Russell Roberts's Blog, page 48

Pittsburgh Tribune-Review: “The sharing economy”

(Don Boudreaux)

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In my column for the October 8th, 2013, edition of the Pittsburgh Tribune-Review I did my best to explain how voluntary exchange incited and guided by market prices results in we humans sharing with each other our different talents and good fortunes – and also our bad fortunes. One of the results is greater equality of well-being.

Here’s a further reality: Government-imposed price controls obstruct this sharing, thus keeping inequality of well-being higher than it would be without price controls.

You can read my column beneath the fold.

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(Don Boudreaux)

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Writing in the Wall Street Journal, Burton Malkiel exposes the economic ignorance that lay at the heart of Biden’s proposal to dramatically increase taxes on stock buybacks. Two slices:

Stock buybacks don’t take money away from pro-growth investments. Most buyback funds are reinvested in the stock market and in private equity, where they can be put to more productive use. A policy such as the one Mr. Biden is proposing distorts economic decisions that could harm the savings that many people rely on for retirement.

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Perhaps the most pervasive critique by progressives is that the practice enhances the wealth of the top 1% of the population, who own most of the stock. While direct ownership of shares isn’t common among low-income people, indirect ownership through retirement plans exists across the income distribution. Most common stock is held by the mutual (and exchange-traded) fund industry and by a variety of public and private pension plans. Entities such as the California Public Employees’ Retirement System as well as state-run pension plans own enormous amounts of common stocks. These institutions usually reinvest the proceeds from buybacks, and they rely on returns from the stock market to preserve the viability of their programs.

Increasing the tax on corporate buybacks is bad policy. Any revenue raised would come at the expense of making the capital allocation process less productive and introduce inefficiency into the capital markets. A policy that distorts corporate decision making and interferes with the movement of investment capital would harm the economy and weaken the country’s retirement system.

Exposing Biden’s – and many other Democrats,’ as well as Republicans’ – ignorance about trade is the New York Times‘s Peter Coy. Two slices (link added):

To me, something is out of whack in Washington when there’s bipartisan agreement that the federal government should buy products that are made in the United States even if they’re more expensive, even if they aren’t as good and even if the imported versions pose no national security concerns.

If the American-made products were cheaper, better or both, there would be no need to force agencies to buy them. They’d be the natural choice. So either the requirement is harmful to the customers in the federal government and, by extension, taxpayers, or it’s superfluous.

As for national security, there are other laws that stop Americans from buying, say, gallium arsenide integrated circuits for military purposes from potential adversaries such as China. That’s not what Biden is talking about here, though. You have to have a vivid imagination to see a national security threat from imported lumber, glass, drywall or optical fibers. (The electronics in fiber optic cables are a potential concern.)

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These are not new arguments. Clearly, though, judging from the standing ovation Biden got this week, a lot of people in Washington aren’t persuaded by them. I asked Douglas Irwin, a Dartmouth College economist who wrote a book titled “Free Trade Under Fire,” whether he’s hopeful for free trade. “Not really,” he said. “The old center has lost ground.” It will probably take evidence of substantial harm from protectionism to get people to change their minds about it, he said.

John Hasnas explains “the diversity dodge.” A slice:

We might call this the “diversity dodge.” Those making the value decisions for colleges and universities believe that the right thing to do is to give preference to minorities until they occupy a share of the student and faculty slots proportional to their percentage of the population. The Civil Rights Act prohibits doing this directly. But colleges and universities can do it indirectly by saying that they are pursuing the educational benefits of a diverse student body. (Note that they cannot use this rationale to increase the number of minority faculty they hire, because obtaining whatever benefits flow from having an ethnically diverse faculty is not an interest that can override the restrictions of Title VII.)

Marcus Witcher reviews Timothy Sandefur’s Freedom’s Furies: How Isabel Paterson, Rose Wilder Lane, and Ayn Rand Found Liberty in an Age of Darkness. Two slices:

With Freedom’s Furies, Timothy Sandefur shows how Isabel Paterson, Rose Wilder Lane, and Ayn Rand defended individualism and free markets while America was in the grips of Depression and war. Although these three furies have long been identified as the founders of modern American libertarianism, Sandefur treads new ground by exploring their relationships with each other and by tracing the evolution of their thought. All three women offered their own unique defenses of individual liberty, and their disagreements anticipated the differences among libertarians and classical liberals today.

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In the midst of that darkness, Sandefur writes, Paterson, Lane, and Rand argued “that the spirit of self-reliance was the keystone of American mores—the essential element that allowed for political liberalism, economic growth, the flourishing of geniuses such as Edison and the Wright brothers, and the peaceful pursuit of happiness by millions of unknown citizens.” Individual liberty and self-reliance are still the keystones, and the furies’ successors will surely continue to promote liberty in the face of the darkness today.

My former GMU Econ colleague Bill Shughart explains what shouldn’t – but, unfortunately, what nevertheless does – need explaining: “Noncompete contract clauses are agreed-upon voluntarily.” A slice:

One of the purposes of noncompete clauses is to prevent employees who gain sensitive firm-specific knowledge in their current jobs from divulging it to a rival in return for promotions, pay raises, or other benefits. Specialized knowledge comes in many forms, not just a business’s intellectual property, which may not be protected formally by patents or copyrights but instead by “trade secrets.” Information about unique production techniques, lists of current customers, methods of determining prices, marketing and advertising strategies, inventory policies, and many other aspects of one company’s business operations is valuable to competitors.

Because noncompete clauses limit employees’ job market options, they would be willing to accept such conditions only if the wages or salaries the employer pays exceed the amounts offered without restriction. The pay premium since Adam Smith has been called a compensating wage differential, which the employer is willing to offer if it is less than the added value the employee brings to the job. Noncompete clauses necessarily benefit both parties to an employment contract; they would not survive in a competitive marketplace otherwise.

Speaking of compensating differentials in wages, Tim Worstall identifies another.

A medical consensus today sometimes goes up in smoke tomorrow.

TANSTAFPFC (There Ain’t No Such Thing As Free Protection From Covid.)

Wood House tweets: (HT Jay Bhattacharya)

My friend’s elderly mom is being isolated for 10 days, no visitors allowed, at a rehab center in the Chicago suburbs, after testing positive for covid. cc: @AmyJacobson @DanProft

Friend: “It’s demoralizing, it’s dehumanizing, and a complete fiasco.”

Quotation of the Day…

(Don Boudreaux)

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… is from page 6 of the 2005 reprint of Harvard economist Frank Taussig’s classic 1888 work, The Tariff History of the United States:

But the United States hardly lag behind in the industrial advance of the present day, and where they do labor under artificial or factitious disadvantages, these cannot endure long or be of great consequence under a system of freedom.

DBx: Freedom to experiment with producing different outputs, with different methods of production, with different organizational forms and contractual arrangements, and with different types of financing – and freedom to trade – all done by producers and consumers spending only their own money is the best path to sustained and widely shared economic growth.

Under what Taussig called “a system of freedom,” mistakes will be made. Wrong paths will be taken. Perfection will be out of reach. But being the results of privately made decisions, these errors, when discovered, will be reversed, thus limiting the damage. And, of course, the only way to ensure against these sorts of errors is to commit one of two errors of far larger magnitude – namely, either (1) turn resource-allocation decisions over to the political process, in which government officials spend the money of other people, who are denied the right to say ‘no’; or (2) attempt to prevent economic change.

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It’s interesting that Taussig (pictured here), who was born in St. Louis in 1859, wrote of “the United States” as a plural.

Hipopolorum and Lopopohirum

(Don Boudreaux)

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Here’s a letter to the Washington Post:

Editor:

George Will eloquently summarizes why he’s pessimistic about the prospects of reining in the perilous growth of U.S. government spending (“Quadrillion-dollar national debt? Chew, don’t nibble, on this math.,” Feb. 12): “The only adequate savings – savings commensurate with the structural debt crisis – require structural reforms of entitlement programs. Politically risky things cannot, however, be done in election years or years immediately preceding election years, which are the only years there are.”

Indeed. And so Republicans, despite (sometimes) posing as budget hawks, will not seriously counter Democrats’ fiscal incontinence.

As Thomas Sowell observes,

If the Democrats came up with a plan for all Americans to jump off a thousand-foot cliff tomorrow, some Republicans would come up with an “alternative’ plan in which we would all jump off a 500-foot cliff next week.*

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

* Thomas Sowell, Barbarians Inside the Gates (Stanford, CA: Hoover Institution Press, 1999), page 249.

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(Don Boudreaux)

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Writing at National Review, Phil Magness exposes the many errors and political purpose of Hulu’s 1619 Project series. Five slices:

The original New York Times version of the project assigned the topic [of the economics of slavery] to Princeton sociologist Matthew Desmond, a novice without any scholarly expertise or methodological training in one of economic history’s most thoroughly scrutinized topics. The resulting essay blended empirical error with a basic misreading of the academic literature to almost comical ends. He casually repeated a thoroughly debunked statistical claim from a “New History of Capitalism” (NHC) scholar Ed Baptist, who erroneously attributes the growth of the antebellum cotton industry’s crop yield to the increased beating of slaves (it was actually due to improved seed technology). At one point, Desmond even asserted a lineal descent from plantation accounting books to Microsoft Excel — the result of misreading a passage in another book that explicitly disavowed this same connection.

Desmond is conspicuously absent from the new Hulu episode, although Amazon warehouses do apparently supplant Microsoft as the modern-day iteration of plantation economics — a message repeatedly emphasized as the camera shots flash between historical photographs of slaves working in the cotton fields of the antebellum South and footage of an Amazon distribution center. The cinematic juxtaposition is intended to provoke. Instead, it simply ventures into morally offensive analogy, stripped of any sense of proportion or understanding of slavery’s abject brutality. Though she stops just short of saying as much, [Nikole] Hannah-Jones wishes for her viewers to identify an hourly-wage job with the internet retail giant as a modern “capitalist” continuation of chattel slavery.

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Hannah-Jones’s semantic exercise shifts as she brings in a new consultant to the 1619 Project, UCLA historian Robin D. G. Kelley. Unlike Rockman’s self-contradictory equivocation, Kelley minces no words: “The reality is that capitalism is based on the exploitation of labor. It’s that simple.” And with that assertion, the 1619 Project episode further stumbles through its investigation of “capitalism” by adopting an unvarnished Marxist conceptualization of the term.

Equating capitalism with the exploitation of workers certainly serves the purpose of designating chattel slavery as a capitalistic institution, but it is simply not an accurate — or even functional — definition of the concept. Ancient Roman slavery, medieval feudalism, Soviet-era gulags, and North Korean prison camps today would also qualify as “capitalism” if we reduce the concept to exploitative worker conditions, and indeed that is how Hannah-Jones, under Kelley’s aggressively ideological guidance, proceeds.

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Economists have long rejected the class of monocausal development theories that purport to find the economic engine of an entire epoch in a single good or product, such as oil or railroads in more recent times. Aside from seldom exceeding single-digit shares of economic output, one-industry theories of economic development must contend with the counterfactual presented by the allegedly dominant industry’s closest substitutes. In the case of cotton, alternative sources could be found outside of the American South — and indeed they were during the Civil War, when the blockade induced the textile mills of Europe to turn to Egypt, India, and South America for their raw materials. In this respect, the 1619 Project repeats the same economic error that led the Confederacy to mistakenly proclaim that “cotton is king,” assuming none would dare make war upon its plantation system for risk of amputating the alleged source of their own wealth. In practice, King Cotton was but a garish pretender to an economic throne that did not even exist.

Although the 1619 Project’s anti-capitalism arises from ideological roots, it is difficult to avoid the conclusion that the series’s elementary misrepresentations of American economic history arise from the abject ignorance of its creator and her chosen guests.

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Hannah-Jones nods in agreement, volunteering her own declarative assessment that unionization and civil rights are synonymous causes. In doing so, she repeats what historian Paul Moreno dubs “one of the hoariest myths in the history of the American labor movement” — the notion that racial animus is externally imposed on the working class to keep it divided and weak. In reality, the long history of unionization in the United States is replete with homegrown racism, as organized labor has sought to increase white workers’ wages by driving African Americans out of the competitive workforce. Many early-20th-century union initiatives, including working-hour restrictions, minimum wages, and collectively codified seniority privileges for existing workers allowed organizers to cartelize white labor against wage competition from African Americans and immigrants. The mostly white union sector benefited from artificially higher pay under these measures, whereas blacks found themselves excluded from employment entirely.

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The informed viewer cannot help but notice an element of accident in Hannah-Jones’s economic misadventures. Progressive policy aims characterized the 1619 Project from the beginning, to be sure, but its confused economics left the project’s creator adrift in a sea of withering criticism. As she cast about for new sources to salvage her narrative, she eventually landed in the fringes of academic Marxism. But there’s no reason for outrage over the many errors of fact and economic reasoning that result from this witless embrace of anti-capitalist crankery. The incoherent narrative that the 1619 Project builds in its attempt to link modern Amazon warehouses to slavery offers no meaningful insights about the history or economic workings of either institution. But it is sufficiently self-discrediting to dissuade most viewers outside of the already converted.

Villanova professor Vincent Lloyd – a black man of the political left – recounts his truly disturbing encounter last summer with the cult of wokism. A slice:

They alleged: I had used racist language. I had misgendered Brittney Griner. I had repeatedly confused the names of two black students. My body language harmed them. I hadn’t corrected facts that were harmful to hear when the (now-purged) students introduced them in class. I invited them to think about the reasoning of both sides of an argument, when only one side was correct. The students ended with a demand: In light of all the harms they had suffered, they could only continue in the class if I abandoned the seminar format and instead lectured each day about anti-blackness, correcting any of them who questioned orthodoxy. The only critical perspectives they were receiving during the summer, they claimed, were from Keisha. A white girl—the one with all the snails—punctuated their point: “Keisha speaks for me: She says everything I think better than I ever could.”

Keisha is uniquely talented at performing her role, but she isn’t the author of the play. Pushing anti-racism to its limits, what we reach isn’t just hollow doctrine, but abuse: Pathological relationships that cut us off from the world, from the give-and-take of reasons and feelings unfolding over time that makes up life in the world. We see this crystal clear in the paradoxes that I encountered: The experience was supposed to be organized around a “transformative justice,” rather than a punitive model, yet the community managed to expel two of its members. Students continually voiced their desire to find practical actions to help change the world, but after four weeks, they had learned to say that anti-blackness is so foundational, the world could never change. The students wanted freedom, for themselves and for all, but they started to say that the only route to freedom is indoctrination: having me tell them what to think.

The Wall Street Journal‘s Editorial Board compares Florida to New York. A slice:

Here’s Bryan Caplan, et al., on the “right to housing.”

Scott Sumner is correct: Natural resources are indeed overrated.

My Mercatus Center colleague Elise Amez-Droz, writing for Reason, reports that “across the globe, government health care systems are failing us.”

Lionel Shriver sings the praises of appropriate stigma.

Because Jennifer Sey is pro-science she is anti-mask.

“New York’s kid-vaccination collapse is a grim result of ‘expert’ COVID misinfo.”

Matt Taibbi tweets: (HT Jay Bhattacharya)

The people determined to reduce the Twitter Files into a partisan pissing match are doing so precisely because the real targets of these stories aren’t parties, but the FBI, DHS, DOD, and other massive state entities who’ve been improperly meddling in domestic speech.

Quotation of the Day…

(Don Boudreaux)

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… is from page 64 of Julian Simon’s 1996 magnum opus, The Ultimate Resource 2:

The quantity of a natural resource that might be available to us – and even more important the quantity of the services that can eventually be rendered to us by that natural resource – can never be known even in principle, just as the number of points in a one-inch line can never be counted even in principle.

DBx: Yes.

A resource is a bundle of services that can be rendered to humanity. Take as an example petroleum. It renders energy as fuel, malleable viscosity that becomes plastics, and other molecular arrangements that become key ingredients in petrochemicals and pharmaceutical products. Each and every one of these rendered services originated in creative human minds that discovered how to extract these services from those particular molecular arrangements.

Because human creativity is on-going – or, under encouraging cultural and institutional settings, can be on-going – Simon is correct that, even in principle, we cannot know how much of a natural resource is available to us.

This key (and keen) insight remains valid even if we limit our attention to only one particular kind of service rendered by a resource – say, petroleum’s rendering of the service of fuel. Let’s assume (contrary to fact) that we know for certain that there are now only five trillion barrels of crude oil available on earth. This number – “five trillion barrels” – appears to be objective, as well as a hard constraint. But economically it tells us surprisingly little.

Suppose a petroleum engineer will discover tomorrow that mixing each barrel of petroleum with some tiny amount of readily available other substances will double the energy that we can extract from each barrel of petroleum. Or suppose that there occur major breakthroughs in automotive engineering and in the design of fuel-oil heating systems. One breakthrough doubles the mileage that each gasoline- and diesel-powered vehicle gets from each gallon of fuel, while the other cuts in half the amount of fuel needed to render a certain amount of heat over a certain amount of time. Each of these creative human acts will dramatically increase the amount of petroleum services available to humanity. (If petroleum were used only to make fuel for engines and heating systems, these creative acts would literally double the amount of petroleum services.) There will still be five trillion barrels of accessible petroleum on earth, but when reckoned as a resource, the amount of this resource will have enormously increased.

The “five-trillion-barrels” number is economically nowhere nearly as objective or as important – or as constraining – as it seems.

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The late, great Julian Simon was born on this date in 1932.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 245 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Politics is the art of finding clever reasons for doing dumb things.

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(Don Boudreaux)

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David Waugh is correct: “Lust for Power is More Dangerous Than Climate Claims.” A slice:

In the face of growing regulatory risks to our preferred ways of life, the least we can do is see the perpetual crisis narratives for what they are: a tool to legitimize dangerous increases in the size and scope of government.

Also correct is Jack Butler: “Republicans Can’t (and Shouldn’t) Try to Out-Statist Democrats.”

Wall Street Journal columnist Daniel Henninger writes that

President Biden’s State of the Union speech was an overdue act of transparency. When Mr. Biden finally announces his re-election bid, he will be running as a democratic socialist. That is the clear takeaway from the more than 70 minutes Mr. Biden spent describing his plans to push federal spending and mandates into every nook of American life.

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Still, there came a point in Mr. Biden’s speech when undecided voters in his audience had to wonder: Just what part of the American pie does this guy not want to get his fingers into?

Mr. Biden described what he had done or would do for women, election reform, marriage, gas prices, 20,000 infrastructure projects, lead in pipes, cancer, insulin, price controls on drugs, Medicaid expansion, 500,000 electric-vehicle charging stations, tax credits to buy electric cars and on and on.

He paused for a moment to assert out of thin air, “I’m a capitalist.” But then it got weird, even for anyone wanting a lot of control over the means of production.

Suddenly, Mr. Biden was identifying microscopic economic discrepancies he vowed to erase. He said he would ban resort fees, impose a cap on concert-ticket fees and ban fees for people wanting to sit together on planes. Then he said something about getting involved with whether a person can quit a job as a cashier at a burger joint to take the same job across the street. Even Karl Marx wouldn’t have thought to propose so much flat-earth socialism. Far from done, Mr. Biden moved on to home care, housing, pre-K, teachers pay, student debt, mental health and addressing the crime crisis with counselors, social workers and psychologists.

The economic populism proposals Mr. Biden outlined resemble Xi Jinping’s “national champion” policies for China.

Understandably, George Will is not optimistic that politicians will take the steps necessary to save Americans from being swept into an economic sewer by the U.S. government’s fiscal incontinence. Two slices:

The American Main Street Initiative, a think tank, says the Obama, Trump and Biden administrations compiled more debt held by the public, adjusted for inflation, than did all previous presidents combined. And if the national debt rises for 60 years at the rate it has risen during the previous 30, it will then exceed $1.5 quadrillion. (A quadrillion is a thousand trillions.)

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The only adequate savings — savings commensurate with the structural debt crisis — require structural reforms of entitlement programs. Politically risky things cannot, however, be done in election years or years immediately preceding election years, which are the only years there are.

Well, this news reported by Jason Sorens is depressing:

[W]e shouldn’t expect a transition from unified Democratic control to divided government to reduce the rate of growth in federal spending.

David Henderson explains that “taxing wealth is taxing work.” [DBx: Thomas Piketty, along with those persons who swallow his analysis, miss this reality because, in their view, wealth is created largely independently of human institutions and agency. Capital just grows. It oozes automatically from some mysterious source. Somehow. Miraculously.]

Jonathan Turley decries modern-day censorship efforts by the U.S. government. A slice:

The dozens of disclosed emails are only a fraction of Twitter’s files and do not include still-undisclosed but apparent government coordination with Facebook and other social media companies. Much of that work apparently was done through the multi-agency Foreign Influence Task Force (FITF), which operated secretly it seems to censor citizens.

“Deplatforming as Digital Hemlock.”

Allison Schrager explains that Biden’s proposed massive tax hike on stock buy-backs is (surprise!) economically harmful. A slice:

Finance professor Ken French once said about stock buybacks: “Buybacks are divisive. They divide people who do understand finance from those who don’t” Put Joe Biden and his administration in the “those who don’t” category. In last night’s State of the Union, the president proposed quadrupling the tax on corporate stock buybacks “to encourage long term investments instead.”

The concept of stock buybacks—when a public corporation uses its profits, or sells debt, to buy its own shares—may seem like a bad thing. After all, in theory, the company could have used that money to invest in its growth or to pay higher wages. But technically, a share repurchase is simply returning money to shareholders—just like paying a dividend, but more tax efficient.

AQR Capital Management’s Cliff Asness estimated that net investment did not decrease as stock buybacks became more popular. A corporation may buy back shares when it sees no profitable investment opportunities. In this case, it is better to return the money to shareholders; they can then invest that money in a company that might have better investment prospects.

Jay Bhattacharya talks with Jon Hartley about covid and covid responses.

Quotation of the Day…

(Don Boudreaux)

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… is from page 60 of economists Phil Gramm’s, Robert Ekelund’s, and John Early’s important 2022 book, The Myth of American Inequality: How Government Biases Policy Debate:

American manufacturers responded to the mounting competition [starting in the 1970s from imports] with increased automation and the application of more efficient production methods aimed at reducing cost, increasing efficiency, and improving quality. As a result of these improvements in methods and concentration on high-end, capital-intensive production, real U.S. manufacturing output continued to grow from 1979 until the 2008 recession, when it fell sharply; it has not, as of this writing, fully recovered.

DBx: But real U.S. manufacturing nevertheless is now (as of December 2022) more than twice as high as it was in 1979, the year that U.S. manufacturing employment peaked.

Or Maybe the Woke Are Full-On Comatose

(Don Boudreaux)

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Each day brings more evidence that the woke are utterly detached from reality – a fact that reveals that the woke are in a deep sleep, and are mistaking their dreams and nightmares for reality.