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January 18, 2020

Quotation of the Day…

(Don Boudreaux)



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… is from page 142 of the original edition of James M. Buchanan’s and Richard E. Wagner’s great 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes:


The events of fiscal history strongly support the hypothesis that unconstrained access to public borrowing will tend to generate excessive government spending.


DBx: Yep.


Public borrowing allows citizens-taxpayers today to spend the money of citizens-taxpayers tomorrow, many of whom aren’t yet even born, and much less of voting age. And when people are able to spend other people’s money, they do so irresponsibly and excessively. This irresponsibility and excess only grow when today’s citizens-taxpayers are falsely assured by some prominent economists that the burden of government indebtedness on future generations is nothing, or at most negligible, to the extent that this debt is held by fellow citizens.




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Published on January 18, 2020 01:45

January 17, 2020

Were Adam Smith and Hayek Mistaken?

(Don Boudreaux)



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Here’s a letter to Liberty & Law:


Editor:


Attempting to defend industrial policy carried out in the name of economic nationalism, Oren Cass commits several errors that reveal his unfamiliarity with economics (“Comparative Disadvantage,” January 15). Detailing these errors would require a full-length essay, so I here mention only two.


First, Mr. Cass mistakenly presumes that nations compete against each other economically. They don’t, as economists since Adam Smith have demonstrated. An especially notable such demonstration is offered by Paul Krugman in his 1996 book, Pop Internationalism. It’s regrettable that Mr. Cass, when insisting on a reality of which all economists are aware (namely, that comparative advantage is “endogenous”) approvingly mentions Krugman’s work on strategic trade theory, yet nevertheless ignores Krugman’s equally notable work debunking the myth that nations are economic rivals and that – contrary to another of Mr. Cass’s contentions – workers in high-wage countries are harmed by trade with workers in low-wage ones.


Second, when he writes that “[t]he social benefits that we expect from individuals pursuing their self-interest do not extend to macro-economic allocations,” Mr. Cass summarily and emphatically dismisses what is perhaps the single most important discovery of modern economics, namely, that people’s attention within a market economy to their own diverse, individual self-interests results in an undesigned allocation of resources that promotes economic growth and enriches almost everyone. This process is what Adam Smith famously described as being guided productively by “an invisible hand,” what F.A. Hayek identified as a beneficial “spontaneous order,” and what extensive empirical research has overwhelmingly verified.


Mr. Cass, of course, is free to dispute the validity of this discovery. If his disputation succeeds he might even become a strong candidate for an economics Nobel Prize. But a conclusion as sweeping as his cannot legitimately be done so summarily, in a single sentence, and with no support other than a link to one of Mr. Cass’s own earlier essays.


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




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Published on January 17, 2020 04:47

Quotation of the Day…

(Don Boudreaux)



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… is from page 139 of Peter Bauer’s penetrating 1969 article “Dissent on Development,” as it is reprinted in the original 1972 edition of Bauer’s invaluable collection of the same name (Dissent on Development):


The collection of resources for government financed or sponsored investment often has a substantial disincentive effect on saving, effort and enterprise, because of the taxation or controls imposed for this purpose. These disincentive effects can easily offset, or more than offset, the potential increase in income from investment. The contribution of [government-directed] investment to development is a net factor, after allowing for the repercussions of both the collection and the expenditure of the funds. These repercussions include not only a diminution of resources in activities or sectors from which they have been transferred, but also the consequences of their collection on the incentive to save, invest, undertake risk, incur effort and produce for sale. Yet many discussions on planning consider government development outlay as a simple addition to resources, regardless of the provenance of the funds or the repercussions of their collection.


This approach is in part an example of the practice of economics without costs, that is a treatment which ignores the alternative uses of resources absorbed by one activity.


DBx: Bauer was here addressing technocratic “Progressives” who rejected market processes in favor of grand plans designed and implemented by well-meaning geniuses armed PhDs and state power. But his words continue to ring true today, 51 years after they were first published, not only as a necessary warning of the hubris of “Progressives” but also of a hubris increasingly found on the political right, and particularly among “economic nationalists.”




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Published on January 17, 2020 02:00

January 16, 2020

More on America’s Ignoble Experiment

(Don Boudreaux)



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In my latest column for the Pittsburgh Tribune-Review – published on this, the 100th anniversary of the start of nationwide alcohol prohibition in the United States – I lament some additional costs of such an obnoxious and officious policy. A slice:


The gang violence of 1920s’ liquor trafficking was a direct result of Prohibition which encouraged criminals to supply alcohol and gave them incentives to use violence. It’s no accident that Anheuser-Busch, Jack Daniels and other alcohol suppliers today don’t gun down their competitors or threaten violence on their customers.


Another cost of Prohibition is that it made alcoholic beverages more toxic and stronger.


Unlike today, if an American in the 1920s died or fell seriously ill from drinking tainted beer or wine, there was no one to sue. And no rival of suppliers of tainted booze could compete for customers by openly advertising its superior, safe product. Prohibition thus greatly dampened suppliers’ incentives to avoid selling toxic brews.


Relatedly, because the risk of getting caught rises with the volume of illegal booze being trafficked, alcohol sellers during Prohibition concentrated on selling high-proof spirits and steered away from selling low-proof wine and beer.


One final cost of Prohibition warrants mention — namely, its assault on personal freedom. If we truly wish to enjoy the blessings of liberty, we must accord to each peaceful adult the freedom to eat or drink as he or she choose. Each of us, in short, should mind our own business.




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Published on January 16, 2020 17:38

Some Links

(Don Boudreaux)



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My intrepid Mercatus Center colleague Veronique de Rugy exposes an atrocious shake-down operation run by the U.S. Department of Labor.


I’m very glad that John Tamny responded to Michael Lind’s weak recent essay in the Wall Street Journal. A slice:


Except that what’s really “snobbish” is the belief that workers shouldn’t “move to opportunity.” It’s snobblish because it insults the very people who made the U.S. great by risking everything (including their lives) on the way to crossing borders and oceans in order to taste personal and economic freedom in the United States. These intrepid individuals were of course promised nothing if they were lucky enough to reach the U.S., but made the ultimate leap on the assumption that freedom to achieve would be all they would need to better themselves economically.


.


What is partly responsible for today’s strong economy is the (relative) deregulation that has so far occurred under Trump.


David Harsanyi is dismayed, rightly so, at Democrats’ detachment from economic reality.


When it comes to global-warming alarmism, David Simon says ‘Don’t be like Paul Krugman!


Ronald Radosh writes about the fake historian Howard Zinn.


Chris Edwards compares bureaucracy in New York to bureaucracy in Florida.


As I do nearly every day, Pierre Lemieux wonders what Mencken would say were he still alive.




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Published on January 16, 2020 09:45

David Hart on Frederic Bastiat

(Don Boudreaux)



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David Hart speaks eloquently on and with unmatched knowledge of, Frederic Bastiat and his works.





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Published on January 16, 2020 08:11

Quotation of the Day…

(Don Boudreaux)



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… is from page 151 of my colleague Richard E. Wagner’s deep 2017 intellectual biography of Jim Buchanan, James M. Buchanan and Liberal Political Economy:


Yet democracy and liberty cannot be complementary political values, at least not without significant effort at constitutional reconciliation. At base, democracy embraces the principle that majorities dominate minorities. In contrast, liberty is a principle of non-domination whereby interaction among people is governed by principles of private property and not by majority rule.




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Published on January 16, 2020 03:53

January 15, 2020

Bonus Quotation of the Day…

(Don Boudreaux)



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… is from page 223 of my friend and old teacher Randy Holcombe’s excellent 2019 book, Liberty in Peril: Democracy and Power in American History (emphasis added):


People can obtain wealth in two ways. They can produce goods and services, adding to the stock of wealth available to be consumed, or they can take goods and services from others, redistributing income but adding nothing to total production. Economic liberty provides the incentive for production because the only way people can enhance their economic well-being is by supplying goods and services that others want. Economic democracy provides the incentive for predation because it allows people to use the democratic political process to assert claims to the economic production of others.


DBx: I added emphasis to “that others want” in order to, well, emphasize that economic production is not merely a physical transformation of materials from one form into another form. Economic production occurs only when the transformation of inputs into outputs results in outputs that people value more highly than they value any of the many alternative uses of those inputs.


And the most reliable way – indeed, practically, the only way – to know what goods and services people want is to observe how individuals spend their own money unobstructed by barriers designed to make some purchasing options more costly than the sellers – the offerers of those options – would otherwise be willing to accept.




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Published on January 15, 2020 12:13

Quotation of the Day…

(Don Boudreaux)



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… is from pages 143-144 of my Mercatus Center colleague Dan Griswold’s excellent and important 2009 book, Mad About Trade:


As if it were not enough to argue that free trade has lifted millions out of poverty, strengthened human rights and democracy, and spread peace, let me make one more bold claim: Free trade and globalization encourage individuals to behave in better ways. The same “invisible hand” that turns our personal drive for betterment to the public’s benefit also shapes our characters. The commercial and personal interactions with people from other countries that have come with globalization teach us tolerance, sympathy, humility, prudence, trustworthiness, and a spirit of service to our fellow human beings.




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Published on January 15, 2020 04:04

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