Russell Roberts's Blog, page 68

Communicating Economics

(Don Boudreaux)

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In my latest column for AIER, I share a few letters that I’ve sent over the years to students and high-school teachers. A slice:

Next is a 2019 letter to a high-school student in California who applied to George Mason University:

Ms. S:

Thanks for your e-mail. I’m honored that you read Café Hayek, and I’d very much love to have you one day as a student in my classes!

Your question is excellent: ‘What is the one deepest mistake made by persons who fight against free trade?’

Ethically, it is to suppose that some people, specifically government officials or those who are in today’s political majority, have a right to interfere with the peaceful commercial choices of other people. I believe that such interference is predatory despite its being cloaked in officialdom’s costume.

Economically, the single deepest mistake committed by opponents of free trade is difficult to identify, because they commit so very many mistakes. But obliged to choose just one, I offer this mistake: Protectionists see only the specific jobs and businesses that international trade ‘destroys.’ Protectionists are blind to the specific jobs and businesses that international trade creates.

Sincerely,
Donald J. Boudreaux

Now comes my response to a 2016 letter by a college student who I later learned attended Duke:

Mr. J :

You dismiss as ‘wrong on its face’ my conclusion that ‘If you really want to fight poverty, fight to end minimum wages.’ You insist that ‘the minimum wage gives needed income boosts to those who need them most.’

Yet how does pricing the lowest-skilled workers out of jobs boost their incomes? Do you think, for example, that the incomes of landlords who rent small efficiency apartments would be boosted if government required them to charge minimum rents, rents much closer to those charged for upscale apartments? Do you think that the incomes of people who sell used cars would be boosted if government required them to charge minimum car prices, prices much closer to those paid for new cars? Do you think that the incomes of franchisees who operate economy motels such as Motel 6 and Days Inn would be boosted if government forced them to charge minimum room rates, room rates much closer to those charged by Hilton and Hyatt? Do you think that the incomes of long-distance bus operators would be boosted if government compelled them to charge minimum bus fares, fares much closer to those charged by airlines?

Do you suppose that the incomes of young, unknown, upstart novelists would be boosted if government ordered that they be paid, for their accepted manuscripts, minimum advances and royalties closer to those paid to the likes of Stephen King and J.K. Rowling?

If you suspect that these examples of minimum prices and fees would harm the sellers that they would ostensibly help, then you should see that my argument that minimum wages harm rather than help low-skilled workers is not wrong on its face.

Sincerely,
Donald J. Boudreaux

A Sure Cure for “Eco-Anxiety”

(Don Boudreaux)

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Here’s a letter to a Washington Post reporter. Because I subscribe to that newspaper, I regularly receive blast emails from the Post on a variety of topics. One such blast email was sent a few days ago by WaPo environmental reporter Sarah Kaplan.

Ms. Sarah Kaplan
Washington Post

Ms. Kaplan:

You report that, because of your fear of climate change, you “ultimately sought out a therapist to help me cope with my climate anxiety.” I’m sorry to learn of your terrible mental anguish.

But there is available a surer and more enlightening cure than therapy for the “eco-anxiety” that ails you. This cure is simple, inexpensive, and also enjoyable. It is to explore literature beyond the scientifically and economically dubious ‘reports’ and overwrought fear-mongering that regularly pour forth from most mainstream outlets (including, alas, the one for which you work).

Charging no fee, I offer below some specific recommendations to restore your equanimity.

Start by reading Steven Koonin’s 2021 book, Unsettled?. Koonin is a physicist now on the faculty at NYU. Previously he was provost at CalTech as well as Energy Department undersecretary during the Obama administration. Although he once, like you, suffered anxiety about climate change, he has since dug deeper into the science and is now becalmed despite his continuing belief that the climate is indeed warming and that at least some of this warming is caused by human activity. Here are just two quotations from Koonin’s book:

“[A] host of vexing practical problems means that climate model results require at least a pinch, if not a pound, of salt” (page 79).

…..

“Trust in scientific institutions underpins our ability – and the ability of the media and politicians as well – to trust what is presented to us as The Science. Yet when it comes to climate, those institutions frequently seem more concerned with making the science fit a narrative than with ensuring the narrative fits the science” (page 189).

After reading Koonin, find further comfort in Bjorn Lomborg’s 2021 volume, False Alarm. Lomborg writes there, on page 6, that “[t]he rhetoric on climate change has become ever more extreme and less moored to the actual science. Over the past twenty years, climate scientists have painstakingly increased knowledge about climate change, and we have more – and more reliable – data than ever before. But at the same time, the rhetoric that comes from commentators and the media has become increasingly irrational.”

When you finish digesting Lomborg’s tract, turn to Michael Shellenberger’s 2020 Apocalypse Never.

Finally, and most importantly, read the late Julian Simon’s 1996 magnum opus, The Ultimate Resource 2. (It’s available free of charge, and with no trees cut down, here.) There you will find careful, clear, and coherent reasoning – all tested against data – about a wide variety of environmental matters. Simon’s analysis – especially after you’ve read Koonin, Lomborg, and Shellenberger – will restore your peace of mind. And as a bonus, it might also enrich your environmental reporting.

In addition to the above-mentioned books, there are many other excellent resources available – for example at the website of PERC – to help you regain your mental composure. I wish you luck in your journey back to calmness and peace of mind.

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

Some Links

(Don Boudreaux)

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Here’s the wise conclusion of a superb new Wall Street Journal Editorial Board editorial about the Chinese economy:

[T]he key to its success is the energy and ingenuity of its people, not central planning and state subsidies. The strength of the U.S. system is free-market competition and a rule of law that allow innovation and the private allocation of capital. Washington won’t subsidize any more wisely than Beijing does.

And here’s another slice from the same WSJ editorial (link added):

Instead, the researchers found that Chinese subsidies may be vulnerable to special-interest politics and went to favored groups or to stabilize employment or industries in decline. “At the aggregate level,” the authors write, “subsidies seem to be allocated to less productive firms, and the relative productivity of firms’ receiving these subsidies appears to decline further after disbursement.”

Talk about myth busting. This should quell anxiety that Beijing’s state-directed allocation of capital is working for China, much less is a model for anyone else.

It’s no wonder that Reason‘s Peter Suderman wonders “why in the world is the FTC trying to lock Microsoft from buying Call of Duty?”

My GMU Econ colleague Garett Jones’s new book, The Culture Transplant: How Migrants Make the Economies They Move to A Lot Like the Ones They Left, is reviewed by GMU Econ alum Alex Nowrasteh.

“The Leftist Capture of Journalism Continues Apace.”

“Imports Helped Alleviate the Formula Crisis. Why Are We About to Start Taxing Them Again?” – so asks Scott Lincicome.

GMU Econ alum Dan “Go Dawgs” Mitchell warns of the looming threat of “climate protectionism.”

Writing in the Wall Street Journal, Chen Guangcheng applauds the Chinese people’s resistance to Beijing’s authoritarianism. A slice:

The Chinese Communist Party’s zero-Covid policy isn’t about controlling the virus. It’s about controlling the Chinese people. The white-paper or A4 protests, in which people hold up blank pages, became a visible expression of anger. The communist government announced some changes this past few days, including looser testing and dropping the mandatory Covid surveillance app on cellphones. But changes in the government’s Covid policy won’t eliminate the people’s rage.

The party has always viewed the Chinese people as its enemy. Its euphemistic slogan that it exists to “serve the people” would be better understood as “serve the party,” and the pandemic has been a major opportunity for the party to serve its interests. Reports suggest companies involved in zero Covid are making huge profits and have direct ties to high-level party officials or their families. This includes the companies that provide weekly tests for the 1.4 billion people in China, as well as those that have built and manage quarantine hospitals around the country.

Under zero Covid, the Chinese have been required to go to a testing site every few days. If one person waiting in line in a 20-person sample tests positive, those tested together could be suddenly forced on a bus to a quarantine center to stay for five days. Citizens might be sent to quarantine even if their 20-person sample was numerically adjacent to a positive sample set. If case numbers triggered the “all test each day” alert, then everyone in an area would be required to test every day. Entire apartment buildings and neighborhoods were sent off to quarantine without warning. And when people finally got home, they and their family had to remain in isolation another three days.

During that isolation, an electronic system was attached to the family’s doors, notifying pandemic-center workers anytime it opened. Any resistance led to the door being welded shut with no way to get out for food or to escape danger. (That’s how more than a dozen people died in the Nov. 24 fire in Urumqi that sparked the A4 protests.)

The incoming Chief Scientist for the World Health Organization is the British covidian Jeremy Farrar who, in late January 2020, tweeted “China is setting a new standard for outbreak response and deserves all our thanks.” [DBx: I say again, much of humanity went mad in early 2020 – mad with both disproportionate fear of a virus and with insufficient fear of the creation of a biosecurity state. Please note that my saying that humanity’s fear of covid was – and, for many people, remains – disproportionate is not my denying that covid is dangerous or that it is even much more dangerous than the flu. Instead, it is saying that the fear of covid was out of proportion – in fact, waaay out of proportion – to the risk posed by covid to the general population. Humanity’s deranged reaction to covid, although often encouraged by lab-coat wearing ‘scientific experts’ and their devoted, dogmatic choir of public intellectuals and social-media ‘fact-checkers,’ was in fact as scientific, as rational, and civilized, as socially productive, and as warranted as an Inquisition’s auto-da-fé. Some foolish people early on pleaded for governments to “go medieval” on covid. Well, most governments did so.]

David Henderson and Charley Hooper straighten out the record on ivermectin. A slice:

While the popular narrative is that the TOGETHER trial showed that ivermectin didn’t work for COVID-19, the actual results belie that conclusion: ivermectin was associated with a 12 percent lower risk of death, a 23 percent lower risk of mechanical ventilation, a 17 percent lower risk of hospitalization, and a 10 percent lower risk of extended ER observation or hospitalization. We have calculated that the probability that ivermectin helped the patients in the TOGETHER trial ranged from 26 percent for the median number of days to clinical recovery to 91 percent for preventing hospitalization. The TOGETHER trial’s results should be reported accurately.

Telegraph columnist Allison Pearson is correct: “We are now living through the dire consequences of lockdown.” A slice:

We are now living through the consequences of a purblind pursuit of restrictions that has beggared our economy for a generation and overwhelmed healthcare to the point that an elderly man with a broken hip is told that no ambulance is coming, ever. We [Brits] can barely call ourselves a civilised country, yet the most public advocates of that ruinous policy have the cheek to suggest that, next time, we could lock down even harder.

How quickly we forget. This time last year, the champions of Covid restrictions were agitating for another Christmas lockdown. Ignoring the good news from South Africa about the milder Omicron variant, various professors opined that “Plan B restrictions do not go far enough”. Only a principled exit by Lord (David) Frost from the Cabinet and a hundred Tory MPs suddenly rediscovering a spine prevented more carnage.

Speaking of Allison Pearson, she and her Planet Normal podcast co-host Liam Halligan talk with Jay Bhattacharya.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 256-257 of George Will’s 2021 book, American Happiness and Discontents: The Unruly Torrent, 2008-2020 – a collection of many of Will’s columns over these years; (the essay – now titled “A Raised Eyebrow About ‘Redskins’” – from which the quotation below is drawn originally appeared in the Washington Post on October 16th, 2014):

The fact that censorship is progressivism’s default position regarding so many things is evidence of progressives’ pessimism about the ability of their agenda to advance under a regime of robust discussion. It also indicates the delight progressives derive from bossing people around and imposing a particular sensibility, in the name of diversity, of course.

Some Links

(Don Boudreaux)

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Jonathan Haidt recommends my GMU Econ colleague Dan Klein’s new book, Smithian Morals.

Brian Balfour decries the protectionism that infects the Orwellian-named “Inflation Reduction Act.” Here’s his conclusion:

Protectionist measures such as the one included in the Inflation Reduction Act give the appearance of “protecting American jobs.” In reality, however, the only jobs protected are those in the politically favored companies whose inefficiencies are protected from competition at the expense of other domestic jobs lost and higher prices on consumers.

Colin Grabow warns of the dangers that the cronyist Jones Act poses to New Englanders during winter. A slice:

Passed in 1920, the Jones Act restricts domestic shipping to vessels that are U.S.-flagged, built, owned, and crewed. But such ships are significantly more costly to build and operate than their international counterparts. They’re few in number too. Of the thousands of tanker ships that ply the high seas the U.S. Maritime Administration lists just 56 that comply with the law, only a subset of which can move fuel to New England (eleven of the 56 are large tankers designed for the transportation of Alaskan crude oil, one is dedicated to transporting molten sulfur, one was recently chartered by the U.S. military making it unavailable for commercial use, and another has been scrapped). The added expense and difficulty of utilizing such vessels has such distorting effects that it can make more sense to ship U.S. fuels abroad than to other parts of the United States.

Emma Camp is rightly critical of the return of restrictions on imported baby formula.

Wall Street Journal columnist Jason Riley reports the unfortunate fact that charter schools’ successes make them “a political target.” A slice:

Under Joe Biden, however, this trend has been broken. The president has called for banning some types of charter schools outright, increasing regulations for others, and giving school boards dominated by union allies more power to block their expansion. Earlier this year, the Biden administration announced new rules that make it far more difficult for charter operators to receive funding from the Charter Schools Program.

Robin Koerner argues that covidians’ and covidocrats’ excuses of having had only “limited knowledge” are unacceptable. A slice:

Claims of “insufficient information” and “it was an honest mistake, guv’nor” are always made by those responsible for policies that do massive harm in the name of protecting people from greater harm, when it finally becomes obvious to everyone that their “preventative treatment” was much worse than the “disease” of which anyone was at risk.

[DBx: See today’s “Bonus Quotation of the Day.”]

Justin Hart writes about government conspiring with technology companies to suppress speech.

Writing at Spiked, Heather Mac Donald decries “the New York Times‘ shameless covid contortions.” Two slices:

The New York Times has just discovered that some Americans are no longer wearing masks. Welcome to life in the mainstream-media bubble.

The Times sent its reporters last week across Los Angeles County to assess the state of Covid precautions. Los Angeles is at the epicentre of a national movement among blue-state health officials and their press allies to scare the public back into Covid submissiveness. The director of Los Angeles County’s Department of Public Health, Barbara Ferrer, has proclaimed: ‘This is the time for everyone to put their mask back on right now… We need to get the mask back on.’ If residents insist on holding a Christmas party, it should be held outside and guests should be tested before arrival, according to Ferrer. The Los Angeles Times has been backing up her campaign, with recent headlines like: ‘Dangerous weeks ahead in LA County as coronavirus suddenly surges.’ ‘Dangerous’ here equates to around a dozen Covid deaths per day in a county of nearly 10million people. LA County, like other jurisdictions, does not distinguish deaths with Covid from deaths from Covid, making even that small tally a likely exaggeration.

…..

Just as it did at the height of the Covid pandemic, the New York Times trots out its usual phalanx of ‘health experts’ to rebuke those members of the public who are insufficiently fearful. Readers who hoped that they had heard the last of Michael Osterholm, the director of the Center for Infectious Disease Research and Policy at the University of Minnesota, will have likely underestimated the tenacity of both the New York Times and its safetyist sources.

In his latest NYT appearance, Osterholm complains that seven of his acquaintances have contracted Covid in the past two weeks. ‘Why?’, he asks rhetorically. ‘Because they think it’s over’, he answers. ‘What they’re trying to do is move into a post-Covid world. And unfortunately, that world isn’t ready for us yet.’ That post-Covid world will never be ready for us, in the eyes of Osterholm and his colleagues. The virus, he ‘warned’, in the Times’s paraphrase, ‘is still in the driver’s seat’ – and perhaps it always will be.

Did the Times ask Osterholm how sick his seven acquaintances became? It would appear not. One may surmise with a high degree of confidence that their illness would have been manageable and temporary. But Osterholm and the Timescontinue to obey the rule of all safetyist Covid reporting: flog the case count and ignore the mildness of the cases.

Allison Pearson tweets: (HT Jay Bhattacharya)

Reading about the despicable censorship of the great @DrJBhattacharya by Twitter (@jackdorsey version), I’m reminded that Tory MP @NeilDotObrien set up a McCarthyite website in the UK to harass journalists challenging the lockdown narrative.
Shameful.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from pages 120-121 of F.A. Hayek’s 1950 paper “The Meaning of Government Interference,” which appears for the first time in print as Chapter 8 of Essays on Liberalism and the Economy (2022), which is volume 18 (expertly edited by Paul Lewis) of The Collected Works of F.A. Hayek:

Unless we are willing to restrict the powers of government even in respects where it might be used for good purposes, we shall not succeed in preventing an indefinite growth of government powers. To allow everything which seems expedient for the achievement of a desirable end is to dispense with all moral principles. The submission to rules which must be observed irrespective of whether in the particular instance their infringement is harmful or not, is the main condition for the possibility of order in a free society. And to these rules the state should be no less subject than the individual.

Quotation of the Day…

(Don Boudreaux)

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… is from page 425 of No. 67 of Cato’s Letters – this one is by Thomas Gordon and first published on February 24th, 1722 – as this letter appears in the beautiful 1995 Liberty Fund edition of Cato’s Letters:

Where there is liberty, there are encouragements to labour, because people labour for themselves: and no one can take from them the acquisitions which they make by their labour: There will be the greatest numbers of people, because they find employment and protection; there will be the greatest stocks, because most is to be got, and easiest to be got, and safest when it is got; and those stocks will be always increasing by a new accession of money acquired elsewhere, where there is no security of enjoying it; there people will be able to work cheapest, because less taxes will be put upon their work, and upon the necessaries which must support them whilst they are about it: There people will dare to own their being rich; there will be most people bred up to trade, and trade and traders will be most respected; and there the interest of money will be lower, and the security of possessing it greater, than it ever can be in tyrannical governments, where life and property and all things must depend upon the humour of a prince, the caprice of a minister, or the demand of a harlot. Under those governments few people can have money, and they that have must lock it up, or bury it to keep it; and dare not engage in large designs, when the advantages may be reaped by their rapacious governors, or given up by them in a senseless and wicked treaty: Besides, such governors condemn trade and artificers; and only men of the sword, who have an interest incompatible with trade, are encouraged by them.

Inclusion?

(Don Boudreaux)

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How many are the people who earnestly call for modern society to encourage greater “inclusion,” yet who also support minimum-wage legislation? I suspect that the number of such people is large.

These people obviously miss what should be, but apparently isn’t, obvious – namely, by criminalizing the ability of low-skilled workers to compete for employment by offering to work at wages below the legislated minimum, minimum-wage legislation is the opposite of “inclusive.” Such legislation excludes from the above-ground job market workers with the lowest skills.

Progressives – who today (unlike in the past) are blinded by economic ignorance to the victims of Progressive legislation – applaud themselves for their imagined magnanimity in supporting minimum wages. Unfortunately, though, the victims are real; these victims are excluded from the economy.

Some Links

(Don Boudreaux)

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Writing in the Wall Street Journal, Johns Hopkins School of Medicine professor Marty Makary busts myths about long covid. Two slices:

Long Covid is real. I have reliable patients who describe lingering symptoms after Covid infection. But public-health officials have massively exaggerated long Covid to scare low-risk Americans as our government gives more than $1 billion to a long Covid medical-industrial complex.

The Centers for Disease Control and Prevention that 20% of Covid infections can result in long Covid. But a U.K. study found that only 3% of Covid patients had residual symptoms lasting 12 weeks. What explains the disparity? It’s often normal to experience mild fatigue or weakness for weeks after being sick and inactive and not eating well. Calling these cases long Covid is the medicalization of ordinary life.

…..
The NIH’s fear-mongering around long Covid has also been used to argue for keeping Covid restrictions in place. In November, the Biden administration issued a report on long Covid stating that mask mandates and vaccination “protect people from infection or reinfection and possible Long COVID,” despite no scientific evidence to support the claim.

Given the broad reach of population immunity to Covid today and the less severe nature of the illness, long Covid is less common and less severe than it was in 2020 or 2021. In my experience treating thousands of patients over two decades, people are forgiving if you are honest with them. If public-health officials want to regain the public trust, they should show more humility when it comes to Covid, including long Covid.

Tracy Høeg tweets: (HT Martin Kulldorff)

“Public-health officials have massively exaggerated long Covid to scare low-risk Americans as our government gives more than $1 billion to a long Covid medical-industrial complex”

Thank you, Dr. @MartyMakary for telling it like it is

Jay Bhattacharya tweets:

Western public health pandemic decisions demolished the lives and livelihoods of the poorest in poor countries. The sin is almost too great to contemplate. Restoration starts with repentance.

Here’s wisdom, expressed in the Wall Street Journal, by Barton Swaim. Four slices:

The most obvious change in American politics this century is the sorting of voters along educational lines. The Democrats are increasingly the party of educated urban elites; the GOP belongs to the white working class. The dispute is over suburban and minority voters. The latter still plump mostly for Democrats, although the party’s social radicalism is pushing them toward the GOP. Voters with impressive educational credentials tend to be Democrats, and those without them lean strongly Republican.

That one party is the educated party—that its members see themselves, in some respects accurately, as more cultured and informed than their opponents—has generated an intellectual pathology that is obvious to everyone but themselves. Adherents of the smart-people party have lost the capacity for self-criticism. Which on its face makes sense. If your views are by definition intelligent, those of your critics must be dumb. Who needs self-reflection?

…..

In any case, the silo/bubble metaphor doesn’t describe American politics in the 2020s for the simple reason that there is no silo or bubble. Or if there is, it’s very large and almost exclusively populated by adherents of the smart-people party.

If you’re on the right, you simply can’t isolate yourself from the habits and attitudes of left-liberal progressivism. They are everywhere. The most determined imbiber of right-wing opinion still watches television and movies and reads the mainstream press. The left-liberal outlook is expressed everywhere in these media, and generally it isn’t expressed as viewpoint but as established fact.

The conservative voter who follows nothing but right-wing accounts on social media still sees CNN as a captive audience at airports. He advises his college-age children as they negotiate campus environments in which they’re expected to state their “pronouns” and declare themselves “allies” of the “LGBTQ2SIA+ community.” However scornful of left-wing opinion he may be, his employer still subjects him to diversity training. He attends a concert by the local symphony orchestra and has to listen to a four-minute lecture about systemic racism or climate change before the music starts. He can’t watch a pro football game without enduring little pronouncements of wokeness. The right-winger may get 100% of his news from Republican-leaning news sites but still has to be vigilant as his 5-year-old browses the children’s section of the local public library.

There is no bubble, no silo, for such a person.

The urban-dwelling knowledge-class progressive experiences few such dissonant moments.

…..

Consider the past two years of Democratic governance. A slender majority in the U.S. House and a 50-50 tie in the Senate somehow led Democrats to believe they had no opposition to speak of. At times they seemed literally to believe this, as when Sen. Bernie Sanders and others fulminated against his Democratic colleagues Joe Manchin and Kyrsten Sinema for resisting President Biden’s so-called Build Back Better bill—as if the bill had two opponents and not 52.

Democrats and their backers in the news media, insisting on the infallibility of science, doubled down on onerous Covid restrictions long after it was clear that shutdowns, school closures and mask mandates were futile and destructive. In July of this year Anthony Fauci said his only regret is that he didn’t recommend “much, much more stringent restrictions” in the spring of 2020. Even now, long after the views of antimasking and antishutdown protesters have been largely vindicated on the available evidence, long after fans of China’s draconian restrictionism have been disgraced by the reality of China’s failure, no one has offered an apology or an admission of error.

…..

But Republicans and conservatives, when they are empowered and can make decisions, can’t depend on elite society backing them up. If a Republican official somewhere expresses a view falling outside the liberal conventional wisdom, that official can expect opposition from every segment of educated elite society—Hollywood actors, Fortune 500 boardrooms, university-based experts and so on. Blowback from so many sources isn’t easy to take, and in that case the Republican official will often, perhaps usually, back down.

But this objection—the objection that Republicans often behave peremptorily—misses the point. The GOP is, increasingly, the party of the uneducated, of the uncredentialed worker who lacks proper data and nuance. Surely it is the educated voter, the respecter of scientific argumentation and informed debate, who bears a special responsibility to consider contrary views. It’s the smart person, not the stupid or ignorant one, who holds the gravest obligation to respect views other than his own. Yet owing to his status as a smart person, respecting other views is precisely what he can’t do.

Not that you need any further reason for concluding that most politicians are venal, dishonest, cowardly, and contemptible, but in case you’d like another reason, Eric Boehm here reports on one.

My GMU Econ colleague Vincent Geloso explains that “economic freedom matters for intergenerational income mobility.” A slice:

In our article in the Southern Economic Journal, Justin Callais and I argue that economic freedom (our proxy for institutions) is a powerful force to enhance income mobility. We argue that, in fact, in addition to reducing legal hurdles, economic freedom’s well-documented effect on economic growth matters more for those at the bottom. If equal income gains for everyone are secured, the gains of an extra one percent income are marginally more opportunity-expanding for the poor than the rich. By allowing for more “absolute mobility,” economic freedom increases “relative mobility” as well.

In the article, we rely on intergenerational relative income mobility data published by the World Bank for more than 120 countries. Their estimates, which are based on people born in the late 1970s and early 1980s, are best available for a wide array of countries.

We then run horse-races between estimates of income inequality and economic freedom across a variety of different tests.

When the aggregate index of economic freedom is used, we find that it rivals the effects of income inequality. This, however, probably underestimates the importance of economic freedom, as some components of the indexes that measure economic freedom have ambiguous effects. The size of government, for example, can both increase and decrease intergenerational mobility. It depresses mobility through the impact of higher taxes that discourage investments (notably investments in human capital). It can increase mobility if taxes are used to finance educational programs that disproportionately benefit those at the bottom of the income ladder. As such, there is value in separating the different components of the economic freedom index.

When we do so, we find that regulations and the security of property rights are immensely powerful. These two sub-components of the economic freedom index are more powerful than income inequality is.

My GMU Econ colleague Dan Klein finds wisdom in Edmund Burke’s ““Scattered Hints Concerning Philosophy and Learning”

Quotation of the Day…

(Don Boudreaux)

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… is from page 276 of F.A. Hayek’s 1966 paper “The Principles of a Liberal Social Order” as this paper is reprinted as chapter 21 in Essays on Liberalism and the Economy (2022), which is volume 18 (expertly edited by Paul Lewis), of The Collected Works of F.A. Hayek:

The first peculiarity of a spontaneous order is that by using its ordering forces (the regularity of the conduct of its members) we can achieve an order of a much more complex set of facts than we could ever by deliberate arrangement, but that, while availing ourselves of this possibility of inducing an order of much greater extent than we otherwise could, we at the same time limit our power over the details of that order. We shall say that using the former principle we shall have power only over the abstract character but not over the concrete detail of that order.

DBx: Proponents of industrial policy and similar ‘piecemeal’ interventions will often protest, if they are aware of Hayek, that Hayek’s demonstration that ‘rational’ resource allocation under full-on socialism isn’t applicable to their proposed interventions. But this protest is mistaken. The logic of Hayek’s argument reveals that, while a ‘piecemeal’ intervention won’t itself cause as much damage as would full-on socialism, a ‘piecemeal’ intervention such as industrial policy nevertheless is fundamentally inconsistent with the market’s spontaneous-ordering forces.

For the market to function as well as is possible, we cannot pick and choose which particular prices and resource-allocation patterns we like and which we don’t. We cannot forcibly attempt to change the prices and patterns that we don’t like into ones that better suit our fancy, while expecting the prices and resource-allocation patterns that are not the direct objects of our intervention to remain unchanged. The enormous interconnectedness of markets simply will not allow such an outcome.

Not only is any such intervention an attempt to unfairly exempt some workers and resource owners from having to abide by the rules of the market, the unintended and unseen consequences – both economic and political – are very likely to be worse than whatever benefits might be expected from the ‘success’ of the intervention.