Russell Roberts's Blog, page 465

Exports Are Indeed Good, But Only Because They Are a Means of Acquiring Imports

(Don Boudreaux)

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Here’s a letter to a frequent correspondent who is convinced that the case for free trade is “inherently illogical”:

Mr. McKinney:

Regarding my favorable linking to David Henderson’s essay “NAFTA 0.0,” you ask if I’ve “changed [my] mind” and now agree with David’s claim that “exports are good, because those who export make money on those exports.”

I’ve neither changed my mind nor disagree with David’s claim. Exports are indeed good for the reason that David notes.

In trying to determine just why you mistakenly suppose that I might disagree – or that I might once have disagreed – with the point that David makes in the above quotation, I can think of two related reasons.

First, I’m perhaps more obsessive than is David in making explicit the fact that earning money is never an end in itself. So I likely would have instead written “exports are good, because those who export increase their ability to acquire real goods and services.” But I don’t doubt that what I spell out here is implied in David’s more-succinct prose.

Second, David and I did have a minor disagreement on the question of whether or not it’s proper to insist – as I do insist – that exports benefit a country only insofar as exports increase the ability of people in that country to import more. Consider, for example, the benefits that one enjoys from working at an income-earning job. The time and effort that people spend at their jobs are costs voluntarily incurred in order to receive benefits – namely, the goods and services that workers purchase with the incomes they earn. These goods and services might be purchased during the ‘current’ period or, alternatively, in the future (with income in the current period invested rather than spent).

The same is true for exports. While it’s good to have the opportunity to export, exports themselves are not benefits; they’re costs (although not losses). The value of the opportunity to export lies exclusively in the fact that exporting enhances exporters’ access to real goods and services – either in the form of exporters themselves importing more, or by acquiring real goods and services from fellow citizens who wish to import more. And in both cases the increased imports can come during the ‘current’ period or, alternatively, in the future (with export earnings currently invested abroad rather than spent).

Again, none of these esoteric considerations imply that I disagree in any way with the passage that you quote from David’s excellent essay.

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

Pittsburgh Tribune-Review: “Cartoon lessons”

(Don Boudreaux)

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My column for the July 11th, 2007, edition of the Pittsburgh Tribune-Review is one of the nine or ten of my columns that rank in my top-five favorites of all the columns that I’ve ever written. Not coincidentally, one of its implied lessons is that industrial policy is folly. It was inspired by the New Yorker’s weekly caption contest. You can read my column beneath the fold.

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Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy continues to be appalled by Congress’s irresponsibility.

Bryan Caplan learned a lot from Kristian Niemietz’s Socialism: The Failed Idea That Never Dies.

Matt Ridley rightly decries the EU’s innovation-stifling bureaucratic risk-aversion.

David Henderson supports free trade for reasons economic, ethical, and national security. A slice:

In the 18th century, the national security reason for allowing free trade was articulated succinctly by a French philosopher whom many signers of the Declaration of Independence read: Baron de Montesquieu, who wrote, “Peace is the natural effect of trade.” He then gave his reason: “Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling: and thus their union is founded on their mutual necessities.” In this century, two economists who examined a large number of trading nations, produced evidence for his view. Solomon W. Polachek and Carlos Seiglie of Rutgers University wrote, “[T]rading nations cooperate more and fight less. A doubling of trade leads to a 20% diminution of belligerence.”

T. Norman Van Cott celebrates a core insight from Adam Smith.

Phil Magness rebuts the New York Times’s attempted defense of its fanciful “1619 Project.”

Also from Phil Magness is this splendid critical review of Lawrence Glickman’s Free Enterprise.

Quotation of the Day…

(Don Boudreaux)

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… is from page 142 of Frank A. Fetter’s 1927 paper “Clark’s Reformulation of the Capital Concept,” which is chapter 9 of Economic Essays Contributed in Honor of John Bates Clark (Jacob H. Hollander, ed., 1927):

It has been said, perhaps extremely, that the first time a new thought is expressed or an invention is made, the world simply pays no attention to it. Not until it is repeated independently and rediscovered a hundred times, and then only under peculiarly favoring conditions, does the world look up and say: yes, there is something in it, but nothing original – indeed it is very old. Until the world has received an idea in this way, its rediscovery for the hundredth time is as original as its discovery the first time, and its mere restatement by one aware of its earlier origin and rejection, calls, for that very reason, for as great vigor of thought, and for faith and conviction.

DBx: Experiencing the brain-activity of originating an idea is not sufficient to give that idea life, in the sense of arranging for that idea to make a net contribution to humankind’s well-being. What is also required for that idea to have life is that it be put in some form – which can range from the purely intellectual (as in Adam Smith’s explanation of a self-regulating market economy) to the physical (such as Thomas Edison’s lightbulb) – that many other human beings understand and accept in ways that enable them to improve their lives. And for this latter to occur, not only must the flesh-and-blood champion of the idea have entrepreneurial vision and courage, but society’s values and institutions must supply fertile-enough soil for the idea to take firm root and to blossom.

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Pictured above is Frank A. Fetter.

The Case Against Oren Cass’s Case Against the Centrality of Consumption

(Don Boudreaux)

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In my most-recent column for AIER, I challenge Oren Cass’s mistaken notions both about economists’ understanding of the connection between consumption and production, and about the case for a policy of unilateral free trade. This essay isn’t the first that I’ve written on Cass’s misunderstanding of economics and of trade, and it almost certainly will not be my last. A slice:

When economists argue (as Adam Smith did, forcefully) that consumption is the sole end of production – and therefore that production should be guided by the demands of consumers and not by those of people in their roles as producers – they’re often misunderstood as asserting that consumption is more important than production. (Cass operates with this misunderstanding.) But in fact they assert no such thing.

What economists mean when they insist that consumption is the sole end of production is that there is no economically meaningful production if the materials or activities that are the outcome of the exertion of human time and toil satisfy no human desire. That is, to produce is to generate some output that satisfies a human want or wants. Merely toiling to transform physical materials from arrangement X into arrangement Y is not productive unless arrangement Y contributes to the satisfaction of some consumption desire.

To use my favorite example, if I work hard to bake a sawdust-and-maggot pie, the result of my work is not really production. I’ve produced something when reckoned in a purely physical dimension: a concoction featuring wood shavings and fly larvae. But economically I’ve produced nothing. Indeed, economically I’ve wasted time and resources that could instead have been used to produce something that does satisfy human desires. Economically I’ve reduced production from what it could have easily been.

Quotation of the Day…

(Don Boudreaux)

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… is from page 241 of my late colleague Jim Buchanan’s 1985 article “Political Economy and Social Philosophy” as it is reprinted in Moral Science and Moral Order, Vol. 17 of The Collected Works of James M. Buchanan:

Why have they [most modern mainstream economists] remained so reluctant to acknowledge the fragility of the epistemological foundations for their exercises? In part, they remain utilitarians; in part, they seek roles as engineers. But equally important is what I have called an elitist mentality, that describes not only the economists but almost the inclusive membership of the modern academy, along with that of the intelligentsia broadly defined. There has been a general unwillingness to accept the implications of the rejection of classical utilitarianism. Economists, along with their peers, have been unable to evacuate the putative claim to normative knowledge that seemed to be offered by the utilitarian delusion. They continue to think themselves superior in normative wisdom to ordinary persons who possess none of the requisite analytical skills.

DBx: Arrogance is indeed a vice found in superabundance among intellectuals. So, too, is arrogance’s sibling: elitism – even if the elitism that is in vogue today typically masquerades as a ‘oneness’ that those who think themselves anointed imagine they have with ‘the People.’

In law school 30 years ago at the University of Virginia, one of my classmates – who, like his father, had an undergraduate degree from Yale – sometimes wore steel-toe boots to class to show his oneness with blue-collar workers. His steel-toe boots had no scuffs, unlike the steel-toe boots that my father actually was required to wear to work daily at the shipyard. When I told my dad about my classmate’s choice of footwear, my dad shook his head in amusement and informed me that he’s pleased that I’ll never have a job that carries a real risk of having my feet crushed.

In my mind, what my classmate’s steel-toe boots in fact represented was his and other elites’ wish to protect their tender toes from being bruised as they kicked around their fellow human beings.

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By the way, to reject utilitarianism (as I do) is not to reject consequentialism (as I do not).

Pittsburgh Tribune-Review: “Laissez faire is best medicine”

(Don Boudreaux)

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In my Pittsburgh Tribune-Review column of August 22nd, 2007, I argued that the best regimen for an ailing economy is laissez faire. You can read my argument beneath the fold.

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Quotation of the Day…

(Don Boudreaux)

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… is from page 198 of Deirdre McCloskey’s excellent 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

The theory of great wealth espoused by the bourgeoisie and by its friends the liberal economists, on the contrary [to other theories of enrichment], is desert by virtue in supplying ethically, without coercion, what people are willing to buy.

DBx: Yes, and it’s a theory that’s both correct as a positive matter and one that conduces to attractive normative conclusions.

In contrast, the theory of great wealth espoused by protectionists is desert by virtue of possessing a current occupation along with the ability to persuade the state to coerce other people to continue to purchase, at undiminished prices, the outputs of those ‘productive’ activities. It’s a theory that’s both incorrect as a positive matter and one that conduces to ugly normative conclusions.

The Importance of Inspiring Teachers … and of Economics Well Taught

(Don Boudreaux)

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My creative Mercatus Center colleague Jeff Holmes is the brains and in-house talent behind these videos, which were filmed and produced earlier this year.

Some Links

(Don Boudreaux)

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Pat Lynch reminds us of America’s strong anti-foreign-interventionist roots. Here’s his conclusion:

Non-interventionism did not quickly fade from view after Washington gave his farewell address. It was an important part of American foreign policy with respect to Europe and the Americas for the better part of 50 years after the Founding. The circumstances changed very dramatically in the middle and later parts of the 19th century as the United States invaded Mexico and pursued a colonial war against the remnants of the Spanish Empire. But this should not obscure the fact that non-interventionism helped guide the U.S. out of the ugly outcome of the War of 1812 and retains a strong philosophical and practical appeal to this day. Any politician discussing reviving such a tradition need not be a Russian agent—instead he or she may simply be a student of a more prudent period of American political history.

Tim Worstall reveals some of USMCA’s cronyism. A slice:

The only reasonable or fair trade deal is the one I’ve continually proposed for my native Britain as it leaves the European Union, here lightly adapted for U.S. usage:

There will be no tariff or nontariff barriers on imports into the U.S.

Imports will be regulated in exactly the same manner as domestic production.

You can do what you like.

That’s it.

Mike Munger and I both very much like Virgil Storr’s and Ginny Choi’s new book, Do Markets Corrupt Our Morals?

Elliot Kaufman nicely summarizes some of the devastating criticism of the New York Times‘s ludicrous “1619 Project.”

As Eric Boehm reports, Bernie Sanders is as ignorant about – and as bad on – trade as is Trump.

Max Gulker writes brilliantly about the emergent-order properties of markets.