Russell Roberts's Blog, page 459
January 11, 2020
Some Links
My former GMU colleague and now Macaulay Professor at Clemson, Tom Hazlett, writes eloquently in the Wall Street Journal of the market’s robustness and of the pretensions that power antitrust regulation. The late, great Hugh Macaulay, after whom Tom’s chair is named, would be pleased and proud that this essay is written by a scholar holding a chair named in his honor. Here’s Tom’s conclusion:
There are lessons here for the left-right condominium on antitrust. Elizabeth Warren says tech companies have “bulldozed competition” and “tilted the playing field against everyone else.” She demands the government break up tech companies. Steve Bannon has said that companies such as Google and Facebook “are so essential to daily life that they should be regulated as public utilities.”
These arguments will likely one day seem as quaint as the alarm over AOL’s acquisition of Time Warner. And it isn’t an isolated example. In 2005 the Bush administration prevented Blockbuster from acquiring Hollywood Video on antitrust grounds: The merger would threaten to monopolize video rentals. Blockbuster filed for bankruptcy in 2010 and today has a single store, in Bend, Ore. It sounds like the plot for a movie, if Netflix is interested in making it.
Kevin Williamson exposes the immorality of Elizabeth Warren’s many morality tales. A slice:
As an academic, Warren did research on personal bankruptcy in the United States. “Our research ended up showing that most of these families weren’t reckless or irresponsible,” she writes, “they were just getting squeezed by an economy that forced them to take on more debt and more risk to cling to their place in America’s middle class.” That is a peculiar claim. Borrowing money that you cannot repay in order to finance personal consumption that you cannot afford is precisely the sort of thing one might wish to indicate with the words “reckless and irresponsible.” To claim that this is the result of “getting squeezed by the economy” is a way of giving your morality play a villain without making any specific person feel bad.
George Will is rightly critical of Congress for its dereliction of duty. Here’s his opening:
There are 99 better, or at least less abject, senators. However, Lindsey O. Graham (R-S.C.) is inadvertently useful by incessantly demonstrating the depths to which senators sink when they jettison institutional responsibilities to facilitate subservience to presidents of their party.
Alex Epstein interviews Pierre Desrochers on capitalism and the environment.
Bryan Cutsinger reviews George Selgin’s Floored.
Alcohol Prohibition: 100 Years Later
In five days – on January 16th, 2020 – we Americans can, and should, bemoan the 100th anniversary of the implementation of the nationwide prohibition of alcohol. University of Michigan law professor Adam Pritchard and I wrote an op-ed to mark the centenary of this lamentable historical episode. A slice:
Something else happened in 1930 that suddenly changed the dynamic: the Great Depression, and specifically its effect on federal revenues.
Alcohol prohibition was very closely linked to the federal income tax. Before the first national income tax in 1913, liquor taxes accounted for about one-third of annual federal revenue. Income taxes went from supplying about 16% of the federal government’s revenues in 1916 (the year before American entry into World War I) to supplying double that proportion in 1917. By 1918, the income tax supplied nearly two-thirds of federal revenue, and by 1920 it produced nine times more revenue than liquor taxes and customs duties put together.
So while Congress did eventually acquiesce to a popular social movement, it did so only after its coffers were being filled by another reliable source of revenue.
Then, for more than a decade, Congress gave no hint that it would undo mandatory virtue. Prohibition, however imperfectly enforced, was on solid ground as a legal matter until things changed dramatically again in the 1930s. The Depression hit and income-tax revenues fell by 60% between 1930 and 1933.
Naturally, Washington was desperate for a solution, and its power brokers knew where to find one: at the bottom of the (legally purchased and taxed) bottle. One anti-Prohibition congressional leader acknowledged that if his faction “had not had the opportunity of using that argument, that repeal meant needed revenue for our government, we would not have had repeal for at least 10 years.”
Quotation of the Day…
… is an observation by G.K. Chesterton that was shared recently on Twitter by Burt Folsom:
I would rather a boy learnt in the roughest school the courage to hit a politician, or gained in the hardest school the learning to refute him – rather than that he should gain in the most enlightened school the cunning to copy him.
January 10, 2020
Open Letter to Martin Gurri
Here’s a letter to Martin Gurri:
Mr. Gurri:
I’ve not yet had the pleasure of meeting you, but respected friends speak highly of you and your work. One of these friends forwarded to me a tweet in which you wrote: “I just think it’s very difficult to tell the history of not only China’s, but Japan’s ‘economic miracles’ without giving industrial policy a large role. Probably not as large as a non-Hayekian would give it! But large.”
I’m skeptical. David Henderson and Don Lavoie offer reasons to doubt that Japan’s economic growth was much-promoted by industrial policy. Similar reasons for skepticism about any positive role played by industrial policy in promoting economic growth in China are given by Ronald Coase and Ning Wang (in their 2012 book, which you mention) as well as by Nicholas Lardy. And Arvind Panagariya, in his masterful new book, compiles solid evidence against the case that industrial policy – or at least any such policy aimed at promoting exports and discouraging imports – did much to fuel growth in countries that used such policy.
But of course no such empirical investigations can finally settle the matter one way or the other. Unless a society is stateless, the state will affect the allocation of resources, thus making impossible any proof that some beneficial outcome would nevertheless have occurred without state action, and might even have turned out better. State intervention might, just might, be responsible for any observed positive direction of any economy. Almost anything’s possible.
It’s as if the direction of a 12-crew boat successfully headed away from a storm is attributed, not to the eleven oarsmen rowing away from the storm, but to the lone oarsman paddling towards the storm. Sure, tales can be told of how the clever actions of this lone oarsman were necessary for the boat to arrive in more propitious waters. But who’d swallow any such story? Not I. For similar reasons, I don’t swallow assertions that efforts by government to countermand the market are really what strengthen the market and promote economic prosperity. Quite the contrary, in fact.
My understanding of economic theory – including public choice – tells me that it’s highly unlikely that government officials can improve on market outcomes. Such officials are subject to political pressures, they spend other people’s money, and they’re without the incentives that direct and discipline the decisions of residual claimants. In the case of industrial policy the problem is amplified because such policy is intended to override the information revealed in market prices – phenomena that, as Hayek showed, alone perform the indispensable function of marshalling and putting to use the inconceivably vast amounts of dispersed information that must be taken account of if economies are to grow or even to sustain themselves.
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
Quotation of the Day…
… is from pages 308-309 of Deirdre McCloskey’s excellent 2019 volume, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:
The High Liberal story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s: Modern life is complicated, and so we need government to regulate. Since markets fail very frequently, the government should step in to fix them. Government can do the regulation well, and will not be regularly incompetent or regularly corrupted. Without a big government we cannot do certain noble things (the interstates, NASA, poor relief). Antitrust works. The big danger is not big government armed with guns but big business business armed with business plans….
To all this, in the words of the little boy protesting in his high chair in the classic New Yorker cartoon, I say it’s spinach, and I say to hell with it. The master narrative of High Liberalism is factually mistaken. Externalities do not imply that a government can do better…. Efficiency is not the chief merit of a market economy – bettering is, a matter of innovation over time.
DBx: Yes – or as is now in vogue to say, “This!”
It’s child’s play to describe how externalities will arise here and some other ‘market failures’ will frustrate, impoverish, or even kill people there. Chalkboards in the past were, just as white boards and PowerPoint documents today are, stuffed with such demonstrations, all beautiful in their rigor yet few actually tested to see not only if and how applicable such theoretical demonstrations are to reality, but also to see if attempts by the state to ‘correct’ such market ‘failures’ are practically likely to work as advertised.
It’s a professional scandal how routinely economists (most of whom know no, or know only potted, economic history) – upon assuming without much critical thought that information asymmetries, moral hazard, free-riding problems, and other market ‘imperfections’ are dangerously commonplace in real-world markets – utterly ignore the possibility that information asymmetries, moral hazard, free-riding problems, and other such imperfections prevent political decision-makers from intervening in the productive ways that so many professors and pundits imagine.
Also unfortunate, if not quite scandalous, is the widespread view amongst economists that the economy is a mechanism to be optimized and whose optimal arrangement is defined independently – and, hence, can be discovered independently – of the actual market processes that create the order that we call ‘the economy.’ Most economists have still to learn one of the deepest lessons taught by Adam Smith: the economy is not an organization such as a firm or a club or even a government. It is, instead, an astonishingly complex order that is “defined in the process of its emergence.”
These realities, amongst others, are lost on those who fancy that the state is likely to improve matters with tariffs, subsidies, industrial policy, or socialism grosse or petit.
….
The image above is of the steamship SS Arctic, built in 1850 for Edward Collins – an American crony capitalist heavily subsidized by the U.S. government. The Arctic collided in 1854 with the French steamer, the SS Vesta. Many died. Anyone entranced by tales of the wonders of government industrial policy should read Burt Folsom’s history of the U.S. government’s infatuation with Collins.
…..
An earlier version of the chapter from which the above McCloskey quotation is drawn is here.
January 9, 2020
A Second Open Letter to Samuel Hammond
Mr. Samuel Hammond
Niskanen Center
Sam:
I cannot resist responding to another of the many mistakes that run throughout your attempted defense of industrial policy (“The ‘Central Planning’ Strawman,” January 7). Specifically, you are incorrect to assert that Mises’s and Hayek’s identification and explanation of the knowledge problem was “stretched” by later generations of Austrian economists “far beyond its original application into a kind of epistemological nihilism.”
Who, precisely, among scholars influenced by Mises and Hayek are epistemological nihilists? Answer: no one. In fact, far from denying the existence of economically relevant knowledge – famously called by Hayek “knowledge of the particular circumstances of time and place” – Mises, Hayek, and other Austrian economists recognize not only the existence of such knowledge, but also both its ability to be accessed and the necessity of accessing and using it if the economy is to function at all tolerably well.
The question is what is the best way to ensure that as much as possible of this knowledge is accessed and used appropriately. Mises, Hayek, and other Austrians demonstrated that this knowledge is so vast in quantity, so dispersed over millions of human minds and experiences, and so nuanced as well as fleeting in its details, that the only means of ensuring that as much as possible of this dispersed knowledge is put to productive use is the decentralized competitive market in which consumers on one side, and entrepreneurs and investors on the other side, each spend their own money. The result is a system of ever-changing market prices that both inform and incite market participants to better coordinate their actions with each other. (By the way, this understanding of the essential role of private-property markets was understood also by non-Austrian economists such as Armen Alchian, Yale Brozen, Jim Buchanan, Ronald Coase, Harold Demsetz, Milton Friedman, Deirdre McCloskey, Warren Nutter, Vernon Smith, Thomas Sowell, Leland Yeager, and – please note – Bill Niskanen.)
Demonstrating the impossibility of government officials gaining access to, processing effectively, and acting productively on the inconceivably vast amount of knowledge that is every moment accessed and used efficiently in competitive markets is not, contrary to your assertion, an exercise in “epistemological nihilism.” It is, instead, a demonstration of epistemological realism, and a warning against epistemological illusionism.
I remind you of Hayek’s brilliant 1945 Finlay lecture, “Individualism: True and False” – a lecture that ends with this wise and relevant observation: “What individualism teaches us is that society is greater than the individual only in so far as it is free. In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it. If the presumption of the modern mind, which will not respect anything that is not consciously controlled by individual reason, does not learn in time where to stop, we may, as Edmund Burke warned us, ‘be well assured that everything about us will dwindle by degrees, until at length our concerns are shrunk to the dimensions of our minds.’”
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
Open Letter to Sam Hammond
Mr. Samuel Hammond
Niskanen Center
Sam:
Your attempt to defend conservatives’ calls for industrial policy from the criticisms of economically informed libertarians is, alas, a barrage of bloopers (“The ‘Central Planning’ Strawman,” January 7). I could identify each one – such as your bizarre equation of the purely private and peaceful efforts of donors to foster libertarian think tanks in northern Virginia with the government coercion and use of taxpayer funds necessary to carry out industrial policy, or your indefensible suggestion (one disturbingly odd coming from someone who studied economics at GMU) that the core of Mises’s and Hayek’s arguments against classical socialism do not apply to less-extensive attempts to substitute state planning for entrepreneurial competition and consumer sovereignty. (Did you miss the classes in which the works of Israel Kirzner and of Don Lavoie were taught?)
But instead, I’ll pose to you a question inspired by the title of Deirdre McCloskey’s 1990 book: If you, Marco Rubio, Oren Cass, and other proponents of obstructing peaceful commerce and diverting resources hither and yon with subsidies are so smart, why aren’t you stupendously rich? Surely you and other miraculously informed persons – persons possessing enough information of the details of today’s economy and of tomorrow’s opportunities and constraints to enable you to override in economically successful ways the decisions of entrepreneurs and investors spending their own money – ought not waste your precious time scribbling essays at think tanks or even legislating in the U.S. Senate. To be of greatest service to your fellow human beings, get out there, be entrepreneurial, create the industries and jobs of the future, and, in the process of making us all more prosperous, make yourselves fabulously rich.
Yet you do no such thing. Nor does Sen. Rubio or Mr. Cass. You instead superciliously sit in judgment of actual entrepreneurs and consumers spending their own money, as you, with nothing at risk, propose to force people to behave as you believe they should behave – to force people to spend their money, not as they choose, but as you fancy. You hazard nothing as you arrogantly pretend that politicians and their advisors have both superhuman knowledge and will use that knowledge apolitically. (When you were a student at GMU, did you also miss classes in public choice?)
Convincing evidence of the worthlessness of the ideas of industrial-policy proponents is the very fact that these ideas must be implemented at gunpoint. As H.L. Mencken rightly observed, “The kind of man who demands that government enforce his ideas is always the kind whose ideas are idiotic.”*
Enough with such idiocy, and with the arrogance that fuels it.
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
* H.L. Mencken, A Mencken Chrestomathy (1949), page 662.
Bonus Quotation of the Day…
… is from page 154 of my colleague Richard Wagner’s insightful 2017 intellectual biography of Jim Buchanan, James M. Buchanan and Liberal Political Economy:
The robust commercial republic that emerged through this constitution of liberty clearly warranted the designation of American exceptionalism. That exceptionalism has been under assault for around a century now as the consensual principle upon which the American regime was founded has come increasingly to give way to the factional principle, whereby government becomes an instrument that confers advantage on some people by imposing costs on other people, which the original American Constitution sought to resist.
Pittsburgh Tribune-Review: “Sweet Land of Liberty?”
In my Pittsburgh Tribune-Review column of December 14th, 2007, I lamented the fact that we Americans do not take seriously enough our boast of living in a sweet land of liberty. You can read my lamentation beneath the fold.
Some Links
William F. Buckley once described a friendly intellectual adversary as a pyromaniac in a field of straw men. Through the smoke of burning straw one can see in Hawley’s social diagnosis the belief, held by many progressives and an increasing number of conservatives, that individualism, as expressed in and enabled by capitalism, is making Americans neither better off nor better.
A new paper in the Journal of Economic Perspectives by Cailin Slattery of Columbia University and Owen Zidar of Princeton University looks at state and local business tax incentives and finds yet again that narrow, firm-specific tax breaks aimed at attracting businesses and boosting employment aren’t the way to go. The study shows that larger, more profitable companies are more likely to get bigger handouts. The largest deals benefit the recipients, according to their research, but not the overall state economy. Lower-income states also tend to be more generous with their handouts, only to jack up the cost per job created, sometimes up to as much as $400,000 per job.
Also detailing a cronyist flop is Chris Edwards.
Jonah Goldberg has a timely and wise warning for his fellow American conservatives. Here’s his conclusion:
That’s what happens when you give in to tribalism: It starts to make sense. It even starts to feel natural—in part because it is natural. But part of what it means to be a conservative is understanding that not everything that is natural is good and not everything that is unpopular is wrong.
Megan McArdle riffs on Ricky Gervais’s recent opening remarks at the Golden Globes ceremony. A slice:
Hypocrisy isn’t the worst vice, but it is one of the most grating, especially from them. The people on that stage are already better looking than most mere mortals, and richer, and more famous, and better loved. But somehow that isn’t enough; they also want credit for being more moral than everyone else, and there they cross the line.
There is nothing hollow about the idea that people should be free, that people should expect to live good lives without having their volition and property invaded by public officials who know much less about real life than the people actually living it. It is for this reason that society should be left alone to take its own course of evolution. This is the path to peace, prosperity, and progress. This is the real libertarian position. It’s a broad conviction that has more presence in today’s world than any point in the last century.
Becoming a libertarian doesn’t mean leaving your humanity behind; on the contrary, it means embracing it fully and believing that the potential of a free life on earth is far from fully realized.
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