Russell Roberts's Blog, page 458

Navarro’s Unintentionally Hilarious Apologies for Protectionism

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

By my count, Peter Navarro’s op-ed in today’s pages – “Give Trump’s Tariffs a Fair Test” – is the seventh such piece that you’ve published by him since he became Donald Trump’s trade shaman. Each of these essays is a cascade of contradictions and confusions so immense that even listing them would require an unusually long op-ed. But two examples will suffice.

First, in a March 6th, 2017, piece Mr. Navarro argued that U.S. trade deficits inflict such harm on the American economy that U.S. trade restrictions are justified as a means of trying to reduce these deficits. Yet in today’s op-ed he boasts that the “threat of auto tariffs has likewise drawn billions of dollars of new foreign direct investment from the likes of Toyota, Volkswagen and Mercedes-Benz.” Mr. Navarro apparently doesn’t understand the elementary fact that, because every dollar invested in the U.S. by foreigners is a dollar not spent on U.S. exports, the investments about which Mr. Navarro today boasts promote the very trade deficits that, in other contexts, he bemoans.

Second, Mr. Navarro commits the sophomoric error of confusing correlation with causation. Yes, today’s U.S. economy is booming. But economics tells us that, contrary to Mr. Navarro’s claim, this good performance is fueled, not by tariffs, but by the tax cuts and deregulation for which the Trump administration can take credit.

Researchers who’ve focused in on the actual effects of the tariffs find that, without them, today’s economy would be even more buoyant and healthy. To cite just one example: Federal Reserve economists Aaron Flaaen and Justin Pierce find “that  the  2018  tariffs  are  associated  with  relative  reductions  in  manufacturing employment  and  relative increases  in  producer  prices. For  manufacturing  employment,  a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs.”

I understand the importance of giving some of your valuable ink to prominent officials. But you insult your readers by repeatedly publishing arguments that are so comically self-contradictory and intellectually insupportable that the author, were he to submit them as answers to a high-school economics quiz, would receive an F-.

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

In Praise of Economics Verities

(Don Boudreaux)

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In my latest column for AIER I argue that what society needs isn’t a new’n’improved economics; what it needs instead is greater attention to the realities revealed by the economic way of thinking. Here’s my conclusion:

We economists then perform some of our most valuable service in explaining how the mostly unintended consequences of self-interested actions in this world of scarcity either do or don’t combine to form an economic order – or a market process – that allows each of us to consume far more than each of us could possibly produce. Armed with an understanding of the logic of such an economic order, good economists are thus charged with – some might say cursed with – the adult responsibility of dashing the hopes of those who fall for any of the plethora of schemes for enriching society by having the state override market processes.

This core task of economists is not new, but it remains as important as ever. Far from needing to be replaced or even revised, what is needed most is that this core task be embraced more firmly by economists and accorded more respect by non-economists.

Quotation of the Day…

(Don Boudreaux)

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… is from page 170 of my colleague Richard Wagner’s superb 2017 intellectual biography of Jim Buchanan, James M. Buchanan and Liberal Political Economy (typo corrected):

This [classical] liberal system means there are no sheltered positions in society where a prosperous enterprise can be protected from competition that would erode that wealth. The creator of a successful business cannot call upon political authorities to prevent competition from other enterprises. For a successful enterprise to continue to be successful, it will be necessary for the enterprise continually to attract support in the face of free and open competition. Similarly, within a liberal society an enterprise will not be able to secure subsidies to get started, or to keep going when otherwise it would fail because it couldn’t operate as a going concern without political support.

Within a liberal society, there would be no positions of special privilege that either were established using political power or were maintained in the face of competition using political power.

DBx: The only practical means for us creatures this side of omniscience to know if particular productive operations are, in fact, productive – that is, to know if particular uses of resources and time produce value for society rather than destroy value – is to observe which particular productive operations survive when people as consumers spend their own money and time unobstructed, and when people as income-seekers spend their own money and time unobstructed.

The market order described above by Wagner is an institution that assures, as nearly as we can practically expect any institution to assure, that individuals promote their own welfare (however each individual might reckon his or her welfare) only by helping other people – including helping countless strangers – promote their welfare. You want to earn profit? Excellent! Produce something using a mix of resources that costs less than is the value that I attach – as I reveal by my willingness to pay my own money – for the good or service that you produce and offer for sale. If you do so, net value will be created not only for you, but also for me as well as for those who voluntarily sell to you their labor and the other inputs that you use to produce your goods or services.

But this connection between each of us promoting our own welfare only by helping other people to promote their welfare is severed by special privileges granted by the state. Owners of business enterprises that survive only because of tariffs profit at the expense of their fellow human beings. Ditto for owners of business enterprises the revenues of which are inflated by subsidies. The same, of course, holds true for workers in such firms. A worker whose job exists only because of tariffs or other special privileges granted by the state might appear to economically uninformed observers to be productive, but in reality that worker is a parasite: he or she survives in that specific job only because state coercion compels fellow human beings – usually fellow citizens – to sacrifice for that worker’s benefit. This worker’s gain is less than the costs to others of supporting him or her.

The bottom line is this: those who seek tariffs or subsidies seek to survive as parasites. Those who acquire tariffs or subsides survive as parasites. And those who apologize for tariffs or subsidies apologize for parasites.

It isn’t always, perhaps not even usually, the case that these parasites and those who apologize for them are aware of their parasitical nature and existence. But economics reveals this nature and existence to be reality. Just as tapeworms’ obliviousness to their destructive parasitical actions does nothing to make tapeworms less parasitical, protected or subsidized producers’ obliviousness to their destructive parasitical actions does nothing to make these actions less parasitical. Indeed, ignorance of, and resistance to, the economics that reveals such parasitism only encourages it.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 483 of James Buchanan’s and Richard Wagner’s August 1978 Journal of Monetary Economics paper, “Dialogues Concerning Fiscal Religion,” as this paper is reprinted in Debt and Taxes (2000), which is volume 14 of the The Collected Works of James M. Buchanan:

[P]oliticians, not economists, make economic policy.

DBx: Indisputable, of course. Yet too many economists continue to write, lecture, and opine as if they believe themselves to be offering policy advice to apolitical power-holders interested in nothing but selflessly and faithfully pursuing the public good as revealed to them by scribbling, yammering, and opinionated economists.

In fact, this belief by policy-offering economists is as realistic as is the belief that tigers can be convinced to bark like beagles and to dine exclusively on lettuce and sunflower seeds. Such fantastical performances can be imagined, but imagination is not reality.

Politicians will no more follow economists’ advice to pursue the public interest if doing so runs counter to politicians’ own interests than will tigers become vegetarians if lectured at by vegans.

Subsidy Silliness

(Don Boudreaux)

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Here’s a letter to Fred Hochberg, a former Chairman and President of that great geyser of cronyism, the U.S. Export-Import Bank. (The comment by Hochberg to which I refer starts around the 22-minute mark.)

Mr. Hochberg:

Appearing today on NPR’s “The 1A” you argued that, because “a lot of jobs are dependent on exports and trade,” the U.S. government should increase subsidies to American exporters.

Your conclusion is a non sequitur. It makes no more sense than would the conclusion that, because a lot of jobs are dependent on Americans eating at restaurants, the U.S. government should subsidize American restaurants. Just as there’s no reason to believe that the current amount of meals served in restaurants is suboptimal, there’s no reason to believe that the current amount of exporting is suboptimal.

You ignore the fact that subsidizing exports necessarily draws resources away from other productive uses. If the value of what American producers can get in exchange for what they export is greater than the value of resources used to produce exports, American producers do not need the spur of subsidies to convince them to produce these goods for export. And so any goods that are produced and exported from the U.S. only because their exportation is subsidized are goods for which Americans receive from foreigners payments that fail to fully cover the costs of those exports.

Export subsidies, in short, make us poorer – a reality that isn’t changed in the least if other governments are in the habit of using subsidies to make their own citizens poorer.

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

Some Links

(Don Boudreaux)

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Joel Kotkin sings the praises of economic growth. A slice:

As Benjamin Friedman suggested over a decade ago, economic growth is critical not only for its own sake but it has, at least in the West, nurtured more enlightened and generous societies. “Economic growth—meaning a rising standard of living for the majority of citizens—more often than not,” observed Friedman, “fosters greater tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy.”

Friedman also identified the environmental benefits of a fast-growing economy. When a population feels its material future is assured, he demonstrates, it is far more willing to invest in such things as clean water and air, and in preserving critical habitat; much of the landmark environmental legislation in America, for example, to clean the air and water were enacted during the 1960s boom.

“There is just something about climate change that leads a lot of people to lose their minds.” – so reports Ben Zycher.

The great Bruce Yandle is an extraordinarily trusted brand.

Pierre Lemieux reveals further reason to conclude that Trump’s trade policies are harmful to Americans’ economic health.

John Cochrane offers an overview of his posts on wealth and taxes.

Eric Boehm warns of Trump’s fiscal incontinence.

Quotation of the Day…

(Don Boudreaux)

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… is from page 162 of Bas Van Der Vossen’s and Jason Brennan’s excellent 2018 book, In Defense of Openness (footnotes deleted; links added):

When people are poor, not only are they more likely to suffer from starvation or disease, but their ability to cope with bad weather and weather disasters is also much worse. We often hear that climate change may lead to more frequent and much worse severe superstorms. It may indeed, even if the United Nations recently release a report arguing that so far, it has not. But it’s worth noting that weather-related deaths have declined dramatically over the past century. Despite a much larger population, the absolute (not just relative) number of yearly weather-related deaths are only about one-fiftieth now what they were 80 years ago.

DBx: The historical record proves – as conclusively as any historical record can prove anything – that the economic growth brought over the past 200 or so years by market-driven innovism (to use Deirdre McCloskey’s proposed substitute term for “capitalism”) is by far humanity’s greatest and most reliable source of safety, cleanliness, and protection from physical harm. In contrast, the history of governments’ treatment of human beings is, shall we say, rather checkered.

“Ironic” does not fully capture the oddity of pursuing greater human safety by entrusting the state with power to rein in competitive, innovative markets.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 57 of George Will’s 2019 book, The Conservative Sensibility:

The crux of modern radicalism is that human nature has no constancy, that it is merely an unstable imprint of the fluctuating social atmosphere. This fallacy emboldens political actors to adopt agendas of ambitious social engineering.

Some Links

(Don Boudreaux)

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Katherine Timpf rightly tears into Lindsey Graham for criticizing Rand Paul and Mike Lee for their refusal to defer, as the mindlessly hawkish Graham defers, to Trump on matters of war-making. A slice:

It really is a shame, because Paul was also right about something else: There is a patriotic case for limiting the president’s war powers. In fact, to me, it’s quite clearly the patriotic case. There is, after all, a reason why the Founders gave Congress the sole power to declare war in the first place. They were explicitly rejecting the English model, the one that they fought to be freed from, where the entire country could find itself at war based on [no more] than the whims of the king. They took war seriously; they wanted it debated and carefully considered. The truth is, it’s Paul and Lee’s position, and not Graham’s, that reflects the position of the Founders — and that seems pretty damn patriotic to me.

Kyle Smith bids farewell to the rock drummer Neil Peart.

Also remembering the late Neil Peart is Peter Earle.

Back during his grad-school days at GMU, Steve Horwitz mentioned Peart’s band, Rush, in a letter-to-the-editor of Reason.

David Henderson isn’t impressed with Tyler Cowen’s “state-capacity libertarianism.” A slice:

That brings me to a bigger point. There’s a large elephant (Republican) and a large donkey (Democrat) in the room: the reliably perverse incentives of politicians, voters, and bureaucrats. Compare their incentives to yours and mine when we go to the supermarket. When I shop for food, I get what I pay for. If I want steak, I buy it. If the price of avocados is particularly high this time of year (it is), I buy few or zero. I’m spending my own money and I have an incentive to husband my resources.

Now consider the incentives of politicians and bureaucrats. When they spend money, they spend other people’s money. They have little incentive to worry about costs and a large incentive in some cases to give resources to people they favor. When they regulate, they have little incentive to care about the sometimes devastating effects of their regulations. Voters have bad incentives too. Their individual vote matters so little that they have little incentive to be informed. I stated above that the global warming problem, if indeed a problem, is an example of the tragedy of the commons. But here’s the even worse news: essentially the whole of government is a problem of the tragedy of the commons. If I as a voter and/or activist work diligently to make government somewhat better, I gain only my pro rata share of the benefits. Those who don’t do a thing to make government work better gain as much as I do. That’s why we have underinvestment in making government better.

Jen Maffessanti applauds the profit motive in markets for improving batteries.

I’m delighted to learn from Phil Magness of the new edition of the late Warren Nutter’s superb 1968 book, The Strange World of Ivan Ivanov.

Quotation of the Day…

(Don Boudreaux)

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… is from page 454 of James Buchanan’s wonderfully direct, clear, and concise 1986 Economia delle scelte pubbliche paper, “The Economic Consequences of the Deficit,” as this paper is reprinted in Debt and Taxes (2000), which is volume 14 of the The Collected Works of James M. Buchanan:

Both our fiscal and our monetary structures are currently in disarray. And, as members of the body politic, we are behaving irresponsibly in our unwillingness to look at, analyze, and ultimately to support structural reforms that offer the only prospects for permanent improvement. We have allowed a quasi-independent monetary authority to accidentally attain a monopoly over fiat money issue without effective political control…. Alongside this random-walk monetary authority, we have a fiscal structure from which almost all pretense of balancing off the costs of taxes against the benefits of spending have been removed. The problem is not, however, with irresponsible political leaders, in either the executive or legislative branch of government. The problem is that the rules of the game are such as to make fiscal responsibility and fiscal prudence beyond the limits of the politically feasible. Constituents enjoy the benefits of public spending; they do not enjoy paying taxes. The politics of the [government budget] deficit is a simple as that.

DBx: So true.

Buchanan might be faulted, somewhat, for suggesting that political ‘leaders’ aren’t to be blamed for their fiscal irresponsibility – irresponsibility so grotesque that it can accurately be called fiscal lechery. (If we as citizens are, as Buchanan says with good reason, irresponsible in not taking the longer-run stance required to change the rules in ways that would cure elected-‘leaders’’ fiscal incontinence, it seems to me that elected ‘leaders’ also bear some blame for behaving irresponsibly.)

Yet Buchanan’s deeper point stands and is vitally important: because the actions of politicians, and of all others acting politically, are governed overwhelmingly by the rules of the political process, formal and informal, the outcomes of the political process will not improve absent any genuine change in these rules.

Further, because operative rules of the political process are themselves largely determined by beliefs about the way the world works, mistaken notions about economics and about political processes give birth and sustenance to bad rules. One such mistaken notion is that debt financing of government expenditures imposes no burden on future generations, at least if the debt is owed to fellow citizens.

If this notion were valid, humankind would indeed have discovered the economic equivalent of a perpetual-motion machine: a human-created source of free wealth. Buy splendid good and services today with funds borrowed from your neighbor, promising that she will be repaid in 30-years time by your children, and, lo! and behold!, your acquisition of these splendid goods and services costs neither you nor society as a whole anything. Wow!

Of course, when described in the context of private borrowers, the absurdity is evident of the notion that debt-financing resulting in debt held by people who live nearby is costless. Yet many people suffer under the superstition that if you acquire goods and services today with funds borrowed from your neighbor, not directly by you, but indirectly through the government, then somehow debt-financing becomes a source of goods and services the provision of which is costless to society.

As long as this superstition reigns, there is no hope of restoring for the government a sound fiscal constitution.