Russell Roberts's Blog, page 433
March 30, 2020
Quotation of the Day…
… is from page 316 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”:
There will be no escape from the protectionist-mercantilist regime that now threatens to be characteristic of the century’s turn so long as we allow the ordinary politics of majoritarian democracy to operate in the absence of adequate constitutional constraints.
DBx: Yep.
And, indeed, in the United States ever since the U.S. Constitution has come largely to be believed to be chiefly a document that enshrines principles of raw majoritarian rule – rule limited only by a handful of specific and enumerated prohibitions on government action – the Constitution fails increasingly to protect Americans from the abuse of special-interest groups (including government officials themselves).
It’s deeply ironic that the political power of ‘minoritarian’ interest groups swells along with the rise of constitutionally unconstrained majoritarianism. To understand the reasons for this apparent contradiction, consult public-choice research.
March 29, 2020
Some Links
Arnold Kling is spot-on about the coronavirus relief bill.
Stephen Miller asks, to excellent effect, what the growing number of coronavirus cases really means.
Jeffrey Tucker sees coronavirus as ideology.
Shikha Dalmia makes the case for cutting H-1B visa red tape.
To repeat: This extraordinary menace may well require an extraordinary response. Yet a month ago, could anyone have imagined that we would see the complete cessation of all church and synagogue worship in the United States? Or a total halt to citizens’ First Amendment right “peaceably to assemble and to petition the government”? Or the wholesale shutdown of entire industries and cultural events nationwide by unilateral decree? By and large, Americans have taken these restraints in stride.
Maybe they shouldn’t be so sanguine.
Here’s John Cochrane on bailouts vs. bankruptcy.
Quotation of the Day…
… is from page 195 of Robert Higgs’s indispensable – and now more relevant than ever – 1987 book, Crisis and Leviathan:
The most important legacy of the New Deal, however, is a certain system of belief, the now-dominant ideology of the mixed economy, which holds that the government is an immensely useful means for achieving one’s private aspirations and that one’s resort to this reservoir of potentially appropriable benefits is perfectly legitimate. To take – indirectly if not directly – other people’s property for one’s own benefit is now considered morally impeccable, provided that the taking is effected though the medium of the government.
March 28, 2020
Some Links
And reprising a favorite among legislators, the bill extends $150 billion in direct aid to states. Most state and local governments are incredibly irresponsible with their finances. During good times, they jack up spending rapidly as soon as they get more revenue rather than save for rainy days. This bailout, unfortunately, will only amplify the signal sent from Washington that they can continue being irresponsible because each time they encounter fiscal troubles because of their poor planning, the federal government will bail them out. Federalism isn’t supposed to work in this dysfunctional manner.
Quotation of the Day…
… is this March 21st, 2020, tweet from Thomas Sowell:
It is so easy to be wrong – and to persist in being wrong – when the costs of being wrong are paid by others.
DBx: Indisputably true, both as a matter of logic and as a proposition that consistently succeeds at explaining a great deal of human history.
Note that Sowell’s point is general. Those who are convinced that today’s government-engineered lock-down of much economic activity is appropriate can nod their heads approvingly at the thought that those who are convinced of the opposite fail to account adequately for the costs that would be paid by others were this lock-down less draconian. Ditto the other way ’round: those opposed to this lock-down nod their heads approvingly at what they take to be Sowell’s explanation of why government officials seem now to be so glibly and irresponsibly imposing massive economic costs on hundreds of millions of strangers.
But whatever your position on the lock-down – whether you think it to be worth its gargantuan costs or not worth these costs – you cannot fail to recognize the deep dangers that lurk within any system that allows a handful of people to act in ways that impose massive costs on others.
My own sense is that the benefits of this lock-down are not worth their costs. (And, by the way, I do not reckon as costs only – or even chiefly – financial flows, such as lost profits, and the monetary values of foregone goods and services. Among the many kinds of costs of this lock-down are worse-than-otherwise health in the future, and the innumerable problems inevitably to be created by governments with yet more discretionary powers.) Yet even if I am mistaken – and perhaps I am (I say sincerely) – we should all be deeply suspicious of discretionary power exercised by government officials – power the costs of the exercise of which are borne almost wholly by third parties.
The grade-school fiction – one embraced also by many PhD-sporting intellectuals – is that majority-rule democracy is sufficient to ensure that all decisions made by government officials in democratic nations are without any such negative externalities, that is, without any undue ill-consequences imposed on third-parties. “We the people” make these decisions ourselves through our elected representatives and the assistants that they hire to help them. Problem avoided!
Anyone who believes in this above account of democracy is too naive for words. He or she is wholly ignorant of even the most basic principles of public-choice economics – an ignorance, note, that itself imposes negative consequences on third-parties by encouraging the naive to impose the costs of political superstitions and of the resulting dangerous policy-making regimes on their fellow citizens. Such people should read Buchanan, Tullock, Downs, Olson, Schumpeter, Arrow, Stigler, Wagner, Niskanen, Higgs, Holcombe, Yandle, Brennan & Lomasky, Caplan, Lee, Simmons, Munger, and Achen & Bartels, among others. Oh, and do read also Sowell’s own great magnum opus.
March 27, 2020
What About Economists’ Expertise?
Here’s a letter to the Washington Post:
Editor
These days we are lectured incessantly about the importance of deferring to experts. And those persons amongst us – including members of Congress, state governors, and even the President of the United States – who don’t fully follow experts’ prescriptions are solemnly denounced as fools who irresponsibly endanger the public.
Without opining on the merits of epidemiologists’ expert assessments regarding COVID-19, I’m compelled to ask why there is no deference to the expert assessments of us economists. Why, for example, is economists’ long-standing consensus in support of free trade – indeed, strong support for unilateral free trade – ignored? We hear no demands from the likes of politicians such as Sen. Chuck Schumer or pundits such as Dana Milbank that economists’ expert recommendations on trade policy be followed in full, no questions asked.
Likewise, it’s very difficult to find an economist who supports rent control. Yet this expert consensus against rent control is routinely ignored by the likes of New York City Mayor Bill de Blasio and presidential aspirant Bernie Sanders. Why? Where’s their respect for experts?
I emphatically reject the Progressive belief that society is an engineering project that can be scientifically guided by a government of the best and brightest toward some optimal condition. But I also believe that true experts can play a valuable role by informing the public and government officials of the likely consequences of different policies. And so given today’s clamor for deference to the expertise of epidemiologists, where’s the deference of pundits and politicians to the expertise of us economists on those policy matters on which we can fairly be said to have reached a consensus?
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
After what can only be described as a multilevel government failure that resulted in the United States having practically no coronavirus tests available for weeks after the onset of the pandemic, the private sector ramped up its production so much that we’re now testing 65,000 people every day. This number is bound to grow. The tests are a crucial component of making it through this crisis, and they’ll become even more accurate and deliver results faster as innovators do what they do best when they’re unhindered by silly or contradictory government regulations.
Vincent Geloso teaches us what Herbert Hoover inadvertently teaches us about reaction to COVID-19. A slice:
This bias in favor of draconian measures that avoid the stigma of the “do-nothing-Hoover” etiquette stems from the fact that these actions are observable. Even if they impose considerable costs to society at large or hurt the poorest most, they will be privileged over less easily observed but more efficient measures.
Government mostly “Cares” for government. Bills that hand out money are written by appropriators. And appropriators never miss an opportunity to expand departments, agencies, bureaus and commissions. A rough calculation suggests the single biggest recipient of taxpayer dollars in this legislation—far in excess of $600 billion—is government itself. This legislation may prove the biggest one-day expansion of government power ever.
And here’s Bruce Yandle on the massive relief bill from Washington.
David Henderson warns against being gullible about claims of scientific consensus. (A note: I’m neither an epidemiologist nor a physician. I remain open to a wide range of claims about plausible scenarios both of just how contagious is the coronavirus and of its lethality. But I am an economist who has spent his adult lifetime – now one that’s been quite long – observing governments. As Vincent Geloso argues in the piece linked above, we must all expect that most government officials will opt for worst-case scenarios and trumpet these as though these scenarios are the only ones that are legitimate. Further, we should all – although, alas, we won’t all – recognize the grave danger of the viral expansion of government power.)
I was recently interviewed by Dan Proft.
Hans Eicholz reviews the great Stephen Davies’s The Wealth Explosion.
Quotation of the Day…
… is from pages 262-263 of George Will’s excellent 2019 book, The Conservative Sensibility:
[Welfare] states presuppose economic dynamism sufficient to generate investments, job creation, corporate profits, and individuals’ incomes from which come tax revenues needed to fund entitlements. But welfare states produce in citizens an entitlement mentality and a low pain threshold. That mentality inflames appetites for more entitlements, broadly construed to include all government benefits and protections that contribute to welfare understood as material well-being, enhanced security, and enlarged leisure. The low pain threshold causes a recoil from the rigors, insecurities, and dislocations inherent in the creative destruction of dynamic capitalism. The recoil takes the form of protectionism, regulations, and other government-imposed inefficiencies that impede the economic growth that the welfare state requires.
DBx: Yes.
‘Redistribution’ requires the existence of something to be redistributed. And because cash, as such, can’t be used as food, clothing, shelter, or for any other human purposes beyond kindling for fires or flooring for the cages of pet hamsters, meaningful ‘redistribution’ requires the existence of real goods and services.
The existence of real goods and services, in turn, requires production. And production – to be worthy of its name – must be of real goods and services that are useful to human beings. ‘Producing’ chocolate-covered pine cones is, in economic reality, to produce nothing; it is instead to waste human labor and chocolate.
To ensure that toiling human minds and hands actually produce, rather than waste, requires that the toiling hands and minds have knowledge not only of what people want, but of what people want most – how people rank their consumption possibilities. To toil to produce goods and services ranked low at the cost of not producing goods and services ranked more highly is waste almost as bad as toiling to produce goods and services not wanted at all.
In short, toiling, in order not to be wasteful, must be guided by knowledge of what people wish most to consume. To the extent that toiling is not so guided, it is wasteful.
The best means that humanity has stumbled upon for both informing people what to produce and giving people appropriate incentive to produce what ‘should’ be produced is the competitive market system and the money prices that it generates. (And, yes, the market – no less than language – was indeed stumbled upon and crafted largely by evolution; it was not designed and consciously implemented.) Ironically, perhaps the biggest flaw in this system is the fact that it works so marvelously well. The material fruits that it generates are so magnificent in form and volume that they appear to those of us blessed to live in market-oriented societies as being automatic, a feature of reality like oxygen or rain. Seeming so, the material fruits of markets are far too seldom explored to discover their actual origins.
The resulting ignorance of the operation and benefits of markets is rather like a virus that is potentially lethal to the very markets which do too little to dispel this ignorance.
March 26, 2020
Some Links
Further, the Kefauver-Harris Amendments dramatically increased the time and cost of getting new drugs approved. Evidence provided by University of Chicago economist Sam Peltzman suggests that the number of new drugs approved dropped by 60% in the decade following the law change. We have fewer ineffective drugs, but also far fewer effective ones than we could have had.
Also rightly critical of the FDA is my intrepid Mercatus Center colleague Veronique de Rugy.
T. Norman Van Cott makes clear that economic prosperity is impossible without production.
John O. McGinnis explains the perils of “second-best” arguments.
Quotation of the Day…
… is from page 131 of the 11th (2006) edition of one of greatest economics textbooks of all time: Paul Heyne’s, Peter Boettke’s, and David Prychitko’s The Economic Way of Thinking (original emphasis):
We are extremely dependent on changing money prices to secure effective cooperation in our complex, interdependent society and economy. When prices are not permitted to signal a change in relative scarcities, suppliers and demanders receive inappropriate signals. They do not find, because they have no incentive to look for, ways to make accommodations to one another more effectively. It is important that people receive some such incentive, because there are so many little ways and big ways in which people can accommodate – ways that no central planner can possibly anticipate, but which in their combined effect make the difference between chaos and coordination. Changing money prices, continuously responding to changing conditions of demand or supply, provides just such an incentive.
DBx: No principle of economics is more important than the one explained here by Heyne, Boettke, and Prychitko, and few principles are as important. Further, absolutely nothing learned in advanced economic classes should in any way diminish the centrality, power, and practical relevance of this insight. None of the many formal demonstrations that any competently trained assistant professor of economics can scribble on a scratch pad to show conditions under which this government-imposed maximum price and that government-mandated minimum wage might yield “net welfare benefits” has any practical relevance.
Well, perhaps this ability does have the practical trait of allowing assistant professors either to demonstrate their pedantry or to get an audience with politicians seeking academic cover for interventions into markets.
But in the real world, market-set prices and wages are the only practical means to inform as well as to incite producers and consumers to adjust as well as is humanly possible to the realities of resource availabilities, of technical constraints, and of each other’s wants, expectations, and abilities. Government restrictions on prices and wages inevitably spread misinformation and create discoordination and discord. The fact that price controls and minimum wages are often politically popular means only that too many people are ignorant of vital economic principles.
Government officials, of course, pander to this economic ignorance.
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