Russell Roberts's Blog, page 453

Quotation of the Day…

(Don Boudreaux)

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… is from page 180 of Vincent Ostrom’s 1988 paper “Crytoimperialism, Predatory States, and Self-Governance,” as this paper is reprinted in Polycentricity and Local Public Economies (M.D. McGinnis, ed., 1999):

Great dangers arise whenever human beings with strong conviction about the rightness of their cause are authorized to use instruments of evil to do good.

DBx: Perhaps the single best feature of a classically liberal society is the right of each person to say “no” – to say “no” to requests that he or she perform some positive service for others or that he or she turn over to others something that he or she owns.

The libertarian celebration of this right to say “no” is not, contrary to widespread belief, a celebration of greed or even of natural human self-interest. It is, instead, a celebration of the inability of Jones to compel Smith to participate in Jones’s schemes. Smith is free to join with Jones. And if Jones’s proposed course of action is a peaceful and productive one – where “productive” here includes charitable and philanthropic acts – libertarians applaud when Smith chooses to join in with Jones. But libertarians insist that Smith not be forced to join with Jones – that Smith be free to say “no,” and without any requirement to justify his answer to any secular authority.

This protection of each person’s right to say “no” to such requests is the protection of each person’s ability to choose just how his or her own scarce resources and time will be used. The resources, time, and attention even of multi-billionaires are limited and, thus, are inadequate to address every good cause. Best to let each person – including multi-billionaires – choose how their resources, time, and attention will be used rather than turn that choice over to a third party possessing the power to force on each person a particular pattern of use that is judged best by the third party.

This protection does far more than than can possibly be done by majority-rule democracy, uncorrupt courts, widespread religious belief, rulers’ good intentions, or any other real or imagined check on tyranny to genuinely ensure against tyranny.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 212 of Russ Roberts’s ingenious and moving 2014 book, How Adam Smith Can Change Your Life:

The world is a complex place. When you strive to impose your will on a piece of the system, not every knob you turn will have the effect that you imagine or desire.

DBx: Hoping that the likes of Elizabeth Warren and other “Progressives” will grasp and accept the wisdom of this insight is simply too futile. Their entire worldview is that of the wise, compassionate, and scientifically rigorous social engineer crafting the stupidly dormant or self-destructively chaotic masses into fine form. But is it too much to hope that ‘conservative nationalists’ such as Oren Cass and Daniel McCarthy might grasp and accept this wisdom, and to understand that it counsels against their hopes for the success of protectionism and other attempts at industrial policy?

Unseen Law

(Don Boudreaux)

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After reading this letter of mine (in which I do my best to debunk the notion that free trade is advisable only if there is one system of state governance covering all trading parties), the great economic historian – and my dear friend – Bob Higgs sent to me the following note, which I share here with Bob’s kind permission:

Except for the individuals immediately involved in its operation, few people are aware of the vast, highly developed system of arbitration contracts that cover much if not the entirety of international trade. This system, as you surely know, remains very much privately constituted and operated and enforced, despite increasing – and unnecessary – insertion over the past few decades of state oversight. These private arrangements work like a charm to facilitate unimaginably huge volumes of trade.

Quotation of the Day…

(Don Boudreaux)

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… is from page 81 of Vincent Ostrom’s and the late economics Nobel laureate Elinor Ostrom’s 1977 paper “Public Goods and Public Choices,” as this paper is reprinted in Polycentricity and Local Public Economies (M.D. McGinnis, ed., 1999):

But recourse to coercive sanctions and governmental organization does not provide both the necessary and sufficient conditions for the delivery of public goods and services under relatively optimal conditions. Instruments of coercion can be used to deprive others and make them worse off rather than better off. Governmental institutions permit those who mobilize majority support to impose deprivations upon those in the minority. Governmental institutions can become instruments of tyranny when some dominate the allocation of goods in a society to the detriment of others.

Furthermore, difficulties in measuring the output of public goods and services imply that governmental officials will have difficulties in monitoring the performance of public employees. Management of public enterprises will be subject to even less effective control than the management of private enterprises where outputs can be measure in quantifiable units.

DBx: Yes. And so why do those who call for government ‘correction’ of market failures (real and imaginary) almost never ponder the government failures that are oh-so-likely with collective action in which agents of members of winning coalitions can use coercion against members of losing coalitions? Why the blind faith that empowering people to exercise coercion over others – giving power to people whose actions are checked only by occasional, if regularly scheduled, majority-rule elections – will result in correction of market imperfections without off-setting, or without even much greater, imperfections springing from the use (not to mention the abuse) of power?

No Global Government Needed

(Don Boudreaux)

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Here’s a letter to a new reader of Café Hayek:

Mr. Schotter:

Thanks for your e-mail.

You ask “How can free trade possibly work if one country is under one system of law and the other country is under a different system of law?”

Easy. Under a policy of free trade, the home government simply doesn’t prevent its citizens from trading with foreigners. The home government (1) leaves each person or firm responsible for assessing the risks to that person or firm of trading with people in different legal regimes, and (2) allows trade to commence unmolested if the person or firm judges the risk to be acceptable. If a fellow American judges that his trading with, say, people in China is worth whatever risks attend such trade, it is no business of the U.S. government to obstruct that trade.

In practice, of course, merchants value legal predictability – they want to have a good sense of what are the rules that govern their international transactions. They want also to be reasonably confident that disputes will be adjudicated fairly and settled peacefully. But assurance of legal predictability and of fair process need not be imposed by a sovereign power.

In fact, historically the legal rules that govern international trade have been created not by sovereign powers but by merchants themselves. The Lex Mercatoria – “Law Merchant” – is a body of legal rules, that evolved over the centuries, to govern international commerce. This law was neither designed nor enforced by sovereign governments. And to this day a great deal of international commerce is governed by this system of private law.

On this history see this 2011 article by Daniel Smith and my GMU Econ colleague Peter Leeson, who conclude that

The popular wisdom that flourishing international trade requires government may be popular, but it’s also wrong. We have the Law Merchant to thank for the incredible wealth that commerce has created. Today, international trade accounts for nearly one-third of world GDP—some $6 trillion in 2008. That’s an astonishing volume—produced predominantly on the basis of private order.

It is, in short, a myth that global free trade requires global government.

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…

(Don Boudreaux)

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… is from pages 7-8 of the manuscript of an as-yet-unpublished July 1st, 2018, interview of Deirdre McCloskey by Mauricio Meglioli:

What are the virtues of capitalism?

Trying things out. The only way to get new things, such as we have to an astonishing degree since the liberal revolutions of the 19th century let ordinary people “have a go” (as the English say), is through trying out commercially tested betterment. If an electric car in 1900 is a failure in the market, the age of internal combustion engines comes. If it succeeds in 2000, the age of electric cars comes. The government is ill-equipped to choose such winners.

The other virtue is massive altruism. A novelty does not survive a commercial test unless it is profitable. Being profitable means that the entrepreneur has found something that masses of people find desirable, such as central heating in cold countries or cheap air conditioning in hot. Being unprofitable means that you are harming people on balance, wasting resources to make things they do not want. Markets are the most altruistic system we have. Governments, by contrast, are systems of coercion, by definition producing what people do not want, worsened by corruption impossible in mutually advantageous exchange.

DBx: This all-important lesson of economics – and also of history – is lost not only on the likes of Bernie Sanders, Elizabeth Warren, and other “Progressives.” This lesson is lost also on many modern conservatives such as Oren Cass, Michael Brendan Dougherty, Daniel McCarthy, and Marco Rubio. May we all be saved from the awful fate that would be visited on us by these arrogant and economically uninformed “men (and women) of system” – people who mistake their good intentions for justifications for overriding, with state coercion, the entrepreneurial discovery process that flourishes only in open and competitive markets.

Pittsburgh Tribune-Review: “To vote or not to vote”

(Don Boudreaux)

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In my column for the February 27th, 2008, edition of the Pittsburgh Tribune-Review I pondered the question: “To vote or not to vote?” You can read my ponderings beneath the fold.

(more…)

Quotation of the Day…

(Don Boudreaux)

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… is from page 65 of Richard Epstein’s superb 2003 volume, Skepticism and Freedom:

Given this assumption about the diffusion of knowledge in society, Hayek’s ultimate defense of markets does not rest on the Pollyannish view that perfect competition leads necessarily to the best outcome in the best of all possible worlds. Rather, it rests on the incremental ability of each individual to capitalize on his or her own partial knowledge through a system of voluntary exchange.

DBx: A common move of market skeptics is to express awe and wonder at the marvelous workings of a perfectly competitive market economy – as such an economy is described in economics textbooks – but then to point out the indisputable fact that almost none of the textbook conditions for such an economy hold in reality. The conclusion is then drawn, as if it is the final and inescapable step in a logical syllogism, that markets in reality work so poorly that government intervention is necessary to ‘correct’ and improve real-world economic outcomes.

Every step of this common train of reasoning is unjustified. The true case for free markets does not rest on assumptions such as perfect knowledge, absence of irrational behavior, and no externalities. Adam Smith made no such assumptions. Nor did Mises or Hayek. Nor did Jim Buchanan or Ronald Coase. Nor did Armen Alchian or Harold Demsetz. Nor did Julian Simon or Leland Yeager. Nor does Israel Kirzner or Thomas Sowell. Nor does Walter Williams or Deirdre McCloskey. Nor does Robert Higgs or Vernon Smith.

People on the political left have for decades made the illogical move described above. Distressingly, this same illogical jig is being done today by people on the political right – people such as Oren Cass and Daniel McCarthy. Even some scholars associated with the Niskanen Center appear to be performing this dance.

So let’s say it again, clearly and without qualification: no markets in reality ever have or ever will work as described in textbook models of perfectly competitive general equilibrium. Those models are worse than useless. People who build and use those models assume away far too much of what actually motivates and directs market competition in the real world.

Those mainstream economics models of perfectly competitive general equilibrium, therefore, explain almost nothing of what happens in real-world competitive markets. But because those models are taken to be descriptions of ideal markets – after all, it’s called “perfect competition” and “general competitive equilibrium“! – mainstream economists, and those individuals who pay attention to mainstream economists, naively assume that those models describe ideals against which real-world markets can and ought to be compared. Yet nothing could be further from the truth.

Just as no one would take a textbook description of human beings who could fly by flapping their arms as an ideal against which real-world humans can and should be compared, no one should take mainstream textbook descriptions of “perfectly competitive, general-equilibrium” markets as a meaningful ideal. Such textbook artworks describe nothing of any relevance.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 219 of the original, 1957 edition of Anthony Downs’s pioneering book, An Economic Theory of Democracy:

In a complex society, information which is used by one citizen is often gathered, transmitted, and analyzed by others. If the user is to know what his information really means in terms of his decision-making, he must be sure these others have the same principles of selection he has, or know how their principles differ from his.

DBx: Data are surprisingly complex. And so even truthful data can easily mislead. Beware of the challenges of collecting data, how data are processed, and exactly to what they refer. The complexities are surprisingly many and often very subtle.

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy believes that Daniel McCarthy’s recent attempt to defend protectionism is more a tour de farce than a tour de force. A slice:

We can lament the behavior of foreign governments that use tariffs and subsidies because we recognize that these interventions are counter-productive and distortive. But it’s crucial to understand that the main victims of such interventions are not Americans but, instead, consumers, taxpayers, and unprivileged producers in those countries. Such interventions weaken those foreign economies relative to our own. Similarly, it is well-established that the Trump tariffs are mostly shouldered by Americans, many of them manufacturers and exporters, and this new series of tariffs won’t get him any closer than the objective he wants.

For this reason (and for others) McCarthy is wrong to assume that the appropriate response of our government is to mimic those destructive policies. If imitation is the highest form of praise, the last thing we should want is for the U.S. government to model its policies on those dreamed up by the tyrants and mandarins in Beijing.

Richard Reinsch explains that nothing that ails the United States can be healed with industrial policy.

Michael Strain has more on the unnecessary burdens imposed on Americans by Trump’s tariffs punitive taxes on Americans who purchase imports.

Scott Sumner celebrates the fact that free markets – to the extent that they do exist in China – are improving China.

Here’s Richard Ebeling on John Stuart Mill on slavery and the American civil war.

Robby Soave details one of the latest eruptions of lunacy in the elite American academy.

My Mercatus Center colleague Dan Griswold warns that Trump’s new trade deal with China won’t undo the damage visited upon us Americans by Trump’s tariffs punitive taxes on Americans who buy imports. A slice:

Such demands are the worst of “managed trade,” which is not anything approaching free trade. It revives an approach that members of the World Trade Organization rightly agreed to forego in the 1994 Uruguay Round Agreement. By requiring China to meet specific dollar targets, the agreement favors U.S. products, arguably violating the core principal of non-discrimination that has undergirded the global trading system since the 1940s. The agreement may be vulnerable to challenge by other WTO members.

Such a massive increase in Chinese purchases of U.S. goods and services cannot be achieved through the normal channels of supply and demand. Instead, it will require even more intervention by the Chinese government in the operations of Chinese domestic producers, both private and government-owned. This will push China in exactly the opposite direction of the more market-oriented economy the Trump administration claims it wants China to adopt.