Russell Roberts's Blog, page 469

Taking Leave of Economic Reality

(Don Boudreaux)

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Here’s a letter to RealClear Policy:

Editor:

Writing in support of mandated paid family leave, Abby McCloskey and Angela Rachidi ask the wrong question and reach a mistaken conclusion (“The Strong Case for Paid Parental Leave,” Dec. 10).

While accurately noting that different empirical studies of the observable consequences of mandated paid leave find different results, Mses. McCloskey and Rachidi treat as the root question that should be asked by those pondering the wisdom of mandated paid leave as being ‘What are the consequences of mandated paid leave?’ But this question is not the root one; the root economic question is: ‘Is there reason to believe that the market fails to provide optimal amounts of paid leave?’ That the authors never ask this question is disappointing because economic theory offers no more reason to suppose that the market undersupplies paid leave than to suppose that the market undersupplies workplace restrooms, company picnics, pension contributions, or paid holidays.

Mses. McCloskey’s and Rachidi’s failure to ask the correct root question likely explains their mistaken conclusion that mandated “paid parental leave offers more choices to parents who face difficulties balancing work with raising children.” In reality, mandated paid leave causes working-parents’ choices to be fewer. Working parents who prefer to receive as much as possible of their compensation in the form of take-home pay are robbed by mandated paid leave of the opportunity to make this choice.

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

…..

Aparna Mathur once attempted to offer a market-failure explanation of why markets allegedly undersupply paid leave, but her attempt fails.

Pittsburgh Tribune-Review: “10 good books”

(Don Boudreaux)

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In May 2nd, 2007, column for the Pittsburgh Tribune-Review I offered my list of top ten books for introducing people to sound economics. Just in time for your holiday shopping, you can read my recommendations beneath the fold.

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Quotation of the Day…

(Don Boudreaux)

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… is from pages vii-viii of Chapman University’s Bas Van Der Vossen’s and Georgetown University’s Jason Brennan’s 2018 book, In Defense of Openness (footnote deleted and tiny typo corrected):

Many people reject the idea that society should be open, respecting the freedom of people to move themselves, their goods, and business in and out of society. They think that immigration and trade are bad, especially immigration from and trade with less developed countries.

These people ignore the overwhelming consensus of economists right and left to the contrary. They ignore hundreds of years of research showing otherwise. In their eyes, drawing an imaginary line on a map magically transforms mutually advantageous trades of goods and services into dangerous games of poker, where one side’s gain comes at the other side’s loss.

DBx: It is no good response to the above to point out that taxation, regulatory, trade, and other government policies differ from jurisdiction to jurisdiction. People who respond by pointing out this reality do so as if it is self-evident that such a response carries the day. Yet it doesn’t.

Even within many national political jurisdictions – for example, within the United States – provincial, state, and local government policies differ from each other without undermining the case for complete freedom of trade among the residents of those national jurisdictions. The fact that the government of Virginia taxes its citizens’ incomes and that the government of New Hampshire doesn’t use such a tax does nothing to justify – either economically or ethically – the government of either state restricting its citizens’ freedom to trade with citizens of the other state.

(I do not doubt, by the way, that were the U.S. Constitution not so consistently interpreted to prevent each state and local government from having its own “trade policy,” this difference in income-tax treatment would be successfully used by special-interest-group producers in each state to justify imposing restrictions on trade with the other state. Special interests in Virginia would assert that New Hampshire’s failure to tax incomes gives producers and workers there an unfair advantage over producers and workers in Virginia – and how can Virginians possibly compete on such an “unlevel playing field?!” At the same time, special interests in New Hampshire would assert that Virginia’s insistence on taxing its citizens’ incomes is such an unjust imposition of burdens on poor Virginians that New Hampshire is duty-bound to punish the government of Virginia by erecting obstructions to the sale of Virginia-produced goods and services in New Hampshire.)

But even for people separated by no political borders whatsoever there are differences amongst them of the sort that are used by protectionists as excuses for trade restrictions. I, for example, – coming as I did from a relatively poor family (by American standards) – had to pay most of my own way through college. Other than paying for my first semester, my parents contributed not a cent toward my tuition. So should I impose on myself restrictions on my trade with those many of my fellow Fairfaxians whose parents or grandparents paid for – “subsidized” – their entire college educations? Am I disadvantaged by trading with my neighbors who do not have to recoup in their current incomes the cost of their college educations?

Or perhaps most of my fellow Fairfaxians are at a disadvantage by freely trading with me. After all, my parents did struggle to pay my tuition for a Catholic-school education K through 12 – primary and secondary education much better, I assure you, not only than that which I would have gotten from the Jefferson Parish, LA, government schools, but also better than what typical students in Fairfax County, VA, government schools get.

Also, what if my neighbor doesn’t believe in the value of a college education and so refuses to send her children to college – thereby not buying from me what I sell (college education, through George Mason University)? Should I respond by refusing to trade with her if she offers to me goods or services at prices that I find attractive? Of course not.

….

Oh, if any of you who are reading this post have sympathies for politicians such as Bernie Sanders or Elizabeth Warren, do not suppose that the above remarks are aimed exclusively at – or apply exclusively to – Trump and his supporters. These remarks apply equally to the likes of Sanders, Warren, and their supporters, for they – on the economic-openness front – differ remarkably little from Trump and his supporters.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is this Facebook post from earlier today by Bob Higgs:

All those American young people who say they favor socialism don’t really want socialism, a type of socio-economic system that fosters poverty, murder, and ultimately totalitarianism. All they really want is other people’s stuff, at no cost to themselves: all the fruits of the rivalrous market system with none of the personal sacrifice and creative effort invested in making that system work so productively.

DBx: Indeed.

How rich it is that these socialists – each a monument to rank greed – call “greedy” the entrepreneurs and business owners whose efforts produce the riches that these socialists seek to confiscate?

Open Letter to Oren Cass

(Don Boudreaux)

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Here’s an open letter to Oren Cass:

Mr. Cass:

I see that you’re leaving the Manhattan Institute in order to launch your own venture, which you describe on Twitter as “a new organization whose mission is to redefine the economic orthodoxy that guides the nation’s politics and public policy.”

Although I wish you well, I have trepidation. My experience is that whenever a non-economist, such as yourself, who is unhappy with free markets expresses dissatisfaction with “economic orthodoxy,” what commences is a furious slaying of straw men. So, hoping to prevent you from doing such slaying, I offer here a handy guide to common misconceptions about free-market “economic orthodoxy” – or to use a less-loaded term, “market economics.”

– Market economics does not hold that money is all that matters. Quite the contrary. Competent economists understand better than most people that individuals have a large scope for, and a deep interest in, trading off money for non-monetary benefits, often ones that are intangible. Indeed, in the end – as any decent economist knows – money is valuable only because it’s exchangeable for benefits that are non-monetary and, frequently, non-material. Money is never what ultimately matters.

– Market economics does not hold that the world would be perfect if only government stays out of the way. Even in the best possible market economy, some workers lose jobs and some businesses go bankrupt. Indeed, in market economies such churn is unavoidable. What market economics does hold is that empowering the state to reduce the incidence of churn will either excessively increase such churn or give rise in its place to different problems that are far worse for the very people whom the state ostensibly intends to help.

– Market economics does not hold that consumers, workers, investors, and entrepreneurs are fully informed and never prone to error or to personal irresponsibility. What market economics does hold is that, while no economic or social arrangement will ever eliminate human ignorance and irresponsibility, government attempts to shield individuals from these realities only make individuals even less informed and less responsible.

– Market economics does not assume that markets are perfectly competitive and that prices, wages, and interest rates adjust instantaneously.

– Market economics does not assume that all foreign governments avoid imposing tariffs and paying subsidies that affect economic activity in the home country.

– Market economics does not assume that workers displaced from jobs instantaneously find new jobs at pay equal to or higher than these workers earned in their former jobs.

– Market economics does not assume that tax cuts are a miracle elixir, or that current taxes should be cut irrespective of the level of government spending.

– Market economics neither discounts the value of work nor denies that people find meaning and dignity in their jobs. Yet while market economics is especially insistent that production precedes consumption, it insists also that the value of work and other production activities lies in how much they increase people’s ability to consume. Market economics understands that, in our world of scarcity, work for the sake of work – work done regardless of its contribution to people’s ability to consume – is wasteful. And there’s no true dignity in spending one’s time wastefully, even if a great amount of sweat is produced by the exertion.

Finally, I urge you not to join the chorus that incessantly chants that most of the world for the past 40 years has been governed by a policy of virtual laissez faire. Starting in the late 1970s, some tax rates were cut (as some tariff rates continued to fall), some activities were freed from government regulation, and, of course, Maoism and then Soviet communism perished.

But the state has remained much more than a night-watchman. Non-tariff barriers are significant, immigration quotas are fixed firmly in place, and governments continue to take a quarter or more of GDP and dole out significant amounts as subsidies. And at least in the U.S. there’s also been a cancerous growth of occupational-licensing and land-use restrictions. Our world isn’t close to the ideal endorsed by scholars such as F.A. Hayek, Milton Friedman, James Buchanan, or Robert Nozick.

Again, good luck with your new venture.

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: “Paper chase”

(Don Boudreaux)

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In my Pittsburgh Tribune-Review column of April 11th, 2007, I complained about the Bush administration’s imposition of punitive taxes on Americans who buy paper products from the Chinese. You can read my complaint below the fold.

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Quotation of the Day…

(Don Boudreaux)

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… is from page 184 of Deirdre McCloskey’s excellent 2019 book, Why Liberalism Works: How True Liberal Values Produce a Freer, More Equal, Prosperous World for All:

A changing economy requires constant diligence and focus by humans, which is more likely evoked by humans owning the capital, labor, and land than by remote central planners.

DBx: Yes.

Philosophers can debate whether or not change implies open-endedness and, hence, genuine unpredictability and uncertainty. I believe that it does. If I’m correct, then to the extent that the economy is planned centrally, that planned part of the economy either must be prevented from changing or the central plan must be abandoned (or the plan itself changed so often that to call it a plan is an abuse of language).

Genuine change cannot be planned. By its very nature it cannot be planned. Genuine change cannot be predicted in the detail required to make planning operationally possible. And yet real economic growth (as opposed to the kind of economic ‘growth’ that was reported by and about the Soviet Union) is possible only if genuine change occurs.

All schemes to put the direction of the economy in the hands of officials with the power to coerce resources from others are destined to fail. That clever professors, pundits, and politicians can and do use math, graphs, words, beautiful slogans, and sharp PowerPoint presentations to describe how such armed officials might engineer us all to a point closer to economic bliss proves nothing about the real world except, perhaps, that the human propensity to put faith in grand hopes while ignoring realism about human nature and (now that the 20th century is on record) ignoring also experience is dismayingly potent.

What Would Bill Say?

(Don Boudreaux)

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Here’s another letter to the Washington Post:

Editor:

That Jonathan Gruber’s and Simon Johnson’s case for a massive increase in government support for research and development is co-sponsored by the Niskanen Center is deeply ironic (“We need new research hubs – but not on the coasts. Here’s how we get them.” December 7).

The second chapter in the 2008 collection (Reflections of a Political Economist) of some of the late William Niskanen’s finest scholarly writings is his superb 1997 paper “R&D and Economic Growth: Cautionary Thoughts” – which features such passages as:

– “The United States had become the richest nation in the world long before there was significant ‘American leadership in science and technology.’”  

– “Governments are often the most myopic institutions in society, given the limited political payoff of conditions beyond the next election.”

– “The record is more consistent with a hypothesis that R&D is an income-elastic consumption good, something that rich people and rich nations do rather than an investment that will increase future economic growth.”  

– “A market imperfection, however, does not imply that government can improve this outcome.”

– “Basic science is clearly not a pure public good; there was and would be a substantial amount of basic science in the absence of any government support.”

– “These institutional conditions and the cumulative evidence summarized in this chapter lead me to question whether the government should directly finance basic research.”

– And last but not least (given the title and details of Gruber’s and Johnson’s essay): “Suppliers of the new technology have better information and incentives [than do government officials] to select the most valuable research and the places where it should be performed.”

No one can read his 1997 paper and come to any conclusion other than that, were Niskanen still alive, he would strenuously oppose professors Gruber’s and Johnson’s scheme, and be miffed that it is endorsed by an organization bearing his name.

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

The Hubris of Such People Is Appalling

(Don Boudreaux)

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Here’s a letter to the Washington Post:

Editor:

Jonathan Gruber’s and Simon Johnson’s case for government to do massively more to increase innovation rests on several questionable assumptions (“We need new research hubs – but not on the coasts. Here’s how we get them.” December 7). Among these is that Congress – which long ago lost whatever spine that it might once have had to refuse the demands of constituents for immediate gratification, and the yammering of special interests for economically harmful privileges – can be trusted to attend to the future prudently and apolitically.

But no assumption is more questionable than that which lurks in Gruber’s and Johnson’s call to “strengthen scientific fields where breakthroughs are imminent.” Anyone who truly knows in sufficient detail what breakthroughs are imminent is not someone who will work as a bureaucrat or even as a member of Congress. That person instead will use his or her clairvoyance to make a personal fortune to dwarf that of Jeff Bezos – whose own personal fortune, take note, was made by innovating in retailing, a field that no professor, politician, or pundit of 30 years foresaw as being on the verge of one of the greatest innovations of all time.

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

…..

Gruber and Johnson would not have been more ridiculous had they instead written “If we all just pray to this here gaggle of magical geese, we will soon enjoy an endless supply of golden eggs.”

To What Standard Should Foreign Governments Be Held On Trade-Related Matters?

(Don Boudreaux)

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My latest column for AIER is inspired by my correspondence last week with the great libertarian philosopher Eric Mack. In this column, I ponder reactions in the home country to less-than-saintly activities by foreign governments. A slice from my column:

Protectionists are clever at devising superficially plausible excuses for their obstructions of people’s freedom to trade. A recent instance in the United States is Democrats’ and progressives’ demand that the “new NAFTA” — called “USMCA” (for “U.S.-Mexico-Canada Agreement”) — “protect” the “rights” of workers in Mexican auto plants by effectively requiring that many of these workers enjoy wages and workplace conditions similar to the wages and conditions workers enjoy in the U.S. and Canada.

But because Mexico is a much poorer country than are its northern neighbors, Mexicans cannot afford to have wages as high, and workplace conditions as nice, as now are commonplace throughout the U.S. and Canada. And so by insisting that auto production in Mexico be conducted similarly to how auto production is conducted in wealthier countries, protectionists in the U.S. prance publicly as champions of the downtrodden while they understand privately that their demands, if met, will simply shift more auto production from Mexico to the U.S. American auto workers will be artificially enriched at the larger expense of Mexican workers (who will be harmed by the resulting loss of capital investment in that country) and of auto buyers throughout North America (who will suffer from the resulting higher prices of automobiles).

Actually, in this case the American public is so uncritical of protectionists’ excuses that the Democrats and progressives pushing for what they know to be unrealistic labor “rights” in Mexico can risk revealing their true motives. In making the case to include these unrealistic provisions in USMCA, American protectionists often mention that these provisions will also protect workers in the U.S. — by which these protectionists mean workers in U.S. auto plants. Yet no one to my knowledge has pointed out this inconsistency: to the extent that the provisions demanded in USMCA protect workers in America from losing employment to workers in Mexico, those provisions will reduce the demand for auto workers in Mexico and, thus, harm workers in that country.

By admitting that their goals include preventing auto workers in America from losing jobs, protectionists in the U.S. reveal that, far from being — as they claim — enlightened and compassionate champions of Mexican workers, they are in reality venal and cruel enemies of those workers.