Russell Roberts's Blog, page 466

Grammatically Impeccable; Technically Imprecise; Economically Impossible

(Don Boudreaux)

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In my most-recent column for the Pittsburgh Tribune-Review I warn against being misled by language that superficially appears to convey meaningful ideas but that, upon scrutiny, is revealed to be meaningless. A slice:

Also meaningless is the phrase “global technological supremacy.” Technology is not akin to a sports league, with a single criterion for ranking participants’ relative success. There are countless varieties of technology. Success on one technological front not only does not imply success on other such fronts, but it practically requires lack of success on other technological fronts.

America might, for example, be home to the most successful companies at producing advanced aerospace products. But to achieve this “first-place” distinction requires that not as many workers, and not as much capital and innovative effort, be devoted in the U.S. to consumer electronics and other high-tech industries.

And so given that the achievement of supremacy in one particular high-tech field requires sacrificing supremacy in other high-tech fields, it makes zero sense to talk about a country winning the “race for global technological supremacy.” To be “supreme” at “global technology,” how large must America’s margin of superiority at aerospace production be in order to overcome our lack of supremacy at producing consumer electronics or advanced chemicals?

Because we understand the reality of such trade-offs in our individual lives, we’d laugh at a man who declares that he aims to win the race for “global skill supremacy.” Skill in what endeavor? A person might well become the world’s most skilled clarinetist, but precisely by doing so that person avoids learning the skills of a neurosurgeon and auto mechanic.

All talk of a country winning “a race for global technological supremacy” is just as meaningless — indeed, as silly — as is talk of a man winning a race for global skill supremacy.

Quotation of the Day…

(Don Boudreaux)

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… is from page 217 of Douglas Irwin’s vital 1996 volume, Against the Tide: An Intellectual History of Free Trade:

The benefits of specialization and trade apply at the level of the individual, the household, the community, the city, the region, and the nation. As individuals or groups or regions specialize in certain activities, the resulting larger output can be exchanged among these entities to their mutual advantage in allowing a greater fulfillment of their material wants and desires.

DBx: Understanding the fact that trade is necessary for specialization and that specialization is necessary for total economic output per person to increase is not difficult, but it does require some effort. And to then draw from this understanding any normative conclusions about policy requires – in addition, of course, to a set of values – both some other positive analyses (such as of the manner in which governments actually operate) as well as sound judgment of how the positive theory of specialization and trade ‘maps’ onto a reality that is necessarily far more complex and nuanced in its details than are the theories meant to make reality more understandable.

Most of the disagreement between those of us who support a policy of unilateral free trade and those persons who, for non-venal reasons, oppose such a policy, arises chiefly from one of of two sources. First, members of the latter group have yet to exert the effort necessary to understand the economics of trade. (Again, gaining this understanding requires nothing close to the intellectual feats of rocket scientists, but it does require some effort and willingness to learn.) Or, second, members of the latter group judge to be essential some or many of the details of reality that members of the first group judge to be inessential.

An example of this second source of disagreement is the often-heard objection that the citizens of country A cannot gain by trading freely with the citizens of country B if the government of B has in place policies – for example, subsidies for exporters – that differ from the policies of A. Most proponents of a policy of unilateral free trade understand that any difference in the policies of A and B is an inessential detail; while this difference might of course affect the particular pattern of trade and specialization, it does nothing to undermine the case for free trade. In contrast, many opponents of free trade find in such a difference a violation of the essential case for free trade and, thus, conclude that such a difference is good cause for protectionism in the home country.

At the end of the day, I suppose, these two sources of disagreement separating free traders from (non-venal) protectionists boil down to the first source: a simple failure of protectionists to understand with sufficient depth the positive economics of trade. To truly grasp a theory requires a quality of mind that the theory itself is incapable of imparting – namely, sound judgment of what aspects of reality are central to that theory’s domain and which are superficial.

Pittsburgh Tribune-Review: “Progressive – not!”

(Don Boudreaux)

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My column for the August 8th, 2007, edition of the Pittsburgh Tribune-Review was inspired by a game that my son, Thomas – then ten-years old – sometimes played. You can read my column beneath the fold.

(more…)

Some Links

(Don Boudreaux)

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Writing in the Wall Street Journal, U.S. Sen. Pat Toomey (R-PA) rightly objects to USMCA’s move away from the freer trade promoted by NAFTA and toward the cronyism-managed trade promoted by the USMCA. A slice:

Congress will likely approve President Trump’s U.S.-Mexico-Canada Agreement, but it won’t get my vote. The USMCA’s many flaws arise from its unprecedented intent. It is the only trade pact ever meant to diminish trade. Since Nafta’s implementation, American exports to Mexico have grown more than fivefold. But imports grew even more, widening the trade deficit. The Trump administration finds this unacceptable, even though the trade deficit is mostly meaningless. Hence USMCA has a myriad of provisions to warm the hearts of protectionists.

For starters, USMCA terminates free trade in cars and auto parts. To avoid new tariffs, the Mexican auto sector would have to comply with onerous new content requirements (country rules of origin) and pay wages far above prevailing Mexican rates. These provisions, by design, would make Mexican factories uncompetitive. They would also raise car prices, shrink North American auto exports and eventually reduce U.S. auto employment.

Another first is USMCA’s 16-year expiration date. That will chill trade and investment by introducing considerable uncertainty about the future terms of trade. Evidently, that’s the idea in USMCA.

My intrepid Mercatus Center colleague Veronique de Rugy warns of the dangers of price controls.

Looking back at the 20-teens, Matt Ridley celebrates that decade as the best in human history. A slice:

Perhaps one of the least fashionable predictions I made nine years ago was that ‘the ecological footprint of human activity is probably shrinking’ and ‘we are getting more sustainable, not less, in the way we use the planet’. That is to say: our population and economy would grow, but we’d learn how to reduce what we take from the planet. And so it has proved. An MIT scientist, Andrew McAfee, recently documented this in a book called More from Less, showing how some nations are beginning to use less stuff: less metal, less water, less land. Not just in proportion to productivity: less stuff overall.

Also justifiably celebrating the 20-teens is Johan Norberg. A slice:

Progress isn’t guaranteed. Look how wealthy Venezuela collapsed under the burden of crazy policies. A war between major powers, or a financial crash after a decade of easy money, could throw the world off course. So could never-ending trade wars and an unraveling of globalization.

Yet we’ve lived through a period of populist revolts and geopolitical tensions, and wherever societies have been open and markets free, scientists, innovators and businesses persisted and made greater progress than ever.

Jeffrey Tucker makes the case that big-government leftism is dying. I hope that he’s correct. I hope also that in its place will rise a politics genuinely inspired by classical liberalism, but I’m less optimistic about this latter possibility than Jeff seems to be.

While my preferred fiscal policy is significantly different from what John Tamny’s preferred fiscal policy seems to be, I agree very much with him about the absurdity of industrial policy.

Quotation of the Day…

(Don Boudreaux)

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… is from page 265 of George Will’s superb 2019 book, The Conservative Sensibility (original emphasis; typo corrected; footnote deleted; link added):

Deirdre McCloskey notes that in 1800, at least 80 percent of American workers were on farms; today, thanks to the mechanization of agriculture and hybrid crops, fewer than 2 percent are. But the displaced agricultural workforce was not consigned to unemployment. By 1910, one in twenty workers were working on the railroads. In the late 1940s, of the approximately 60 million in the workforce (43 million men, 17 million women), AT&T employed 350,000 as manual phone operators, almost all of them women. In the 1950s, hundreds of thousands of jobs operating elevators in hotels, department stores, and office buildings disappeared when elevator passengers were trusted to push buttons by themselves. More recently, 10,000 people lost their jobs when Borders bookstores disappeared, partly because of competition from Amazon. More than 100,000 people who in 2000 worked in video rental stores are working elsewhere because Netflix and other entities killed rentals. In today’s America, with about 160 million jobs, about 1.7 million jobs – more than 1 percent of the total – disappear every month as companies downsize, fail, merge, or decide that this or that job is dispensable. So about 10 percent of jobs vanish in a year. Says McCloskey, “In just a few years at such rates – if disemployment were truly permanent – a third of the labor force would be standing on street corners, and the fraction would still be rising.”

DBx: Yes. Indisputably yes. (As it happens,my mother’s first full-time job, which she got in 1958 when she was pregnant with me, was as a telephone operator in New Orleans.)

For each of us currently to have jobs that we don’t want to lose requires that each of us be willing to lose the jobs that we currently have. And note that I say “willing” rather than “happy.”

To the extent that government or tradition succeeds in freezing in place the existing pattern of employment, the economy becomes at best stagnant. To the extent that you believe that you have a ‘right’ to your current job you imply – if you also profess a belief in equal rights and dignity for your fellow citizens – that you have no right to change the ways in which you spend or earn your income.

Has the last of your four children finally become toilet trained? Sorry; you must keep buying diapers at the same rate at which you bought these for the past several years. Have those AA sessions finally worked, causing you to give up drinking alcohol? Congratulations! Please do stay off the sauce – but you must nevertheless continue to buy booze at the same rate at which you bought it when you were an alcoholic. Did you get that splendid job offer that requires you to move to Shreveport or Seattle? Sorry; you must reject it and keep your current job, for such a move by you will reduce the expenditures that you make on the outputs produced by certain workers in your current hometown. Have you gotten a very nice raise that enables you to vacation more regularly in the Caribbean or in Europe? Too bad; you must continue to vacation at the lovely sites near your home in St. Louis or Scranton where you vacationed before getting that raise.

(Please, no ad hominem remarks about me having tenure. Not only did I once voluntarily give it up – as I did when I resigned my tenured position at Clemson University to become an untenured president of the Foundation for Economic Education – I didn’t create the university-employment system and would be more-than-happy if tenure were not part of the employment contracts of any university employees.)

(By the way, there’s an interesting twist to increased use, in mid-20th-century America, of automatic elevators.)

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 138 of my late Nobel-laureate colleague Jim Buchanan’s important 1976 paper “Taxation in Fiscal Exchange,” as this paper is reprinted in volume 1 of The Collected Works of James M. Buchanan: The Logical Foundations of Constitutional Liberty (1999):

It is clearly wasteful to devote intellectual resources proffering advice to a nonexistent decision-maker. No “social welfare function” exists independently of the mutual adjustment process itself. Regardless of how these may be defined, “equity” and “efficiency” will characterize observed results only as they are embodied in the choices made by individual participants.

DBx: Yes. Clearly so.

Yet it remains a common practice for economists (and others) to propose government interventions on the implicit assumption that these proposals will be heard, and carried out faithfully, by wielders of power possessing superhuman intelligence, information, wisdom, and benevolence.

Routinely, people observe (or fancy that they observe) ways in which reality falls short of some imagined ideal, and then conclude that all that must be done to bring reality into closer alignment with the imagined ideal is to transfer more power and resources to government officials – or, at least, to the right government officials (which are those aligned with the angels and not with the devils).

Such a manner of thinking reflects the worst sort of superstition to which the human mind falls prey. And professional economists only ratchet the superstition up when – immediately after performing the child’s-play achievement of proving that markets can fail to optimize social welfare (all the relevant details of which are wholly imaginary) – they call on the state to ‘correct’ the paper-proven ‘market failure.’

The correlation is positive and high among economists who ostentatiously think themselves to be true, objective scientists and those who believe in earthly angels that perform miracles. Far too many economists waste time proffering advice to these imaginary sprites.

Quotation of the Day…

(Don Boudreaux)

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… is from page 93 of F.A. Hayek’s insightful 1983 paper “The Muddle of the Middle,” which is chapter 7 of the superb 1983 collection, edited by Svetozar Pejovich, Philosophical and Economic Foundations of Capitalism:

The social product which is now maintaining a human population of this world four or five hundred times as large as that which man could achieve in the natural hunting and gathering stage is owed only to the division of labor, skills, and knowledge. This division could never have been designed or planned, but it arose through and is now maintained by the guiding service of competitive market prices and wages that tell each person where its efforts can make the largest contribution to the total. These self-generating signals, which inform the individuals about the combined efforts of thousands of events of which they can have no direct information, bring about an adaptation of the individual efforts to the unknown. No central direction could achieve this adaptation because the knowledge of all the facts of which the market takes account is spread among thousands and cannot be known to any central authority. It is, of course, impossible to improve signals when one does not know what determines them.

DBx: Of course, disagreeing with Hayek are the likes of Marco Rubio, Bernie Sanders, Alexandria Ocasio-Cortez, and others – conservative and “Progressive” – who fancy that the economy can be improved with conscious coercive interventions such as tariffs, subsidies, and other ‘tools’ of industrial policy. The identities of those who disagree should suffice to establish the credibility, or lack thereof, of their case.

Behold the Protectionist

(Don Boudreaux)

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Okay, so what I’m about to do is a bit unfair to protectionists; indeed, it is pure consumption for me: I’m going to poke fun at Warren Platts (once a frequent protectionist commenter here at Cafe Hayek and still a commenter at EconLog). The reason that what I’m going to do here is unfair to protectionists is that, although even the most-able protectionist is armed intellectually only with the equivalent of a nerf gun, these nerf-gun-toting protectionists possess far more fire power than Mr. Platts brings to the battle between protectionists and free traders.

Still, I confess to having no patience with persistent protectionists such as Mr. Platts. It’s not a crime to be ignorant and misinformed, but it’s vile to cling stubbornly to one’s ignorance and misinformation in order to justify state predation against innocent people – which is what protectionism is. And so I here gleefully expose a true howler – one that must be read to be believed – that Mr. Platts deposited on this recent EconLog post by Pierre Lemieux.

Here’s the Platts howler to which I refer:

If you want to stump a free trader economist, ask him or her what exactly a big, continental-sized economy like the USA’s ought to specialize in.

The very fact that Mr. Platts writes such a thing in a public forum is proof beyond rebuttal that he hasn’t a clue where the case for a policy of free trade comes from or what that case implies about reality.

And here’s the reply that I left at EconLog in response to this astonishing example of clueless nitwittery:

I’ve a question for Mr. Platts: What makes you think that the case for free trade in any way depends upon the ability of anyone – whether free trader, Trumpian protectionist, or Bolshevik comrade – to know in the abstract “what exactly a big, continental-sized economy like the USA’s ought to specialize in” – or, for that matter, what even the smallest and most singular economic entity ought to specialize in?

At the core of the case for free trade is the recognition that no one can tell absent open competition what should be the production specialities of particular economic entities. If it were possible in the abstract, and independently of actual competitive processes, to know the details of patterns of specialization then one of the core reasons for a policy of free trade would be absent.

It is not, then, the free trader who is “stumped” by an inability to know in the abstract what the pattern of specialization should be; the one stumped by this inability is the protectionist. The reason is that the protectionist – unlike the free trader – professes an ability to divine independently of actual competitive processes, what should be the pattern of specialization.

The Platts howler quoted above comes at the end of a comment full of howlers. It’s one in which he meanders on confusingly about rainforests and ecosystems, as well as makes a claim about Ricardo that is beyond bizarre. (“Before ‘free’ trade, in Ricardo’s example, an Englishman had two possible choices to specialize in; afterwards, there is only one choice. Efficiency losses must result.” I was initially tempted, in response to this particular absurd comment, to write something along the lines of ‘Mr. Platts continues to be unable to distinguish explanatory simplification made for heuristic purposes from the reality that those explanations are meant to elucidate,’ but upon re-reading Platts’s comment, I realize that he simply has no earthly idea what Ricardo was writing about.)

So I conclude by encouraging all readers to study Mr. Platts’s comments at EconLog – and his past comments here at Cafe Hayek – to behold a typical protectionist mind at work. (Platts’s remarks – for example, about trade deficits – in other of his comments at this same EconLog post also reveal his profound, indeed unfathomable, confusion.) If you find him to be persuasive, please contact me for my bargain-priced and guaranteed-to-make-you-a-billionaire-overnight house-flipping kit!

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 4 of the 1998 Liberty Fund edition of the late Anthony de Jasay’s great 1985 book, The State:

People who have been made to rely on the state never learn the art of self-reliance nor acquire the habits of civic action.

DBx: In other words, dependence on the state makes people irresponsible and uncivilized – in a word, childish.

For the Umpteenth Time

(Don Boudreaux)

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Here’s a letter to a new Café Hayek reader:

Mr. Black:

You ask why I object to Pres. Trump’s “hard bargaining to get China to buy more of our exports.” I have many reasons; here are the top three:

First, the main beneficiaries of increased American exports are the American companies whose exports increase. The responsibility for drumming up more exports sales belongs to these companies and not to the U.S. government.

Second, unlike when the responsibility of drumming up more American export sales is left to the companies that benefit from those sales, when government takes over that responsibility the result is that innocent Americans become hostages to their own government. The U.S. government’s chief weapons used to increase American exports are tariffs and subsidies. The former are punitive taxes on American consumers, and the latter are taxes extracted from Americans for no purpose other than to artificially goose up export sales of politically powerful American corporations – and both varieties of taxes are promised to be ended only if foreign governments stop the similar abuse of their citizens. This use by the U.S. government of Americans as economic hostages is both economically harmful and inexcusably unethical.

Third, all such bargaining is done under the mistaken impression that exports are ultimate benefits while imports are the price to be paid in order to enjoy these ultimate benefits. But in reality American exports are, ultimately, costs; they are beneficial to Americans only insofar as they increase our ability to consume, either in the current period or in the future. In contrast, imports are valuable in and of themselves. Imports are the end for which trade is carried out while exports are merely the means of getting imports.

If you doubt the truth of this previous paragraph, consider which of the following two options you’d prefer. Option 1: You, me, and other Americans work hard to produce goods and services for export to foreigners in exchange for absolutely nothing (except, perhaps, some Monopoly money). Option 2: You, me. and other Americans receive as imports from foreigners goods and services for which we pay absolutely nothing (except, perhaps, some Monopoly money).

Clearly, we Americans would be stupidly impoverished by option 1 and unnaturally enriched by option 2. It’s unfortunate for us Americans that option 2 isn’t in the cards. But it’s downright idiotic that our “leaders” – including Pres. Trump and his advisors – proudly strive to move us as close as possible to option 1.

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