Russell Roberts's Blog, page 404
June 19, 2020
Bonus Quotation of the Day…
… is from page 43 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:
For the alleged detection of “high growth if high risk areas” to be good for ordinary people, the interests of producers by themselves must not be the criterion of evaluation. Imagine biological evolution in which fitness was determined solely by the wishes of the existing species, or for that matter of the new species. The test is survival, or profit, interacting with the world as it is, not as one or another interested party passionately wishes it was instead. And the internal improvements and infrastructural investments have in fact been regularly corrupted into favors for the few and rich already in place, such as the investors in US transcontinental railroads, heavily subsidized by federal land grants and cheap loans backed by the Federal government. The transcontinentals were for a long time after they were built dubiously wise socially speaking, and privately profitable only by corruptly arranged subsidy. Admittedly, they were glorious.
DBx: Far worse than the economic ignorance of all sincere proponents of industrial policy is these people’s breathtaking arrogance. They think that they know – that they have somehow divined – in what specific ‘direction’ the economy should move. (Note that Oren Cass named his industrial-policy-pushing organization “American Compass.”)
Proponents of industrial policy claim to know which particular industries are better – better, that is, than the industries that emerge through market competition – for the millions of people of the country. They claim to know which are or will be the best jobs. Industrial-policy proponents claim to be able to predict the future! Or, even more astonishingly, they claim to possess the power to craft the future into the detailed forms that float as imagined Beautiful Systems in their heads.
Each supposes that he or she establishes his or her credibility by issuing trite observations of how real-world markets are “imperfect” – observations invariably mixed with tell-tale evidence that their knowledge of economics runs no deeper than superficial familiarity with some of that discipline’s jargon.
And each proponent of industrial policy gets mighty huffy if someone points out that there is every reason to believe that the incentives of government officials are not ones that are likely to lead them consistently to wield their power in the ways that industrial-policy proponents assert these officials will wield their power.
The notable defensiveness, haughtiness, and huffiness of industrial-policy proponents springs, I’m sure, from the fact that, deep down, each knows that he or she has no good answer to either of these two looming, fundamental questions: (1) How will government officials get the information that they must have in order to out-perform markets? and (2) What will prevent government officials charged with carrying out industrial policy from succumbing to interest-group pressures that subvert the pursuit of the general good?
Pittsburgh Tribune-Review: “A bridge too far”
In my column for the December 23rd, 2009, edition of the Pittsburgh Tribune-Review I did my best to expose the hubris of politicians (and their advisors) who were then re-engineering the U.S. health-care system. You can read my column beneath the fold.
Some Links
Not all charter schools succeed and not all traditional public schools fail. But, by and large, in New York City the hard data in my new book, “Charter Schools and Their Enemies,” show most charter schools doing decisively better than the traditional public schools housed in the same buildings with them.
Although New York’s charter schools usually come out ahead in comparisons based on data, traditional public schools often come out ahead in comparisons based on rhetoric.
One piece of rhetoric that seems plausible on the surface is that charter schools “skim the cream” of students, leaving the public schools worse off. But this ignores the fact that admission to New York City charter schools is by lottery—that is, by luck—and not by students’ academic records or test results.
And here’s Richard Ebeling on Thomas Sowell as the latter turns 90.
Max Gulker writes a passionate open letter of protest to the Institute for New Economic Thinking.
I agree with the thrust of what is written here by Megan McArdle.
Here’s wisdom from Nick Gillespie.
My colleague Richard Wagner explores the law-and-economics of our late colleague Gordon Tullock.
Juliette Sellgren talks about conservatism and baseball with George Will.
Government Power Is Not An Obedient Servant
Here’s a letter to the Wall Street Journal:
Editor:
Ben Domenech and Sean Davis open their op-ed with this claim: “NBC News attempted this week to use the power of Google to cancel our publication, the Federalist. The effort failed, but it should serve as a warning about the unchecked power of big tech companies” (“NBC Tries to Cancel a Conservative Website,” June 18).
That the effort failed disproves the assertion that big-tech’s power is “unchecked.”
Even those of us who often disagree vehemently with the content and editorial decisions of private companies should be alarmed by hints, such as appear in Messrs. Domenech’s and Davis’s essay, that the same government that we rightly fear to exercise the power to directly punish people for peaceful expression should have the power to punish private companies for their decisions about peaceful expression.
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…
… is from page 58 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):
Governments have always looked askance at private property. Governments are never liberal from inclination. It is in the nature of the men handling the apparatus of compulsion and coercion to overrate its power to work, and to strive at subduing all spheres of human life to its immediate influence. Etatism is the occupational disease of rulers, warriors, and civil servants. Governments become liberal only when forced to by the citizens.
DBx: Power, unquestionably, is highly addictive. Few who possess it can resist its allures. And individuals thirsting for ever-more power are aided in their quest by the one theological belief that seems to be most widespread among human beings – namely, the faith that so many people have in the miraculous abilities of individuals holding power.
The most rational and proud skeptic of orthodox religious dogmas too often becomes a brainless and devout devotee of state power. Likewise, many believers in the Judeo-Christian God, or in Allah, or in any other supernatural being, also believe that their god has here on earth an agent or a counterpart that is nearly as knowing, as loving, and as capable as is their God above of performing impossible feats here below.
Then the state-god did saith “Let wages be higher and prices be lower!” and the incomes of the poor thus did rise as the cost to them of their provisions thus did fall. The state-god then commandeth “Let there be more economic equality!” and greater equality did thus spread across the land. The state-god looked with satisfaction upon His creation and on His people, whom He doth love unconditionally as long as they do please Him. And the state-god promised always to protect His creation and His people – reminding His people that all that is good comes only from His beneficence and power, and in return for His continuing love and protection and wise intervention, this all-loving state-god demands only that His people obey to the letter His wise commandments and never, ever question His demands for more subservience and obedience and sacrifices.
June 18, 2020
Some Links
Continued lockdowns are infeasible; somebody must produce essential food and services for others.
So what kind of policy should guide the recovery phase in order to be consistent with beneficence and justice? We believe it is a policy that quickly stabilizes economic freedoms at pre-crisis levels, ruling out future open-ended closures of entire economic sectors.
Mark Perry’s graph is powerful – very powerful – evidence of the brutality of the “war on drugs people who sell and buy things that ought to be, but aren’t, legal to buy and sell.” The implications for today’s protests are, or should be, obvious.
George Will writes about the recent Bostock decision. As does Ilya Shapiro. As does Ilya Somin.
I’m always honored to be a guest on the radio show of Dan Proft and Amy Jacobson.
Signifying Nothing
Here’s a letter to Palladium:
Editor, Palladium
Editor:
Upon encountering the title “The Economic Foundations of Industrial Policy” (June 15), I hoped that Marc Fasteau and Ian Fletcher would discuss, well, the economic foundations of industrial policy. Yet all I found is a prolix rehash of the many ways in which real-world markets differ from textbook perfectly competitive markets.
This information is not news. Economists have been aware of this fact since Adam Smith first put quill to parchment. And the development, in the 20th century, of the model of perfect competition was from the start understood by sensible economists to be neither descriptive of, nor prescriptive for, reality. See, for example, Joseph Schumpeter’s famous 1942 book, Capitalism, Socialism, and Democracy. Therefore, contrary to Fasteau’s and Fletcher’s implication, the strongest case for free markets and against industrial policy is not and never has been built on the assumption that markets are perfectly competitive or even close to being so.
Even worse than Fasteau’s and Fletcher’s straw-man portrait of the case for free markets is their complete failure to explain how government officials charged with carrying out industrial policy would acquire the information they must have in order to out-perform markets. After slogging through nearly 6,500 words of unoriginal claims – some trite, some questionable, some certifiably false – the reader reaches the end of their essay only to be assured that “every country, including the U.S., can benefit from good industrial policy.” “Can”? The authors offer not a single word to explain how real-world government officials would go from a theoretical “can” to an actual “will.”
With this essay, Fasteau and Fletcher join the ranks of Oren Cass, Marco Rubio, Elizabeth Warren, and every other industrial-policy advocate, past and present, in steadfastly refusing to explain how the information needed for government officials to carry out industrial policy successfully would be marshaled by these officials. Indeed, the fact that these authors do not even acknowledge this core issue is sufficient reason to dismiss their arguments out-of-hand.
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…
… is from page 15 of the Mercatus Center’s 2016 re-issue of my late colleague Don Lavoie’s indispensable 1985 volume National Economic Planning: What Is Left? (footnote deleted):
Efforts to borrow analytical tools fashioned for the natural sciences have dominated and seem to have hampered the social sciences throughout this century. Surely the path to scientific investigation of human action and social forces does not lie in a blind imitation of the sciences that study matter and energy. The general intellectual processes by which the natural sciences have made such phenomenal progress, however are capable of adaptation to the study of society, if only society will devote the same intensity of intellectual effort to developing a scientific understanding of itself as it has to the scientific understanding of the physical world it inhabits.
DBx: A major, although not the sole, source of the scientism that Lavoie above rightly criticizes is the long-standing habit – found on the left, right, and center – of mistaking society and the economy for mechanisms that are akin to machines constructed by engineers. Scientism – that is, the mindless application of the methods appropriate to one branch of study to other branches – is resisted if society and the economy are understood for what they are, namely, emergent orders designed by no one and incapable of being so designed.
June 17, 2020
Bonus Quotation of the Day…
… is from page 301 of the 1999 Liberty Fund edition of James M. Buchanan’s and Gordon Tullock’s seminal 1962 book, The Calculus of Consent:
The precept “Love thy neighbor, but also let him alone when he desires to be let alone” may, in one sense, be said to be the overriding ethical principle for Western liberal society.
Misdiagnosing Externalities
Here’s a letter to Café patron:
Mr. Maes:
Thanks for pointing me to Oren Cass’s June 15th essay on worker training. You ask specifically what I think of this claim of his: “But firms will not sufficiently invest of their own accord in the training of their workers for the simple reason that it is the workers who ultimately capture the value of their skills in the form of higher productivity and wages (which we should want!), so public funds are needed.”
This claim is quite common, but it has always struck me as deeply flawed. Those who offer it propose to cure a non-existent problem by creating a real one.
Employer provision of worker training is not, contrary to Oren’s argument, a positive externality. Oren himself inadvertently hints at this fact by correctly observing that workers “ultimately capture the value of their skills in the form of higher productivity and wages.” His use of the term “capture” is telling: workers who capture the value of their training have incentives to pay for it if no one else will. Precisely because the value of worker training belongs to workers and not to employers, workers have incentives to purchase optimal amounts of training by agreeing to work at wages lower than otherwise, and employers thus have incentives to supply such training.
In contrast, government creates an externality when it pays for worker training. By arranging for worker Jones’s training to be paid for by taxpayer Smith, government arranges for Jones to free ride on Smith. Government thus gives to Jones incentives to spend excessive amounts of Smith’s money. Under these circumstances, there’s every reason to believe that the value of Jones’s training will be less than the value that Smith loses as a result of Jones’s free-riding.
Asserting ‘market failure’ is too easy – and, thus, easily mistaken.
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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