Russell Roberts's Blog, page 473
December 3, 2019
Quotation of the Day…
… is from pages 221-222 of the 2016 re-issue of my late colleague Don Lavoie’s indispensable and devastatingly effective 1985 refutation of the case for industrial policies of whatever particular stripe, National Economic Planning: What Is Left?:
[T]he unprecedented productivity of the Market organizing principle relative to Tradition was due to the rapid profit and loss selection process by which new habits could be tried, old ones revised, and either, where profitable, preserved. The essence of planning as it is practiced is to sabotage this very feature of markets, to slow down or prevent the revision of established routines. These rigidification policies are implemented by using traditional mercantilist tools for government interference into the competitive process: licensing restrictions, wage and price controls, credit allocation, and the dispensing of subsidies to special interest groups….
DBx: Beautifully put.
Compared to Progressives who endorse industrial policy, conservatives who do the same at least have the advantage of being truer to their name: industrial policy is aimed at conserving existing firms, existing jobs, and existing patterns of specialization and trade. Progressives, in contrast, bizarrely imagine that such conservation is progressive, while leaving people free in competitive markets to innovate and to replace exiting firms, jobs, and patterns of specialization and trade with new and better ones is a conservative stance.
(Progressives will protest that they wish not to conserve existing producers and jobs but to use state power to create firms and jobs “of the future.” But pay close attention to the schemes actually proposed by Progressive politicians: these all are aimed at artificially protecting, or even enlarging, markets for existing producers. Owners of firms “of the future” and holders of jobs “of the future” vote only in the future; they do not vote in the present. Votes in the present are cast by owners of firms of the present and by holders of jobs of the present. And so it is to these present voters that politicians pander.)
But what both conservative and Progressive proponents of industrial policy miss is the reality that industrial policy inevitably obstructs economic growth. Such policy is not only not progressive, it destroys the very process that created the firms and jobs that industrial policy is intended to preserve.
December 2, 2019
Bonus Quotation of the Day…
… is this recent Facebook post by Bob Higgs:
POLITICS: the best means ever devised for bringing out the worst in large groups of people.
DBx: Yes.
The Economics of Correcting ‘Market Failure’ Isn’t as Scientific as It Appears
At this point the mainstream economist pushes back. He doesn’t deny (How could he?!) that, as a technical matter, getting precise information on marginal social costs is practically impossible. But he insists that such an ideal standard is inappropriate. “We can estimate the divergence between private and social costs closely enough,” the mainstream economist assures us, “and then have government act on those estimates. It’s better than doing nothing.”
While it’s true that the perfect should never be allowed to obstruct the good, there are at least two looming problems with this mainstream-economics approach – problems that warn against trusting it to serve as a reliable guide to government policy.
First, as explained above, there’s no good reason to think that estimates made of social costs by even well-intentioned and sparklingly brilliant government officials will be close-enough to accurate to trust that a government empowered to correct market failures will, on the whole, raise social welfare. The assumption that such officials will typically perform well enough on this front is based on no science; it’s merely an assumption – or, rather, an aspiration.
Second, there’s no good reason to think that government officials in reality face incentives that prompt them to behave as their doppelgängers in textbooks behave. The entire case for using government to correct alleged market failures is built on the belief that self-interested actions of private decision-makers lead them to seek private benefits at the greater expense of the public. But if we assume that people act self-interestedly in their private spheres we must make the same assumption about people’s motivations in public spheres.
Yet despite more than a half-century of warnings from public-choice economists, mainstream economists continue to assume, without much apparent thought, that government officials act in a way that is categorically different from the way these same persons would act were they in the private sector: private persons are assumed to act to promote their own self-interests, while government officials are assumed to act to promote the public interest.
What, however, could be more unscientific than this assumption of dual motivations? It is justified neither by science nor by common sense, but it is crucial to the “scientific” case for government action to correct market failures.
My argument is not that markets are perfect. (They certainly are not.) Nor is my argument that a highly informed and well-meaning deity could not intervene in markets in ways that improve their performance. (Such a splendid creature certainly could.) My argument is that because economists advise government officials rather than deities, the economic case for using government to correct market failures is scientific only in the most superficial sense. Deep down it’s mostly superstition.
Pittsburgh Tribune-Review: “The system is the solution”
In my Pittsburgh Tribune-Review column of January 12th, 2007, I did my best to explain why the findings of behavioral economics do not, contrary to much belief, weaken the case for leaving markets free of government meddling. You can read my column beneath the fold.
Quotation of the Day…
… is from page 134 of Gertrude Himmelfarb’s superb 1952 biography of Lord Acton, Lord Acton: A Study in Conscience and Politics (footnote excluded; Himmelfarb here quotes Acton from the latter’s February 26th, 1877, address to the Bridgnorth Institute, “The History of Freedom in Antiquity“:
In the zeal for the popular interest, however, there was no provision for the unpopular, and the minority soon found itself at the mercy of the majority. The people, now sovereign, felt themselves bound by no rules of right or wrong, no criteria except expediency, no force outside of themselves. They conducted wars in the marketplace and lost them, exploited their dependencies, plundered the rich, and crowned their guilt with the martyrdom of Socrates. The experiment of Athens taught that democracy, the rule of the most numerous and most powerful class, was an evil of the same nature as monarchial absolutism and required restraints of the same sort: institutions to protect it against itself and a permanent source of law to prevent arbitrary revolutions of opinion. Men learned for the first time what later history was to confirm again and again: ‘It is bad to be oppressed by a minority, but it is worse to be oppressed by a majority. For there is a reserve of latent power in the masses which, if it is called into play, the minority can seldom resist. But from the absolute will of an entire people there is no appeal, no redemption, no refuge but treason.’
December 1, 2019
Pittsburgh Tribune-Review: “Irrational us?”
In my column for the December 29th, 2006, edition of the Pittsburgh Tribune-Review, I took a look at behavioral economics. If you’re rational, you’ll want to read the column, which is beneath the fold.
Quotation of the Day…
… is from page 486 of George Will’s excellent 2019 book, The Conservative Sensibility:
It is astonishing that we do not live in a state of perpetual astonishment.
DBx: If you’re reading these words, why are you not in a perpetual state of astonishment – or, at least, in such a state frequently? You are gazing at the screen of a computer, powered by electricity generated at a place that you likely do not know by machines built with technological knowledge about which you almost certainly haven’t a clue. (If you’re currently using battery power, your astonishment should be even greater given that you’re now tapping into electricity stored-up.)
From my home in northern Virginia I am communicating with you wherever you are. You are, perhaps, literally on the other side of the globe, and you’re certainly not within earshot of me. And if you wish you can read my pedestrian prose not on a computer but on a small hand-held device – a device that, when you tire of reading what I write, you can use to send an instant message to your daughter, your father, your boss, to the dentist’s office to confirm your upcoming appointment, to a countless number of people. (You can even, with only a small number of simple movements of your fingers and in a matter of seconds, share my pedestrian prose with those people – including, if you imagine that he’ll like it, your dentist.)
You woke up in a warm bed covered with clean sheets – sheets that, if you believe them to be insufficiently clean, you can put into machines, ones also powered by electricity, press a few buttons, and in a couple of hours have clean sheets.
While waiting for your sheets to wash and dry … but why wait? Jump into that large machine that now sits a few short steps from your door. Power it up and drive it – safely, and at speeds that no human being until about 200 years ago ever experienced – to your favorite bagel store (you have a favorite among the many merchants who sell bagels from which you can choose), stroll in and buy your favorite variety of bagel (you have a favorite among the many varieties of bagels from which you can choose).
Who prepared the dough and boiled it to make that fresh bagel available to you? Someone did – actually, many someones. They woke up, while you still slumbered comfortably in your warm bed, to create hundreds of bagels, simply in the hope – not the demand, the hope – that you might spend an infinitesimal fraction of your income on one or a few of their offerings.
Driving home, tummy satisfied now that it’s filled with a bagel and your favorite flavor of cream cheese (and, perhaps, also with some salmon caught by .. who? where? how? Wow!!), you notice that your car is low on fuel. You pull into a gasoline station, whip out a piece of plastic, insert that piece of plastic into another machine, and within seconds commence to pumping gasoline into your vehicle.
Do you ever pause to ponder where this miraculous fuel comes from? I mean, really comes from? “Crude oil” is a crude and inadequate answer. If you were standing atop what you know to be an immense deposit of crude oil, the petroleum beneath your feet would be useless to you. It would not be fuel. It would not be even a “natural resource.” It would be nothing to you.
What must you do to convert the stuff beneath the ground on which you stand into a few gallons of gasoline for your automobile? You first need a powerful drilling machine fitted with a mighty drill bit. You couldn’t make that machine by yourself, even with the help of your family and friends, if you were given a thousand years to do so.
But let’s pretend that, by some miracle, you gain access to the oil in the ground. Have you any idea how to refine it into gasoline? Do you know anyone who you might call or text in order to get this knowledge? Of course not.
Pumping the oil from the ground, refining it into gasoline, and enabling it to be pumped safely into your car requires the knowledge and efforts of literally millions – more likely, hundreds of millions – of people. And yet you, filling your tank at a cost of no more than an ordinary American worker earns in a mere 90 minutes on the job, acquire enough fuel to enable you to drive for another 300 miles.
Knowing nothing whatsoever about petroleum engineering or the principles upon which internal-combustion engines operate, you have regular, ready, and affordable access to gasoline and automobiles – access made possible by the knowledge and effort of multitudes of strangers. Why are you not astonished?
And why are you not astonished also by the clothes you’re wearing? By the coffee you’re sipping? By the vaccine that saves you and your loved ones from the fear of contracting polio? By the heating unit in your home that saves you and your loved ones from the fear of being uncomfortable when Jack Frost is nipping about outdoors? By the existence of Amazon.com and FedEx that allows you to do your Christmas shopping while sitting in that surprisingly comfortable chair that you bought earlier this year at Ikea for $199 – a chair that, despite its seeming simplicity, is like the gasoline that you just pumped into your car: you yourself could not make it if given several lifetimes.
….
“Capitalism doesn’t work!” “Capitalism is a threat to human existence!” – or so we hear increasingly from individuals, many earnest and some venal, and all spewing utter ignorance. Such people fly around the world on jetliners, eat avocado toast and drink grapefruit juice in December in Oslo and Boston and Ottawa, stream music from pocket-sized devices, enjoy sex with whatever consenting adults they wish while, if they also wish, using inexpensive yet highly effective condoms and birth-control pills or devices, and never, ever – not once – worrying about starving to death.
Rather than complain about the unavoidable fact that earth is not, and cannot be made to be, paradise, all of us should spend more time being astonished at our great and unprecedented good fortune.
November 30, 2019
Hole-d On!
My son, Thomas, is home for the Thanksgiving break from his graduate studies in astrophysics. Just yesterday he told me that an unusual black hole has just been discovered. This newly discovered black hole is unusual because it is of a size that has not so far been observed: its mass is much greater than many known black holes but much smaller than other known black holes. It is (my word here) of an intermediate size heretofore unobserved.
So check out this headline on today’s Washington Post site: “Scientists find ‘monster’ black hole so big they didn’t think it was possible.” When I read it to Thomas, he immediately replied, “Well, that headline is highly misleading.”
Had my son not already told me about this newly discovered ‘intermediate’-sized black hole, I would have concluded when encountering this headline that this newly discovered black hole is larger – indeed, likely much larger – than any black hole ever before discovered. But that conclusion would have been mistaken. At best, what scientists might not have thought “possible” is a black hole of this intermediate size. But a more accurate headline would not have been as attention-grabbing.
If you read the Washington Post report you eventually encounter accuracy, but not until paragraph ten.
….
Apparently, misleading headlines are not unique to reports on economic matters.
Some Links
George Will is correct that Elizabeth Warren in many ways has become the Trump of the political left. Here’s his conclusion:
Her cachet has been intellectual gravitas, supposedly demonstrated by blueprints for refurbishing everything. Suddenly, “the thinking person’s Bernie Sanders” seems more like progressivism’s Trump, exacerbating social hostilities and playing fast and loose with facts. Markets, for which Warren has minimal respect, are information-generating mechanisms, and America’s political market is working. Her Medicare-for-all plan provides indispensable information, not about governance but about her.
David Henderson makes the case for free trade.
David Rose calls on colleges to defend free speech.
Alexander Hammond decries trendy hostility to capitalism.
Matt Ridley exposes the plot against fracking.
Pittsburgh Tribune-Review: “Spontaneous order & law”
In my December 14th, 2006, column for the Pittsburgh Tribune-Review, I did my best to help debunk the myth that law is akin to legislation in being the result of human design. The column appears in full beneath the fold.
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