Russell Roberts's Blog, page 461

Government Will Fare Worse

(Don Boudreaux)

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Here’s a letter to Boston Globe columnist Jeff Jacoby:

Jeff:

I write to applaud your superb January 2nd column, “Politicians are only human.” In it you eloquently convey a much-needed lesson.

Yet I pick a nit. You write about politicians that “their schemes and projects are about as likely to succeed as most endeavors are.” I think that here you err. In reality, politicians’ schemes and projects are much less likely to succeed than are those undertaken by persons in their private capacities. Here are some reasons why:

Unlike persons acting in their private capacities, politicians spend not their own money but, instead, money belonging to others. It’s difficult to believe that when Mr. Smith and Ms. Jones each spends each other’s money the results are as desirable as when each spends only his and her own money.
In markets prices convey relative values of alternative uses of resources and of different courses of action, thus not only informing each of us how better to act, but also giving each of us incentives to act in ways that increase our chances of succeeding in our own plans by helping others to succeed in theirs. In contrast, political projects are carried out either in willful disregard of prices (see point 1) or in contexts in which no prices exist. Political projects therefore are especially likely to be guided chiefly by hopes, fantasies, and hubris – all in ignorance of real-world constraints. (Indeed, the desire to escape real-world constraints is frequently the ideological fuel for political projects.)
Unlike with government projects, no one is compelled to cooperate with, or to otherwise support, projects carried out in markets. Private actors, therefore, have far stronger incentives than do government officials to design and to operate their projects in ways that create as much value as possible for consumers and suppliers (including workers). Each private firm survives only by offering to all people who deal with it options that these people find to be the best available. Government officials, in contrast, can – and often do – force people to behave as these officials fancy.

I suspect that you don’t disagree with me here, but I thought it useful keep the record straight!

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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(Don Boudreaux)

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Max Gulker respectfully – and, I believe, compellingly – disagrees with Tyler Cowen’s notion of “state-capacity libertarianism.” A slice:

And that’s where Cowen’s State Capacity Libertarianism completely drops the ball. I don’t think climate change, education, and infrastructure aren’t important. They’re so important, in fact, that we can’t leave them up to a lumbering organization plagued by political incentives and lacking the information to implement anything all that helpful. [Ed] Stringham shows that private governance develops all around us. I think we have to make its study a more prominent research agenda in economics.

Chris Preble describes as “dangerous” Trump’s escalation of belligerence with  the Iranian state.

Jeff Jacoby wonders why so many Americans continue, despite themselves, to trust government officials with more power. A slice:

Atheists sometimes scorn religious believers as irrational for having faith in an omniscient God. But while God’s existence can be neither proved nor disproved, every day’s news brings fresh evidence of incompetence, fraud, waste, and dishonesty in government: Presidential impeachments. Police brutality. City Hall shakedowns. Campaign-finance chicanery. Men and women who work for the state may not be more prone to venality, bias, or screwing up than other people. But surely they are no less so.

Here’s Alberto Mingardi on Yuval Levin on the late Gertrude Himmelfarb. A slice from Alberto:

I suspect that libertarians have gone above the illusion of using sovereign power as a liberating factor, without paying a price for it. I would be interested in seeing how the anti-libertarian right can square the circle between its appreciation of “traditional” institution, and its love affair with a strong nation state.

“When we retreat from progress: Nuclear power edition”

Good for Ricky Gervais!

In Defense of Econ 101

(Don Boudreaux)

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In this January 2020 Feature Article for the Library of Economics and Liberty, I express skepticism of Raj Chetty’s method of introducing students to economics. A slice:

The question now is: economic theory of what kind? Some economic theories are better than others. Unfortunately, modern mainstream neoclassical economic theory, although better than the completely untutored economic theories carried around in the heads of most people who’ve never taken ECON 101, leaves much to be desired.

In his essay on Chetty, Dylan Matthews rightly criticizes mainstream economists’ obsession with “mathiness and high theory”—features of mainstream economics that are symptoms of two unfortunate traits of this approach to economics.

The first trait is an excessive focus on equilibrium arrangements. I was tempted here to write “equilibrium outcomes,” but “outcomes” implies processes that result in outcomes. Although (depending on which particular mainstream economist teaches the intro course) some informal mention might be made in class of the processes that generate economic equilibria, in intro-economics courses the processes of adjusting in real-world markets to the likes of shortages of milk, surpluses of labor, and inconsistencies between the plans of entrepreneurs and those of investors are almost never given center stage. Emphasis instead is put on describing the conditions of equilibrium (for example, “In perfectly competitive equilibrium price equals marginal cost equals minimum average total cost”) and on how to solve simple equations in order to determine equilibrium prices and other values.

The second trait is worse: it’s the careless presumption that reality’s complexity is adequately captured by the words, variables, graphs, and concepts used in economic theories. The scientific offense here is not the use of simplifying terms and assumptions. Every scientifically literate person understands that theories, to be useful, must abstract away from a multitude of reality’s details. The offense is that mainstream economists have forgotten that much that is relevant in economic reality results from details and complexities that are impossible to capture in theories in ways that enable economists to make specific predictions of the sort that chemists make when asked to predict the consequences of combining CO2 with H2O.

This forgetfulness, in turn, fuels all manner of empirical studies that are fundamentally flawed.

Quotation of the Day…

(Don Boudreaux)

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… is from page 184 of the original edition of James M. Buchanan’s and Richard E. Wagner’s superb 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes (footnote deleted):

A nation cannot survive with political institutions that do not face up squarely to the essential fact of scarcity…. Scarcity is indeed a fact of life, and political institutions that do not confront this fact threaten the existence of a prosperous and free society.

DBx: A great deal – arguably most – political discourse either ignores the reality of scarcity altogether or treats scarcity as being much less binding than it really is, as when demagogues propose to fund the masses’ bread and circuses and health care with tax revenues extracted from “the rich.”

The ability of politicians to get away with ignoring or discounting scarcity is made possible, of course, by the public’s economic ignorance. But not only by this ignorance: Ironically, this ability to treat scarcity as if it is, at most, a minor inconvenience easily escaped is enhanced by the very market that nearly all scarcity-deniers hold in such low esteem. The market’s robustness – its capacity, even when saddled with state-imposed absurdities, to continue to produce ever-more output at lower and lower costs – conveys the mistaken impression that scarcity isn’t very binding after all and that the economic process of wealth creation is rather automatic, a force of nature largely independent of human agency and institutions.

The market’s robustness and actual record of stupendous success and relatively little failure are, as I’ve argued before, far more responsible for government intervention than are any actual market failures. (If you think, as some of you will, that my use of the word “stupendous” is over the top and Pollyannaish, take a few moments to ponder the reality of your daily life – of the processes that make it possible for you to wear the shoes now on your feet, to have eaten the food now in your belly, to drive in a car to the supermarket, the supermarket!) It is simply a myth – although one widely accepted even by most economists – that the market is a highly imperfect institution, one failing left and right and constantly and, thus, kept on life support and functional only through the scientific attention of apolitical social engineers employed by the state.

The fact that innovative market processes continue to produce more and more output at lower and lower costs does not mean that scarcity is unreal or escapable. Scarcity will always be with us and, hence, we must always sacrifice some guns to get more butter, some swords to get more plowshares, some consumption today to get even more consumption tomorrow. It’s too bad that the great productive capacity of innovative markets blinds so many people to the reality of the scarcity that markets deal with so successfully.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 181 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s indispensable 1956 collection, Minority Report:

Democracy gives the naturally incompetent and envious man the means of working off his dislike of his betters in a lawful and even virtuous manner. Its moral effect is thus inevitably bad. It puts a premium upon on of the basest passions of mankind, and throws its weight against every rational concept of honor, honest and common decency.

DBx: For all of its imperfections, democratic decision-making is arguably the best means of choosing the quantity of genuine public goods to supply – that is, for making decisions that are genuinely collective. Occupants of a meeting room vote to decide on which particular temperature to set the room’s thermostat; owners of units in a condominium building vote to decide how much money to spend to refurbish the lobby; members of a church vote to decide which pastor to hire; citizens of district nine vote to decide which candidate will represent them in the legislature. Allowing everyone affected by decisions such as these to have a say in such decisions is superior, for many reasons, to allowing one person, or a select subset of persons in the group, to make such collective decisions.

But contrary to popular, lazy thought, the superiority of democratic decision-making on this front does not imply that, therefore, replacing private decision-making with democratic decision-making makes for fairer or better decision-making. Fully applicable here is the lesson conveyed by the old saw about two wolves and a sheep voting on what to have for dinner.

The vast majority of decisions are not collective ones. From the color of my underwear, through my choice of which music to play in my car, to the terms of the agreement that I strike with my employer, I – like everyone else – regularly make decisions that are no one else’s business but my own. But if other people are nevertheless given a say, against my will, in such decisions of mine, not only are other-people’s incentives to make good decisions for me less intense than are my own such incentives, my own such incentives themselves weaken. In the limit – say, if my vote is only one among those of 1,000 people who determine the terms of my agreement with my employer – I have almost no incentive to vote prudently. The reason is that the outcome of the voting procedure will not be determined by my vote. So why should I bother to weigh carefully the different options and trade-offs? Even I – the person whose employment-contract terms are being chosen – would rationally be an irrational voter.

Expanding democratic decision-making beyond the realm of genuine collective choices into the realm of choices that can and should be made individually not only unleashes the horror of making everyone’s private business the business of everyone, it also sweeps away whatever rationality there would otherwise be in decision-making. All responsibility is eliminated.

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Jeffrey Tucker remembers when the New York Times wasn’t as economically illiterate about labor markets as it is today. A slice:

The notion that the minimum wage causes social improvement without cost is just as absurd as the idea that the price of eggs can be doubled by law and this will have no effect on sales – only more profits to egg producers. It’s contrary to every economic sense, and describing its effects is no different from describing the effects of gravity on rocks dropped from buildings.

Bob Higgs warns against the abuse of language:

First they came for the [fill in the blank].

No, actually they came first for the language, which they twisted and corrupted to serve their ideological ends. Once they controlled the language, they had little trouble in justifying their coming for [fill in the blank].

If we lose the fight for honest speech, we have pretty much lost the fight as a whole.

Speaking of abuse of language, Pierre Lemieux laments the use of words suggesting that collectives are sentient creatures.

“Reports now suggest that Trump took the unprecedented step of killing a foreign leader based on thin evidence of a threat and with an eye towards domestic politics.”

John Cochrane blogs about “state-capacity libertarianism.”

Steve Horwitz recently spoke about “economics a the study of peaceful human cooperation and progress.”

Mark Perry serves up yet another splendid Venn diagram.

Quotation of the Day…

(Don Boudreaux)

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… is from page 197 of James Buchanan’s and Roger Congleton’s 1979 paper, “Proportional and Progressive Income Taxation with Utility-Maximizing Governments,” as this paper is reprinted in Debt and Taxes (2000), which is volume 14 of the The Collected Works of James M. Buchanan:

It is evident that a constraint or limit on the taxing power or authority of government means little unless this constraint is also accompanied by constraints on the spending power. If a government can implement direct transfers in a discriminatory manner, then members of any ruling coalition can capture for themselves any desired share of the total income of the exploited group independent of any structural tax-side constraints that might be constitutionally imposed.

DBx: The amount of resources consumed by government is the amount that it spends. And so whenever a government spends an amount greater than the amount that it rakes in as tax revenues, some group will be taxed to the tune of this difference (in addition to the taxation of those who pay the amount raked in as tax revenues explicitly). But the taxation used to fund government budget deficits is surreptitious.

Sometimes this surreptitious taxation is in the form of inflation. By spending newly created money, the government gets resources that would otherwise have been acquired by private people whose money holdings are reduced in value by the inflation. Other times this surreptitious taxation is in the form of government borrowing, which imposes tax obligations on future generations.

Anyone who truly believes that no group should be taxed that is not represented – that is, anyone who truly opposes taxation without representation – should steadfastly oppose government borrowing, or at least support meaningful, constitutional-level constraints on the ability of government to run annual budget deficits.

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(Don Boudreaux)

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Nick Gillespie responds to Tyler Cowen’s call for us libertarians to up our game.

Phil Magness compiles a helpful bibliography of criticisms of the New York Times‘s criticism-worthy “1619 Project.”

Also on the “1619 Project” is The New Criterion.

Matt Welch wisely warns of the threat to individualism signaled by some conservatives’ new effort for government to take action against pornography.

Here’s Sarah Skwire on The Politician.

Barry Brownstein explains how cognitive bias is helping to destroy the gig economy in California. A slice:

Try this thought experiment. Imagine you are a politician, professor, or a concerned citizen interested in workers’ rights. You have a pre-established cognitive bias that government is the best protector of workers. Thus, a statement such as California’s Worker Status bill is needed to protect the rights of freelancers would likely meet with your approval. Given your cognitive biases, the statement has “familiarity” and “fluency.” You’ve cheered a thousand times before for statements that begin with: This bill is needed because… Such statements are easily cognitively processed.

Quotation of the Day…

(Don Boudreaux)

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… is from page 133 of Bas Van Der Vossen’s and Jason Brennan’s excellent 2018 book, In Defense of Openness:

Tariffs enrich the few at the expense of the many, the many in the developed world and the developing world.

DBx: It’s the truth. Contrary to the fantasies of both “Progressives” and conservative nationalists, tariffs do not enrich ordinary people at the expense of corporations, oligarchs, and foreign peoples or governments. Instead, tariffs are a special privilege, enforced with threats of coercion, given to a subset of domestic producers. The enrichment of these producers comes chiefly at the larger expense of fellow citizens – fellow citizens as consumers, and fellow citizens as producers whose businesses and jobs are made less productive, and perhaps even impossible, by tariffs’ artificial diversion of resources from more-productive to less-productive uses.

Yes, tariffs do also reduce the economic well-being of some foreigners. But contrary to the popular delusion that countries are in economic competition with each other, economic harm suffered abroad does not mean economic gain enjoyed at home. Indeed, economic harm suffered abroad typically brings about economic suffering at home.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 199 of Deirdre McCloskey’s superb 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

The original and sustaining causes of the modern world, I would argue contrary to Piketty’s lofty sneers at bourgeois virtues, were indeed ethical, not material, and were located especially in a liberal ideology by bourgeois and non-bourgeois alike supporting such virtues. The cause was the widening adoption of two mere ideas, the new and liberal economic idea of liberty for ordinary people and the new and democratic social idea of dignity for such people. The single word for them is “equality” of respect and before the law. The two linked ethical ideas, deemed preposterous before the eighteenth century, led after 1800 to a paroxysm of betterment.

DBx: I have not yet read Thomas Piketty’s forthcoming book, but I did read – carefully and completely – his 2014 volume, Capital In the 21st Century. To say that I was unimpressed is a vast understatement. For Piketty, economic growth is largely independent of human actions and institutions. If calamities such as world wars and great depressions are avoided, capital grows automatically. Therefore, in Piketty’s imaginary world, heavy taxation, regulation by the state, and ‘redistribution’ have no effect on the amount of capital in existence to help human beings create more prosperity. Ditto for cultural values: no effect on the amount of material prosperity in existence and to come.

Piketty’s ‘understanding’ of economic reality is the opposite of that of any true economist. After all, from Piketty’s perspective, what is there to understand about economic or market processes? Answer: absolutely nothing. The economy grows automatically. Capital expands automatically Wealth is created automatically. For Piketty and like-minded people, government policy is overwhelmingly a matter of ensuring that the distribution of the material manna that falls mysteriously from the sky is fair – which means (because this manna falls independently of human agency) that this distribution is equal.

It’s impossible to imagine an ‘understanding’ of the economy that is as devoid of economic reasoning as that of Piketty and his pals.