro’s tale told today would be logical only if his long-held notion of the source of Chinese economic success were spectacularly wrong.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 66 of the 1969 Arlington House edition of Ludwig von Mises’s 1944 Yale University Press book, Omnipotent Government: The Rise of the Total State and Total War (available free-of-charge on-line here):

In the past various doctrines and considerations induced governments to embark upon a policy of protectionism. Economics has exposed all these arguments as fallacious. Nobody tolerably familiar with economic theory dares today to defend these long since unmasked errors. They still play an important role in popular discussion; they are the preferred theme of demagogic fulminations….

DBx: It’s true. Anyone who understands economics would be as embarrassed to publicly endorse protectionism as he or she would be to publicly endorse flat-earthism or the healing properties of crystals. Sadly, the world is well-populated with people who don’t understand economics.