Russell Roberts's Blog, page 410

Quotation of the Day…

(Don Boudreaux)

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… is from page 1 of GMU law professor Ilya Somin’s newly published (2020) book, Free to Move: Foot Voting, Migration, and Political Freedom:

We often take it for granted that ballot box voting is the essence of political freedom. In liberal democracies, it is generally considered the main way for the people to choose what sort of government policies they will live under.

The ballot box indeed has great value. But it also has significant flaws. As a mechanism for expressing political choice, it leaves much to be desired. The individual voter almost never has more than a minuscule chance of making a difference to the outcome of an election. And for that very reason, he or she has little incentive to become well-informed about the issues at stake in any election.

Voting with your feet – “foot voting” – is in many ways a superior alternative.

DBx: “Progressives” rightly value and praise freedom of expression. But the only acts that they regard as expressive are ‘voice’ acts – acts such as speaking, writing, the creation and display and performance of art, and, above all, voting. (I here overlook many “Progressives’” rising ambiguity toward – and in some cases outright hostility to – freedom of speech.) But we humans express ourselves also in ‘action’ ways. Two of the most important of our ‘action ways’ are contracting (that is, engaging in commerce) and migrating (what Ilya calls “foot voting”). “Progressives” are very skeptical of the first of these action-ways (with more and more conservatives now joining in on this skepticism). Many modern-day conservatives especially, but also large numbers of “Progressives,” are skeptical also – indeed, in many cases opposed – to the second of these action ways.

Of course voice-ways differ from action-ways, and at least some of these differences have relevance for law and policy. But great progress in our thinking will occur if we come to see more clearly that action-ways have significant expressive components. Indeed, the expressive components of our action-ways are often more accurate and meaningful than are the expressive components of our voice-ways.

…..

So far I’ve read only a few pages of Ilya’s new book. And so far it’s splendid. I’ll be shocked if, when I’m finished reading it, my assessment of the entire work differs from my assessment of its opening pages.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 406-407 of the 2014 collection, The Market and Other Orders (Bruce Caldwell, ed.), of some of F.A. Hayek’s essays on spontaneous-ordering forces; specifically, it’s from Hayek’s previously unpublished 1961 lecture at the University of Virginia “Economics and Technology,” which is the third of four lectures that Hayek delivered in UVA’s Newcomb Hall during the Spring 1961 semester; the title of this lecture series by Hayek is “A New Look at Economic Theory” (original emphasis):

The economic problem of society is therefore not normally solved deliberately by somebody working out all the implications of the data, because nobody has all the data. It is solved not by somebody beforehand drawing up a comprehensive plan and everybody then acting according to this plan, as a technological problem would be solve, but by the individuals so mutually adjusting their actions that an order is formed.

Each individual will always know only a small fraction of the relevant facts…. The collaboration of the individuals here involves not only a division of labour, as the working according to a single plan usually also would, but also a division of knowledge guiding the action – a division of knowledge which cannot be all conveyed to one designing mind but must be used where it exists, dispersed among many persons who must make their own separate decisions on the basis of the knowledge they individually have.

DBx: Advocates of industrial policy no less than advocates of full-on socialism are unaware of the reality identified here by Hayek, or they deny it. Either way, this reality is unavoidable.

And this reality doesn’t begin to bite only when government planning of the economy rises to the level of full-on socialism. Consider, for example, industrial policy. While it doesn’t prevent as many individuals as does full-on socialism from using their unique bits knowledge, it does prevent many individuals from doing so. Industrial policy substitutes the coercively imposed ignorance of a relatively minuscule number of government officials for the peacefully elicited knowledge of millions of individuals.

Advocates of industrial policy deny this reality because they do not understand the price system. They are ignorant of how economic competition, profits and losses, and financial markets work.

Further and more fundamentally, industrial-policy advocates believe the economy to be far simpler than it really is. Failing to grasp the economy’s complexity, industrial-policy advocates mistake the case for free markets – mistake the recommendation to “let the market handle it” – as being simplistic. But the true simpletons are those who insist that a handful of human beings imposing a single plan can outperform the competitive process of each individual using his or her unique knowledge of time and place and adjusting through the price system to the use of such knowledge by countless others.

In short, to advocate industrial policy is to advocate the replacement of knowledge and understanding (and peaceful commerce) with ignorance and stupidity (and coercive diktats).

Yep, I Understand What Mr. Cass Means

(Don Boudreaux)

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Here’s a letter to someone who is displeased with my “Notable & Quotable” in yesterday’s Wall Street Journal:

Mr. Cowan:

I’m sorry that you find my “Notable & Quotable” in yesterday’s Wall Street Journal to be “disingenuous.” Disingenuity was neither my motivation nor goal.

You write that “when Oren Cass points out finance is ‘purely derivative’ he obviously means its role is secondary to the primary role of manufacturing.” You capture Cass’s meaning accurately, and it is precisely this meaning that I tried to explain is economically uninformed.

If the performance of each of two tasks, F and M, is required to result in outcome C, it makes no sense to describe either F or M as “secondary” and the other as “primary.” Both tasks contribute to C, and that’s all there is to it. Modern finance (F) is required for modern manufacturing (M) to take place, and the ultimate result of their combination – a result that would be impossible if either activity were to disappear – is a stream of goods and services for human consumption (C).

Finance is no more “secondary” to manufacturing than manufacturing is secondary to finance. Although, it’s important to note, both finance and manufacturing are means to the end of consumption. Neither finance nor manufacturing are ends in themselves; each activity derives its value ultimately from its contribution to people’s ability to consume.

I emphasize this latter point because in other of his writings Mr. Cass argues as if manufacturing – or, more generally, production – is an end in itself. He doesn’t understand the fact that work and other productive activities are productive only if and insofar as they enhance our ability to consume.

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

Pittsburgh Tribune-Review: “Here comes the G-20”

(Don Boudreaux)

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In my column for the September 20th, 2009, edition of the Pittsburgh Tribune-Review I contrasted “decentralists” with “controllers.” You can read my column beneath the fold.

(more…)

Quotation of the Day…

(Don Boudreaux)

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… is from page 26 of Roger Koppl’s superb 2018 book, Expert Failure (references deleted; link added):

DeFoe contrasts skilled physicians with the “Quack Conjurers” brought forward by the plague. He laments “the foolish Humour of the People, in running after Quacks, and Mountebanks, Wizards, and Fortune tellers.”

DBx: Yesterday’s Bonus Quotation of the Day was from George Will’s recent column lamenting the genuinely lamentable turn away from modernity by many American conservatives. “Progressives” shouldn’t think themselves superior. They, too, very often reject modernity. Despite doing so under the guise of science and rationality, “Progressives”, too, peddle a great many pre-scientific superstitions and quack remedies.

…..

Here’s what is surely one of the peak ironies of our day: The typical “Progressive” is among the first and the loudest to point out – correctly and rightly so – the ridiculous scientific pretenses that constitute so-called “Scientific Creationism,” yet this same “Progressive” is also among the first and loudest to endorse the equally ridiculous scientific pretenses that constitute “Progressivism” – that is, that constitute the superstition that the economy is the creation of a higher power (the state) that will intervene in benevolent and all-knowing ways if it receives from the faithful enough prayers, devotion, and blind obedience.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from this brilliant new column by George Will titled “When American conservatism becomes un-American“:

Nostalgia functioning as political philosophy … is usually romanticism untethered from information.

DBx: Yes. And the information from which such a political philosophy is untethered is information both about what the past really was like, and about what consequences will arise from efforts to coercively construct today and tomorrow into the imaginary yesterday.

Even Worthwhile Projects are Costly

(Don Boudreaux)

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Here’s a letter to my friend Steve Conover (and I thank John Tamny for the term “deficit hawkery”):

Steve:

Thanks, as always, for your e-mail and valuable perspective.

I don’t doubt that deficit financing of government projects is sometimes justified. Nor do I doubt that examples of the wise use of such financing can be found in history. Nothing in my argument – nothing, that is, in my deficit-hawkery – implies otherwise. The same is true, I’m sure, for warnings of the dangers of deficit financing offered by economists such as Jim Buchanan, Dick Wagner, and Veronique de Rugy.

But three points require emphasis:

First, even productive projects funded with debt are costly; someone must pay for them. And when government funds such projects with debt, these projects are paid for by future citizens-taxpayers. Future citizens-taxpayers might unanimously and avidly agree that they’re better off with a particular debt-funded project and its accompanying repayment obligation than they would have been without the project and no repayment obligation. But this positive assessment of the project by future citizens-taxpayers does not mean that these future people don’t pay for the project. The burden of paying for debt-funded projects always falls on future citizens-taxpayers even when those projects are marvelously productive and worthwhile as judged by the citizens-taxpayers who pay for them by servicing the debt.

Second, because neither government officials nor citizens-taxpayers are personally on the hook to repay any debt incurred today, they – unlike private individuals, households, and firms – have greater incentives to abuse the debt-financing option. Jones’s and Jackson’s ability to spend Smith’s and Williams’s money tempts Jones and Jackson to spend excessively. The significance of this fact isn’t diminished by real-world examples of Jones and Jackson having occasionally spent Smith’s and Williams’s money wisely.

Third, because of the second point above, prudence counsels that we impose restraints on governments’ use of debt financing that are more restrictive than are the restraints used to govern the use of debt financing by private parties.

Don

Quotation of the Day…

(Don Boudreaux)

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… is from page 287 of one of Harold Demsetz’s brilliant 1982 De Vries Foundation lectures, “Competition in the Public Sector,” as this lecture is reprinted in volume II of the 1989 collection of some of Demsetz’s most important works, Efficiency, Competition, and Policy:

Many national policies require the passage of time before their success or failure can be determined, and many programs require a commitment to others that has an important time dimension. Infrequency of elections allows working time, but it also reduces the rapidity with which voters may directly discipline their parties. Business firms are disciplined by consumers on a continuing basis. The impact of poor quality or of dishonest performance is felt quickly by firms once it is discovered; revenues available from sales or from the capital market are soon made more difficult to secure….

The desirability of providing governments with time to work out their programs comes at the cost of an increase in the probability that politicians will behave opportunistically, taking advantage of the delay in reckoning. The infrequency of elections encourages more short-run opportunistic behavior than the continuity of economic competition permits to business firms.

DBx: Competition in a private-property-based economy amongst people spending their own money is concurrent and non-coercive. A thousand – or, rather, a multiple million – ideas bloom simultaneously, each to be compared to the other. Experimentation is continual. The relatively better ideas survive at a higher rate than do the relatively worse ones. The economy improves.

To describe in any detail some ‘ideal’ economic ‘outcome’ is unavoidably to produce the product of an individual’s imagination. Yet because no single individual’s, or committee of individuals’, creativity and knowledge come within light-years of the creativity and knowledge at work in free markets – modern markets which host and encourage a never-ending orgy of ideas having sex with each other – no individual or committee or parliament or duma of individuals can hope to outperform the market process over time.

Keep the above in mind when you next hear a plea for industrial policy.

…..

Note also, by the way, that Demsetz above mentions one of the many productive roles played by financial markets – a point to remember when you next encounter the assertion that financial markets ‘produce nothing.’

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy applauds the important work of the late Alberto Alesina. A slice:

Much of this research was recently compiled into a book Alesina co-authored with Carlo Favero and Francesco Giavazzi titled “Austerity: When It Works and When It Doesn’t.” In this book, Alesina and his co-authors carefully examine all sides of the issue. Data-rich and deeply economically informed, it provides solid guidelines for every policymaker who is serious about reversing the dangerous pattern of fiscal irresponsibility.

Alberto Mingardi links to Guido Tabellini’s remembrance of Alesina.

George Selgin remembers the late, great Richard Timberlake.

Richard Ebeling argues that freedom requires resisting coronavirus-induced pessimism.

My colleague Pete Boettke calls for resistance.

Phil Magness, on his Facebook page, recounts the genuinely bizarre and appalling dishonesty of Gabriel Zucman.

George Will rightly warns of unintended ill consequences of Congressional hyperactivity.

On the Timing of the Damage of Debt-Funded Government Activities

(Don Boudreaux)

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My good and very intelligent friend Brian Mannix left the following comment on this recent post on the burden of government debt – a post in which I recount my amicable disagreement with John Tamny on the burden of debt:

Don, I think there is an aspect of John’s argument that you are missing. When you say that borrowing just postpones the pain, I think you inadvertently concede too much to the big spenders. Some may not care about future generations, or may think (call it MMT) that the game can be played indefinitely.

But John is right that much of the pain — i.e., the misallocation of real resources — is not postponed. If Nancy Pelosi controls 99% of GDP (regardless of how she got it), YOU will have less to eat. Not your children or grandchildren, but you.

Now of course there are incentive effects, and a variety of long-run effects, that we need to consider. But John is right that excessive government control over the real economy, regardless of how it is “funded,” will impose costs in terms of lost human welfare that are suffered today and cannot be postponed by any sort of fiscal accounting. (Full disclosure: I have not read Buchanan’s book, so I may be missing something.)

Much truth resides in what Brian wrote. But clarification is in order.

I begin by repeating a foundational point: Because responsibility for paying for government projects and programs funded with borrowed money is pushed onto future citizens-taxpayers, deficit financing adds fuel to the growth of government today. Even if it’s the case that some of the burden of deficit financing is borne in the current period, deficit financing – by enabling current citizens-taxpayers and government officials to pass along to future generations at least some of the cost of today’s programs and projects – encourages greater growth of government today.

Only if none of the burden of paying for debt-financed expenditures is passed on to future citizens-taxpayer would there be some possible basis for claiming that debt financing doesn’t allow today’s citizens-taxpayers to free ride on the wealth of others. Therefore, even if we stop the discussion here, all of us who wish to keep the size and scope of government limited should oppose deficit financing, or at least have a very strong presumption against government’s use of such financing. No skeptic of big and discretionary government should be dismissive of budget hawks, or ever say that the manner of financing government spending doesn’t matter or is done better with debt.

…..

But to dive down somewhat into the analytical weeds: Buchanan’s goal in his 1958 book (as well as in many later works) was to identify who shoulders the burden of public debt. Specifically, he exposed the fallacy that deficit spending today imposes no burden on future citizens-taxpayers. This fallacy – having been understood as being a fallacy by Adam Smith and most other pre-Keynesian economists – was given a patina of scientific respectability by Keynesianism.

To this end, in his work on public debt, Buchanan paid little attention to the many ways that government today might impose on the economy inefficiencies beyond those that result directly from people today getting to spend other-people’s – that is, future citizens’-taxpayers’ – money. (Buchanan might have responded to Brian’s hypothetical like this: ‘Well, for Nancy Pelosi to get, through the issue of public debt, control over 99 percent of GDP, creditors would voluntarily have to lend the U.S. government an amount of money close to 99 percent of GDP – an unlikely sum.’)

Perhaps Buchanan erred strategically by giving little attention to the full range of costs – to the full array of damages – that arise from deficit financing today. Or perhaps he understood that those who realize that deficit financing encourages excessive government growth today don’t have to be reminded of this reality.

Buchanan waged battle against the Keynesian-fed fallacy that deficit financing is basically a source of free lunches. And to expose this fallacy, he had to show – quite rightly and quite correctly – that, contrary to Keynesian claims, citizens-taxpayers tomorrow do indeed pay for the debt-financed government goodies consumed by citizens-taxpayers today.

If Buchanan were still alive I’m sure that he would agree with Brian that we would all be harmed today if Nancy Pelosi controlled 99 percent of U.S. GDP. He would, I’m certain, point out that the likelihood of her gaining this much control is only furthered by the possibility of deficit financing.

…..

I ended the post on which Brian commented with these words:

Only after I wrote and sent this last e-mail did I realize that one important determinant of when deficit financing today leads government to act in ways that inflict harm on citizens-taxpayers today is when that financing prompts government to act in ways that today’s citizens-taxpayers would not choose. This latter point requires deeper thought and further elaboration.

Were I not now unusually busy I might today venture – probably in vain – to offer useful deeper thoughts and further elaborations. When I concluded that earlier post, I had in mind precisely the sort of issue that Brian raised in his comment.