Russell Roberts's Blog, page 435

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(Don Boudreaux)

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My Mercatus Center colleague Dan Griswold, writing in The Hill, argues that

[c]ertain members of the Trump administration and Congress have ramped up their criticism in recent days, claiming that the virus confirms their warnings that the United States is too dependent on China for imports, especially critical pharmaceutical and medical supplies. But a closer look at our trade with China shows that their warnings are misguided and threaten to compound the mounting cost of the virus.

Good, if too-rare, sense about governments’ reaction to COVID-19 is offered by Gerry Dwyer, Richard Ebeling, John Cochrane, and Nick Gillespie.

John Miltimore reminds us that governments often make panics worse. A slice:

It’s no secret or coincidence that crises—foreign wars, terrorist attacks, and economic depressions—have often resulted in vast encroachments of freedom and even given rise to tyrants (from Napoleon to Lenin and beyond). In his book Crisis and Leviathan, the historian and economist Robert Higgs explains how throughout history, crises have been used to expand the administrative state, often by allowing “temporary” measures to be left in place after a crisis has abated (think federal tax withholding during World War II).

“When [crises occur] … governments almost certainly will gain new powers over economic and social affairs,” wrote Higgs. “For those who cherish individual liberty and a free society, the prospect is deeply disheartening.”

Let’s take the novel coronavirus deadly seriously, but let’s not throw reason, prudence, or the Constitution out the window while doing so.

“FDA Should Get Out of the Way of At-Home COVID-19 Testing” – so wisely argues Ron Bailey.

More on How Globalization Makes Us Healthier

(Don Boudreaux)

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In my latest column for AIER, I go into more depth on why it’s utterly misguided to conclude from the COVID-19 pandemic that Americans should reject – or even become more skeptical of – globalization. A slice:

First, to be useful, creative capacity must be tapped. By making more abundant in America goods and services not conventionally thought of as health-care related, free trade increases both the practical ability and the incentives for more Americans to devote time to supplying health care and to doing medical research. Because trade increases the abundance in America of the likes of food, clothing, building materials, fuel, and automobiles, trade reduces the number of Americans who work to produce these non-health-care outputs. Larger amounts of American creativity and effort are thus made available for tasks directly connected to health-care.

Second and relatedly, even the most creative medical geniuses require for their practical success proper equipment and supplies. Medical researchers need tools and inputs such as test tubes, flasks, microscopes, chemicals, syringes, gloves, bandages, computer hardware and software, and even desks and other pieces of office furniture.

The innovativeness and effort necessary to produce these items in high-enough quality – and to deliver these items reliably to labs and hospitals – might not be specific to medical research. But without such innovativeness and effort, even the most driven and inspired medical-research geniuses would produce very few, if any, medical breakthroughs. And so because the freer is trade the greater is the supply in the U.S. of the many different tools and inputs used in American medical-research facilities, the freer is trade the faster, more swollen, and more steady is the stream of American health-care innovation.

Incessantly Treating Reality as If It’s Optional Doesn’t Make Reality Optional

(Don Boudreaux)

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Here’s a letter to a long-time reader of Café Hayek:

Dear Aileen:

Thanks, as always, for your e-mail.

You’re correct that most people have “strong negative reactions against large price increases” during crises. Indeed, it’s only because these negative reactions are so strong that politicians predictably inveigh against such price hikes and threaten – and often impose – government-enforced prohibitions on so-called “price gouging.”

But this negative reaction – which is fueled by economic misunderstanding – doesn’t change reality. This negative reaction doesn’t alter the underlying fact that during crises the demands for many goods and services rise relative to the supplies of those goods and services and, thus, necessarily make the value of each unit of those goods and services higher than it is during normal times. The high prices reflect this reality.

A government-issued command that people pay a money price for some good or service no higher than a government-set maximum is no more effective at pushing the value of that good or service down to the government-dictated price than would a government-issued command that water boil at 80 degrees Fahrenheit push the temperature at which water boils down to the government-dictated temperature.

Economic reality is not optional, despite the false promises of politicians that they can work miracles. Unfortunately, people’s belief in economic miracles – indeed, their demand that politicians attempt to perform such – distorts their vision of, and responses to, reality. The result is reality made worse.

Sincerely,

Don

Quotation of the Day…

(Don Boudreaux)

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… is from page 159 of volume III (“The Political Order of a Free People,” 1979) of Hayek’s Law, Legislation, and Liberty (footnote deleted):

In particular, in order to explain the economic aspects of large social systems, we have to account for the course of a flowing stream, constantly adapting itself as a whole to changes in circumstances of which each participant can know only a small fraction, and not for a hypothetical state of equilibrium determined by a set of ascertainable data. And the numerical measurements with which the majority of economists are still occupied today may be of interest as historical facts; but for the theoretical explanation of those patterns which restore themselves, the quantitative data are about as significant as it would be for human biology if it concentrated on explaining the different sizes and shapes of such human organs as stomachs and livers of different individuals which happen to appear in the dissecting room very different from, and to resemble only rarely, the standard size or shapes in the textbooks.

DBx: Modern society and a modern economy are not relatively simple phenomena such as are solar systems and chemical compounds. Observation of solar systems and chemical compounds can yield useful knowledge about how the elements of those phenomena hang together and respond both to each other and to outside (“exogenous”) stimulus. Very little such useful knowledge is available by mere observation of a modern economy.

The claim here is not that observation of a modern economy is unnecessary. Instead, the claim is that the amount of theoretical understanding necessary to make sense of empirically observed phenomena is much greater for complex phenomena such as a modern economy than it is for a solar system and other simpler phenomena.

Here’s only one of the many reasons why it is a grave error to attempt to derive knowledge of the economy using the methods that have proven to be so successful in the physical sciences: the facts of the social sciences are themselves much more the result of theoretical decisions than are the facts of the physical sciences. What, for example, is the meaning of the profit rate of the steel industry? A quantitative figure for such a thing can be found and reported with numerals both to the left and right of a decimal point. Such a figure looks scientific and objective. But on what basis do we reach this conclusion? We can all agree that the person who calculated this figure is perfectly unbiased and honest and enormously competent with numbers. But what is profit? The definition of profit is an artifact of human choice. What is the time span over which the rate of this profit is best calculated? Observation of nature doesn’t reveal an answer to this question.

And what is the steel industry? Does it include only domestically headquartered firms that produce steel? Or does it include all firms, regardless of where headquartered, with factories in operation within the domestic economy? Or does it include all steel-producing firms on the face of the earth? And does “the steel industry” include only firms that produce new steel from iron ore? Why not firms that produce new steel from recycled steel? And what’s so special about the steel industry? Why not theorize instead about the metals-producing industry? Or the construction-materials-producing industry? Many more such questions such as these can be asked.

Like it or not, the reality isn’t going away that for the puny human mind to make sense of the enormous complexity of a modern economy mere observation won’t do. The observer must observe with sound theoretical priors. These priors do not come to the human mind as naturally as do the priors necessary for the human mind to make sense out of the observation of, say, the velocity, mass, and circumference of round object A striking stationary round object B (with its own mass and circumference) on a surface with a certain amount of friction.

As ingenious as is the person who describes the physics of billiards, the amount of information that must be known to the observer to make successful predictions of the detailed outcomes of what happens on each ‘shot’ in a game of billiards is minuscule compared to the amount of information that must be known to the observer to make successful predictions of the detailed outcomes of what happens when, say, a new discovery of iron ore is made or when consumer demand for objects made with metals falls.

The economy is indescribably more complex than it seems to the untrained human eye or that it is made to appear by collections of statistics. This lesson is one that Hayek taught throughout his long life – which, having begun on May 8th, 1899, ended 28 years ago today, on March 23rd, 1992.

Pittsburgh Tribune-Review: “The market’s bounty”

(Don Boudreaux)

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In my column for the November 26th, 2008, edition of the Pittsburgh Tribune-Review, I celebrated the market’s astonishing bounty – and lamented the fact that the market generally works so smoothly at delivering this bounty that few people ever notice the awesomeness of the market’s daily achievements. You can read my column beneath the fold (link added).

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Quotation of the Day…

(Don Boudreaux)

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… is from page 308 of my late Nobel-laureate colleague James Buchanan’s 1980 paper “Procedural and Quantitative Constitutional Constraints on Fiscal Authority,” as this paper is reprinted in Choice, Contract, and Constitutions (2001), which is volume 16 of The Collected Works of James M. Buchanan:

The very purpose of rules, of constitutions, is to prevent us from making decision in an overemotional or overpragmatic response to particular situations.

The Dangerous Virulence of Ignorance of Trade

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

United States Trade Representative Robert Lighthizer’s defense of Trump’s tariffs in the face of the COVID-19 outbreak ranges from the economically ignorant to the internally inconsistent all the way to the Orwellian (Letters, March 21).

Mr. Lighthizer’s economic ignorance is displayed by his observation that “while imports of certain other medical products from China have declined since tariffs were imposed, that has been offset by increased imports of such products from other countries.” But offset by how much? In part? Completely? He doesn’t say.

The likely answer is “in part,” the reason being that we import more of these medical products from other countries only because tariffs deny us access to China’s lower-cost versions. Having now to pay higher prices means that we likely import fewer such products than we did before the tariffs. But even if we import the same amount now as before, we pay higher prices, and thus endure unnecessarily high costs of preventing and treating coronavirus.

Mr. Lighthizer’s inconsistency occurs when he asserts that “if there is one lesson to be drawn from this crisis, it is that dependence on other countries as the source of key medical products has created a strategic vulnerability for the U.S.” Really? He just reassured us in his previous paragraph that obstructing the receipt of supplies from one country is no problem because we get substitute supplies from other countries.

His Orwellianism is revealed by his claim, regarding the alleged “vulnerability” of supply chains, that “[b]y encouraging diversification of supply chains … President Trump’s economic and trade policies are helping to overcome that vulnerability.” How, pray tell, does artificially obstructing access to a low-cost supply chain and, thus, creating greater reliance on other, higher-cost supply chains ‘encourage diversity’ in ways that “overcome” supply-chain vulnerability? I find it impossible to believe that American companies, in whose interest it is to have access to an optimal combination of low-cost and robustly reliable sources of medical supplies, are so inept and short-sighted they must be led by tariffs to choose this optimal degree of low-cost and diversity.

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 18 of the original edition of Robert Higgs’s profound and now more-relevant-than-ever 1987 book, Crisis and Leviathan (original emphasis):

Note that once constitutional barriers have been lowered during a crisis, a legal precedent has been established giving government greater potential for expansion in subsequent noncrisis periods, particularly those that can be plausibly described as crises.

DBx: No book now is more relevant to read – or to re-read – than is Bob’s Crisis and Leviathan. If you’ve not yet read it, do so ASAP. If you last read it a few or more years ago, read it again.

Some Links

(Don Boudreaux)

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Enjoy and learn from the discussion of my GMU Econ colleague Dan Klein with Knud Haakonssen, Mike Huemer, and Brianne Wolf on “Smith, Hume, and Burke as Policy Liberals and Polity Conservatives.”

My intrepid Mercatus Center colleague Veronique de Rugy is justifiably alarmed by many of the policies being proposed to deal with the COVID-19 crisis.

John P.A. Ioannidis warns that “as the coronavirus pandemic takes hold, we are making decisions without reliable data.” A slice:

In the absence of data, prepare-for-the-worst reasoning leads to extreme measures of social distancing and lockdowns. Unfortunately, we do not know if these measures work. School closures, for example, may reduce transmission rates. But they may also backfire if children socialize anyhow, if school closure leads children to spend more time with susceptible elderly family members, if children at home disrupt their parents ability to work, and more. School closures may also diminish the chances of developing herd immunity in an age group that is spared serious disease.

Also writing with good sense on the coronavirus crisis is Cato’s Chris Edwards. See also here.

George Will has convinced me to order and read eagerly Bill Bryson’s 2019 book on the human body.

David Henderson – inspired in part by Ross Levatter – offers well-earned praise to Amazon.

Here’s Marion Elizabeth Rodgers on H.L. Mencken on epidemics and politicians.

Pittsburgh Tribune-Review: “A cut above?”

(Don Boudreaux)

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In my column for the November 4th, 2008, edition of the Pittsburgh Tribune-Review, I wrote about former U.S. senator from Alaska Ted Stevens, who was convicted on charges of corruption. You can read my column beneath the fold.

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