Russell Roberts's Blog, page 400

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 59 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):

The classical economists demonstrated that each constellation of the market has a corresponding price structure. Prices, wages, and interest rates are the result of the interplay of demand and supply. There are forces operating in the market which tend to restore this – natural – state if it is disturbed. Government decrees, instead of achieving the particular ends they seek, tend only to derange the working of the market and imperil the satisfaction of the needs of the consumers.

DBx: Do not lose sight of a key goal of Adam Smith and other classical economists. They saw about them a productive economic order that obviously was not the result of any conscious planning or direction. They sought to understand this order. Never did they insist that this order is or can be made perfect (whatever “perfect” might mean). Their first goal was to understand the order and, also then, to explain this order.

Market competition and the prices, profits, and losses that it generates when consumers spend, and investors invest, their own money gives rise to this order. To explain how the competitive price system works, early economists often made assumptions – for heuristic purposes – that abstract away from frictions and other sources of “imperfections.” My belief has always been, and it remains (even for the case of David Ricardo), that classical economists were never under any delusions that free markets are “perfect” or perfectible. Evidence of imperfections was ample enough.

But unlocking the mystery of the observed order was certainly a challenging-enough task. Disorder and failure rarely need explanation. They just happen. What must be explained is observed order, and this explanation is all the more important and challenging when it’s obvious that the observed order is the result of no one’s intention.

So explanation was done often on the assumption that real-world frictions and imperfections don’t exist. The purpose of such an assumption was to focus attention, without pointless distractions, on the forces that bring about and sustain the undesigned order.

Careless and unreflective economists later mistakenly concluded that markets work only if they are as “perfect” as are the models of markets in some economists’ writings. And then another unwarranted leap was made: if real-world markets aren’t textbook perfect, government can improve upon them – and will improve upon them if governments are given the authority to do so.

To this day, astonishingly, those who are unhappy with markets – those who, correctly or incorrectly, assert “Market failure!” – blithely allege that all will be well if government officials are allowed to intervene. Almost never do these champions of intervention bother to explain how government officials will get the knowledge they must possess in order to arrange for government-orchestrated economic processes to operate better than market processes.

The New History of Capitalism Is Bunk

(Don Boudreaux)

Tweet

I recently read the late Stanford University economist Nathan Rosenberg’s excellent 1981 paper “Why in America?” (which is reprinted as Chapter 6 in the 1994 collection of some of Rosenberg’s papers, Exploring the Black Box). In this paper, Rosenberg mentions a fact about 19th-century America that casts further doubt on the so-called “new history of capitalism” – the “history” that purports to show that American capitalism and economic growth are chiefly, or at least largely, the product of chattel slavery.

Here’s Rosenberg (from pages 116-117 of the 1994 reprint of the paper):

An abundance of natural resources means, in economic terms, that it is rational to employ methods of production which are resource intensive. Much of American inventive activity in the first half of the nineteenth century aimed at substituting abundant natural resources for scarcer labor and capital …. The substitution of abundant wood for scarce labor was, in fact, highly rational….

In the gunmaking trade, usually regarded as the locus classicus of the distinctly American mass-production technology, some of the most original contributions were in the development and elaboration of a set of lathes for shaping the gunstock with a minimum amount of labor….

What is the relevance of these woodworking and agricultural machines to the emergence, by midcentury, of the American system of manufactures? The essential point is that resource abundance provided an incentive in America to explore the possibilities of certain new machine technologies easier and more deeply than in Europe.

As Paul Romer, in 1996, summarized Rosenberg’s point,

Entrepreneurs and inventors developed specialized machines that economized on human effort and made prolific use of the natural resources and energy that were available.

The lesson to draw about the so-called “new history of capitalism” from Rosenberg’s point is straightforward. Because distinctive American innovation in the first half of the 19th century – the half of that century in which slavery still existed in some of the United States – was aimed at economizing on labor, this innovation is not explained by the availability of artificially cheap labor in the American south. Indeed, the bulk of the 19th-century American entrepreneurs who innovated – the bulk of the Americans who are truly responsible for driving forward American capitalism – were driven to do what they did by the unusual scarcity in America of labor relative to land and other natural resources. If American capitalism were rooted in slavery, nineteenth century innovation would not have been aimed at economizing on labor but, instead, at using labor more intensely.

There are, of course, many reasons in addition to the one identified here for dismissing the “new history of capitalism” as the bunk that it is. Indeed, the reason identified here is hardly the most fundamental or important one. And I do not claim any originality in pointing out the reason that I here point out. But it’s nevertheless a reason worth mentioning.

Some Links

(Don Boudreaux)

Tweet

My colleague Walter Williams celebrates Thomas Sowell on the latter’s 90th birthday. A slice:

Sowell cares about people. He believes that compassionate policy requires dispassionate analysis. He takes seriously the admonition given to physicians, “primum non nocere” (first, do no harm).

In many respects, Sowell is an Austrian economist like the great Nobel laureate Friedrich Hayek, who often talked about elites and their “pretense of knowledge.” These are people who believe that they have the ability and knowledge to organize society in a way better than people left to their own devices — what Hayek called the fatal conceit. Their vision requires the use of the coercive powers of government.

My friend Vince Graham, a housing developer in South Carolina, named a street in his development after Professor Sowell.

Gerald O’Driscoll – a former student at UCLA of Sowell – also celebrates the great man on his 90th birthday.

Mark Perry, too, wishes a Happy Birthday to Thomas Sowell.

Matt Taibbi brilliantly and scathingly calls out the nonsense that is Robin DiAngelo’s book. A slice:

It takes a special kind of ignorant for an author to choose an example that illustrates the mathematical opposite of one’s intended point, but this isn’t uncommon in White Fragility, which may be the dumbest book ever written. It makes The Art of the Deal read like Anna Karenina.

Jeff Jacoby reports on the increasing cruelty of cancel culture.

Jacob Sullum writes that Americans who are skeptical of the value of the covid lockdowns are on the right track.

GMU law professor Ilya Somin warns of the dangers in Trump’s covid-excused immigration bans.

My intrepid Mercatus Center colleague Veronique de Rugy is understandably aghast that so many people continue to put faith in government.

Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 61 of Thomas Sowell’s 2009 volume Intellectuals and Society:

Despite whatever vision may be conjured up by euphemisms, government is not some abstract embodiment of public opinion or Rousseau’s “general will.” Government consists of politicians, bureaucrats, and judges – all of whom have their own incentives and constraints, and none of whom can be presumed to be any less interested in the promotion of their own interests or notions than are people who buy and sell in the marketplace. Neither sainthood nor infallibility is common in either venue. The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to the reality of other people’s desires and preferences.

DBx: I confess that I find it nearly impossible to get my head around the fact that the reality described above is not universally understood and accepted by everyone who successfully completed second grade. Yet no one can deny that the great majority of proposals for government intervention are built on the presumption that government officials have superhuman powers to acquire knowledge, as well as superhuman powers to ignore their own self-interests as they use their powers to coerce strangers in pursuit of what these officials believe to be the general good.

If your next-door neighbor or your cousin Jake were to tell you that he has such powers, you’d correctly understand him to be either joking or gone looney. But let some politician confront you with the same claim – or let some pundit make such a claim about government officials – then, if you are a typical person, you find the claim to be not only credible, but so very credible as to cause you to trust government officials with the power to coerce you and your neighbors.

Indeed, you – again, if you’re a typical person and not one of us ideologically blinkered classical liberals or libertarians – find the claim about the superhuman abilities of government officials to be so obviously true that it doesn’t dawn on you ever to ask how the officials who will coerce you and others will get the information and knowledge that they must have in order to order you about productively. You simply assume that government officials possess the god-like power to become so extraordinarily well-informed. And because you never ask how officials will get the necessary information and knowledge, they never bother to tell you (or, for that matter, to tell even the freakish and unenlightened few of us who are so impertinent as actually to ask the question).

…..

Today – June 30th – is Thomas Sowell’s 90th birthday. Happy Birthday, sir!

Oh, for a brilliant book-length treatment of the knowledge problem summarized in the above quotation, see Sowell’s stupendous 1980 volume, Knowledge and Decisions.

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 49 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:

You cannot force science or the economy, or much else in human life from sport to art, to innovate by the rules of Francis Bacon’s House of Intellect financed by a masterful State.

Black Classical Liberals Matter

(Don Boudreaux)

Tweet

Here’s eleven minutes of wisdom and insight. (HT Dan Klein)

Free Markets Fail at Self-Promotion

(Don Boudreaux)

Tweet

In my latest column for AIER, I review some instances of market failure – specifically, the market’s failure to make people aware of the good that it delivers to them. A slice:

Back at home capitalist successes also often generate ‘true statistics’ that tell misleading tales. Consider, for example, the statistical quirk created when increasing wealth and health reduce the average size of households. As we grow wealthier, young adults are better able to move out of the family home into their own apartments. Women are better able to divorce abusive or unfaithful husbands and set up households on their own. Widows and widowers can more easily afford to live alone rather than move in with their siblings or children. With more wealth and health, grandma and grandpa can live longer by themselves on their retirement savings.

This reduction in the number of people who reside in the typical household pulls down the measured income of the average household. And so when the inflation-adjusted income of the average (or median) household of today is found to be only modestly higher than that of the average (or median) household of decades ago, “Progressives” and many conservatives mistakenly conclude that the market has failed ordinary people.

Another statistical illusion is created when inflation chips away at the real value of the legislated minimum wage. As the real value of the minimum wage falls, some low-skilled individuals who in the past were unemployable become employed. This increase in the number of workers paid wages below the average pulls the average wage rate down, thus creating the false impression among careless observers that workers are being oppressed by employers.

A similar statistical misimpression can arise as improvements in the likes of home appliances and store-bought prepared meals increase the attractiveness to women of working outside of the home. Because the typical woman who first enters the workforce at the age of, say, 30 or 40 has less workplace experience and fewer workplace skills than does the average worker, the wage this woman is paid will at first be lower than the average wage. The average wage will thus be pulled downward despite the fact that no worker’s wage has fallen. This statistical quirk can mislead careless observers to the incorrect conclusion that wages are stagnating and, thus, markets are failing.

I Repeat Myself Only Because Protectionists Repeat Themselves

(Don Boudreaux)

Tweet

Here’s a letter to a now-regular correspondent:

Mr. Wilson:

You’re determined to portray Trump’s protectionism as an economically informed scientific effort designed to make global trade freer and, thus, to enable American producers to enlarge the scale of their operations. I could not disagree more with your portrayal.

It’s true that the economic theory of trade shows the possibility of enriching Americans by using tariffs to pry open foreign markets. (By the way, it’s surprisingly easy to show that all manner of fantastical things are possible in theory.) But to make a credible case that Trump and his three protectionist cronies – Peter Navarro, Robert Lighthizer, and Wilbur Ross – deploy their protectionist powers in a scientific way requires a demonstration that these four men understand the economic theory of trade. Yet any such demonstration is impossible.

Every word out of their mouths and from their pens reveals that these men are completely clueless about even the basic economics of trade. Whenever they discuss trade they invariably sound to knowledgeable economists like morons. And so the notion that they’re trying to make global trade freer over the long run by apolitically applying advanced trade theory is as laughable as would be the claim that the dancing and shrieking of grass-skirted witch doctors are an attempt to cure patients of arthritis by applying the latest findings of medical science.

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)

Tweet

… is from page 127 of Liberty Fund’s 2011 collection of Frédéric Bastiat’s writings, The Man and the Statesman: The Correspondence and Articles on Politics – which is the first volume of what will eventually be six volumes, expertly edited by David Hart, of The Collected Works of Frédéric Bastiat; specifically, this quotation is drawn from Bastiat’s April 20th, 1847, letter to Richard Cobden (original emphasis):

I have no need to tell you how much I share your views on the political results of free trade. We are being accused within the democratic and socialist party of being devoted to the cult of material interests and of bringing everything down to questions of wealth. I must admit that when it concerns the masses I do not share this stoic disdain for wealth. This word does not mean having a few écus more; it means bread for those who are hungry, clothing for those who are cold, education, independence, and dignity. But after all, if the sole result of free trade were to increase public wealth I would not spend any more time on it than on any other matter relating to agriculture or industry. What I see above all in our campaigning is the opportunity to confront a few prejudices and to have a few just ideas penetrate the consciousness of the general public. This is an indirect benefit that outweighs the direct benefits of free trade a hundredfold, and if we are experiencing so many obstacles in spreading our economic argument, I believe that providence has put these obstacles in our path precisely so that the indirect benefits can be felt.

DBx: To reject, on economic grounds, the case for free trade across political borders is to reject the case for free trade of any sort. The same (il)logic and sophistry that protectionists use to try to convince you that you and your neighbors will be damaged economically if you and your neighbors are not obstructed by government officials from trading as you see fit with persons across the ocean would, were it valid, justify government-imposed obstructions on your trade with persons living next door, across the street, and around the block.

Protectionists hoot and ridicule this reductio ad absurdum. “Don’t be absurd! Trading with fellow citizens is economically very different from trading with foreigners!” – so assert protectionists.

But when you ask “How?” – when you ask for an explanation of why voluntary commerce across a political border is likely to inflict economic damage that will not be inflicted by voluntary commerce across a town or county or province or state border – you are barraged with assertions of fallacies, half-truths, and downright ignorance. What you never get is a valid explanation.

Economists from Adam Smith through William Graham Sumner and Edwin Cannan onto Henry Hazlitt, Milton Friedman, Jagdish Bhagwati, Arvind Panagariya, Russ Roberts, Dan Griswold, and Doug Irwin – to name only a few – have debunked each of the many fallacies raised by protectionists. “What if foreigners get a monopoly in supplying this good?!” “What if foreigners keep their prices artificially high?!” “What if foreigners keep their prices artificially low?!” “How can we compete with low-wage workers?!” “How can we compete if our government-imposed regulations are so onerous and our taxes so high?!” “How can we ensure that we have the best industries without government consciously arranging that outcome?!” “The economic theory in support of free trade is unrealistic!” “How would you like to lose a job to imports, huh?!!” “Didn’t America have high tariffs in the 19th century?!” “If we commit to never using protectionist measures, how can we pressure foreigners to make their trade freer?!” “Even Adam Smith agreed that free trade isn’t always the best policy!” “How can we keep running trade deficits year after year after year?!” “Free trade will weaken our national defense!”

Each of these, and other, arguments against a policy of unilateral free trade has been addressed in detail countless times. Each has been repeatedly debunked as a reason not to follow unilaterally a policy of free trade. Much of this blog has been, and will continue to be, devoted to such debunking. But no one person was ever as brilliant and as tireless in making the case for free trade as was Frédéric Bastiat – who was born 219 years ago today.

…..

See Mark Perry’s tribute.

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 12 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):

Doctrines which can stand the trial of logic and reason can do without persecuting skeptics.