Russell Roberts's Blog, page 401

Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 61 of Thomas Sowell’s 2009 book Intellectuals and Society (original emphasis):

[T]here is no concrete institution called “society,” and what is called “social” planning are in fact government orders over-riding the plans and mutual accommodations of millions of other people.

DBx: Indeed so.

“Socialism,” “social planning,” “industrial policy” – these are some of the names given to schemes by which the few substitute their knowledge and preferences for those of the many. And because the few who issue the commands can know neither the preferences of the many nor the on-the-spot, frequently changing, and hyper-detailed economic realities, any such scheme substitutes hubris and ignorance for humility and intelligence.

Choosing the issuers of these commands democratically does not solve the problem described above. Even the most ideal democratic election reveals at best the preference of the majority of voters between two large and unavoidably nebulous bundles of promised-but-not-yet-achieved policy actions. And even if the officials who obtain power through such elections have magnanimity that would shame Albert Schweitzer, they cannot possibly obtain more than a vanishingly small fraction of the knowledge that they would need to possess in order to use their power in ways that improve society.

All proposals for protectionism and industrial policy replace the vast amounts of knowledge incessantly marshaled and used by markets with what is necessarily the ignorance of government officials, and also with what in practice is the breathtaking arrogance of these officials and of those who advise them.

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is a remark made by Albert Einstein during a 1926 lecture in Berlin; I encountered this astute quotation in this excellent June 24th, 2020, essay at AIER by Barry Brownstein:

Whether you can observe a thing or not depends on the theory which you use. It is theory which decides what can be observed.

DBx: And what is true in physics is also true – indeed, more intensely so – in economics and other social sciences which study phenomena of vast complexity. Those who approach observing – those who count, measure, compare this quantity to that, and track quantitative trends – without first getting their theory straight and sound produce nonsense. This nonsense might well have all the trappings of high science; it might look to the unsuspecting eye to be the work of penetrating genius. But unless the data gathering and processing are built upon sound theory, it’s all rubbish – which is why some ways of teaching economics are better than others.

Industrial-Policy Advocates Routinely Display Their Ignorance of Economics

(Don Boudreaux)

Tweet

Here’s a letter to the Washington Post:

Editor:

It’s difficult to decide which of the many fallacies fueling Henry Olsen’s case for U.S. industrial policy to counter China is most egregious (“How can we keep China in check? Curb free-market fundamentalism.” June 27). One candidate is Olsen’s mistaken assumption that intentions are results. Beijing surely does have an “intent to dominate a range of militarily crucial technologies, including artificial intelligence and information technology.” But history and economics reveal that any such intention is regularly thwarted by reality.

With no special talent for predicting the future, freed from market discipline by being able to spend other people’s money, and buffeted by shifting political winds and palace intrigue, government officials often bestow tariffs, subsidies, and other special privileges on firms and technologies that prove inferior to ones that arise in free markets – free markets which use far more information than can possibly be known to government officials, and that incessantly subject firms and technologies to the stern discipline of trial-and-error competition of the sort that industrial policy is designed to eliminate. Olsen can learn much of this relevant history by reading Matt Ridley’s new book, How Innovation Works: And Why It Flourishes in Freedom. (Note the subtitle.)

Ridley’s book is no outlier; its thesis reinforces the findings of economists who’ve researched the realities of industrial policy and of government attempts to guide innovation. G.C. Allen, Charles Schultze, Thomas Hazlett, David Henderson, Robert Higgs, Don Lavoie, Deirdre McCloskey, Arvind Panagariya, Nathan Rosenberg, and Adam Thierer are just some of the scholars whose careful research gives us powerful reasons to believe that America’s adoption of the industrial policy sought by Olsen would make us, not richer and stronger, but poorer and weaker.

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 George Will’s new column titled “Much of today’s intelligentsia cannot think“:

An admirable intelligentsia, inoculated by education against fashions and fads, would make thoughtful distinctions arising from historically informed empathy. It would be society’s ballast against mob mentalities. Instead, much of America’s intelligentsia has become a mob.

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 174 of the late economic historian Nathan Rosenberg’s 1993 paper “Does Science Shape Economic Progress – Or Is It the Other Way Around?”, which is chapter 24 in Deirdre N. McCloskey’s brilliant 1993 edited collection, Second Thoughts (original emphasis):

It is widely believed that an industrial civilization, such as late twentieth-century America, depends upon scientific research for its continued economic success. Although there is no reason to doubt the long-term validity of this belief, it is often associated with a striking unawareness of the considerable extent to which new technologies can emerge without the assistance of recently acquired scientific knowledge. Indeed, to think of the lines of causation as running exclusively from new scientific findings to improved economic performance is highly selective and incomplete, and can lead to incorrect conclusions for the making of public policy.

DBx: Pictured above is the English ironmonger and Baptist preacher Thomas Newcomen (1664-1729), inventor of the first practical steam engine.

Some Links

(Don Boudreaux)

Tweet

Robert Sauer, Donald Seigel, and David Waldman reveal some of the awful unseen consequences of the covid lockdown. A slice:

Of course, there was never any need to “lock down” any of our children for any period of time. It is well known that children are at extremely low risk of contracting the disease and even when they do, they have the highest recovery rate of all. CDC data reveal that school-age children are more likely to be struck by lightning than to perish from the virus.

While it is true that children could potentially infect their teachers, teachers are also generally young and at very little risk from the disease. The median age of public-school teachers in the U.S. is 41. Regularly testing teachers and students for the presence of COVID-19, and periodic self-isolation when found to be infected, is a far less costly strategy than following extreme CDC guidelines. For example, testing and isolation have been successfully applied in Israel, where schools reopened in early May.

My Mercatus Center colleague Dan Griswold reviews Ilya Somin’s new book, Free to Move. A slice:

Immigration restrictions rebound against natives by curtailing their own rights and freedoms. Along with the economic costs, Somin writes, “migration restrictions also impose unwanted obligations on natives, who are required to cooperate with deportation efforts and often must face the risk of racial and ethnic profiling, civil liberties violations, and even deportation as a result of bureaucratic error in cases where the authorities confuse them with illegal migrants.”

How has covid affected the American labor market?

Diego Zuluaga peers into the details of the Payroll Protection Program.

Scott Sumner is right to worry that “The US government’s attempt to stop the rise of Huawei may end up hurting our own technology industry.”

Mark Perry explains modern American business’s globalness.

Here’s the second essay in George Selgin’s excellent series on the New Deal. Here’s the final paragraph:

To conclude: “New Deal” rhetoric and revisionist histories notwithstanding, FDR didn’t come to Washington equipped with any well worked-out plan for ending the Great Depression. Instead, his recovery plan was mostly rushed together during his famous first 100 days in office. That some components of this hastily-assembled program should have failed to contribute to the recovery, and that some may even have hindered it, should not seem all that surprising. But this is merely speaking of probabilities. I still have to prove that certain New Deal programs did in fact impede recovery, and did so enough to justify the claim that, taken as a whole, the New Deal, considered as a program for economic recovery, was a flop.

The Emotigentsia

(Don Boudreaux)

Tweet

Here’s a letter to someone who “stumbled into” my “disturbing blog”:

Ms. White:

Thanks for your e-mail in response to my favorably quoting George Will’s observation that America’s intelligentsia “is so unintelligent.” You accuse me (and Mr. Will) of mistaking “disagreement for unintelligence.”

You’re wise to be alert to this common problem: While people can disagree with each other without any of them being unintelligent, very often disagreement nevertheless is wrongly taken as evidence of unintelligence. Yet in this case I believe that George Will expresses a sad truth.

There are, of course, exceptions, but members of today’s intelligentsia too often mistake their good intentions for sound argument; too few of them understand that (as David Henderson warns) “intentions are not results.” Further, today’s intelligentsia are almost all utterly ignorant of basic economics, despite the eagerness of many to hurl economic jargon that they recall from their sophomore econ classes of years ago. It’s no crime to be ignorant of economics. It is, however, unintelligent to publicly declaim on economic matters without bothering to learn the first substantive thing about economics and economic history.

But perhaps the single worst characteristic of today’s intelligentsia is their addiction to emoting. Intellectuals today score points amongst themselves and with their audiences largely by expressing the right emotions. Writers and speakers are today applauded according to their facility at emoting appropriately on each of the affairs du jour. The intellectual contents of their words – the coherence, and the conformity to the historical record, of their arguments – seem to be irrelevant beside the quality of their emitted emotions.

We have today in America not so much an intelligentsia as an emotigentsia.

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 93 of Matt Ridley’s marvelous new (2020) book, How Innovation Works: And Why It Flourishes in Freedom:

Innovation is not an individual phenomenon, but a collective, incremental and messy network phenomenon.

DBx: Ridley, in his book, thoroughly documents this reality. He also makes clear that the “messy network” that fosters innovation is an emergent order. It is not the product of government planning. And this network is “messy” only in that it involves, necessarily, a great deal of trial and error – of false starts – of projects abandoned before completion as knowledge grows from this experimentation. But the trial-and-error experimentation and the consequent learning-by-doing with a promise of reward when successes are achieved is an emergent-order way of both inspiring individuals to contribute their creative energies to the process of innovation and to guide these efforts toward results that are socially beneficial.

Deirdre McCloskey frequently points out this: The same correct intuition that would prompt laughter from people who encounter proposals for the government to have, say, a “music policy” for “guiding” the kinds of music produced in the nation – with the goal of ensuring that music is superior to the music that emerges in freedom – seems absent when people encounter proposals for government to have an “industrial policy.” Yet government officials are no more to be trusted to “plan” and “guide” the course of industry than they are to be trusted to “plan” and “guide” the course of music, of literature, of movie-making, or of any other species of art.

Because economic entrepreneurship and economic innovation, big and small, are creative acts, economic entrepreneurship and economic innovation are very much akin to the entrepreneurship and creativity that generate music and literature. Art thrives and is ever-evolving in commercial society. So too is industry and business. Advocates of industrial policy are ignorant of this reality and, hence, of its vital importance.

Bonus Quotation of the Day…

(Don Boudreaux)

Tweet

… is from page 172 of the 2015 Mercatus Center edition of the late Don Lavoie’s insightful 1985 book Rivalry and Central Planning (references deleted; link added):

The crucial distinction that Hayek introduces in this regard is between “scientific knowledge” and “unorganized knowledge,” or “the knowledge of the particular circumstances of time and place.” The latter, he insists, cannot be available except to the “man on the spot.” It is only by employing such particular knowledge in conjunction with the “telecommunication” system of prices that rational economic decisions can be made, and only a price system that is driven by the forces of competition can facilitate the dispersal of knowledge.

DBx: Industrial policy is the replacement of price-guided resource-allocation patterns with commands issued by politicians and their hirelings. But as Hayek points out, it is impossible for politicians and their hirelings to possess any of the “knowledge of the particular circumstances of time and place” that must be known if the resulting use of resources is to serve human purposes without also being stupendously wasteful.

To replace markets with industrial policy is to replace an information-generating process with ignorance. It is to toss aside access to information and to rely instead upon uninformed stupidity. Advocates of industrial policy are advocates of economic stupidity. Of course, advocates of industrial policy do not understand that they are advocates of economic stupidity; their ignorance of economics blinds them to the reality of their schemes. But the reality of their schemes is not optional.

I challenge any advocate of industrial policy – Oren Cass, Ian Fletcher, Marco Rubio, Elizabeth Warren, Daniel McCarthy, whoever – to explain substantively how such information will be acquired. Is it supposed that individuals will use their smartphones to text information, moment to moment, to mandarins and commissars? Will government officials, upon assuming office, gain supernatural powers? Will this information be gathered and carried into government office buildings by angels from the heavens or by magical elves from the forests? Or is the theory that this information will transmit itself into the brains of bureaucrats, over some mysterious pathway?

What is the mechanism or process of information acquisition? The question is not unreasonable.

Offering a ponderous list of the many ways that real-world markets fall short of textbook perfection will not suffice. Not only is any such list old news, it doesn’t begin to answer the question of how industrial-policy commissars and mandarins will acquire the amount of knowledge routinely compressed into market prices and transmitted widely.

I search in vain the writings of industrial-policy advocates for an explanation of the sort that I here (and, obsessively, in many other blog posts) request. Yet not only do I find no such explanation, I find not even a recognition that such an explanation is necessary. I find only an unsupported implicit assumption that the officials charged with carrying out industrial policy will, somehow, out-perform the competitive market process.

However inadequate and incomplete is the economic theory upon which the case for free markets rests, this theory is infinitely better than the non-theory – the utter absence of explanation – that is ‘offered’ by advocates of industrial policy.

Some Links

(Don Boudreaux)

Tweet

From two years ago: Jamie Whyte devastatingly reviews Mariana Mazzucato’s book The Value of Everything. A slice:

Mazzucato’s failure to refute marginalism, or to offer any coherent theory of value of her own, undermines her subsequent claims about who is making and who is taking, who is a producer and who a mere rentier. These assertions are entailed by no theory of value; they are the personal judgements of Mazzucato about who is deserving and who not.

My intrepid Mercatus Center colleague Veronique de Rugy is rightly dismayed – although hardly surprised – that Congress dropped the ball on rescuing small businesses. Here’s her conclusion:

The bottom line is that the PPP was poorly thought through, implemented and administered, and even more poorly targeted — in other words, typical congressional carelessness.

James Pethokoukis describes Trump’s new ban on work visas as “economic suicide.”

Wall Street Journal columnist Daniel Henninger writes insightfully about the mad and myopic mindlessness now afoot. A slice:

I think people across the political spectrum are shell-shocked by the events of these weeks, especially the Taliban-like smashing of monuments and the embrace of lawlessness as an official ideology, with no credible pushback from Joe Biden or other prominent Democrats.

Art Carden explains some of the errors of those “historians” who assert that capitalism is the child of slavery.

Alberto Mingardi explores the extent to which “National Socialism” was socialist.

“Black and white Americans are embracing the Second Amendment” – so writes Jeff Jacoby.