Russell Roberts's Blog, page 405

Quotation of the Day…

(Don Boudreaux)

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… is from page 54 of my GMU Econ colleague Richard Wagner’s excellent 1989 book, To Promote the General Welfare:

But the regimen of profit and loss that firms face in a market economy is not faced directly by governments in democratic polity. And the weakening of such a regimen weakens the incentive that policy entrepreneurs have to seek policy successes and avoid policy failures. For instances, what if the Edsel had been a government product, say the outcome of a public policy similar to the federal government’s creation of Amtrak? Would production have been halted as quickly? Or would there have been efforts to continue the program, such as requiring government contractors to use Edsels? Any such measure would make the Edsel look more successful, at the expense of an increased burden on taxpayers. Government regulation would have been used to cover up an additional tax burden that was used to subsidize the government Edsel.

John Cochrane Rightly Objects to the Mobthink of Krugman, Wolfers, Yellen, and Other Economists

(Don Boudreaux)

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These times, it is already trite to observe, are sad and dangerous, filled as they are with roving bands of rabid “Twitter Robespierres.” Liberalism – true liberalism – is rejected, in deed if not always in word, by many who once called themselves “liberal.” Humanity’s brutality, we see again, is never far from the surface even when it is veiled by some trappings of civilization.

John Cochrane’s express opposition to the Twitter Robespierres who chopped off the editor-head of economist Harald Uhlig is brilliant. Read it.

On Property Rights

(Don Boudreaux)

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Here’s a letter that I sent on June 5th to the Washington Post:

Editor:

Christopher Ingraham makes a jaw-droppingly naïve claim: “‘Protecting property’ is an abstraction” for the “[m]ore than 1 in 5 U.S. families [who] have zero or negative net worth.”

Contrary to Mr. Ingraham’s suggestion, to have zero or negative net worth is not to have no property worth protecting. An individual can easily have negative net worth and still own a home, a car, tools of a trade, a business, as well as the fruits of his or her labor. To assert that protection of property is, to such a person, “an abstraction” is insulting and infantile.

Even more fundamental is the fact that security of property extends benefits well beyond owners. Only if she is secure in her property can the grocer serve her customers. Only if he is secure in his property can the garage owner provide employment to his workers. Only if they are secure in their property can the co-owners of a clothing boutique earn the revenues out of which they pay taxes.

Mr. Ingraham’s assumption that the security of any particular piece of property is a benefit only to its owner reveals obtuseness staggering in its magnitude.

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)

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… is from page 47 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:

In market economies, capital is allocated by banks or investment funds, which search for a return and scrutinize the person who seeks capital for productive uses. Their ability to do so in a decently competent way is checked by the market itself, daily. The utterly incompetent banks or banking customers go bankrupt, most of them causing trouble mainly to themselves and their investors.

DBx: Indeed so. But when the state allocates capital – as the state does, for example, when it practices industrial policy – the state does not go bankrupt, regardless of the depth of its incompetence. It usually resorts to the animal act of seizing more funds from taxpayers, although some states, on occasion, might scale back their operations on some fronts.

And nor do the enterprises favored with state privileges always, or even usually, go bankrupt when their incompetence is revealed. Very often these incompetent or economically unjustified firms are simply injected by the state with more of other people’s money.

Proponents of industrial policy would have you believe that politicians – overwhelmingly individuals whose comparative advantage is the winning of political elections – somehow have uniquely accurate knowledge of commerce, technology, and the future. This knowledge, you are further asked to believe, is so great and sure that there is not only no need to subject it to a market test, but that any such test would be counterproductive.

Proponents of industrial policy would have you believe that politicians and their hirelings empowered both to restrict consumers’ options for spending their own money, and to override the decisions of investors investing their own money, will outperform the competitive markets that are displaced by the power wielded by these politicians and their hirelings.

Proponents of industrial policy, in other words, ask you to believe the ethical and economic equivalent of the claim that an armed thug who intrudes into your home and then compels you to consume as he commands, to invest as he commands, and to work as he commands, will improve your well-being.

Or perhaps I’m being a bit unfair to proponents of industrial policy. Let me be more fair: Proponents of industrial policy ask you to believe the ethical and economic equivalent of the claim that when your neighbors choose by majority rule an armed thug to intrude into your home and then compel you to consume as he commands, to invest as he commands, and to work as he commands, this thug will improve your well-being.

Proponents of industrial policy insist that, because they can imagine and describe in words how the thug will improve your well-being, any such thug – or, any such thug influenced and advised by them – will improve your well-being in reality.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from Mike Munger’s latest AIER essay; it’s titled “The State Isn’t Going Crazy; It’s Going State“:

Any government powerful enough to do what is desired must be expected to do more, and other, than desired.

Bad Use of ‘Public Good’

(Don Boudreaux)

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Here’s a follow-up letter to Mark Wilson:

Mr. Wilson:

Thanks for your follow-up e-mail. Alas, I strongly disagree that “government provides a public good by utilizing tariffs to expand the market for US-made goods.”

You’re correct that the opening of foreign markets can enable some American producers to produce on larger scales. You’re correct also that the resulting greater profits would be a benefit to these American producers. Yet it doesn’t follow that government should intervene in order to enable firms to take advantage of larger economies of scale.

Before leaping to the conclusion that I’m mistaken, ponder this question: Should our government outlaw the sale of used cars? After all, people who buy used cars don’t buy new cars. The availability of used cars thus keeps the market for new American-made cars smaller than otherwise and, as a result, causes production runs at GM, Ford, and Chrysler to be smaller than otherwise. The availability of used cars therefore denies to American automakers the greater profits they might earn by producing at even larger economies of scale.

Do you believe that our government fails to provide a “public good” by not “utilizing” its power to “expand the market” for U.S.-made automobiles by outlawing the sale of used cars?

I understand that a thriving used-car market differs economically and ethically from the interventions of foreign governments that obstruct their citizens’ freedom of commerce. But I submit not only that the principal victims of those foreign interventions are not Americans, but foreigners – and not only that unilaterally imposed tariffs have a poor track record of expanding global markets for U.S.-made goods – and not only that it’s unethical for our government to help some of us expand our access to buyers by harming others of us by shrinking our access to sellers – but also that your use here of the concept of a “public good” is evidence that this concept has in practice become little more than camouflage for government mischief.

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

Ignore Deficit-Doves’ Cooing

(Don Boudreaux)

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In my latest column for AIER I explain why I believe that opponents of big and intrusive government should be deficit hawks and not deficit doves. A slice:

To say that citizens avoid an increase in taxes whenever a government program is paid for with borrowed money rather than with taxes today makes no more sense than to say that you avoid an increased obligation to pay if you buy a car with borrowed money rather than with your income today. Clearly, when you buy a car with borrowed money you incur an increased obligation to pay. The fact that you’ve delayed the timing of your payment does not mean that you don’t pay for your car. The fact that you are not paying for your car today does not mean that your car is paid for, not by you, but by the bank from which you got a car loan. You pay for your car out of your income tomorrow.

Anti-taxer deficit doves respond by arguing that, unlike private debt that eventually must be retired with repayment, government debt never has to be retired. According to anti-taxers, government can merely borrow again to repay each debt as it comes due. And so (the argument proceeds) government programs paid for yesterday with voluntarily loaned funds are not paid for today by taxpayers; these programs are paid for today with today’s voluntarily loaned funds.

Of course government can, and often does, roll over its debt – that is, government can and often does repay debt coming due today with funds newly borrowed. But government debt can be rolled over because creditors correctly understand that government has the power to tax. Just as a bank gives you a car loan because it understands that you have the power to earn income and, thus, the ability to repay your debt, creditors buy government bonds only because they understand that government has the power to tax and, thus, the ability to repay its debts.

Some Links

(Don Boudreaux)

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Here’s the first in a series of planned posts by George Selgin on the New Deal. You can bet big money that these posts will all be deeply informed and well-reasoned. A slice:

In the series of posts to follow, I hope to introduce my readers to evidence casting doubt on the view that New Deal programs ended, or mostly ended, the Great Depression. I’ll also address here and there some other popular misconceptions (as I see them) about the New Deal. I don’t expect to win everyone over to my view of things. I’m not that ambitious. I merely hope to convince you that those who claim the New Deal held up recovery don’t deserve to have their opinions dismissed out of hand, or attributed to purblind partisanship.

Tim Worstall uncovers evidence of U.S. Trade Representative Robert Lighthizer’s innumeracy. (The language we’re stuck having to use in discussions of so-called “trade deficits” is unavoidably confusing, not least because the very concept of a country’s “balance of trade” or “balance of payments” is, as Adam Smith observed, “absurd.” But we communicate using language.)

“The modelers thought of everything except reality.” A slice:

We cannot centrally plan an economy. Computers are no help. We cannot centrally plan a response to a new virus. Computers are of no help. For the sake of health, prosperity, human rights, and liberty, leave disease mitigation to the professionals and get it out of the hands of modelers and the politicians they intimidate into implementing their plans.

Tarnell Brown writes about Bloody Tulsa.

Arnold Kling summarizes his thoughts on calls to “defund the police.”

Ross Douthat reflects on the dust-up at the New York Times over the Tom Cotton op-ed.

The term “Twitter Robespierres” is so very appropriate.

Quotation of the Day…

(Don Boudreaux)

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… is from page 312 of economic historian Deirdre McCloskey’s insight-filled and fact-informed 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

Industrial policy has propped up failing industries from Japan to France, such as small-scale retailing, instead of choosing winners who actually win.

DBx: Yes.

Any firm that is observed to “win” as a result of industrial policy is, in practice, like a sprinter who “wins” a foot race as a result both of his being injected with steroids (that will eventually diminish his vigor), and of all of his opponents being prevented at gunpoint from even showing up for the race.

“Observe our success!” boasts industrial-policy advocates pointing proudly to their man who crosses the finish line first. “You can’t argue with our facts. We have science on our side. See!” – still pointing victoriously to the “winning” doped-up sprinter of whom the industrial-policy advocates are so very proud.

The industrial-policy advocates then turn their gaze triumphantly to the crowd. “Applaud, people, applaud! And not just for our champion sprinter. Applaud also for us, who have arranged for you to enjoy such an excellent event. And applaud, too, for yourselves – yes, for yourselves! – for being so fortunate as to have leaders such as us who’ve so wisely and skillfully arranged for you to enjoy such an excellent event!”

Of course, as Deirdre and every other competent economist understands and insists, drawing analogies between economic activity – even economic competition – and sporting events is a confusing business. The differences between sporting events and economic activity (again, including economic competition) are many more in number than are the similarities.

…..

For those of you too young to remember, the sprinter pictured above is the steroid-stuffed Canadian Ben Johnson.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 70 of the May 9th, 2020, draft of the superb forthcoming monograph from Deirdre McCloskey and Alberto Mingardi, The Illiberal and Anti-Entrepreneurial State of Mariana Mazzucato:

Top-down is an old error in social thinking – and a persistent one. It is what connects witch-doctors in Neolithic tribes to contemporary socialist professors.

DBx: Yes – and also among those who today believe in the wizardry of top-down direction of economic affairs are proponents of protectionism and industrial policy, only some of whom are socialist professors.