Russell Roberts's Blog, page 421
May 1, 2020
Quotation of the Day…
… is from page 6 of the original edition of the late Nobel-laureate economist James M. Buchanan’s 1975 book, The Limits of Liberty (original emphasis):
That is “good” which “tends to emerge” from the free choices of the individuals who are involved. It is impossible for an external observer to lay down criteria for “goodness” independently of the process through which results or outcomes are attained. The evaluation is applied to the means of attaining outcomes, not to outcomes as such.
DBx: This insight, which isn’t original to Buchanan but which plays a central role in his work, is profoundly important. In any society and economy in which individuals are not treated as conscripts in a great army for achieving the preferred ends of the army’s leaders, no one chooses the system-wide results that emerge from the billions upon billions of choices and actions of the individuals in that society and economy. Whatever order is observed is emergent – spontaneous – unplanned.
This overall order might please some and displease others. Nearly every person is able to find in it some features that he or she would prefer be different. But this order is not an intended result. And so to evaluate it as if it is an intended result is a category error. (This error, alas, is very commonly committed, and committed by people all across political, ideological, and intellectual spectra.)
It is an error to evaluate social and economic outcomes independently of the processes that produce them. All than can be sensibly evaluated ethically – and that should be so evaluated – are the processes out of which the outcomes emerge. For example, the ‘distribution’ of income, standing alone, is ethically meaningless. What is not ethically meaningless is the process out of which that ‘distribution’ of income emerges. Is the process fair? To what degree does the process satisfy some ethical criteria?
Reasonable people can and often do disagree over which criteria are best to use to evaluate social and economic processes. But no reasonable person can disagree that evaluations of social and political ‘outcomes’ are largely meaningless. What is not meaningless – and what is indeed vital – is evaluation of social and economic processes – which, as a practical matter, means evaluation of rules.
April 30, 2020
Some Links
My GMU Econ colleague Bryan Caplan points out that states don’t lack capacity; they lack good priorities. And see also Bryan’s follow-up post.
San Francisco politicians constantly treat reality as if it’s optional. For instance, through strict zoning and other land-use regulations, they have artificially inflated the wealth of single-family homeowners by obstructing the building of multifamily homes. As a result, San Francisco is one of the least affordable cities for younger and lower-income people. Its politicians then double down with rent-control regulations to try to fix the negative impacts of their zoning rules. Yet these regulations only further reduce the supply, and further raise the price, of housing in the city. Yet to this day, elected officials there persist in their misguided policymaking, against the advice of every economist.
Extra! Extra! Read All About It! New York Times reporters don’t understand incentives!
GMU Econ alum Ben Powell argues eloquently that what is needed is freedom and not fascism.
Marian Tupy explains that covid-19 should make us grateful for modern technology. A slice:
The people of yore faced at least three interrelated problems. First, the means of transport and the transportation infrastructure were awful. On land, the Europeans used the same haulage methods (carts pulled by donkeys, horses, and oxen) that the ancients had invented. Similarly, much of Europe continued to use roads built by the Romans. Most people never left their native villages or visited the nearest towns. They had no reason to do so, for all that was necessary to sustain their meager day-to-day existence was produced locally. The second problem was the lack of important information. It could take weeks to raise the alarm about impending food shortages, let alone organize relief for stricken communities. Third, regional trade was seldom free (France did not have a single internal market until the Revolution) and global trade remained relatively insignificant in economic terms until the second half of the 19th century. Food was both scarce and expensive. In 15th-century England, 80 percent of ordinary people’s private expenditure went for food. Of that amount, 20 percent was spent on bread alone. Under those circumstances, a local crop failure could spell the destruction of an entire community. (Those who think that COVID-19 exposed the fragility of modern society should look up the Great Famine.)
The steel tariffs were implemented under Section 232 of the Trade Expansion Act of 1962, which allows presidents to impose tariffs for national security reasons—not for purposes of economic protectionism. But protectionism appears to be a major factor in determining whether tariff exemptions are granted. American steelmakers appear to have significant influence over what is supposed to be an unbiased process.
I Remain a Budget-Deficit Hawk
Here’s a letter to my friend Steve Conover:
Steve:
Thanks for your thoughtful e-mail explaining why you believe that I and others who object to large and now-endless U.S. government budget deficits are wrong.
You correctly note that we Americans benefit enormously from the U.S. dollar being the global reserve currency. In return for ‘mere’ dollars – dollars that non-Americans willingly hold and use for international commercial purposes – we get from abroad lots of real goods and services. But you incorrectly give credit for this happy effect to Harry Dexter White’s ’victory’ over John Maynard Keynes at the 1944 Bretton Woods conference.
While it’s true that White was perhaps instrumental in formalizing the dollar’s post-WWII role as global reserve currency, people worldwide continue to accept the dollar in this role only because of its relative stability combined with the size, openness, and dynamism of the American economy. If the dollar were to be ravaged by inflation and the U.S. economy became stagnant relative to that of some other large country, global investors and business people would stop using the dollar as a reserve currency. This reality is is one reason why I cannot share your calmness about massive U.S. government indebtedness.
Unless the government defaults (which would bring its own obvious calamities), it must repay its debts. And unless its ability to repay its debts with newly created money is unlimited, this repayment will either be done in a way that devalues the dollar or that requires the government to marshal more real goods and services from American taxpayers to be transferred as payments to bondholders.
If the government were to default or to run high rates of inflation, there would be a global flight from the dollar (which of course would only further accelerate inflation). American living standards would suffer greatly as the dollar’s purchasing power falls and global investors flee the U.S.
If, instead, the government actually repays, it must ultimately transfer to bondholders real goods and services produced with scarce American resources and labor.
While I agree that there’s nothing inherently wrong with government borrowing, the core problem is that this borrowing enables today’s citizens-taxpayers to consume real goods and services the bill for which is handed to future citizens-taxpayers. This ability to spend other people’s money leads today’s citizens-taxpayers to spend excessively and imprudently – a fact that does not disappear just because interest rates are low or even zero. One result of this irresponsible government borrowing is massive resource waste which reduces economic growth. And this latter, baneful consequence remains real even if the U.S. government somehow manages for decades to run up the real value of its indebtedness.
Sincerely,
Don
More Juliette’s Uncommon Knowledge
Juliette Sellgren has just posted more of her podcasts. This one is with Cato’s Chris Edwards, and this one is with EconLog’s David Henderson. Listen in. They’re great!
Pittsburgh Tribune-Review: “Answer before intervening”
In my column for the March 31st, 2009, edition of the Pittsburgh Tribune-Review I offered counsel of caution in light of the then-raging financial crisis – counsel of caution that, I believe, is largely relevant in today’s crisis. You can read my column (with a link added) beneath the fold.
Quotation of the Day…
… is from page 305 of Vol. 19 (Ideas, Persons, and Events [2001]) of The Collected Works of James M. Buchanan; specifically, it’s from Jim’s 1990 paper “The Potential for Politics after Socialism”:
Many modern scientists, secure in their own achievement of genuine discovery of new laws of the workings of the physical universe, and observing first hand the extension of humankind’s mastery as these laws are applied, exhibit a natural proclivity to attribute what seem to be flaws in the structure of social interaction to “scientific” backwardness, and to expect improvement from inappropriate extensions of science’s domain into the realm of social control.
DBx: Neither society generally, nor the economy specifically, is a machine. It is not the result of human design. It could not possibly have been the result of human design. It cannot be improved by design (despite the human mind’s ability to imagine social arrangements more “ideal” – according to each imaginer’s own preferences – than are those observed reality), although it can be allowed to improve itself if attempts to engineer it are avoided. It is not operated by anyone, by any council, by any cabal. Although it can be said to serve a function or several functions, it has no purpose in the sense of having a well-ordered set of preferences that it pursues.
Therefore, neither society generally, nor the economy specifically, is an engineering project. There is no scientifically correct – and, hence, no scientifically discoverable – optimal distribution of income, efficient portion of the economy devoted to producing services, or correct way of dealing with a pandemic. The sciences – natural and social – have much to contribute to informing individuals, including government officials, about the trade-offs involved in different courses of action. But science cannot tell us what to do; it has no power to reveal to government officials or to the general public any “optimal solution” that government should impose.
That this reality might be judged by many well-meaning people to be unfortunate, I concede. But this reality, like all reality, isn’t optional.
April 29, 2020
Scott Lincicome on U.S. Medical Supplies
Here are some slices, but do read the whole thing:
But isolated import‐share figures tell us very little about actual “vulnerabilities,” because they omit domestic production and local inventories. According to a new study from the St. Louis Federal Reserve, China supplied almost 30 percent of all imported “essential medical equipment” (hand sanitizer, masks, personal protective equipment, ventilators, etc.) in 2018 but accounted for only 9 percent of total domestic consumption because American producers supplied the vast majority (more than 70 percent) of these products. The U.S. does indeed need better data on pharmaceutical production (something the CARES Act seeks to remedy), but it’s clear that the United States still makes a lot of generic drugs — and even plays host to one of the largest ibuprofen plants in the world (in Texas). So China’s share of imports, without more context, is pretty meaningless.
At the same time, we have massive stockpiles of other critical drugs to prepare for crisis‐related spikes in demand. When India temporarily banned hydroxychloroquine exports, for example, everyone freaked out because India makes a lot of it. The freakout quickly dissipated, however, when it was revealed that we already had 31 million doses (donated by multinational drug companies) in the Strategic National Stockpile. State and local governments have since stockpiled 30 million more pills, and local pharmacies have their own inventories. Should hydroxychloroquine turn out to be a miracle drug (please consult your doctor!), it looks like we’ll be just fine, regardless of what India does next.
…..
Moreover, there is a thick historical record showing that protectionism, in whatever form, fails to produce a lean, thriving, and innovative domestic industry. Instead, past cases such as steel tariffs and Jones Act shipping restrictions show that government efforts to protect industries deemed “essential” to national security result not only in foreign retaliation and higher consumer costs but also in bankruptcies, layoffs, lower domestic output (e.g., fewer ships), and a small cadre of politically connected zombie companies whose overcompensated executives divert corporate resources from innovation and efficiency to lobbying and executive (not worker) pay. That’s precisely what you don’t want from an industry making life‐saving pharmaceuticals or medical devices.
On the other hand, there is ample evidence that “globalization” (i.e., the free flow of goods, services, capital, and information) has been an absolute blessing for the medical field and, thus, humanity — well beyond simply cheap PPE and generic drugs. Today, doctors and researchers from around the world work together to cure diseases that once killed hundreds of thousands of people each year. And it’s just this type of collaboration that might help to beat the current pandemic: as recently documented by the Cato Institute’s Chris Edwards, “globally, dozens of biotech and pharmaceutical companies are rushing to develop vaccines and treatments for covid‐19 using a diversity of approaches.” Some of this might even involve (gasp!) China, as the Martin Sandbu of the Financial Times notes: “Within weeks of the new coronavirus’s emergence, Chinese scientists had sequenced its genome and shared their knowledge with the entire world.” Sandbu rightly adds that such a move “was made possible by our unprecedented degree of globalisation of technology, knowledge and communication, which in turn had piggybacked on expanding economic exchange.” Indeed.
A Thought on “Tiger King”
I’ll bet that there are lots of people who, in the evenings, watch “Tiger King” and smugly judge the red-necky main character – “Joe Exotic” – to be reckless not only with his own life but with the lives of others, yet are people who also, during the rest of the day, advocate big, powerful, discretionary government.
I’m amazed that these people – mostly “Progressive” types, but also growing numbers of conservatives – do not see their inconsistency. It is indeed arrogant and imprudent to treat tigers and other big cats as if these animals are domesticated tabbys. It is indeed dangerously reckless to pretend that the danger posed by keeping wild, muscular, fanged animals in neighborhoods and in the presence of innocent people is minimal and, in any case, controllable by the owner who thrills at showing off his apparent mastery of such a mighty force as a tiger.
Yet “Progressives” and others who support big, powerful, discretionary government are no less arrogant, imprudent, and dangerously reckless as is Joe Exotic. Advocates of big, powerful, discretionary government believe that a dangerous razor-sharp-clawed beast – one with a history filled with violence and unpredictability – can be kept sufficiently tamed within civilization and made to perform at will for the pleasure of both its handlers and its up-close and unprotected (and often curiously eager) audiences.
In both cases the beast appears to be majestic and, at least from certain angles, also lovable, even wise in its own beastly manner. And witnessing its scripted displays of power is thrilling (at least to observers who aren’t the targets of that power). But in reality the beast is wild, temperamental, and will eventually devour many persons who come into contact with it – even many of those persons who love it most dearly and crave its attention most desperately.
What’s Essential Is to Come to Grips with Reality’s Stupendous Complexity
Here’s a reply to Ron Warrick, a frequent and valued commenter at Café Hayek:
Mr. Warrick:
In response to questions that I pose to people who demand that America be made self-sufficient in medical supplies, you write that such people “are primarily talking about medical supplies that might be needed in a pandemic emergency.” Perhaps you’re largely correct (although not fully). But I stick to my position that attempts to satisfy any even this more limited demand would confront unforeseen confusions, as well as create problems that would leave us Americans much worse off than we would be without any such policy.
The first glitch with today’s demand that we be made self-sufficient in supplies needed in pandemic emergencies is that it reflects presentism – a focus on the pandemic of today. But not all medical supplies plausibly thought ‘essential’ to deal with viral pandemics are ‘essential’ to deal with bacterial ones, and vice-versa.
And what if our next big emergency is no pandemic at all, but instead a major earthquake in California or a nuclear attack on the northeast? Many supplies that would then become ‘essential’ differ from those deemed ‘essential’ for dealing with pandemics.
Might success at making us self-sufficient in supplies that are ‘essential’ for dealing with pandemics reduce our inventories of – and shrink our capacity to produce and to import – supplies that are ‘essential’ for dealing with other emergencies?
More generally, even if defining “essential medical supplies for pandemics” were easy, ensuring self-sufficiency in them still requires answers to most of the questions asked in my article.
If, for example, Congress decided that America should be self-sufficient in all personal-protective equipment, our cost of supplying ourselves with such equipment would rise. We would obviously deny ourselves the opportunity to purchase – including for stockpiling – any of these goods from foreign producers who have comparative advantages at producing them. In addition, protecting American producers of these goods from foreign competition would eliminate these producers’ need to surpass, or even to match, whatever innovative improvements in these products are made by foreign producers. Over time the quality of the goods in which we are self-sufficient would fall, and the costs of these goods would rise, relative to what this quality and these costs would otherwise have been.
Is there a maximum price, in terms of reduced quality and higher costs, that Americans should be forced to pay for such self-sufficiency?
Do individuals who advocate any sort of self-sufficiency realize that these and many similar questions must be asked and reasonably answered? Frankly, it seems not. These self-sufficiency advocates simply blurt out demands for outcomes that sound good without giving any evidence of understanding reality’s inescapable practical challenges, political constraints, and economic trade-offs – some potentially tragic.
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
This Katrina lesson is relevant today: Once government occupies civil society with top-down control, it will tend to overpolice and stay too long. Few officials want to risk lifting the lockdown orders, lest they face public scrutiny if something goes wrong. The result is systematic overcaution, which expands government control.
Alex Tabarrok reports on a new and truly fascinating paper by Stephen Clowney.
This essay by Kevin Williamson is loaded with insight.
Jeffrey Tucker is right to warn of the psychological damage being spread by the lockdown.
I share Richard Rahn’s objections to the heavy-handedness of the economic lockdown. And consult also Nick Gillespie.
George Selgin has diminished David Henderson’s fear that much inflation is on the horizon.
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