Russell Roberts's Blog, page 427
April 14, 2020
Bonus Quotation of the Day…
… is from page 311 of Dugald Stewart’s invaluable 1793 “Account of the Life and Writings of Adam Smith, L.L.D.,” as this series of lectures appears at the end of Liberty Fund’s 1982 collection of Smith’s Essays on Philosophical Subjects (a collection originally published by Cadell and Davies, in London, 1795):
I cannot help adding, that the capacity of a people to exercise political rights with utility to themselves and to their country, presupposes a diffusion of knowledge and of good morals, which can only result from the previous operation of law favourable to industry, to order, and to freedom.
Vernon Smith on So-Called “Price Gouging”
My emeritus Nobel-laureate colleague Vernon Smith sent to me the following e-mail in response to this earlier post in which I defend economists’ case – the ECON 101 case – against government-imposed restrictions on so-called “price gouging.” (I share Vernon’s e-mail here with his kind permission.)
Don:
We already have leveling compensation for price gouging in progressive income taxes. Profits from PG will pay higher marginal rates.
How many times, places and forms do these people think we should engage in redistribution?
Vernon
To which I, Don, reply, “Amen.”
And further, as Vernon would agree, attempted “redistribution” through prohibitions on so-called “price gouging” is especially asinine and counterproductive. Such prohibitions deny to their intended beneficiaries additional prosperity. Such prohibitions make their intended beneficiaries poorer. The reason, of course, is that price ceilings make goods and services more scarce and, hence, more difficult to actually acquire.
…..
I do not hesitate to say that any economist who supports, as a means of helping the poor and middle-class, a policy of prohibiting so-called “price gouging” does not deserve to be called an economist. This fact is so despite that “economist’s” undoubted ability to dazzle sophomores and newspaper editors with logically coherent demonstrations of how such prohibitions might, under just the right circumstances and implemented with the genius and wisdom of Zeus, increase social welfare. Any such “economist” is to economics what a “biologist” who rejects natural selection is to biology.
Teaching Me Some Economics to The Economist
Here’s a letter to The Economist:
Sir:
Your case for prohibiting, during times of crisis, so-called “price gouging” is confused (“Many economists defend disaster profiteers. They are wrong”, April 11th).
To begin, contrary to your suggestion, nothing in economists’ argument against restrictions on price hikes implies that government should not subsidize the production of goods that are in short supply. Whether or not such subsidies are justified is a separate question an affirmative answer to which is not precluded by opposition to price-control legislation.
More fundamentally, while appearing to counter economists’ argument that higher prices are necessary to spur greater production of goods in high demand, you in one instance offer evidence in support of their argument and in another case dodge their argument altogether.
The evidence that you inadvertently offer in support of allowing prices to rise to market-clearing levels is your acknowledgment that “the manufacture of masks … might look simple, but producers need sterile factories and sophisticated machinery to churn out melt-blown fabric.” Indeed. But it is precisely firms’ need to incur these unusually high costs, and to do so with uncommon speed, that justifies – and explains – the very high prices that you inexplicably insist serve no good purpose. If ramping up production quickly were easy and inexpensive, prices would hardly rise at all.
You dodge economists’ argument against price controls when you identify regulation rather than profit as a motivation that recently incited some producers to accelerate production of masks. Yes, but so what? No economist has ever denied the obvious reality that government can compel or coax producers in the short run to increase outputs without raising prices. This reality, however – and unlike higher prices – ensures neither that industry will retain sufficient capacity to maintain ramped-up output over the long run, nor that the increased quantities produced in the short-run will likely find their way into the hands of buyers most in need of the goods.
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
And Ryan Bourne reminds us of the folly of legislation meant to prevent so-called “price-gouging.”
My colleague Pete Boettke reflects on economics and today’s crisis.
Bruce Yandle reflects on hate and politics.
George Will reviews Andrew Bacevich’s new anthology on American conservatism. (I, actually, am glad to learn that Bacevich includes in his collection something by Frank Chodorov!) A slice from Will’s review:
Today, however, self-described “national conservatives,” convinced that “the thinking person’s Trumpism” is not an oxymoron, are struggling to infuse intellectual content into the simmering stew of economic nationalism, resentment of globalization’s disruptions and nostalgia for the economy and communities of the 1950s.
It should be obvious that the response to a public health emergency will require goods that aren’t, strictly speaking, medical equipment. But then, it should be obvious that tariffs are a poor way to redirect global trade, since they mostly punish American importers, businesses, and consumers.
Pittsburgh Tribune-Review: “The camel in the tent”
In my February 11th, 2009, column for the Pittsburgh Tribune-Review I expressed fears about the spurt of government growth sparked by the Great Recession. Were my fears justified?
You can read my column beneath the fold.
Quotation of the Day…
… is from page 148 of Eric Mack’s superb 2018 book, Libertarianism; it’s the book’s closing line:
However, from a libertarian perspective, a social order that protects each individual’s freedom to pursue her own conception of a valuable life through voluntary interaction and community with other equally free individuals is not merely an accommodation to human nature; it is the due recognition of the separate importance of each of us.
April 13, 2020
The Economy Is an Immense Web, Not a Series of Chains
One of the most misleading popular phrases used today in discussions of economics and economic policy is “supply chains.” The reason is that in the modern, complex economy, there are no supply chains. There is, instead, one immense, unfathomably complex, astonishingly productive, globe-spanning web of economic interconnectedness. Therefore, calls to “secure our critical supply chains” are words with far less meaning than those who pronounce these words – and many of those who hear these words – suppose these words to possess.
This point is central to my latest column for AIER. Here’s a slice:
Yet what, exactly, is meant by “critical?” Most obviously critical are products that sustain our lives. So at the top of the list of “critical” supplies, ahead even of medicines and military weaponry, stands food. Should government, therefore, prevent Americans from importing all foods? If not all foods, surely some foods. But if only some foods, which foods?
A ‘reasonable’ person would agree that only some foods are critical – grains and meats, perhaps, but not tomatoes and maple syrup. Let’s here simply grant that the determination of which foods are, and which aren’t, “critical” is easily-enough made and widely agreed upon.
But answering the question “Which foods are critical?” isn’t enough. We must then ask about the inputs necessary to supply ourselves with our “critical” foods. Chemical fertilizers and pesticides are necessary, as are tractors and irrigation equipment. So, too, are packaging materials, delivery vehicles, fuel, and refrigeration. And don’t forget insurance and financing. Without these inputs, we can neither produce enough of our critical foods nor ship what we do produce to consumers. So to “secure” our supplies of “critical” foods, government must also “secure” earlier links in the supply chain – namely, supplies of “critical” inputs to food production and distribution. But which inputs are “critical?”
To carry out policies of the sort demanded by Sen. Hawley, answering this question about which inputs are “critical” is no less necessary than is answering the question about which outputs are “critical.”
Yet to answer this question about inputs raises further questions about how to secure our supplies of these “critical” inputs. To produce these inputs requires other inputs.
Suppose that tractors are declared to be among the inputs that are part of the “critical supply chain” for ensuring that we Americans can reliably produce our own “critical” foods. Which inputs are “critical” for the production of tractors? Metals, plausibly, are critical. But is rubber? What about paint? (Unpainted farm equipment will be rapidly ruined by rust.) Which of the multitude of ‘beneath-the-hood’ parts of tractors – components such as fuel pumps, carbon-fiber hoses, the ceramic used in spark plugs – are “critical?” These questions must be answered in order to implement Sen. [Josh] Hawley’s policy.
End the Lockdown!
Writing for AIER, David Henderson makes an informed, eloquent, and powerful case for governments to end the economic lockdown now. Read the whole thing, but here are a few slices:
Congress and the President quickly produced one of the most expensive spending bills in history, a bill that, tragically, will pay tens of millions of workers more to be unemployed than to work. The politicians claim that their spending is “stimulus,” but it’s not and it can’t be. A government cannot stimulate production that it has forbidden.
The only way to stimulate the economy is to liberate it. The people, all of us, need emancipation from the lockdown. And we need it now.
Many people fear the consequences of letting tens of millions of people go back to work. I’m afraid. But we can’t continue as we are. Some say that we need to discuss when to free up the economy. No. We needed to discuss it long ago. The time for discussion has passed. We are surrounded by wreckage. It should not last one more day.
Those who think discussion is needed before we take such a bold step should answer this: how much public discussion was there before March 16, when San Francisco Mayor London Breed, in what she called a “defining moment,” shut down most of San Francisco’s economy? Days later, did the county governments of California discuss with their citizens whether to impose “sheltering in place?” California’s governor? New York’s governor? Most of the other governors? No. Nor was there debate or much consultation on the White House’s sudden and shocking bans on international travel that have trapped possibly more than 100,000 American students abroad, forcibly separated from their families?
No, these leaders just did it.
…..
If you add up all the suffering and death generated as a secondary effect of the shutdown, we are looking at carnage that could be in the same ballpark as COVID deaths. Emancipation now could in fact be a strategy for minimizing fatalities; it will certainly reduce overall social and economic disaster from the disease and the disastrous policy response.
It’s time to let us wash our hands and go to work.
Austria, Denmark, and the Czech Republic are now opening up. Sweden, South Korea, Japan, and even China have opened. Right now, in the United States, a thousand politicians are looking for political cover to reverse course. Let someone brave and bold step forward. History will consider that person a hero. A liberator!
And let’s not forget the fact that so many of us are losing social interaction. “Man is, by nature, a social animal,” said Aristotle and man, are we ever seeing how true that is. We are thinking, acting, creative beings. We have the capacity to achieve remarkable things, including responding to the enormous challenges of pandemic disease, but we must be free to do so.
Re-open the free society right now!
Learning that Imports Are Benefits and Exports Are Costs
Here’s a letter to the Wall Street Journal:
Editor:
Your excellent editorial “3M Isn’t a Coronavirus Villain” (April 13) explicitly exposes the folly of export restrictions. Yet implicitly it exposes also an even deeper absurdity – namely, the illogic of the mercantilist underpinnings of President Trump’s hostility to free trade.
Central to the mercantilist myths that have long guided Trump’s – and other protectionists’ – (mis)understanding of trade is the notion that exports are a benefit because they bring in money from foreigners, while imports are a cost because they’re paid for with money sent to foreigners. This misunderstanding explains, for example, Trump’s hostility to U.S. trade deficits.
The COVID-19 crisis, however, by making immediate and visceral the importance of access to actual goods such as facemasks and other medical supplies, clarifies a reality that in normal times remains obscure. That reality is this: exports are a cost – they are valuable goods and services that we produce but don’t consume because we ship them to foreigners – while imports are a benefit, being valuable goods and services that foreigners produce for us to consume. Exporting is, of course, worthwhile, but we export in order to import. And we gain more from trade the greater is the value of imports we receive in exchange for any amount of exports we sacrifice. Contrary to mercantilist superstition, we do not import in order to export.
Although the odds are long, let’s hope that the president’s understandable desire for Americans now to have in hand, not as much cash as possible but, instead, as many as possible medical supplies – that is, as many as possible actual goods – will prompt him finally to realize that we benefit the more we import relative to the amount that we export.
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
George Will offers lessons to be learned from Trump on trade. A slice (second link added):
[Richard] Reinsch, editor of Law & Liberty, says today’s conservative critics of capitalism, whose policies would enlarge government and make gross domestic product smaller than it otherwise would be, want government planning to enlarge the manufacturing sector (currently 8 percent of employment; manufacturing employment has declined in almost every Western nation) because of its supposed wage premium. But as of December, the average hourly wage for production and nonsupervisory workers in manufacturing was $22.46; for such workers in the private-sector service industry, it was $23.53.
Kevin Williamson is rightly unimpressed with Adrian Vermeule’s “common-good constitutionalism.” A slice:
I believe that Professor Vermeule has enough wit to understand that he and others like him have simply taken the intellectual apparatus of progressivism, with its contempt for individual liberties and its faith in the magisterial state, and proposed filling that box with right-wingery rather than left-wingery, albeit right-wingery of the anti-capitalist and anti-liberal kind: Not only will we have to do away with “libertarian assumptions central to free-speech law” but also “libertarian conceptions of property rights.” Another way of saying “libertarian conceptions of free speech and property rights” would be “free speech and property rights.”
And here’s John O. McGinnis on Vermeule.
My intrepid Mercatus Center colleague Veronique de Rugy laments the CDC’s failure.
Alberto Mingardi bemoans the tangle of red tape that stifles individual initiative.
Vincent Geloso – writing wisely about the wisdom of something that long ago disappeared (namely, fiscal discipline) – is correct to reach this conclusion: “Thus, there is one certain lesson: there is a need to return to older, proven, public finance traditions that make deficits the exception rather than the norm.”
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