Russell Roberts's Blog, page 446

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy wisely warns us of Bernie Sanders’s economically ignorant radicalism.

George Will warns us of the dangers in Elizabeth Warren’s hypocritical and opportunistic embrace of teachers’ unions. A slice:

Nationwide per-pupil public expenditure (in constant dollars) doubled between 1960 and 1980, and doubled again by 2016. Warren’s and Sen. Bernie Sanders’s jeremiads against “greed” exempt that of teachers unions.

Alberto Mingardi is justifiably liberal in his praise of Russ Roberts’s recent effort to debunk the myth that government policies in recent decades were masterminded by Milton Friedman.

Ryan Bourne is rightly pleased that the Council of Economic Advisors is highly skeptical of antitrust policy.

Only in California.

Michael Strain summarizes some of his findings that help to bust the myth of American middle-class economic stagnation. A slice:

If you are a worker, you will see your wages grow and your purchasing power increase — your hard work will pay off. If you work hard and put in effort and make yourself more skilled, the labor market is going to reward that. That is the typical experience.

John O. McGinnis reviews Jeremy Popkin’s new book on the French Revolution.

Here’s a video of Mario Rizzo discussing his new book (co-authored by Glen Whitman) on behavioral economics.

Barry Brownstein rightly criticizes the appalling greed of Bernie Sanders.

Quotation of the Day…

(Don Boudreaux)

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… is from this Bryan Caplan EconLog post of September 19th, 2019 (first link added; second link original):

Most people embrace a dogmatic pessimistic ideology, and believing is seeing. Hedonic adaptation amplifies the problem. After all, it’s easier to deny that your standard of living is great than to admit that you’re unhappy despite your affluence. The fault is not in our stuff but in ourselves.

DBx: I’m sure that hedonic adaptation is real. If it weren’t, we modern, ordinary Americans would be about 300 times happier than were the vast majority of our pre-industrial ancestors. And whatever you might think about the reliability of claims of relative states of happiness, it seems highly unlikely that we today are 300 times happier than were, say, our great, great, great, great, … great grandmothers and grandfathers.

I myself am much more materially affluent than I was in 1980. This fact is so both because I’m now at the peak of my career and because, despite incessant claims to the contrary, even ordinary and poor Americans today have far greater access to material abundance than did their counterparts of 40 years ago.

But am I happier? Perhaps a bit, overall and on average on a typical day. Yet maybe not. I can’t say for certain. But whatever difference there might be between my happiness in 2020 and my happiness in 1980 is minuscule compared to the difference between my material wealth in 2020 and my material wealth in 1980.

I’m certain, though, of this fact: I would be dreadfully unhappy if I were, today, reduced back to the level of material prosperity that I had in 1980. Ditto for 1990. Ditto for 2000.

This reality about human psychology can lead to all sorts of different conclusions. Here’s mine: It’s better to be at happiness level X and have material-prosperity level Y than to be at happiness level X and have material-prosperity level (Y-Z), where Z is a positive number.

And here’s another conclusion: even if, in 2020, every American’s still-rising material abundance generates for that American no additional long-term happiness over what the level of happiness was when Jimmy Carter was scolding us because we wanted to keep our homes warmer than he asserted was proper, no good purpose is served by those who continue to peddle the fallacy that ordinary Americans’ material prosperity has stagnated for decades. This stagnation claim is spectacularly false – as has been proven by, among many others, Michael Cox and Richard Alm, Terry Fitzgerald, Bruce Sacerdote, Scott Winship, Steve Horwitz, William Cline, Michael Strain, Alan Reynolds, Thomas Cooley, and the late, great Stanley Lebergott.

Peddling the stagnationist fallacy only pointlessly contributes to making ordinary and poor Americans unhappy, for it blinds them to the genuine material improvements that they enjoy and, thus, makes them feel unjustifiably bitter.

Don’t Fall for the Fallacies of Economic Nationalism

(Don Boudreaux)

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In my most-recent column for the Pittsburgh Tribune-Review I lament the fact that Oren Cass – like so many other “national conservatives” and “Progressives” – does not appreciate the full reality of creative destruction. A slice:

Joseph Schumpeter, Julian Simon and Deirdre McCloskey are only three of the economists who’ve demonstrated that high and rising prosperity for ordinary people is the result of innovation that destroys old patterns of production and replaces these with new and better ones. Such “creative destruction” is inescapable for those who wish to be members of a society that grows and prospers economically.

Yet Cass and other proponents of “national conservativism” are uncomfortable with creative destruction. Obsessing over the destruction, they’re blind to the creativity.

It’s true that patterns of production, work, and community life are changed by competition and the innovation that it inspires. It has been so for the past two centuries. But it’s untrue that the replacement of older forms of community engagement with new forms necessarily means less, or less-satisfying, personal engagement with others.

Oren Cass despairs — understandably — at the loss of the familiar. What he misses is the fact that government-imposed “models” to temper such change reduce not only prosperity but also liberty. This last price, for me, is too high to pay.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 19 of my GMU Econ colleague Richard Wagner’s excellent 2014 monograph, American Federalism: How Well Does It Support Liberty?:

So, how is it possible for democracy to conflict with liberty? Democracy is a scheme for governing human interaction. But so is liberty, which is a system of regulation grounded on private property. Private property is a regulatory system that accommodates the voluntary organization of social interaction. Economic theory explains how it happens that a society where individual action is largely organized through private property is able to generate coherent patterns of societal activity without there being any entity or organization to plan that pattern.

DBx: Indeed. And because markets put to use far more knowledge than can possibly be put to use by government officials charged with overriding markets, market processes – while of course never perfect – are far more sober and reliable than are the intoxicated-ass meanderings and stumbling of industrial policies and other schemes of overriding market processes.

No, Hayek’s ‘Promise’ Wasn’t ‘Broken’

(Don Boudreaux)

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Here’s a letter to The American Mind:

Editor:

Quoting F.A. Hayek’s 1960 claim that free markets will bring about a “balance … between exports and imports,” Oren Cass argues that the string of annual U.S. trade deficits over the past 44 years proves that Hayek was wrong – that history has “broken” Hayek’s “promise” (“Hayek’s Broken Promise,” Feb. 19).

Being a non-economist, Mr. Cass can be forgiven for missing Hayek’s meaning. The balance to which Hayek refers is not a strict equality between the value of a country’s exports and the value of its imports. Hayek means, instead, that there is a market process that connects exports to imports in a predictable manner: specifically, and contrary to popular mythology, if imports fall so, too, over time will exports fall. Hayek was bemoaning the widespread misconception – borne of a failure to grasp basic economics – that an optimal amount of exporting and importing can be achieved only if trade is controlled by government.

But because Hayek knew, as all competent economists know, that international investment flows break what would otherwise be a necessary equality between imports and exports, it’s wrong to interpret him as ‘promising’ that unimpeded markets would ensure that the value of a country’s exports will always, or even generally, equal the value of that country’s imports.

Mr. Cass makes much of the fact that, when Hayek wrote these words, the U.S. was in the midst of “two decades of a small and consistent trade surplus” – thus suggesting that Hayek relied on that current reality as evidence for his alleged claim that free markets generally produce for each free-trading country equality between exports and imports. (Overlook here the fact that those trade surpluses are actually not an equality between exports and imports.)

But as demonstrated by his extensive scholarship, Hayek was deeply learned in economic history. And so he surely knew, for example, that Great Britain consistently ran current-account surpluses for much of the 19th century. And so he surely knew also, as reported by the late William Niskanen, that “[f]or about 300 years, from the first English settlements in Virginia and Massachusetts until World War I, foreigners invested more in the area that became the United States than Americans invested in other countries”* – that is, that the U.S. consistently ran a string of so-called ‘trade deficits’ for three centuries. Therefore, any suggestion that Hayek ‘promised’ that free trade would ensure that the value of exports from each free-trading country will generally equal the value of its imports is unjustified.

In closing, it’s worth continuing the above quotation from Niskanen in order to show just how unwarranted is Mr. Cass’s worry that consistent U.S. trade deficits pose a danger to the American economy, and how such unwarranted worries are nothing new among people who fall for populist fallacies: “This [three-century-long string of U.S. trade deficits] permitted the capital stock in the United States to grow more rapidly than could have been financed from our own saving, a condition that was an important contribution to the growth of output and real wages in the United States. This process accelerated in the nineteenth century with British investment in railroads, German investment in chemical plants, and so on. For the most part, American officials welcomed this net import of capital despite occasional populist complaints about the foreign ownership of domestic firms.”*

It’s always possible to make arresting claims by quoting scholars out of context of their larger works and range of knowledge. But doing so serves neither the cause of scholarship nor of good public policy.

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

* William A. Niskanen, “The Determinants of U.S. Capital Imports,” The Annals of the American Academy of Political and Social Science, Vol. 516 (July 1991), page 37.

Quotation of the Day…

(Don Boudreaux)

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… is from page 182 of the original edition of Lee Francis Lybarger’s 1914 book, The Tariff (original emphasis):

There is no denying the fact that a Protective Tariff is a system of taxation for the sole purpose of enriching private individuals. It is not a public tax but a private tax publicly enforced.

DBx: Costumed in the (often garish) finery of ‘official public policy,’ tariffs (and subsidies) appear to naive eyes to be something grander than theft carried out by government officials for the benefit of politically influential groups. But theft is what these policies are, for there is no plausibly legitimate justification for such policies as ones that are likely to promote acceptable collective purposes.

You show me a tariff (or subsidy) and I’ll show you a thief, albeit one who – irony of ironies! – outsources the actual exercise of his or her coercion to a third party. And you show me an apologist for a tariff (or for a subsidy) and I’ll show you someone who is either soullessly mercenary or economically ill-tutored.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 243 of my Mercatus Center colleague Dan Griswold’s excellent Cato Journal review of Oren Cass’s 2018 book, The Once and Future Worker:

Ultimately, the book’s emphasis on production over consumption reflects a common mistake that can easily warp public policy. Of course, production is a prerequisite of consumption, but consumption is the ultimate aim of production. Production detached from consumption is a form of servitude. If goods and services become more expensive because of restrictions on trade and competition, real wages will be reduced for tens of millions of American households. To favor the producer over the consumer is a recipe for cartels, cronyism, inefficiencies, and exploitation.

DBx: Yes. Dan’s point is vital.

And even more fundamentally: consumption, while subsequent to production temporally, is prior to production economically. The core reason is that production occurs only when inputs – including human labor – are converted into outputs that are more valuable than is the mix of inputs used to produce the outputs. And the value of any output is ultimately determined by how much that output contributes to human well-being.

To put the point simply, working hard to produce something that no one wants, or that is worth less than something else that might otherwise have been produced, is not to produce. Such activity, although it might appear to the naked eye to be production, is actually consumption: resources are consumed in an activity that yields less value to humanity than the value of the resources used.

If a person voluntarily chooses to exert such effort – effort, say, to produce a sawdust-and-maggot pie – then that person chooses to consume the time and resources necessary to get whatever satisfaction he or she gets from undertaking this effort. If that person pays for this activity, this activity is no less legitimate than, say, paying to go to a movie or to eat a pizza. But this activity is, like going to a movie and eating a pizza, consumption.

What people such as Oren Cass really call for when they plea for tariffs and other government policies that artificially keep people in certain jobs is for some Americans to subsidize other Americans’ consumption. The call is for government to force some Americans to pay to keep other Americans in jobs that those other Americans themselves ‘want,’ but don’t want badly enough to themselves pay to keep – themselves pay to keep, by accepting wage cuts sufficient to make their continued employment in those jobs attractive to employers.

So while Oren Cass appears to economically uninformed eyes – which include his own – to be making a case for government to ‘favor’ production over consumption, he in fact is doing no such thing. He is, instead, pleading for government to subsidize consumption (and, thus, cause consumption to be excessive). In issuing these pleas, he inadvertently presses government both to reduce and to make a mockery of genuine production.

Pittsburgh Tribune-Review: “Made blue by green initiatives”

(Don Boudreaux)

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In my column for the May 23rd, 2008, edition of the Pittsburgh Tribune-Review I explained why I am not taken in by ‘green’ initiatives such as buying local and driving an electric automobile. It’s better, of course, that such initiatives be voluntary rather than – as is too often the case – imposed by government. But the intellectual and economically uninformed hubris that nevertheless motivates proponents of even voluntary ‘green’ initiatives is disturbing. You can read my explanation beneath the fold.

(more…)

Quotation of the Day…

(Don Boudreaux)

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… is from page 346 of Matt Ridley’s important 2010 book, The Rational Optimist:

The future will feature ideas that are barely glints in engineers’ eyes right now – devices in space to harness the solar wind, say, or the rotational energy of the earth; or devices to shade the planet with mirrors placed at the Lagrange Point between the sun and the earth. How do I know? Because ingenuity is rampant as never before in this massively networked world and the rate of innovation is accelerating, through serendipitous searching, not deliberate planning. When asked at the Chicago World Fair in 1893 which invention would most likely have a big impact in the twentieth century, nobody mentioned the automobile, let alone the mobile phone. So even more today you cannot begin to imagine the technologies that will be portentous and commonplace in 2100.

DBx: Economic growth beyond the trivial – that is, economic growth of the sort that has been so noticeable over the past two centuries – requires innovation. Innovation, in turn, requires creativity. Creativity by its very nature cannot be foreseen in detail. (Anyone who insists that he or she does possess such miraculous foresight can easily prove the claim by entering the stock market and in a matter of months becoming a gazillionaire.)

Creativity, therefore, cannot be planned or included in any meaningful way in any government plan for the economy or for any sector of the economy.

And so if and to the extent that government plans the economy – say, by adopting any of the many varieties of industrial policy proposed by the likes of Robert Reich, Oren Cass, or Daniel McCarthy – government rids the planned part of the economy of creativity and, hence, of innovation. By so ridding any part of the economy of innovation, the government would thereby prevent the economy from growing.

But the government would make matters even worse by ridding any part of the economy of innovation: it would also launch that part of the economy onto a path of decline. The reason is that innovation is necessary to deal with unexpected changes such as reductions in raw-material supplies and changes in consumer demand. Critical to the economy’s ability to ‘absorb’ such changes – changes which happen incessantly – is the process of discovering effective ways of dealing with them, and these effective ways are often the result of innovation (that is to say, of creativity).

Another Open Letter to Oren Cass

(Don Boudreaux)

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Mr. Oren Cass

American Compass

Oren:

Reporting on the launch of your new organization, American Compass, the Washington Post quotes you as accusing libertarian free-market advocates of believing “that whatever policies are best for shareholders in the short run are the best policies and will eventually be good for everyone else also.”

Nice sound bite. After all, every sensible person understands that an economics that attends only to the interests of one relatively small group of people (shareholders) – and then only to that group’s immediate interests – is nonsense that is unlikely to yield policy recommendations that promote the well-being of everyone over the long-run.

The trouble, however, is that the economics that you trot out as the demon that you and your organization will slay is a witless man of straw. No one among serious libertarian advocates of free markets believes what you accuse them of believing. Not Adam Smith. Not Jean-Baptiste Say. Not Frédéric Bastiat. Not Herbert Spencer. Not Ludwig von Mises. Not F.A. Hayek. Not Ronald Coase. Not Milton Friedman. Not Armen Alchian. Not James Buchanan. Not Bill Niskanen. Not Vernon Smith. Not Israel Kirzner. Not Thomas Sowell. Not Walter Williams. Not Bruce Yandle. Not Jim Gwartney. Not Dwight Lee. Not Deirdre McCloskey. Not Robert Higgs. Not Richard Epstein. Not Doug Irwin. Not anyone of any standing at all among libertarian and classical-liberal economists and scholars.

That you assert such an indefensible notion suggests that you haven’t read the works of the scholars whose arguments you and your organization are arming yourselves to defeat in dubious battle. In this case, therefore, there’s no reason for anyone who is genuinely knowledgeable about the arguments for free markets – and who opposes the protectionism and industrial policy that you advocate – to take you seriously.

If you wish American Compass to play a productive role rather than serving merely to fortify fallacies that are today so widespread from left to right, stop slaying straw men. Learn the economics that you now present to your audience as an absurd caricature.

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