Russell Roberts's Blog, page 434
March 25, 2020
An Open Letter to Florida’s Attorney General
Ms. Ashley Moody, Attorney General
State of Florida
Tallahassee, FL
Ms. Moody:
You issued more than 40 subpoenas in response to so-called “price gouging.” And you justified your actions with this written statement: “Floridians are searching for essential products needed to stay safe and healthy during this COVID-19 pandemic. Sadly, when they find these products for sale online, they often discover that the price tag makes them unattainable. This is unacceptable and unlawful.”
Your economics mistaken: the price tag about which you complain is what prevents these products from being “unattainable.”
The high prices that you aim to prevent entice suppliers to exert the extra efforts necessary to ramp up production of such products and to speed them to market. These high prices also encourage consumers to use these products more prudently. Your efforts to push these prices lower, therefore, will ensure that such products very soon become “unattainable.”
Products available for sale at unusually high prices are obtainable, for they actually are for sale (if only at these high prices). In contrast, products unavailable for sale at ‘normal’ prices are not actually for sale; they are utterly unobtainable – which means that their prices then are infinite.
If you truly wish to ensure maximum access of Floridians to the goods and services that they seek, cease and desist from interfering with market prices.
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
Bonus Quotation of the Day…
… is Mark Twain’s response to someone who asked him how he could be friends with Standard Oil vice-president Henry H. Rogers, whose immense fortune was falsely believed – simply because it was chiefly earned as a result of Rogers’ work at Standard Oil – to be “tainted”:
His money is tainted, it taint mine and it taint yours.
DBx: It’s a damn shame that this civilized respect for others’ property is today not more widespread. Rather than, like Samuel Clemens, respect and not envy other people’s unusually great material prosperity, today Americans read books, articles, and columns by Ivy League credentialed academics that actively encourage envy and covetousness of that which one hasn’t earned. And too many Americans cast ballots for politicians who solemnly promise to pillage the earnings of peaceful people.
This institutionalized envy and pillage is called “Progressive.” Measuring differences in monetary incomes and wealth, and explaining how the god-state will “redistribute” it all, seems oh-so advanced and scientific. Indeed, many people convince themselves that such “redistribution” is positively humane. Or so I gather it appears to many.
Well.
This attitude from top to bottom and from back to front, in full, disgusts me. And it should disgust every civilized human being.
Don’t Bail Out the Airlines
Two of my Mercatus Center colleagues – the intrepid Veronique de Rugy, along with Gary Leff – make the case against a government bailout of U.S.-based commercial airlines. Here are two slices:
When the federal government bails out an industry, it shifts resources away from nonsubsidized industries to the subsidized one. Because politics drives the bailout decision, this shifting of resources is done largely independently of the merit of the industry or of its claims of special distress. If it were not for the government action, the resources used in bailouts would be directed naturally by the market to other, more productive uses. So while it is easy to see the companies and the jobs that are today saved by bailing out the airlines, we don’t know what goods and services are thereby not produced and consumed because of the bailout, what non-airline companies don’t survive because of the bailout, and what jobs aren’t created and sustained in nonsubsidized industries.
The history of bailouts also suggests that they prop up weak firms long enough to make their dysfunctions worse, thus requiring further intervention in the long run. Economist Bill Shughart, for instance, looked at the history of bank bailouts in the United States and found that
“the record of government bailouts of private financial institutions in the 1930s, of Continental Illinois Bank in 1984 (which cost $8 billion) and of the entire U.S. savings & loan industry in the late 1980s and early 1990s (which cost $125 billion) teaches that emergency loans keep weak institutions alive just long enough for their problems to increase. Bailouts encourage more risk-taking and eliminate the freedom to fail that is just as essential to a free-market economy as the freedom to succeed.”
…..
No one should be surprised that the airline industry was the first to ask for a government bailout, considering its long history as a government-protected industry. Today, despite “deregulation” (which largely means that the government no longer tells airlines where they are permitted to fly and how much they should charge), airlines remain intricately intertwined with government as a means of subsidy and protection from competition.
A bailout of airlines funnels taxpayer money to private airline investors and creditors, and it is not necessary to prevent an economic contagion. Many large US airlines have demonstrated an ability to successfully fly through bankruptcy. And bailing out airlines is an inefficient way to protect workers because it focuses on a single industry’s employees, and only the most visible of those workers, while ignoring the many airline-industry contractors who have already lost their jobs and won’t have work in times of reduced demand.
While airlines should not receive a bailout as a matter of public policy, if politics dictates one, then the process should not become a grab bag of interests and preferred policy prescriptions stapled on in haste. Such bailout packages risk doing long-term damage to the industry that the bailout is trying to save.
Some Links
Notre Dame University law professor Stephen Smith (a fellow graduate with me of UVA Law’s class of 1992) busts the mythical claim that the United States has no abnormally – and unnecessarily – high rate of incarceration. Here’s his well-grounded conclusion:
We would be much better off as a society—both safer and truer to our libertarian ideals—if we reserved prisons and jails exclusively for our most dangerous and most incorrigible criminals, made serious efforts to rehabilitate instead of merely warehouse inmates, and relied on less-invasive means to address other social problems.
Ben Zycher isn’t impressed with House Republicans’ proposals for climate policy.
“Personally what I fear the most is the way in which people will respond, at the end of the emergency, to the major economic wreckage we will have to deal with. Lots of observers tend to assume that the virus has damaged populism, as now demagogues (including Trump) were forced to pick “experts” who are at the helm of our countries. But interventions validated by experts may backfire too. We may end up with a society which is less dynamic, more fearful, and more dependent on government than ever” – so writes the ever-wise Alberto Mingardi.
Writing in the Wall Street Journal, Stanford University medical professors Eran Bendavid and Jay Bhattacharya make the case that COVID-19 is likely much less lethal than is now commonly supposed. Here’s their conclusion:
A universal quarantine may not be worth the costs it imposes on the economy, community and individual mental and physical health. We should undertake immediate steps to evaluate the empirical basis of the current lockdowns.
Quotation of the Day…
… is from page 92 of my late Nobel-laureate colleague Jim Buchanan’s 1996 article “Economic Freedom and Federalism: Prospects for the New Century,” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:
[T]he centrally planned economy failed because it did not, and cannot, utilise either the knowledge of opportunities or the incentive structures that emerge more or less naturally in markets.
DBx: Yesterday I was interviewed by Juliette Sellgren for her forthcoming podcast series, Juliette’s Uncommon Knowledge. Juliette is a high-school junior with uncommonly good sense about the economy. The first question she asked me is what’s the one thing that kids her age should know that they don’t. I replied: “How incredibly complex and productive is the world we live in.” (I don’t recall my exact words, but they were something along these lines.)
This complexity goes unnoticed, ironically, because it is so all-encompassing, and because market economies work with such amazing smoothness and reliability. (Note that I do not here say – and I do not mean to imply – that markets are perfect, by whatever criteria you might use to assess their performance.)
Flip the switch and there’s light. Indeed, it’s increasingly commonplace literally just to issue a mere voice command in order to summon light! (“Let there be light!” – and there is.) Or even better – as is true for my offices at George Mason University – is that mere motion turns on the lights. I walk into my office and light happens.
Or this: press a few buttons on a computer connected in real time to billions of sites around the globe and, at a cost of less than an ordinary American’s hourly wage, arrange for the market to deliver within 48 hours to your doorstep a new pair of jeans. For a few extra bucks you can have the jeans delivered to you in no more than half that time.
And the jeans: who made them? Answer: no one. No one.
The jeans delivered to your front door literally are the product of the creativity and effort of tens of millions – more likely, hundreds of millions – of individuals spread across the face of the earth. The cotton farmer; the unknown innovator who developed the specific kind of thread used to stitch together the pieces of cotton fabric; the chemist whose efforts are an important input into creating blue dye; each of the actuaries who enable each of the many insurers of all the different enterprises – from farmer to delivery service – to operate profitably; the oil-field workers who toil to drill for oil that is refined into the gasoline that powers the delivery truck; the jeans’ designer; the software engineers whose efforts assist the jeans’ designer, and the other software engineers whose efforts helped to make the navigation system for the delivery truck; the developer of the machine that coated the delivery truck with paint that protects the vehicle from rust; the many employees of the unheralded company that makes the button for the jeans; the many employees for the other unheralded company that makes the zipper for the jeans; the many employees of yet another unheralded company that makes the metal or composite-material matter that form the zipper’s teeth; the … you get the idea.
The notion that any human mind, or committee of human geniuses, can gather all the detailed knowledge and information that the market uses every moment in the process of making available a ‘simple’ pair of jeans is beyond preposterous. I know no word to fully capture how absurd such a notion is. And so the conceit that a human mind or committee of human geniuses can plan and operate an entire economy – or can surgically intervene in ways that are productive into this stupendously complex globe-spanning market process of human cooperation and competition – would be utterly laughable were this conceit not so dangerous to human prosperity.
Words – often so beautiful and alway indispensable to our humanity – are sometimes deeply misleading. “The U.S. economy” – “the Kentucky economy” – “the aluminum industry” – “middle-income workers” – “the annual volume of Peru’s imports” – “U.S. exporters” – “average real wages” – “the interest rate” – “the price of bacon” – “middle managers” – “the health-care sector” – “the distribution of income in France.” Each of these terms, and many others akin to them, have some real and useful meaning when considered carefully. But they too-often mislead, for at least two reasons:
First, word and terms such as these create the illusion that these phenomena are things defined by nature rather than by human convention and purposes.
Second, words and terms such as these hide the enormous swirling complexity that gives rise to the measurable surface manifestations.
These two false impressions create the fatal conceit that human beings can consciously intervene in ways that are likely to improve matters – to move reality closer to some imagined state of perfection. Bernie Bros and Thomas Piketty want a more equal ‘distribution’ of income: no problem, use the state to take money from some people and give it to others. Simple. Mission accomplished. No or few unintended negative consequences.
Oren Cass and other nationalist conservatives want to slow the rate at which economic change – especially that which is fueled directly by international trade – causes job churn: no problem, use the state to slow this change. Simple. Mission accomplished. No or few unintended negative consequences.
“Progressives” want a greater abundance and more widespread availability of high-quality health-care: no problem, hire a few elite-school economists to draw up a scheme for using government power to overhaul “the” health-care sector and, voilà, high-quality health-care is more abundant and available.
Neocons perceive that the political and economic conditions of some foreign countries are not ideal – or at least not ideal for Americans: no problem, send in U.S. “advisors,” “aid,” and, if necessary, troops. We – our best and our brightest and our bravest – will fix the problem! There will be no or few unintended negative consequences. (And if you insist otherwise, well, that reveals you to be unpatriotic as well as ignorant of America’s glorious history.)
How naive are such conceits borne of the failure to grasp the enormous complexity of social and economic realities.
March 24, 2020
Strange Value System
Here’s a letter to a “relatively new reader” of Café Hayek:
Mr. Rolfe:
Thanks for your e-mail and for reading my and Veronique de Rugy’s op-ed on responses to COVID-19.
You ask if I’m “not at least slightly angered when stores sell common goods at exorbitantly high prices.”
My answer is no; I’m not at all upset. In fact, I’m pleased because these high prices incite entrepreneurs to bring more supplies to market.
Of course I lament the underlying conditions that cause the high prices – namely, the fall in supplies of goods relative to demands for them. But to be upset at the high prices themselves – prices which accurately report current levels of scarcity – would make no more sense than to be upset at a newspaper reporter for accurately writing that my home was destroyed by fire. Although the fire is unfortunate, the accurate reporting of it is not.
Nevertheless, I agree with you that “people instinctively dislike huge price rises in a crisis.” But I don’t quite understand this reaction. If customers walk into retailer A and find his shelves full but his prices unusually high, they accuse retailer A of misconduct and regard him as devilish. Yet if these same customers walk into retailer B and find her shelves bare but her prices normal, they neither accuse retailer B of misconduct nor regard her as devilish. Aren’t these reactions strange? Why are retailers maligned for the challenges visited upon their customers by high prices, but forgiven for the much-harsher challenges visited upon their customers by bare shelves?
Retailer A clearly is of much more use to society than is retailerB. Yet retailer A is vilified and perhaps even prosecuted as a criminal, while retailer B is simply regarded as being among the unfortunate victims of circumstances and held up as a role model for other retailers to mimic.
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
Here’s a lovely essay on the false security of closed borders. (HT Tom Palmer)
Alberto Mingardi asks if there exists better alternatives to lockdowns.
Tyler Cowen predicts that among coronavirus’s victims will be the “Progressive” left.
Here’s another silver-lining around the dark cloud that is COVID-19.
Cash Isn’t Output
Here’s a letter to The Atlantic:
Editor:
Derek Thompson, describing how the Danish economy will allegedly be saved from the coronavirus, writes that the government there will “throw the whole economy into a deep freezer, and when the virus winds down [it] can thaw it out and almost everybody will still be with the company they worked for in January” (“Denmark’s Idea Could Help the World Avoid a Great Depression,” March 21). The specific means of foisting the Danish economy into the freezer is for government to pay 75 percent of the salaries of most private-sector workers who remain formally employed but who miss work because of COVID-19.
Nothing is easier for governments than to dispense cash. But cash is inedible. Cash doesn’t cook, clean, cut hair, catch fish, can vegetables, or care for crops. Cash doesn’t refine fuels or drive delivery vehicles. Cash has neither the muscle power to stock store shelves nor the brain power to repair automobile engines, household appliances, leaky roofs, or downed electrical wires. As factory labor, cash is hopelessly inept. Cash cannot distinguish who among those persons who wish to borrow it are worthy risks and who are not. Cash doesn’t treat illnesses or wounds. Cash cannot teach children.
Cash, in short, is useless except insofar as it enables those who possess it to entice fellow human beings to perform services for them. But to the extent that the economy is ‘frozen,’ individuals perform services for no one but themselves and their families. And so people who receive, as cash handouts, 75 percent of their regular pay will have nothing remotely close to 75 percent of the spending power that they have when all are working.
‘Freezing’ the economy severs individuals from the complex process of networked specialized labor and exchange that is the market. Restoring these connections is not easy, and the mere possession of amounts of cash that are useful during normal times does very little to ensure adequate access to real goods and services during distressed times.
By creating the illusion that its massive cash handouts keep ordinary Danes prosperous as it ‘freezes’ the economy, the Danish government risks further magnifying the consequences of the COVID-19 outbreak into an unprecedented calamity.
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
More on Responses to COVID-19
My intrepid Mercatus Center colleague Veronique de Rugy and I have a new op-ed that went out last night over the Tribune’s wire service. Our essay is on responses to the outbreak of coronavirus. Here’s a slice:
But to improve people’s material well-being requires also that any increased production be of goods and services that are of the most use to people. It would be wasteful to use resources in ramping up production of cruise ships and karaoke machines rather than of more desperately needed hospital beds and food. Income earned at work is valuable only if it can be spent on things that income earners most want.
Unfortunately, government efforts to stop so-called “price gouging” reduce the production of goods and services that people want the most in times of emergency. By preventing prices from reflecting just how desperate consumers are for the likes of hand sanitizer, canned goods and fresh milk, anti-price-gouging measures thwart consumers’ ability to obtain the real goods and services that would do them and their families the most good.
Finally, there’s this reality, one that’s especially easy to lose sight of during emergencies: Today’s response to the current crisis will affect how people prepare for, and respond to, future crises.
Quotation of the Day…
… is from page 193 of George Will’s 1992 book, Restoration:
[Government budget D]eficits are political and moral events, not merely economic events. A balanced budget amendment would do something of constitutional significance: It would protect important rights of an unrepresented group, in this case the unborn generations that must bear the burden of the debts. The amendment would block a form of confiscation of property – taxation without representation.
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