Russell Roberts's Blog, page 416
May 14, 2020
Some Links
My intrepid Mercatus Center colleague Veronique de Rugy turned 50 this past Sunday. Unfortunately, the covid-19 crisis caused the cancelation of her big birthday-celebration bash. No matter. Vero here celebrates the market’s ability to enable her many friends and loved ones to congratulate her on her birthday. (Happy Birthday, Vero!)
Wall Street Journal columnist Holman Jenkins has been remarkably insightful throughout the coronavirus pandemic. Here’s a slice from his latest column:
That politicians took steps out of panic is understandable. That these steps were unjustified by the science that existed then much less now doesn’t mean their motives were bad. We can accept, especially in a panic, that the media will eschew complexity in favor of a story of an enemy who must be vanquished.
Our country and our Constitution are finished, however, if the most sweeping, authoritarian and undemocratic restrictions on individual liberty ever contemplated are not subjected to legal challenge and accountability.
Russ Roberts – sporting a covid beard – interviewed Nobel-laureate economist Paul Romer.
GMU Econ alum Ray Niles argues that what we need are millions of individual experiments.
Already I miss blogging from Arnold Kling.
GMU Econ alum Alex Nowrasteh makes the case against banning H-1B workers.
Among the greatest economists not only of the past 100 years, but of all time is Harold Demsetz (1930-2019). Whenever he and his late UCLA colleague Armen Alchian were alone in the faculty lounge, that lounge then contained in it far more economic knowledge, insight, and critical thinking than it would contain in 9 out of every 10 times of it being filled with any randomly chosen 5 or 6 Nobel-laureate economists. I’m glad that David Henderson’s new biographical essay of Demsetz is now up at The Concise Encyclopedia of Economics.
Here’s My Preference: Mind Your Own Business
Here’s a letter to the persistent “proud Trump man,” Nolan McKinney:
Mr. McKinney:
Dismissing my open letter to Sen. Josh Hawley as “globalist bull__t” you defend the senator. Your defense boils down to this: that which separates Sen. Hawley and other protectionists from me and other free traders is simply preferences. Protectionists, such as the senator, prefer to have Americans “not so addicted to imports” while we “globalists have no problem with this addiction.”
Well now.
First, I don’t share your low opinion of our fellow Americans. Unlike you, I believe that they generally choose their commercial relationships wisely rather than, as you imply, recklessly.
Second, there is in play here more than a difference in preferences. Also in play is ignorance of reality. The point of my letter to Hawley is to expose as mythical the protectionist belief that international trade is unique at destroying jobs. Any and all economic changes, including but hardly limited to changes in the pattern of international trade, destroy some jobs as they create others. This factual reality is lost on Hawley and those who cheer his twitter ejaculations.
Third, I don’t mind Hawley and his fans having preferences that differ from my own. What I do mind – intensely – are their attempts to compel the rest of us to live as if we share those preferences. If the likes of Josh Hawley, Oren Cass, Donald Trump, Peter Navarro, and Sherrod Brown prefer not to trade with the Chinese, that’s fine. I don’t object. They are free to not do so. But they have no business coercing the rest of us to avoid such trading opportunities. They should mind their own business.
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 127 of Philipp Blom’s superb 2010 book, A Wicked Company:
Muddled thinkers confuse the world of our senses with the way in which it is depicted in language.
DBx: Language, obviously, is indispensable to human knowledge. Most of what we learn we learn from other people, and most of what we learn from other people we learn through language. Yet as is true of all beneficial institutions, language is imperfect – it has, some might say, its ‘costs.’
Among the ‘costs’ of language is its tendency to cause us to suppose that the abstractions that we describe with words possess a concrete reality that these abstractions don’t possess. For example, we talk about how “the economy allocates resources.” This phrase isn’t meaningless; it conveys those who encounter it an impression that usually is more or less, kinda, sorta, typically reasonably close to what those who say or write this phrase mean to convey. Yet taken literally this phrase is mistaken. The economy allocates nothing. The economy is not an entity that thinks, has purposes, and acts.
The economy is the phrase we use to capture, in summary form, the observed reality of individuals trading. From this observation – with help from the knowledge we have through introspection of human motivation – we conclude that trade occurs when each party wants that which the trading partner has more than he or she wants that which he or she must exchange to get what the trading partner has.
When observing two individuals – Smith and Jones – trade, we aren’t prone to say “the economy allocates resources.” We say that Smith and Jones traded with each other. But when we step back and recognize that such trades as that of Smith with Jones occur constantly, among millions or billions of people, involving all sorts of things (“resources”) and at varying levels of complexity, we say “the economy allocates resources.”
This shorthand phrase is not necessarily objectionable. But it poses a danger the moment anyone begins to think of the acting agent as being something called “the economy,” and the resulting allocation of resources something desired by, or planned by, this sentient creature – this “economy” – with purposes.
Nothing written above is new or the least bit controversial, of course. But the warning nevertheless is warranted. Incessantly we hear talk, or read writing, such as “when America trades with China,” or “we must secure our supply chains.” In reality, because neither America nor China is a creature with a brain that acts, America and China don’t trade with each other. Individuals in the geo-political location called “America” trade with individuals in the geo-political location called “China.” And these trades are not features of one large decision to trade taken by “America” (or by the American government) or by “China” (or by the Chinese government). When understood as being the results of countless individual decisions, much confusion is avoided – confusion that arises from the mistaken notion that America is an entity that trades with China.
The same confusion arises with discussions of supply chains. “We” don’t own or otherwise possess “our” supply chains. (Forget that the term “supply chains” is itself wholly inaccurate.) Nor are these “chains” designed – or design-able – by anyone. What is referred to by the now-familiar phrase “supply chains” is the complex web of different producers, usually spread around the world, each of whom contributes some inputs to the production of final outputs.
The “chains” are economic abstractions. They don’t exist in reality in the concrete manner that the term “supply chains” suggests. And so when political action is taken in response to uninformed assertions about “supply chains” and what “we” should do about them, government officials – whose actions are concrete – unavoidably interfere in the commercial decisions of individuals ignorantly and blindly.
May 13, 2020
Open Letter to Sen. Josh Hawley (who might soon be looking for his very own Smoot)
Sen. Josh Hawley (R-MO)
Washington, DC
Sen. Hawley:
In response to a Dan Drezner column sharply criticizing your embrace of protectionism, you tweet the following:
Is this a parody? “While globalization has undeniably created costs for some Americans, those costs are dwarfed by the aggregate benefits.” Right! So Americans should be HAPPY to lose their jobs to China. Thank you, professor! We had no idea!
Congress: Miracle Worker
Here’s a letter to the Programming Director of CNBC:
Sir or Madam:
Whatever is Amazon’s reason for calling on Congress to enact a nationwide ban on so-called “price gouging,” any such ban is bonkers (“Top Amazon exec calls for federal price gouging law amid coronavirus scams,” May 13). When supplies fall relative to demands – as they do for many goods and services during crises – available units become more valuable as people become more desperate to obtain these supplies. The resulting higher prices reflect these higher values which themselves are the result of fewer supplies relative to demand.
Legislatively preventing prices from reflecting these higher values does not change the underlying reality. Indeed, this reality is made worse because the inability to charge higher prices reduces producers’ incentives to exert the necessary extra effort to increase supplies.
If Congress really could increase the affordability of goods simply by banning price hikes, why not ask Congress to work an even better miracle? Why not call on Congress to do nothing less than ban the coronavirus? “Be it enacted that the coronavirus is henceforth not permitted in the U.S.” Poof! With a miracle worker apparently at our service, why waste its time performing the equivalent of a dog-and-pony show; let’s demand that it eliminate the root cause of today’s problem. Virus, be gone! You are hereby outlawed!
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: “Systemic trouble”
In my June 3rd, 2009, column for the Pittsburgh Tribune-Review I – influenced in part by Thomas Sowell – blamed much of the Great Recession that started in 2008 on imprudent government interventions into the economy. You can read You can read my column beneath the fold.
Some Links
Lockdowns are simply not sustainable for the amount of time that it will likely take to develop a vaccine. Letting up will reduce economic, social, and political pressures. It may also allow populations to build an immunity that will end up being the least bad way of fighting COVID-19 in the long run. Much about the disease remains poorly understood, but countries that are locked down now could very well face new and even more severe outbreaks down the road. If these countries follow the Swedish path to herd immunity, the total cost of the pandemic will decrease, and it will likely end sooner.
The truth of the matter is that those on the right and the left who are eager to blame globalization and market undamentalism (whatever this latter term means) for this pandemic are using the crisis as an excuse to remake the world into the image they were advocating for before this crisis began.
They want nationalism, protectionism, less or no immigration, more top-down policies, and more taxes on the rich. They were against trade, immigration, technology, and markets before and they are now opportunistically using this pandemic as a convenient, almost heaven-sent, opportunity to push for the same pro-government interventions and the same semi-authoritarian regimes they advocated earlier.
George Selgin bemoans the Catch-11.
Quotation of the Day…
… is from page 214 of Deirdre McCloskey’s excellent 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:
An important evil of nationalism – aside even from its intrinsic collective coercion, in line only with an “ancient” liberty, and its tendency to define minorities such as Jews and Muslims and Mexicans as “not us” – is that it inspires war.
DBx: Society larger than the family or tribe – society as we moderns understand it – emerges from commerce. The countless cords of understandings, expectations, and mores that weave individuals and small groups into society are themselves spun from the the even larger number of threads of commercial cooperation that naturally emerge from what Adam Smith called “the propensity to truck, barter, and exchange one thing for another.”
My ability and willingness to trade with you – along with your ability and willingness to trade with me – enables the sum of our output to be greater than this sum would be were each of us to work in isolation, without any economic connection between us. I concentrate – “specialize” – on doing a smaller number of tasks than I would do without trade. You, too, specialize on doing a smaller number of tasks than you would do without trade. We then exchange with each other some of what each of us produces.
Each of us, with trade, can consume more than each of us could consume without trade. This happy effect occurs even if neither of us becomes better at performing any productive task. (Yet because specialization does cause each of us to become better at performing the tasks that each of us specializes in, trade causes the growth in output and consumption to rise even further.)
You become dependent upon my talents and efforts just as I – indeed, because I – become dependent upon your talents and efforts.
This dependency itself reduces the likelihood that you and I will get into fights with each other. Oh, we might occasionally bicker over price – “You should give me more fish for each of my bananas,” I will perhaps one day demand. But if I harm you, or even act in ways that prompt you to want to have nothing more to do with me, I harm myself. The same truths hold also, of course, for you with respect to me.
You and I are woven together into a social unit by our economic dependence on each other and by the understandings that we develop of each other in order to trade. We must be able to commune-icate with each other. We must, each of us, be able to empathize with the other. (“How might I improve my commercial offer to her in her eyes in order to persuade her to improve her commercial offer to me in my eyes?”)
Trade is productive. Trade is civilizing. Trade makes us better people. Trade itself is peaceful and it promotes peace. Trade – commerce – is the foundation of any society that extends beyond the small clan. (Trade might well be the foundation of the small clan and even of the nuclear family, and even beyond the obvious exchange of sex for the provision of food and protection. But this particular point is not here my own.)
Put differently, society is not designed by anyone. It certainly is not created by the state. It’s not the result of a social contract and cannot possibly be so – a reality, by the way, that does not imply the impossibility or undesirability of effective written constitutions for government, constitutions the provisions of which can usefully be assessed by the norms of the voluntary contracts often made amongst private people as they trade with each other.
Society, being the result of trade, is assaulted and weakened and shrunken by restrictions on trade. And what is true for trade that occurs exclusively within political borders is true for trade that occurs across those borders.
In this imperfect world of ours there might be good reasons for the nation-state; I do not here join that debate. Nationalism, however, is a beastly danger. Nationalism is impoverishing; it is an enemy of civilization; and it promotes war. Nationalism is nothing but a modern manifestation of our worst tribal instincts, fears, and superstitions – instincts, fears, and superstitions made much more dangerous by the productive capacity made possible by trade. How ironic.
May 12, 2020
Device A or Device B? Both!
Here’s a letter to a rising senior at the University of South Alabama whose brother recommended that she read Café Hayek:
Ms. Burkett:
Thanks for your e-mail and your excellent question, which is: “While it’s probably ok for free trade to destroy low paying jobs, shouldn’t we protect high paying ones from imports?”
No.
A job that pays a high wage is one in which the worker produces outputs that are especially scarce relative to consumer demand for them. Consumers are especially eager – perhaps even desperate – to get the goods or services produced by such a worker, which is why such a worker commands a relatively high wage. By keeping out imports that compete with a high-wage worker’s output, the government therefore keeps out goods that consumers are unusually eager to acquire. Because the purpose of trade is to enable people to increase as much as possible their consumption – that is, their standard of living – such a policy makes no sense.
Think of the matter with this hypothetical: Suppose that a creative genius invents two new devices, each of which she is willing to make available, at no charge, to everyone in the country. Device A, when squeezed, instantly gives the person squeezing it his or her desired hairstyle. Device B, when squeezed, instantly cures the person squeezing it of cancer.
If you think that imports that destroy low-wage jobs are acceptable but those that destroy high-wage jobs are unacceptable, then you should advocate a policy of allowing this inventor to distribute device A but not device B. Device A, after all, would destroy only the relatively low-paying jobs of hairdressers and barbers, while device B would destroy the relatively high-paying jobs of oncologists and many other health-care professionals.
The purpose of all economic activity, including international trade, is to satisfy human wants. Because imports that destroy particular high-wage jobs are imports that satisfy especially intense human wants, to prevent such imports would be especially foolish and counterproductive.
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: “A demand for coordination”
In my column for the May 28th, 2009, edition of the Pittsburgh Tribune-Review I criticized many of my fellow economists for focusing excessively on aggregate demand and too little on the importance of the coordination of plans. You can read my column beneath the fold.
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