Russell Roberts's Blog, page 451
February 7, 2020
Quotation of the Day…
… is from page 295 of Deirdre McCloskey’s wonderful 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:
As argued by the economists John Harsanyi, James Buchanan, and Gordon Tullock, and by the philosopher John Rawls, the politically relevant question is which society you would rather enter at birth, without knowing where in it you would end up. Choose: One in which all jobs are protected, bureaucrats decide who gets the limited amount of special subsidies, journalists direct attention to the losers instead of to the winners, and the economy slides into stagnation and youth unemployment? Or one in which labor laws are flexible, workers decide their own futures, journalists know some economics, and the economy lifts up the poorest among us? It’s a choice between a poor but stable economy and a rich but risky one. At some tradeoff – one that seems to exist in the actual world – most people would choose riches.
DBx: Deirdre here identifies precisely the tradeoff implied by protectionist philosophies. Yet because of the sheer size and continuing dynamism of the American economy – actually, the global economy – this tradeoff is masked. Sincere protectionists conclude that protectionism is on net a productive policy because excusing a relatively small number of producers from having to abide by the rules of market competition not only often enriches those protected producers but also doesn’t cause the economy to crash.
It’s a textbook commission of the fallacy of composition: what’s true for a part of the group must be true for the whole group. But of course in the case of protectionism what’s true for a part of the group is not true for the whole group. Just as the successful pickpocketer is mistaken to conclude from his own enrichment at others’ expense that all humans would be enriched if all humans turned to pickpocketing, the protectionist is mistaken to conclude from the enrichment of protected industries X and Y that all people would be enriched if all industries were protected.
Every protectionist in practice is a special pleader: he or she pleads for a relatively small number of people to be excused from having to play by the rules of competition, and, thereby, to be enriched at the greater expense of many others who must continue to play by these rules. I say “must continue to play by these rules” because, were everyone, or a sizable number of people, protected from competition, no one would be enriched; everyone would be impoverished.
Protectionists across the political spectrum – from Donald Trump, Oren Cass, and Daniel McCarthy on the right to Sherrod Brown, Bernie Sanders, and Elizabeth Warren on the left – are forever going on about fairness, dignity, increased prosperity, and playing by the rules. All of them, however, are blind as bricks to the fact that it is their preferred policies that are unfair, undignified, impoverishing, and a violation of the rules.
February 6, 2020
Some Links
George Melloan writes wisely about the rise today of sympathy for socialism. A slice:
And millennials fear, for good reason, that they may not enjoy the financial security their elders do. But this danger has been foisted on them not by private capitalism but by proto-socialist policy excesses that already put the future viability of welfare-state benefits in doubt. It was Barack Obama and a Democratic Congress that expanded student lending, inviting young people to run up much of today’s $1.5 trillion in college debt. Their expensive educations have apparently been deficient in economics and 20th-century history. They simply hope that Mr. Sanders or Elizabeth Warren will write off the debt and add it to the $1 trillion the government is borrowing each year to keep our existing welfare state afloat.
“The progressive party’s Iowa caucuses were a hilarious parody of progressive governance – ambitious, complex, subtle and a carnival of unintended consequences.” – so begins George Will’s latest column.
Michael Cannon is rightly unimpressed with Pete Buttigieg’s health-care scheme.
Quotation of the Day…
… is from page 342 of the original edition of James M. Buchanan’s 1960 textbook, The Public Finances (a book that isn’t included in Buchanan’s Collected Works) (original emphasis):
As contrasted with taxation, which must impose a current real burden on individuals, debt creation provides one way of financing public services without current cost. It provides a means whereby taxpayers in any given period may shift or postpone the payment for public services to the shoulders of taxpayers in future periods. “Future generations” may be exploited through the choice of debt issue to finance public services.
DBx: Indisputably.
Explaining this truth – a truth that, in the middle of the 20th century, had been lost in the avalanche of confusions that is Keynesian economics – was the object of Buchanan’s first book, Public Principles of Public Debt (1958). This book is brilliant; it’s one of the most tightly reasoned and thorough books that I’ve ever read. But Chapter 27 (“The Principles of Public Debt”) of Buchanan’s 1960 textbook, The Public Finances (from which the above quotation is drawn), offers in a mere 18 pages a marvelously clear summary of the main themes of the 1958 book. Reading this chapter of the 1960 textbook is a pretty good, if not perfect, substitute for reading the entire 1958 book.
Despite the fact that much of it is now dated – mainly the parts discussing the U.S. fiscal situation circa 1960 – it’s too bad that The Public Finances is out of print.
….
Pictured above is Rouss Hall, on the Lawn at the University of Virginia. UVA’s Department of Economics was long housed in Rouss Hall, as it was when Jim Buchanan did his pioneering work on the burden of public debt, as a UVA economist, in the late 1950s and early 1960s.
February 5, 2020
Fiscal Shenanigans Are Destructive and Not Productive
Here’s a letter to Café Hayek reader who disagrees with my stance as a budget-deficit hawk:
Mr. Gill:
Thanks for your e-mail.
You “believe if the government can keep borrowing to pay its debts off the best policy is to slash taxes and use borrowed money to pay for most government expenses.”
First, no government can continue indefinitely to service its debt obligations merely by issuing new debt. But let me here put this objection to the side.
Even if it were true that government could borrow indefinitely to fund its programs, any such indiscriminate use of deficit financing as you propose is reckless and would inevitably inflict great damage on the economy. The reason is that the real cost of government programs is the value of the goods and services that are not produced in the private economy as a result of resources being used by government. And so if government is not to be a net drain on the economy, the value to society of government programs must exceed the value of what the carrying out of those programs causes not to be produced in the private economy.
To achieve this condition for government spending is difficult in the best of circumstances. Deficit financing, however, makes this achievement almost impossible because it enables today’s voters to spend other people’s money. With voters able to arrange to receive goods and services through the government paid for with borrowed funds that these voters will never have to repay, the quantity of such goods and services demanded by voters will be too high (for the same reason that if I can arrange for some unseen person hidden behind a curtain to buy my dinner, I’m more likely to order a more-expensive dish rather than a less-expensive one). Deficit financing encourages the diversion of too many resources from the private sector to the public sector. And this harmful encouragement would only intensify if the government can indefinitely avoid servicing its debt obligations with revenues drawn from higher taxes or reduced spending.
Fiscal shenanigans, no matter how clever, never create real resources out of thin air. Therefore, when such shenanigans desensitize voters to the true costs of government programs, government will use too many real resources. The inevitable result is that citizens of the country are made poorer than otherwise.
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
Pittsburgh Tribune-Review: “If I were a shill for industry…”
In my Pittsburgh Tribune-Review column of March 13th, 2008, I ridiculed the lazy and juvenile presumption that people who endorse free markets are mercenary shills for capitalists. You can read my column beneath the fold (link added).
Quotation of the Day…
… is from page 499 of the 1985 collection of Lord Acton’s writings (edited by the late J. Rufus Fears), Essays in Religion, Politics, and Morality; specifically, it’s a note drawn from Acton’s extensive papers at Cambridge University:
Free trade, to improve the condition of the people and fit them for freedom.
DBx: So true. Protectionism, in contrast, fits people for servitude. This truth holds regardless of the ideologies and political allegiances of those who press for protectionism.
Tariffs, subsidies, and other obstructions on peaceful commerce are every bit as destructive of material well-being and of people’s moral character when endorsed and designed by conservatives such as Oren Cass, Daniel McCarthy, and Marco Rubio as when endorsed and designed by “Progressives” such as Sherrod Brown, Bernie Sanders, and Elizabeth Warren.
February 4, 2020
Bonus Quotation of the Day…
… is from page 236 of Matt Ridley’s splendid 1997 volume, The Origins of Virtue:
Leviathan creates tragedies of the commons where none were before.
DBx: Yes.
To the extent that the state enables Jones to spend Smith’s money, Smith to spend Jones’s money, and both to spend Williams’s money – to the extent that the state gives to Jones a say in how Smith’s property is used, Smith a say in how Jones’s property is used, and Williams a say in how the properties of Smith and Jones are used – to the extent that the state allows Jones to prescribe and proscribe Smith’s actions, Smith to prescribe and proscribe Jones’s actions, and Smith, Jones, and Williams to prescribe and proscribe Jackson’s actions, the state does indeed create free riding and other negative externalities where none were before.
The widely accepted idea that private markets are a major source of negative externalities is itself overblown. But far more overblown is the notion that the state reliably ‘corrects’ (or “internalizes”) these externalities in ways that result in an overall reduction in negative externalities.
Listen to any modern political campaign: it is a litany mostly of promises to use state coercion to transfer benefits to one group of people both by seizing the properties of other people and by unilaterally prescribing and proscribing the actions of other people. In short, politicians spend the bulk of their time promising to unleash negative externalities. Unfortunately, these promises are ones that politicians generally keep.
Some Links
I enjoy and learn much from Anton Howes’s newsletter on economic history. Here’s the January 29th, 2020, posting.
Pete Boettke explains why Armen Alchian explained property rights to economists. A slice:
So, why did Alchian have to recapture such a basic point of common economics knowledge that had been recognized from Adam Smith onward? My conjecture is that Alchian was necessary because knowledge that was once firmly embedded in the training of economists was lost during the Keynesian revolution in economic thought and the Samuelsonian reconstruction of economics after WWII. In the preoccupation with macroeconomics, the development of microeconomic arguments under Samuelson tended to focus on market structure and the inefficiencies that emerged in the technical presentation when there was a deviation from the idealized model due to monopoly power, externalities, public goods, and inequality. The institutional framework, which was so critical to the classical political economists, went from being treated as given to being forgotten. And with that, any hope of critical analysis of the impact of alternative institutional arrangements on the pursuit of productive specialization and peaceful social cooperation through exchange was lost in the professional literature. The increasing distance between the mainstream literature of 1950-1975 and the earlier presentations of the competitive market process and the liberal political and legal structure within which the economy was embedded is an indicator of just how far economic theory had become derailed.
Jeffrey Tucker finds encouraging signs for America in the Super Bowl.
Shikha Dalmia offers some wise advice about immigration policy for Democrats.
My Mercatus Center colleagues Dan Griswold and Jack Salmon ponder a U.S.-U.K. free-trade agreement.
In the almost inconceivable event that a President Sanders were able to enact his full economic agenda, the result would surely be much worse than anything that’s likely to happen under Trump. In an analysis published last October, Brian Riedl, a scholar at the conservative Manhattan Institute, calculated that the Sanders proposals would cost as much as $97.5 trillion over a decade, would more than double the size of the federal government, and would turn approximately half of U.S. workers into federal employees.
Here’s Pierre Lemieux on the ridiculous gospel of Modern Monetary Theory.
Quotation of the Day…
… is from page 534 of George Will’s excellent 2019 book, The Conservative Sensibility:
By construing the Constitution in a way that enables and encourages the federal government to act everywhere, we have taught Americans to think that it is natural and right for the federal government to take custody of every problem, to organize the provision of every need, and to satisfy every want.
February 3, 2020
Human Creativity
In my most-recent column for AIER I do my best to extend Leonard Read’s account of “I, Pencil” beyond its important lesson of vast and unplanned yet productive cooperation. I note that each of the countless steps in making pencils abundant is the product of human creativity – creativity that cannot be planned or even foreseen and, hence, that always disrupts some plans. A slice:
Literally every aspect of a pencil is the result of human creativity. The materials out of which the pencil is made, each of the many processes for fashioning those materials into a pencil, and the financing that makes those processes feasible first had to be thought of by a human mind. Without human creativity there is no paint to cover the pencil and no dyes to color that paint yellow, no rubber used as an eraser and no aluminum for making the ferrule that attaches the eraser to the pencil, no tires and internal-combustion engines and diesel fuel for transporting inputs to pencil factories and pencils to office-supply stores, no saw blades for felling trees, no liability insurance and commercial credit for making the operation of mining and manufacturing firms feasible; there’s no anything. Each and every one of these products and processes exists only because individuals were led to creatively think each one up and to figure out how to apply the idea in reality.
Each pencil, seemingly so simple and obvious, is a monument not only to human cooperation coordinated by the price system, but also to human creativity and innovation.
This creativity and innovation are indispensable to our way of life. Without them, most of us would be dead, and the few of us alive would be mired in poverty unimaginable. As Deirdre McCloskey emphasizes, the great triumph of capitalism – what she appropriately calls “innovism” – is the unleashing of human creativity, and the testing of this creativity in competitive markets in which individuals spend their own money as they choose. Only in the past 300 years has human creativity been tapped in a way that has turned it from a slow trickle into a gushing torrent. It’s no coincidence that only in the past 300 years have human living standards skyrocketed.
But here’s another fact about creativity: by its nature it is unpredictable. It cannot be planned. While this observation, so stated, sounds trite, it is a fact ignored by those who call for the government to superintend commerce.
Because economic growth is overwhelmingly a process of entrepreneurial creativity, economic growth is overwhelmingly a process of unpredictable and unplannable change. Proponents of using protectionism and industrial policy to channel economic growth along some pre-conceived path do not understand the source of economic growth. They do not understand that their schemes for consciously directing growth according to their bureaucratic blueprints and academic fancies will unavoidably, by reducing creativity, reduce economic growth and over the long run harm the very people whom they wish to help.
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