Russell Roberts's Blog, page 418

Give Me Wise Over Smart Any Day

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Benn Steil’s review of Zachary Carter’s sympathetic and, I gather, excellent biography of John Maynard Keynes is a gem (“‘The Price of Peace’ Review: The Economic Engineer,” May 8). One small addition to the record, however, is in order.

Unquestionably, Keynes’s mind was a quick and capacious marvel, and his pen often poetic. But a whopper I.Q. and the resulting intellectual dexterity do not guarantee wisdom. And when fashioning public policy, smarts and the ability to turn a phrase are never as socially useful as are sagacity and good judgment. Keynes lacked the latter, as evidenced by the fact that he ignored the political realities within which his scientific policy prescriptions must be carried out.

As the late Nobel-laureate economist James Buchanan and my colleague Richard Wagner wrote in their 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes,

Keynes was not a democrat, but, rather, looked upon himself as a potential member of an enlightened ruling elite. Political institutions were largely irrelevant for the formulation of his policy prescriptions. The application of the Keynesian precepts within a working political democracy, however, would often require politicians to undertake actions that would reduce their prospects for survival.

Specifically, Keynes naively assumed that politicians would run budget deficits only during periods of high unemployment, and run balanced budgets or surpluses during times of economic health. Oblivious to political realities – namely, to the pressures on incumbent politicians to increase spending without increasing taxes – Keynes unwisely led the charge in destroying the ethical norms that had previously shamed politicians into acting with some measure of fiscal prudence.

The nearly unbroken run of annual U.S government budget deficits over the past 60 years – deficits in boom times as well as busts, under Republican as well as Democratic presidents and Congresses – is an ugly but appropriate monument to Keynes’s influence.

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

Some Links

(Don Boudreaux)

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My long-time friend Roger Koppl – whose expertise on experts and expertise allows him to expertly put experts and expertise into proper perspective – writes of experts and today’s pandemic. A slice:

Today we have the “rule of experts.” Monopoly experts have the power to choose for you in one field after another, including child protective services, economic policy, and pandemic response. But if you give some humans the monopoly power to choose for other humans, you have created some dangerous incentives. The rule of experts gives you the highest chance of expert failure. We should value expertise, but fear expert power. Whenever possible, then, we should do away with the rule of experts by empowering the people.

My intrepid Mercatus Center colleague Veronique de Rugy critically explores the case for making China pay reparations for the coronavirus crisis.

John Tierney asks: “What do we clap for when we clap for government?” A slice:

Extracted from the cohesion of the tribe, we transfer that innate desire for communion to a much larger group of strangers, imagining that we’re in sync with the rest of the nation, and that salvation will come from everyone working together for tHe common good. That sounds wonderfully fulfilling and altruistic, but in practice the only way to coordinate a nation of strangers is by giving new powers of coercion to a small political elite, with its particular goals and limited knowledge of (and concern for) how to deal with our problems.

David Henderson calls again – this time answering some objections offered by Justin Wolfers – for governments to end their lockdown mandates. A slice:

Compare the imperfect market outcome with the imperfect government outcome. To show that the state governments improved the situation with their lockdowns, we would have to show that the additional safety was quite large relative to costs. We know that the costs were huge. What we don’t know is the additional benefit. We can’t just assume that the flattening of the curve happened because of the lockdowns. As noted, much of the social distancing occurred before the lockdowns. What’s the marginal effect of the lockdowns? A fundamental principle in economics is that we should think on the margin. That’s missing from the cost/benefit analyses that most economists have done of the lockdowns. They fail to separate the effects of the lockdowns from the effects of voluntary social distancing.

Perhaps the greatest single cost for Americans of the covid-19 crisis is the CARES Act – or so seems to think Arnold Kling (with whom I am in this matter, as on so many others, in strong agreement). No physical disease has lurking within it the ability to inflict on humanity as much damage as can be, as sometimes is, inflicted by the state.

George Will rightly hopes that the U.S. Supreme Court will rein in presidential immunity.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 212-213 of the 2011 Definitive Edition (Ronald Hamowy, ed.) of F.A. Hayek’s soaring 1960 book, The Constitution of Liberty (footnote excluded):

We have seen that the opportunities for learning about new possibilities that the growth of civilization constantly offers provide one of the main arguments for freedom; it would therefore make nonsense of the whole case for freedom if, because of the envy of others or because of their dislike of anything that disturbs their ingrained habits of thought, we should be restrained from pursuing certain activities.

DBx: Excuses for restricting the range of peaceful actions of others are legion. Almost all such excuses, when peeled to their core, reveal venality, ignorance, or arrogance.

Cane growers in Florida and Louisiana clamor for tariffs on Americans who buy foreign-produced sugar; they do so because they seek to enrich themselves at the (greater) expense of their fellow Americans. They are venal. (They are not, however, ignorant; they understand that tariffs artificially enlarge their customer base and sales revenues.)

Intellectual proponents of industrial policy clamor for tariffs on Americans who buy foreign-produced goods and services because their sensibilities are disturbed by what they (often mistakenly) imagine to be the outcomes of freedom. They are either ignorant or arrogant. The either do not understand how markets operate and what is the actual state of the world, or they personally dislike the state of the world and arrogantly wish to use government coercion in attempts to form the state of the world more to their liking.

All advocates of restrictions on freedom of commerce elevate their own interests, fancies, misperceptions, and superstitions above the interests, knowledge, and freedom of millions of ordinary men, women, and children. The struggle against these venal, ignorant, and arrogant enemies of peaceful commerce is never-ending.

…..

One-hundred and twenty-one years ago on this date – May 8th – in Vienna F.A. Hayek was born. Although he lived to be almost 93, his life was far too short.

The Economy Is Much More Complex than You Realize

(Don Boudreaux)

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This FEE video by Sean Malone is great. And, sincerely, my praise is not at all influenced by Sean’s generous mention of me a couple of times in the video. (But I do thank Sean for that honor.)

Extreme?

(Don Boudreaux)

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Here’s a letter to “an occasional reader” of Café Hayek:

Mr. Dye:

Irked by what you correctly understand to be my “unconditional denunciation of ALL industrial policy,” you write that I “would be accorded greater seriousness” if I “were to take a less extreme position.”

Is my position really extreme? It’s true that I oppose any and all attempts by government to suppress market forces for the purpose of picking industrial winners and, thereby, government necessarily creating losers out of other industries. Economics tells me that any such attempt is highly unlikely to succeed even on its own professed grounds – that is, is highly unlikely to out-perform the market. Put differently, economics tells me that any attempt at industrial policy will almost certainly make overall economic performance worse. And as I read it, the historical record confirms the economics.

But in addition to the positive case against industrial policy, there’s also a normative one, which is this: How individuals and firms choose to peacefully spend their own money is their business and not that of anyone else, including the state.

I submit, therefore, that my opposition to all industrial policy is no more extreme than is that of someone who opposes, say, all religious policy.

Is the optimal or reasonable position regarding government’s stance toward religion one that tolerates some government effort to pick winning churches or doctrines? Would you be irked by me if, upon my encountering proposals for government to use punitive taxes and subsidies in order to ‘pick’ winning religions, I denounced all such proposals? Would you accuse me of being an “offputting fanatic” if I insist that the best policy is complete freedom of religion? Would you declare that I “lose claim to be taken seriously” if I “dismiss out of hand the possibility that smart people could make a reasonable, workable case for an effective [religious] policy”?

Just as I, like most Americans, support complete freedom of religion as opposed to ‘freedom’ of religion only insofar as permitted by government – just as I, like most Americans, support compete freedom of the press as opposed to ‘freedom’ of the press only insofar as permitted by government – just as I, like many Americans, support complete freedom of speech as opposed to ‘freedom’ of speech only insofar as permitted by government – I support complete freedom of trade as opposed to ‘freedom’ of trade only insofar as permitted by government. If this stance makes me an extremist, so be it.

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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(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy writes about blame being pawned off virally. A slice:

Trump is also much to blame for the fact that the trade war he started with China has reduced Americans’ access to many essential medical supplies to fight the pandemic, including thermometers, face masks, medical-grade personal protective gear and hand sanitizer. It’s not for lack of being warned. Economists, health care professionals and even lobbyists all told the president that his tariffs would create shortages and higher prices. The president refused to listen. Now Americans and health care professionals on the frontlines are paying an exorbitant price.

John Tamny is rightly critical of Oren Cass and Marco Rubio for being ignorant of economics. A slice:

Part of the message that Cass pushed on Romney was a mercantilist one. “Get Tough on China,” or something like that. Cass sees imports as harmful. He’s funny that way. There’s a backwards quality to his thinking. He ignores that imports improve us. If the Chinese wanted to “get tough” with us, they’d cease producing. Again, with imports we buy them because they improve our lives and our productivity. Since most of us can’t cut our own hair, or make our own clothes, or manufacture our own TVs, we buy or “import” from those who do. And the more that the world’s producers can produce for us, the further our paychecks stretch.

Alberto Mingardi points to a reality that gives sensible people good reason to pause even longer before falling for industrial-policy proposals.

Thank goodness Simon Lester is on the job correcting Sen. Josh Hawley’s most recent public display of ignorance. And thank goodness also that Dan Ikenson is on this job as well.

I detest what Nick Gillespie accurately describes as “empty displays of ritual militarism.”

Here’s more brilliance from Arnold Kling. A slice:

Many people believe that it is quite moral not to pay rent. Hardly anyone believes that it is moral not to pay taxes. I think that the intuition is that taxes are fair, but rent is not fair. If I owned rental property, I would not think it fair to pay taxes to a government that tells people they do not have to pay rent.

Quotation of the Day…

(Don Boudreaux)

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… is from page 21 of Michael Porter’s 2000 essay “Attitudes, Values, Beliefs, and the Microeconomics of Prosperity,” which is chapter 2 in Culture Matters, Lawrence E. Harrison and Samuel P. Huntington, eds. (2000):

Another basic belief that supports prosperity is that the potential for wealth is limitless because it is based on ideas and insights, not fixed because of scarce resources.

DBx: Yep.

Resources, let’s be clear, are indeed scarce and always will be. Or, rather, materials (such as land, iron ore, petroleum, and lumber), labor services, and time are scarce and always will be. These materials, labor services, and time are transformed into resources by that which, while also scarce, can multiply with astonishing quickness: creative and productive ideas. It is the cascade of these ideas that is the crucial input in creating massive prosperity for the masses. Slow the cascade even just somewhat and economic growth slows. Slow economic growth even more, and economic growth does worse than slows: it reverses. The reason is that a minimum flow of creative ideas is necessary even to maintain existing standards of living.

Changes “exogenous” to economies – demographic changes, many consumer-taste changes, natural disasters, ever-present government follies – these and other such changes must be dealt with creatively. If too few creative ideas arise to deal with the consequences of these changes, absolute standards of living fall.

One cannot overstate the important role of creative ideas – of “ideas having sex,” as Matt Ridley describes the process of ideas meeting, co-mingling, competing for mates, and creating new ideas for transforming raw materials, services, existing capital goods, and time eventually into new and improved consumer goods and services. This process is at the foundation of modern society.

Note further that for the sex life of ideas, we want promiscuity – as much promiscuity as possible. Monogamous ideas produce too few offspring. Ditto for coy ideas. Celibate ideas are utterly worthless. Much more valuable to humanity are ideas that seek out and mate with as many partners as possible, as frequently as possible, with as few as possible inhibitions, and in as many different groupings as possible.

Opponents of free markets don’t understand this reality. These opponents differ amongst themselves in the particular myths and fallacies they embrace, but all of them miss the reality of the central role of ideas and of the great service to humanity performed by idea promiscuity.

Proponents of industrial policy and other protectionists – people such as Oren Cass, Julius Krein, Daniel McCarthy, Marco Rubio, Sherrod Brown, Donald Trump, Peter Navarro, and Bernie Sanders (to name only a handful of Americans) – want to restrict the use and mating of ideas. These people want government to prevent ideas that don’t originate in the minds of state officials from operating and from mating.

These people demand that the economy use only the tiny number of ideas ejaculated from the minds of mandarins and politicians, many of which are impotent. Cass, Rubio, et al., do not realize that because such ideas are prevented from mating with ideas other than themselves, their offspring are much fewer in number than are the offspring of the free-market’s wild and unending orgy of lusty ideas. As bad, or even worse, is the fact that the off-spring of officially approved ideas, because these ideas mate only with each other, are just as deformed, as sickly, as weak, and as infertile as are the offspring of all incestuous matings.

To the extent that we embrace the restrictionist policies proposed by the likes of Oren Cass, Henry Olsen, and Marco Rubio we will, in effect, support state prohibition of ideas other than those of state officials from being used and of mating with other ideas.

If you believe that people such as these, or the politicians and bureaucrats who would actually carry out industrial policy, have within them the godlike capacity to asexually create streams of vigorous, productive ideas – ideas better in every dimension than those produced on free markets – then cast your lot with these people who wish to control the sex lives of all ideas other than their own. But if you’re someone who actually has good ideas, reject the poisonous ones offered by protectionists and other proponents of industrial policy.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 663 of Douglas Irwin’s indispensable 2017 volume, Clashing Over Commerce:

The collapse of Communism in 1989 allowed Eastern Europe and later the former Soviet Union to become integrated into the world economy, although their impact on global trade was modest. A more important consequence of the collapse was the discrediting of the socialist planning model, involving high trade barriers and state-led industrialization policies, that had been embraced by many developing countries.

DBx: How short is human memory?! The correct lesson, identified above by Doug, that was drawn 30 years ago from communism’s collapse is now all but forgotten. Young people cheer the 19th-century dirigiste promises of Bernie Sanders and Alexandria Ocasio-Cortez as if these promises are new (“Progressive”!) and haven’t the abominable track record that they actually have.

Making matters even more bizarre is that increasing numbers of American conservatives also now embrace and peddle this dangerous dirigiste idiocy. Oren Cass, Julius Krein, Daniel McCarthy, Henry Olsen, Marco Rubio, and other conservatives call for the U.S. government to implement high trade barriers and state-led industrialization policies.

I’m not surprised that Sanders, Ocasio-Cortez, and their freshly undiapered fans are charmed by the prospect of such policies. They truck only in base emotions. I’m not even surprised by Rubio: being a politician, he’s in a clan whose members very rarely evince any sense of decency and respect for their fellow human beings.

But I expect(ed) more from people such as Cass and Olsen. Alas, I don’t get more. They, too, seem to be shockingly unaware of history’s lessons; they, too, seem to be allergic to economic reasoning. How utterly dispiriting.

Henry Olsen Really Should Learn Some Economics

(Don Boudreaux)

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Here’s a letter to the Washington Post:

Editor:

In praising Oren Cass’s new think tank, American Compass, pushing an agenda of protectionism, Henry Olsen displays a failure to understand the case for free markets and free trade (“This new think tank wants to reform conservatism. Republicans ignore it at their peril,” May 5). This failure is most vividly revealed when Olsen – thinking himself as scoring points against the case for free markets and free trade – writes that this case “has meant that government cannot ‘pick winners and losers’ and must remain passive and silent even if the market’s movements create losers of millions of Americans.”

Free traders oppose government using tariffs and subsidies to pick winners and losers for at least two reasons, neither of which Olsen grasps. First, economics offers solid theory – and history offers solid evidence – to show not that government cannot pick winners and losers (of course it can), but, instead, that government too often picks as winners losers, and as losers winners.

Second, Olsen seems unaware that when government prevents trade from destroying the jobs of some Americans it thereby destroys the jobs of other Americans. For example, tariffs that protect American steel workers destroy jobs for Americans working in industries that export, that use steel as an input, and that are buoyed by foreign investments. (It’s a wonder that people such as Olsen apparently never pause to ask ‘What do foreigners do with the dollars they earn by selling their exports to Americans?’)

Unlike Olsen who sees only the jobs that protectionism saves, free traders see also the jobs – and the economic growth – that protectionism destroys. Blind to what free traders see, Henry Olsen, Oren Cass, and other protectionists continue to misunderstand and misrepresent the case for free trade.

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

George Will on the New York Times’s Scandalous “1619 Project”

(Don Boudreaux)

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Recent years have witnessed a disturbing surge in fictional history – that is, in fabricated tales about the past passed off by ignorant ideologues as factual accounts to gullible audiences. Nancy MacLean’s pack-of-lies and half-truths about Jim Buchanan is one such instance of fictional history. The New York Times‘s “1619 Project” is another. In his latest column, George Will justly and eloquently eviscerates this “project.” A slice:

The phenomenon of slavery was millennia old in 1776, but as Gordon Wood says, “It’s the American Revolution that makes [slavery] a problem for the world.” Sean Wilentz (see his 2018 book “No Property in Man: Slavery and Antislavery at the Nation’s Founding”) correctly insists that what “originated in America” was “organized anti-slavery politics,” and it did so because of those Enlightenment precepts in the Declaration’s first two paragraphs.