Russell Roberts's Blog, page 424

Do as Arnold Kling Recommends (or Maybe I’m Thinking of Mike Munger)

(Don Boudreaux)

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Think of your favorite proposal that involves giving more power to government. It doesn’t matter what this proposal is. Just always remember this fact: among the persons who in reality will play a role in determining the details of how that proposal will be crafted into an actual policy and how that policy will be carried out in the real world is the likes of this unfathomably ignorant person.

So if you tingle happily, for example, at the thought of industrial policy as proposed by Marco Rubio, Oren Cass, or Daniel McCarthy, see how much you continue to tingle when you come to grips with the reality that a person such as Alexandra Ocasio-Cortez will have a say in formulating and supervising that policy. Likewise, if you want government to have more say in mandating the terms of labor contracts, try to imagine how you’ll react when you encounter the effects that the likes of Rep. Ocasio-Cortez and Sen. Bernie Sanders will have on the actual design and implementation of this policy. Still hopeful?

Nothing is easier than identifying the billion and three ways that reality falls short of whatever ideal you carry around as a lovely image in your head. But this reality will always be with us: the government officials who will be entrusted to carry out the interventionist scheme you favor are not and will never be gods or even your wise old Uncle Stu or your insightful and modest grandma Betty. Among the government officials who will actually design and carry out your favorite interventionist scheme are people such as Rep. Ocasio-Cortez, Sen. Sanders, Rep. Waters, Sen. Schumer, Rep. Schiff, Pres. Trump, advisor Navarro.

Do you really trust these people? And if you do, what reason has anyone else to trust you?

The Art of Childish Thinking

(Don Boudreaux)

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Here’s a letter to the New York Times:

Editor:

Calling for a one-time tax of five percent on each American’s net wealth in excess of $2.5 million, Daniel Markovits writes that “[t]he very richest tend to store much of their wealth not in publicly traded securities but in private businesses, art and other difficult-to-value forms” (“A Wealth Tax Is the Logical Way to Support Coronavirus Relief,” April 22). This claim, as used, is misleading.

Yes, the super-rich do keep the single largest portion of their wealth in private businesses. In fact, billionaires keep most of their wealth in this form. But this reality works against rather than for Prof. Markovits’s proposal.

Wealth kept in such businesses, contrary to the false impression conveyed by lumping it in with art, is not sitting idly to gratify its owners’ consumption whims. Instead, wealth kept in businesses is invested in activities that produce outputs valued by the general public – outputs, by the way, that are produced by workers employed by these firms. Indeed, the only reason these assets constitute wealth for their owners is that they are used productively. If these businesses used resources wastefully the value of these investments would soon turn negative and their owners would no longer be super-rich.

Prof. Markovits’s proposed tax, therefore, would likely draw down not super-rich people’s consumption but, rather, their investments in businesses. In doing so, this tax would remove from the economy a large chunk of productive capital that employs workers and helps to supply ordinary people with the goods and services that make possible our modern standard of living. This tax, in short, would over time make us all less prosperous than we would otherwise be.

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 255 of Deirdre McCloskey’s great 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

Poverty was massively caused, for example, by “protective” interventions by the state into labor markets, because the main effect of the protection is to keep the poor from competing with the middle class and the upper working class. That was the original purpose in Progressivism, I have noted, and was admirably well-achieved. For example, legislation in the 1920s in some states “protecting” women from working overtime automatically excluded them from supervisory jobs, because the little boss needs to come early and leave late.

DBx: Sad but so.

A great deal of legislation appears on its shiny surface to be exciting and “progressive” but, when examined under its hood, turns out to be an oily engine of oppression of the have-nots (or have-lesses) by the haves (or the have-mores). Yet very many people – including very many highly schooled, even decorated with doctorates, people – continue to be hypnotized by the shiny surface and never bother to look beneath the hood.

Minimum-wage statutes, tariffs, occupational-licensing restrictions, quite a few health and safety dictates, zoning and other restrictions on land-use, campaign-finance limits, and civil asset forfeiture – these are only some of the government policies advertised to the public as serving noble goals but which oppress the politically weak or naive in order to create artificial benefits for relatively small numbers of politically influential people.

“Progressive” intellectuals in the past typically understood the full consequences of the the policies they advocated and were largely honest about their goals – goals that we now recognize to be despicable. Not so with “Progressives” today.

“Progressive” intellectuals today seem not to understand the full consequences of the policies they advocate. While most “Progressive” intellectuals today are probably well-intentioned, they stubbornly refuse to see that oily and noxious engines churn beneath the shiny surfaces of interventionist legislation. Indeed, “Progressive” intellectuals today seem largely to be in the business of crafting clever – sometimes even sophistical – arguments in support of the notion that what you see on the shiny and exciting surface of interventionist legislation is all that there is to see. No need to look beneath the hood.

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy is flabbergasted by the rank hypocrisy of Marco Rubio accusing the private sector of being insufficiently attentive to the long-run. A slice:

The senator writes that “any prudent policymaker should recognize that both efficiency and resiliency are values we should prioritize and seek to balance.” I assume the “we” is other politicians like him. However, no entity has so surely proven itself to be less interested in the long run than has the U.S. government. Despite having a decade-long economic expansion where the government should have paid off some of its debt and reformed entitlement spending, Rubio and his colleagues, both in the House and the Senate, added trillions more to the national debt.

By habitually financing current programs and handouts with debt to be repaid by future generations, Congress and the President — Democrats and Republicans alike — offer solid proof that they are irresponsibly attentive only to the short-term (and quite the opposite of prudent policymakers).

Vero here again takes sharp aim at the fiscal incontinence of U.S. government officials.

In my latest column for AIER I tell again a story of stories. A slice:

Simple-minded stories will also be told of how trade with foreigners makes us more vulnerable to pandemics and less able to protect ourselves. These stories, too, must be countered with fuller and more-compelling stories. Such better stories, based in fact, will tell of how free trade, by diversifying our sources of goods ranging from foods through chemicals to medical products, ensures the robustness of our access to such goods. These better stories will also reveal the heightened hazards to our health and safety that we would suffer directly from protectionism: to the extent that they are shielded from foreign competition, domestic producers have weaker incentives to improve, and even to maintain, the quality of their outputs, including that of their medical supplies.

Richard McKenzie explains the wide breadth of Adam Smith’s support for free trade. A slice:

Economists have long discussed Smith’s understanding that production costs could be reduced, with a concomitant expansion of trade, by nations specializing their production in goods in which they had “absolute [not comparative] cost advantages,” attributable to, say, relatively greater soil fertility, an advantageous climate, and worker skills. Smith wrote:

Whether the advantages which one country has over another be natural or acquired is in this respect of no consequence. As long as the one country has those advantages, and the other wants them, it will always be more advantageous for the latter rather to buy of the former than to make. It is an acquired advantage only, which one artificer has over his neighbour, who exercises another trade; and yet they both find it more advantageous to buy of one another than to make what does not belong to their particular trades.

I just learned of the reply, from 2011, by Ed Tower and Wazi Ligomeka to one of Ian Fletcher’s and Jeff Ferry’s pleas for protectionism. Tower’s and Ligomeka’s reply can be found here by scrolling down. Here’s a slice from their reply:

Finally, “protectionism” is a loaded term. Every time one sector is protected with a tariff some other sector is persecuted as resources are drawn away from it. One sector’s protection is another’s persecution. Moreover, by tilting the playing field between different domestic activities the national interest is persecuted as well.

Speaking of trade, here’s a new podcast on this topic with Dartmouth College’s eminent trade economist Douglas Irwin.

Finally, on this Earth Day, here’s the great Bruce Yandle. A slice:

Earth Day 50 years ago inspired forces that forever changed the world’s treatment of environmental assets. Across the half-century since then, significant regulatory changes have occurred, but with few noteworthy exceptions, the command-and-control templet still dominates America’s regulatory approach. Yet while environmental quality has been enhanced markedly, the presence of command-and-control has made the environmental journey slower and more costly than it might have been otherwise.

An Apt Analogy?

(Don Boudreaux)

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A jumbo jet is cruising at full speed some 40,000 feet above the surface of the earth. The flight is smooth. The pilots are then suddenly ordered by a handful of armed passengers – the air marshals, we might call them – to shut off all of the engines.

The goal of this unprecedented policy is to rid the aircraft of some genuinely dangerous debris that it recently encountered. Some well-meaning other passengers, upon noticing this debris on the surface of the plane, argued that stalling the plane as quickly as possible offers the best – really, the only – hope of ridding the plane of the debris.

When its engines are stalled, the plane, of course, immediately goes into a mad tailspin. It hurtles dangerously toward the ground. “Don’t worry,” the armed passengers, who have now assumed great power, tell their fellow passengers. “We know that this tailspin is unpleasant, but it’s necessary for the safety of all of us. And we’ll restart the engines in time to get our aircraft eventually back on a smooth course. Trust us. We’re following the best scientific counsel.”

All the while, it’s very difficult to tell how much debris is actually being removed from the aircraft and if whatever removal is occurring is the result of the tailspin. In fact, no one really knows for sure just how dangerous is the debris in the first place. Nearly all agree that it is dangerous, for sure, but just how dangerous? Expressions are heard among the frightened passengers of legitimate disagreement on these matters.

The plane continues its plummet toward the earth. And the few passengers who protest the policy of keeping the engines stalled are ridiculed as reprobates who selfishly wish to endanger all of their fellow passengers.

Confusion reigns. Fear abounds.

UPDATE: We’ve just learned that the armed passengers – the air marshals – who ordered the stalling of the jetliner’s engines have in the past expressed their belief in the power of Tarot cards to predict the future and have often even insisted that five minus two equals eight. Many other passengers, conceding this fact about the armed passengers, nevertheless insist that the debris on the plane poses such an existential danger to all aboard that we must overlook the past irrationality of the armed passengers and now obey their commands, trusting that these commands are rationally considered and implemented.

Quotation of the Day…

(Don Boudreaux)

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… is from page 9 of Robert Higgs’s indispensable – and now more relevant than ever – 1987 book, Crisis and Leviathan (footnote deleted; link added; emphasis original to Yeager):

Some economists doubt that government can or will deal successfully with externalities. As Leland Yeager said, government is itself “the prototypical sector in which decision makers do not take accurate account of all the costs as well as all the benefits of each activity.”

DBx: A case can be made that government officials are likely, under various circumstances, to more fully account for costs and benefits than are non-government actors. Given the nature of collective decision-making, however, this case is surprisingly difficult and has only limited practical application. (“Surprisingly”, that is, to individuals who first explore in a serious way collective decision-making. Once the reality of collective decision-making is so explored, its many perverse and poor incentives become obvious.)

But amazingly – or, actually, not – those who advocate greater government control over markets and other private-sector activities almost never bother to take even the first baby step toward exploring just how collective decision-making in reality works compared to the private-sector decision-making that the collective decision-making is proposed to replace.

This utter failure to ask how politicians and government administrators are likely actually to get the information they will need to intervene productively, and what are the incentives of these officials to use their information to promote the public welfare, mars the actions not just of second-rate journalists and of associate professors of cultural studies. This failure mars the actions even of many well-known economists.

It seems too obvious for words to explain that making a credible case for government intervention requires more than identifying real-world problems; such a case requires also a credible explanation of how real-world government officials might actually improve matters. How will these officials get the necessary information? What are their incentives? But the asking of these questions is shockingly rare. I conclude that most intellectuals believe in god, just one with a different name, provenance, and liturgy than those which are associated with the god believed in by most other people.

…..

The photo above is of the late Leland Yeager, taken in November 1962 in Rouss Hall at the University of Virginia. To Leland’s immediate right is Gordon Tullock.

Rubio Is Ridiculous

(Don Boudreaux)

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Here’s a letter to the New York Times:

Editor:

Sen. Marco Rubio asks Americans to trust him and other government officials with the increased power necessary to carry out U.S. industrial policy (“We Need a More Resilient American Economy,” April 21). But the senator proves himself unworthy of this trust by building his case on several tropes that have repeatedly been exposed as false.

A core fallacy peddled by Sen. Rubio is that American corporations focus on short-term results at the expense of long-term growth. The rise in the real value of the Dow Jones Industrial Index over the past 40 years should alone be enough to disprove these claims of short-term focus: how could the real value of corporations rise over such a long time span if managers and shareholders consistently sacrifice long-run growth for short-term gains?

But if more evidence is wanted against Sen. Rubio’s lazy repetition of a popular fallacy, see the research of University of Chicago business-school professor Steven Kaplan who, after asking “are U.S. companies too short-term oriented?,” found “little long-term evidence that is consistent with the predictions of the short-term critics.” Prof. Kaplan’s finding is consistent with facts with which Sen. Rubio’s claim is not – for example, business R&D spending as a share of U.S. GDP has risen steadily over the post-WWII era, and even accelerated a bit starting in the early 1980s, and U.S. manufacturing capacity was, immediately prior to the onset of the covid-19 crisis, just shy of the all-time high that it hit in 2008 and nearly 150 percent higher than it was in 1980.

If Sen. Rubio must build his case on fallacies, we must conclude that his case is rickety beyond repair.

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 271 of the American jurist James Coolidge Carter’s brilliant yet unfortunately neglected (posthumous) 1907 book, Law: Its Origin, Growth and Function (original emphasis):

Enacting law is the giving of a command such as a superior gives to an inferior, and does not absolutely require any knowledge at all in him who gives it, and such commands are in fact often given by those who have no, or little,, knowledge or whose knowledge is of a kind not at all desirable.

DBx: By “enacting law” Coolidge here means, more precisely, enacting legislation. As Leoni, like Coolidge, taught – and as Hayek emphasized – law is a very different set of rules from the commands imposed by legislation. It is, I continue to insist, a grave misfortune that the word “legislation” is used synonymously with “law.”

But regardless of what the commands issued by government officials are called, these commands are – as Coolidge accurately observed – very frequently issued by officials with no real knowledge of the realities into which they are imposing their commands. These officials, in our day, have great knowledge about how to win the popularity contests that are political elections. A widespread secular dogma is that success at winning elections somehow – just how is never revealed – gives to election winners greater knowledge and information (and a superhuman solicitude for humanity) than is possessed by the mere mortals over whom these election-winners wield their power.

I Do Indeed Miss the Power

(Don Boudreaux)

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Here’s a letter to an economist who alleges that my “obvious lack of sophistication with the latest econometrics” causes me to “miss economics’ power for improving the world.”

Mr. Porter:

You wonder how I, “a professional economist can have such little belief in economic science” that I “deny intelligent, data driven interventions would improve on the specializations and trade outcomes materializing on laissez faire markets.”

I shall try to tell you.

The patterns of trade and specialization that arise in free markets don’t “materialize” as if they’re rabbits pulled out of magicians’ hats. They result from billions of consumers and investors each spending his and her own money, and entrepreneurs and businesses being free to compete for the favor of consumers and investors. The resulting prices, profits, and losses are the only information sources known to humanity that can, with any success at all, coordinate a globe-spanning web of productive cooperation and competition among these billions of strangers.

Economic science – properly done – drives home the unfathomable complexity of the economy and makes laughable the many pretenses that too many people have of being able to improve upon economic outcomes with the likes of tariffs, subsidies, and price and wage controls. My confidence in free markets – free markets embedded in a system of property and contract rights and the rule of law – springs not from an inadequate appreciation of economic science or from my admittedly poor skills at econometrics but, instead, from what I believe to be a genuine understanding of the deepest lesson taught by economics, namely, that the human mind is far too puny to grasp the details that comprise the complexity of markets.

I leave you with this insight from the economist Deirdre McCloskey:

Economics is the science of the postmagical age. Far from being unscientific hoobla-hoo, economics is deeply antimagical. It keeps telling us that we cannot do it, that magic will not help. Only the superstitious think that profitable forecasts about human action are easily obtainable…. Economics itself says that forecasts, like many other desirable things, are scarce. It cannot be easy to know which great empire will fall or when the market will turn…. Some economists allow themselves to be paid cash money to answer such questions, but they know they cannot. Their very science says so.*

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

* Deirdre N. McCloskey, “The Art of Forecasting: From Ancient to Modern Times,” Cato Journal, Vol. 12, Spring/Summer 1992, page 40.

Juliette’s Uncommon Knowledge

(Don Boudreaux)

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Juliette Sellgren – daughter of my intrepid Mercatus Center colleague Veronique de Rugy – is off to an impressive start at carving out for herself a record of accomplishment to one day rival that of her mother. This despite Juliette having only just turned 17 and still being in high school!

Here’s a link to her new podcast series, Juliette’s Uncommon Knowledge. So far, seven podcasts – each roughly 30-minutes long – are now available (in addition to Juliette’s introductory one). The interviewees are Trevor Burrus, Tyler Cowen, Johan Norberg, Matt Ridley, Vernon Smith, John Stossel, and myself. Future interviewees include Chris Edwards.

Enjoy and learn!