Russell Roberts's Blog, page 468

Quotation of the Day…

(Don Boudreaux)

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… is from page 255 of George Will’s excellent 2019 book, The Conservative Sensibility:

[John Kenneth] Galbraith brought to the progressive chorus a special verve in asserting that Americans are as manipulable as clay. Hence Americans were what modern progressives relish: victims, to be treated as wards of a government run by progressives.

DBx: Centuries ago rulers said to their subjects: “I’m superior to you – and I have at my disposal more coercive power than you – so do as I command for my benefit.”

Today rulers say to their subjects: “I’m superior to you – and I have at my disposal more coercive power than you – so do as I command for your benefit.”

Without denying that many intellectual elites and a tiny number of political elites are motivated to some non-negligible degree by arrogance that gives them the false impression that they really can use coercion to improve the lives of strangers, the bottom line is that rulers centuries ago were more honest about their motives than are rulers today.

Yes. Yes I Truly Do Admire J.D. Rockefeller, Sr.

(Don Boudreaux)

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Here’s a letter to someone who was directed by a friend to this Facebook post of mine.

Mr. Çubiry:

“Shocked and speechless” at my “scary” admission of admiration for John D. Rockefeller, Sr., you ask if I’m “unmoved by the tremendous suffering and economic damage he spread through society with his monopoly.”

Simple answer: the Rockefeller in your mind is a myth.

The real Rockefeller was no monopolist, and his Standard Oil Company was no monopoly. Rockefeller was a creative and driven entrepreneur who, through Standard Oil, made fuel much more widely abundant, inexpensive, and safe. (Among many other innovations, Rockefeller standardized his fuels so that consumers knew better what they were buying.) Consumers and his workers admired him. The only people who despised Rockefeller – because he consistently succeeded at offering to consumers increasingly attractive deals – were his competitors, one of whom, by the way, had a daughter named Ida Tarbell.

If you’re interested, Burt Folsom and I wrote 20 years ago about the Rockefeller myth. And we cite there other sources that bust this myth.

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

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 467 of Ron Chernow’s excellent 1998 biography of John D. Rockefeller, Sr., Titan:

He [J.D. Rockefeller, Sr.] was also insistent that his massive philanthropy paled in importance beside the good he had done in creating jobs and furnishing affordable kerosene at Standard Oil.

DBx: Rockefeller was correct. Wealth cannot be philanthropically given away unless it is first created. Nor can wealth be “redistributed” by the state unless it is first created. And wealth is created only by improving the lives of others through voluntary trade, including trading pay for labor services, and trade of goods and services for consumers’ expenditures.

And, by the way, Rockefeller – contrary to popular myth, and as Chernow shows (but as Allan Nevins showed even more clearly) – was an energetic, honest, and truly creative entrepreneur whose net contributions to humanity through his business were immense.

Two Can Play This Game: Externalities Edition

(Don Boudreaux)

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Here’s a letter to someone who believes that my “faith in the market blinds [me] to its shortcomings”:

Ms. Grant:

Thanks for your e-mail.

You support mandated paid leave because you “believe society benefits when parents stay home with newborns, but the market does not fully account for this beneficial effect…. Paid leave internalizes this externality.

With respect, I disagree.

First, in the U.S. today about two-thirds of working women have some form of paid leave as part of their employment contracts. The market clearly has no trouble supplying paid leave to workers who value it sufficiently high to pay for it in the form of lower take-home pay.

Second, just because some action in the market yields positive benefits to third parties doesn’t mean that the market fails to adequately encourage that action. Nearly every action that each of us takes has effects on third parties, but only a tiny fraction of these effects qualify as externalities of the sort that economic theory suggests might justify government intervention. (If you are an economist, I recommend these two classic articles by my late Nobel-laureate colleague James Buchanan: “Externality” and “The Relevance of Pareto Optimality.” The wisdom and insights in these articles – as well as those of another Nobel laureate, Ronald Coase – seem unknown by economists who today assert that mandated paid-leave is justified because it internalizes a positive externality.)

It’s easy to toss out terms such as “market failure” and “externality” and then leap to the conclusion that a credible case is thereby made for government intervention. Advocates of mandated paid leave have mastered this trick of leaping to conclusions based on carelessly tossed-out terms. But to prove the frivolousness with which these paid-leave advocates reason, all one need do is to play the same game, such as by arguing thusly: ‘Society benefits when families, to reduce their likelihood of ever using government welfare, save for rainy days. But the market – by supplying many workers with fringe benefits such as paid leave – inefficiently discourages such saving by paying workers too little in the form of take-home pay. Families thus save socially sub-optimal amounts. Because the market fails to internalize the positive externality of families saving more, the government should correct this market failure by mandating that all compensation for workers come in the form of take-home pay.’

There, I’ve made what appears to be a scientific argument for government to prohibit paid leave. Are you convinced? I hope not. Yet for the very same reason you should not be convinced by arguments for government to mandate paid leave.

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…

(Don Boudreaux)

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… is from pages 5-6 of economist Arthur Diamond, Jr.’s superb 2019 book, Openness to Creative Destruction: Sustaining Innovative Dynamism:

The greatest breakthrough inventions and innovations are those that go against the dominant theories and opinions. These are the ones that teach us the most; these are the ones that bring us what we thought was impossible. The most binding constraint on the rate of our breakthrough inventions and innovations is the scarcity of those key moments when an individual sees what others do not see. Often the breakthroughs occur because an individual sees something that does not fit, and then has the courage and perseverance to pursue it.

DBx: All enthusiasts for industrial policy as a means of energizing and ‘growing’ their nations’ economies should ponder with special care the implications of the reality noted here by Diamond. Industrial policy by its nature gives government officials the power to prevent the use of ideas that those officials judge to lack merit. Industrial policy thus narrows the range of ideas that are actually tried – that, as Deirdre McCloskey says, are given “a go.”

Even if we disregard the many problems with industrial-policy’s politics-poisoned criteria for testing the merits of the ideas that are tried, because the number of ideas actually given a go under industrial policy is artificially restricted, it’s virtually certain that the ideas that prove themselves best under industrial policy are worse than are those that would have so proven themselves in a more open and competitive policy environment – in a policy environment, in short, of what my Mercatus Center colleague Adam Thierer calls “permissionless innovation.”

If you can look at the likes of Donald Trump, Bernie Sanders, Marco Rubio, Elizabeth Warren, Josh Hawley, Alexandria Ocasio-Cortez, Jeremy Corbyn, and Xi Jinping and conclude that these individuals are likely to be fonts of the best industrial and commercial ideas possible – if you truly believe that persons such as these are really the likes of Newcomen, Borden, Rockefeller, Westinghouse, Edison, Ford, Lauder, Walton, Jobs, and Bezos who’ve simply chosen careers in politics – then you might personally have a defensible reason for embracing industrial policy. But if you do hold such a belief about persons such as these, then ask yourself this question: why do each of these persons feel the need to force their ideas on others?

As for myself, I believe it to be ludicrous that any one person or select group of persons can be trusted to be an especially reliable font of good, innovative ideas. (Indeed, even persons who in a competitive market would prove themselves to be fonts of good ideas are almost certainly to not be so if the state gives to them tariffs, subsidies, and other special privileges.) It is for this reason, I’m sure, that the New Yorker allows anyone who wishes to do so – not just subscribers, and not just New Yorkers – to submit captions in its weekly caption context.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 426 of the late Jan Tumlir’s January 1984 speech at the Cato Institute – a speech titled “Economic Policy for a Stable World Order” – as this speech is reprinted in Dollars, Deficits, & Trade (James A. Dorn and William A. Niskanen, eds., 1989):

Indeed the difficulty for the economist may now lie in explaining why the world economy still functions at all, however dissatisfied we may be with its functioning. The answer is, of course, that there is a lot of ruin in any economy with a modicum of freedom. I am sometimes unsure whether it is actually an advantage of the capitalist system that it can take such an enormous amount of beating. If it were in the habit of collapsing more frequently, we would perhaps govern ourselves more prudently (and more cheaply to boot).

DBx: Indeed.

I’ve long argued that the economist’s standard assertion that government intervenes into the economy first and foremost to correct market failures fails spectacularly as a positive theory of government intervention into the economy. It’s far closer to the truth to say that government intervention into the economy is fueled not by market failures (as understood by economists) but, rather by the market’s astonishing success and robustness.

The market’s success at raising people’s standards of living creates the expectation that wealth creation is easy and normal while poverty is out of the ordinary. But of course historically poverty is the norm – and poverty so deep, unrelenting, and overwhelming that few Americans today can begin to imagine a condition so crushing. Because the market makes wealth so abundant and its production appear to be normal and easy to the point of being practically automatic – and because nearly all of the massive number of details of the intricate processes at work at every moment to create wealth are hidden from view – the market’s ‘failure’ to create heaven on earth is believed by many to be an unanswerable indictment of the market.

On top of this ‘problem’ is the market’s mighty robustness: tax it, saddle it with diktats, poison it with easy money, accuse it of being run by and for demons and devils, and the market keeps motoring along, improving the lives even of those who most hate it and who do the most to harass it. The market works less well than it would absent these intrusions, of course, but it still works surprisingly well. As long as, and insofar as, prices and wages are allowed to adjust according to the forces of supply and demand, the market’s robustness is Herculean. (The market is not, however, indestructible. Harass it too much and it will quit working.)

If the market truly collapsed completely more often, giving people a taste of what life is like without it, the world would have in it not only far fewer communists and socialists, but also far fewer “Progressives” and “conservative nationalists.”

The market’s true failure, in short, lies is its incredible capacity to succeed and to keep on keeping on. The market fails to prevent people from taking it for granted.

Pittsburgh Tribune-Review: “Marvelous properties”

(Don Boudreaux)

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My May 16th, 2007, column for the Pittsburgh Tribune-Review celebrates the marvelous properties of spontaneous market orders. In doing so, this column exposes the utter unrealism and hubris of those persons who insist that the economy can be improved upon by turning resource-allocation decisions over to conscious human design. (Of the many columns that I’ve written, this one is among my favorites.) You can read the celebration below the fold.

(more…)

Quotation of the Day…

(Don Boudreaux)

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… is from page 6 of the late, great Wesleyan University economic historian Stanley Lebergott’s insightful 1975 book, Wealth and Want (footnote deleted):

The first way to increase poverty in the United States follows fairly obviously from that definition [of poverty as material deprivation relative to the norm in society] – namely, to increase the standard of living. Raise the consumption level of the typical American and you create more poverty. When Ford invented the auto he created poverty. When Zworykin invented TV he created more poverty. Raise the standard decade after decade and you create more (relative) poverty even while you are wiping out the old-fashioned (starvation) kind of poverty. “Solely as a result of growing affluence, a society will elevate its notions of what constitutes poverty.” (So reports the President’s Commission on Income Maintenance.)

DBx: Defining poverty relative to the ‘normal’ standard of living in a society is natural. Even Rev. Malthus defined poverty in this relative way. And there is nothing inherently objectionable in doing so. Yet doing so creates a danger – one that Lebergott exposes brilliantly: defining poverty relative to a society’s ‘normal’ standard of living risks leading us to underestimate a growing economy’s actual performance. (The flip-side: defining poverty in this relative manner causes the performance of a long-term failing economy to be overestimated.)

Lebergott above sought to warn against this underestimation. His point, of course, is that if the standard of living by which poverty is judged rises this year because, say, the masses gain access to electronic devices that on January 1st wowed everyone as miraculous and luxurious but which by December 1st underwhelm everyone as mundane and necessary, the rate of poverty can rise if some lower-income people remain this year unable to afford these devices. No one need get absolutely poorer – and many, including even many of the poor, can get absolutely richer – and yet the reported poverty rate can nevertheless rise.

Sensitive-souled pundits will then complain in the pages of the New York Times, of the Washington Post, and of Vox of capitalism’s “failure.” Accusation-and-slogan-slinging politicians will spring into action with promises to “fix” the “problem.” And the proposed “fix” will invariably involve seizing large chunks of the earnings of the individuals whose entrepreneurship and business acumen created the electronic devices and who, through competitive markets, made these devices so useful and inexpensive that most people not only own one, but cannot imagine living without one.

And so it goes.

But in fact even Lebergott underestimated the productivity of what Deirdre McCloskey calls “innovism”: Despite using a relative definition of poverty, the rate of poverty in the U.S. has nevertheless fallen as living standards rose, at least compared to when I was born. Today, the U.S. poverty rate is about half of what it was in the late 1950s.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 210 of Deirdre McCloskey’s superb 2019 volume, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

His [Thomas Piketty’s] ethics is a narrow ethics of envy. His politics assumes that governments can accomplish anything they propose. And his economics is flawed from start to finish.

DBx: I, too, read Piketty’s 2014 tome carefully, cover-to-cover. And I, too, conclude that it’s a torrent of mistaken – often hilariously so – assumptions mingled madly with questionable interpretations of data, and all sifted through the mind of someone who hasn’t a clue about sound economics.

Worst of all, Piketty’s book is one that aims not only to elevate envy into an admirable emotion, but to establish envy as the basis for government policy. I can imagine bases for government policy that are as absurd, abominable, destructive, uncivilized, and unjust as the one proposed by Piketty, his colleagues, and his fans, but I cannot imagine a basis that is more absurd, abominable, destructive, uncivilized, and unjust.

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy is rightfully unhappy with the Fed.

Richard Ebeling reviews Janek Wasserman’s The Marginal Revolutionaries.

Steve Horwitz offers his list of top five books that introduce students to Austrian economics.

My GMU Econ colleague Bryan Caplan is extremely intelligent and wise.

Here’s more on progress from James Pethokoukis (and Steve Davies and Joel Mokyr).

Mark Perry shares Katherine Kersten’s critical analysis of the New York Times‘s atrociously unscholarly “1619 Project.”

Doug Bandow remembers the Spanish-American war.

Larry Reed responds to Anand Giridharadas’s recent cover story for Time. A slice:

Socialist rhetoric always scores higher than socialist policies, and both score much better than socialist outcomes. Telling people they’re entitled to free stuff, or assailing the rich generally, appeals to a certain number, but those figures shift when rhetoric meets reality. This is one reason nobody—socialists, least of all—is conducting any polling in Venezuela.