Russell Roberts's Blog, page 439
March 11, 2020
Nationalist Conservatism’s (Un)Surprising Utopianism
Here’s a letter to the Wall Street Journal:
Editor:
William McGurn takes to task nationalist-conservative wunderkind Oren Cass (“And Now a Word for Laissez-Faire,” March 10). He rightly agrees with Mr. Cass’s insistence that the good life involves much more than maximizing material possessions. (Question for Mr. Cass: Who not stuffed with straw denies this fact?)
But Mr. McGurn also rightly criticizes Mr. Cass’s “unbounded confidence that, whatever the undesirable market outcome identified, all that’s needed is to gather the best and the brightest, give them the power to flip the right switches, and—voilà!—the perfect solution, with no opportunity costs, no unfairness, no unintended consequences.”
Such utopianism – at first seemingly so odd coming from a conservative – is the unsurprising result of Mr. Cass’s unfamiliarity with economics, including with the economics of public choice, and his distorted understanding of economic history.
In his new book, The American Dream Is Not Dead, American Enterprise Institute economist Michael Strain nicely summarizes the essence and danger of this brand of populism – which is now virulent on both the political left and right:
“Both the populist left and right are turning inward – anxious about the future, closed to the world, attempting to return to an imagined past, intoxicated with nostalgia or with the concept of an unattainable utopian future. Both are retreating from the importance of personal responsibility [and] embracing a narrative of victimhood….”*
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
* The American Dream Is Not Dead (But Populism Could Kill It) (West Conshohocken, PA: Templeton Press, 2020), page 104.
March 10, 2020
Oren Cass, Marco Rubio, and Josh Hawley are Not Friends of Free Markets
Here’s a letter to the editor of American Greatness:
Editor:
Rachel Bovard writes that “No one on the Right rejects the free market. Or capitalism. In fact, the three individuals largely responsible for provoking this debate—Oren Cass, whose new project American Compass seeks to “restore an economic orthodoxy that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity,” and Senators Marco Rubio (R-Fla.) and Josh Hawley (R-Mo.), both of whom raise social criticisms of government policies that they claim prioritize corporate profits over the needs and humanity of the individual, their families, and communities – have all taken pains to emphasize that capitalism is essential to achieving the American dream. They just think the American dream has more inputs to it than a surging stock market” (“Capitalism, Corporatism, and the Free Market,” March 6).
She’s wrong on many counts. Here are three.
First, Ms. Bovard is deeply mistaken, later in her essay, to suggest that Adam Smith would sympathize with her case.
Second, no serious proponent of free markets – not Ludwig von Mises, not F.A. Hayek, not Milton Friedman, not James Buchanan, not Vernon Smith, not Thomas Sowell, not Deirdre McCloskey, not Robert Higgs, not anyone at the Cato Institute, at the Mercatus Center, or in George Mason University’s Department of Economics – has ever come within an intellectual light-year of embracing the absurd notion that the sole “input” to the American dream is a surging stock market. The fact that Ms. Bovard follows Oren Cass in suggesting otherwise reveals only her unfamiliarity with the case for free markets.
Third, proclaiming that leg-irons and muzzles forced on golden-egg-laying geese are consistent with the geese’s freedom is Orwellian newspeak.
The protectionism and industrial policy endorsed by Cass, Rubio, and Hawley are policies through which government officials replace patterns of resource allocation that arise in free markets with patterns that are consciously chosen by those officials. Cass, Rubio, and Hawley – and Ms. Bovard – might sincerely believe that these consciously chosen patterns of resource allocation would be an improvement over the patterns that arise in free markets. And they might even be correct in this belief (although I’d bet my pension against it). But insofar as the state imposes any pattern of resource allocation, the free market is necessarily rejected and replaced with government planning of economic outcomes.
Given the sorry historical record of such government efforts to override free markets, it’s understandable that Cass, Rubio, and Hawley wish to camouflage their interventionist schemes by describing them as being consistent with free markets. But such camouflage is really a sheep costume worn by a ravenous wolf.
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 from page 221 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s brilliant 1956 collection, Minority Report:
A government can never be the impersonal thing described in textbooks. It is simply a group of men like any other. In every 100 of the men composing it there are two who are honest and intelligent, ten obvious scoundrels, and 88 poor fish.
Pittsburgh Tribune-Review: “Gnarled reality”
In my October 15th, 2008, column for the Pittsburgh Tribune-Review I criticized those who blamed the 2008 financial crisis on “market fundamentalism” and deregulation. You can read my column beneath the fold (link added):
Some Links
Ryan Bourne appropriately reacts to ‘anti-price-gouging madness’ – this time predictably uncorked by the coronavirus. Here’s his conclusion:
In the face of a potentially prolonged and worsening epidemic, muffling the price signals therefore risks disincentivizing much‐needed supply expansions as the virus spreads. It’s bad enough that private sector firms are doing their best to keep sellers from legally serving the market. Government threats and laws would simply exacerbate the problem.
Alberto Mingardi rightly laments the virulence of the bureaucratic mind.
I eagerly awaited Ms. Warren’s announcement that she, too, would drop out of the race. Her contrived energy, those uplifted arms, the too-exuberant hugs, that never slackening self-righteousness—none of this paid off in votes. Many years ago I coined the term “virtucrat” for people who derive their grand sense of themselves from the virtuousness of their opinions, especially their political opinions. Had I known about her then, I would have added, in parentheses, “See Warren, Elizabeth.”
Jen Maffessanti sings the praises of consumer sovereignty.
Arnold Kling has an imaginary conversation with Eric Weinstein. Here’s a long but very insightful slice of what Arnold imagines he’d say in response to Weinstein’s case for protectionist policies:
You say that American workers, as citizens of this country, should have a right to access to job opportunities that give them a decent way of life. If we are willing to have their family members go off to fight wars in the name of protecting the rest of us from terrorists, then we certainly owe them protection from having their jobs taken away by outsourcing to Chinese factories.
My counter will be that international trade is isomorphic with other economic actions that you are more likely to approve. Outsourcing to a factory in China and taking away a factory worker’s job is not very different from developing Uber and taking away a taxi driver’s job or a rental-car agent’s job.
Our prosperity comes from breaking production down into steps. When you break the process down into steps, you get more efficiency. This goes back to Adam Smith’s pin factory. Breaking a process into steps can involve what most economists call capital, but the Austrian economists use the term “roundabout production,” which I like. When a farmer uses a tractor instead of a horse to pull a plow, this is roundabout production–manufacturing the tractor becomes a step in the farming process.
International trade is another form of roundabout production. As David Friedman put it, one way to manufacture an automobile is to grow wheat, put it on a ship to Japan, and have the ship turn around carrying an automobile.
The process of breaking production down into steps is mind-boggling in its complexity. There are so many conceivable ways to break down a production process into different steps. How are we to know which is best? The answer is that the price system co-ordinates the process. Prices inform entrepreneurs about the costs of alternative patterns of specialization.
The profit system directs the evolution of the process. As new ideas are tried, the most efficient ones prove sustainable, as indicated by profitability. Less efficient patterns of specialization and trade are weeded out by losses.
Thus, progress proceeds by creative destruction. Ways of life that are tied to a particular step in the production process are bound to be undermined if a new production process emerges that is more efficient. A society cannot enjoy the benefits of economic progress without incurring the cost of job destruction. The market treats work as a bug, not a feature, and it tries to get rid of it.
Back to the comparison of outsourcing to a factory in China or developing Uber. You might be tempted to say that when Uber changes the process of providing people with car rides, at least it doesn’t use Chinese labor in the process. But is that really the case? For Uber to work, somebody has to take the step of adding computer and communications capacity, and that probably uses components imported from China. Consumers need smart phones in order to hail rides, and those phones are partially manufactured in China. And even if there were no Chinese workers involved in the steps to create Uber rides, would that be any consolation to the taxi drivers and rental-car agents who lose their jobs?
If you want to suggest policies for making economic progress less painful for people whose jobs are displaced, that would be very constructive. But insinuating that economists are engaged in a conspiracy to hide the truth about international trade isn’t constructive–it’s just scapegoating.
Quotation of the Day…
…… is from page 36 of Steven Landsburg’s excellent 2019 volume, The Essential Milton Friedman:
In a capitalist society, you can turn to anyone who’s willing to fund you. You can appeal to the grass roots, but that in turn might require some funds to get you started. It might be more effective to approach a wealthy donor – and if you’re turned away, you can approach another. You don’t even need a wealthy donor who believes in your cause; you only need one who believes there’s money to be made by selling your books and videos or by promoting your website. You might not succeed, but you’ve got a lot of options. And indeed, capitalist societies, including the United States, have always been rife with anti-capitalist propaganda financed by wealthy capitalists.
March 9, 2020
Bonus Quotation of the Day…
… is from page 30 of the original edition of Lee Francis Lybarger’s 1914 book, The Tariff (original emphasis):
But the word “protection,” when used in connection with the Tariff, does not have its regular meaning. It has just the opposite meaning. “Plunder would have been a vastly better word.
DBx: Yes.
By the way, I am – and have always been – well aware that my practice of joining with people such as Lybarger and Frederic Bastiat in using such strong language to describe protectionism and protectionists makes me appear in the eyes of many to be unreasonable, even perhaps unserious.
This price is one that I do not relish paying, but that I nevertheless pay willingly.
The world has in it many competent economists who treat protectionist policy as if it is an ethically legitimate enterprise, with only its economic benefits and costs to be weighed against each other. From these scholars I’ve learned, and will continue to learn, much. And I do not doubt that in the short run such scholars gain a larger audience than do I and others who join with me in radical opposition to protectionism pursued for economic purposes.
Among my goals is to contribute what little I might to change people’s ethical attitude toward protectionism – to help people see that protectionism is institutionalized piracy that should win no more approval from ordinary men and women than does piracy practiced by violent thugs sailing stolen ships. In my ideal world, arguments about the possible theoretical benefits of protectionism would be heard with no less horror than would arguments today be heard about the possible theoretical benefits of high-seas piracy. (Note that it would be child’s play for a clever first-year economics graduate student to develop logically coherent theoretical models in which high-seas piracy conducted by thugs sailing stolen ships are shown to possibly improve social welfare.)
Describing protectionism and protectionists in language that strips away the polite niceties in which it is normally escorted around the intellectual town is one way – hopefully if not surely – to cause protectionism one day to be seen fully for what it is: violence-backed plunder, pure and simple.
My hope is that one day people will be as embarrassed – indeed, as ashamed – to defend protectionism as people today would be embarrassed and ashamed to defend mafioso protection rackets or high-seas piracy. This day, should it ever come, will come long after I’ve turned to dust and am no more. But it is that day toward which I wish, whenever I have the opportunity, to work.
Happy 244th Birthday “An Inquiry Into the Nature and Causes of the Wealth of Nations”
On this date – March 9th – in 1776 Adam Smith’s An Inquiry Into the Nature and Causes of the Wealth of Nations – was first published. I mark this happy anniversary by doing my best, in my latest column for AIER, to clear-up a misunderstanding about Smith’s attitude toward protectionism. A slice:
The first exception [that Smith mentioned to a policy of unilateral free trade] – national security – is not an economic exception at all. Yes, protective tariffs might be advisable in limited circumstances to maintain military readiness. But Smith was clear that such protection is a cost. Although security against foreign invasion is unquestionably important, protectionism carried out to further this security “is not favourable to foreign commerce, or to the opulence which can arise from it.”
The second exception – equalizing taxes – is also not really an exception. A policy of free trade is one in which the home government treats the sale and purchase of all goods and services identically, regardless of where they are produced. Smith argued that if the home government taxes the domestic production of some particular goods, then failure to impose identical taxes upon the sale of imports that compete with those domestically produced goods would give an artificial – and, hence, economically distorting – advantage to the imports.
The third exception – using at home what are now known as “retaliatory tariffs” in the hope of inducing tariff reductions abroad – is indeed a genuine exception. But no sooner did Smith mention this exception and its possible benefits than he cast doubt on its advisability. He called the typical government official who in practice would determine if retaliatory tariffs stand a good-enough prospect of working an “insidious and crafty animal.” Such a person is hardly the sort to be blithely trusted with power to obstruct trade. Furthermore, Smith thought it important to explicitly observe that the domestic citizens who bear the brunt of the very real costs of retaliatory tariffs are seldom the same domestic citizens who would benefit from any resulting reductions in tariffs by foreign governments.
The fourth exception – shielding workers in protected industries from sudden and unexpected economic disruption – is, like each of the first two ‘exceptions,’ not really one. Not only do such tariffs not promote industry and growth, these tariffs should be reduced until they are eventually eliminated. Fearful that too-quick and drastic liberalization of trade might unduly harm workers in protected industries, Smith was willing to tolerate the temporary continuation, but at falling rates, of some tariffs. Smith thought it to be a matter of justice to workers, despite any resulting reduced economic growth, for government to reduce existing tariffs gradually – tariffs that, Smith is clear, should never in the first place have been imposed.
One may agree or disagree with Smith on any or all of these so-called “exceptions.” But one cannot legitimately identify Smith’s own discussion of these “exceptions” as reason to doubt that he strongly believed that maximum widespread prosperity and justice over the long run are best ensured by a policy of unilateral free trade.
Pittsburgh Tribune-Review: “‘Industrial policy’ is another name for central planning”
. Bad ideas issued by people suffering a combination of hubris and economic ignorance (the latter often fuels the former) are zombie-like. Beneath the fold you can read my case for why so-called “industrial policy” is a variant of central planning.
Some Links
Bruce Yandle surveys women’s participation in the workforce.
Here’s David Henderson – and here’s Charles Cooke – on the truly mind-boggling innumeracy and gullibility of many in the mainstream media.
Matt Ridley offers wisdom on how to deal with pandemics. Also writing wisely on infectious diseases – and, in addition, on the U.S. FDA – is Alex Tabarrok.
Josh Blackman reminds us that this date – March 9th – is an infamous one in U.S. legal history.
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