Russell Roberts's Blog, page 7

Quotation of the Day…

(Don Boudreaux)

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… is from pages 124-125 of the 2016 Third Edition of James D. Gwartney’s, Richard L. Stroup’s, Dwight R. Lee’s, Tawni H. Ferrarini’s, and Joseph P. Calhoun’s excellent Common Sense Economics:

To a large degree, the modern political process can be viewed as a  series of “exchanges” between coalitions and politicians. Concentrated interest groups provide votes, financial contributions, high-paying jobs in the future, and other forms of support in exchange for subsidies, spending programs, and regulatory favors often financed by taxpayers. The rational ignorance effect – the fact that voters choose not to spend the time required to be well-informed – facilitates this process because a lot can happen in the halls of Congress of which voters are unaware. As a result, resources are moved toward lobbying and other favor-seeking activities and away from production and development of better products.

Votes FOR and Votes AGAINST

(Don Boudreaux)

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In my latest column for AIER, I argue that one of the problems with using primaries as a means of choosing each party’s nominee for the U.S. presidency is the fact that this method routinely chooses as nominees candidates who win only a plurality of votes (rather than a majority of votes). A slice:

Suppose there are eight candidates on the ballot in addition to Jones, and that Ms. Voter despises Jones but is largely indifferent to the other eight candidates. So she votes for Smith. But had Smith not been on the ballot she would have voted with nearly equal enthusiasm for any of the candidates other than Jones. In this example – which is hardly far-fetched – Ms. Voter’s vote is not so much for Smith as it is against Jones. And what’s true for Ms. Voter might be true for a large number of her fellow voters who cast their ballots for candidates other than Jones. Because the number of non-Jones candidates is large, the “anybody-but-Jones” vote is dispersed among several candidates, leaving each of them with a smaller vote total at the end of the election than is won by Jones.

If, at the election’s end, Jones has a majority of all the votes cast, then – while it’s never legitimate to describe Jones’s election as revealing “the will of the people” – we can legitimately conclude that that number of voters who oppose Jones is smaller than is the number who regard him as the best candidate. But if Jones wins only a plurality of the votes, then declaring him to be the nominee is fraught with this significant problem: A majority of the voters voted against Jones.

If we think of votes as “votes for” candidates, then it would make some sense to declare any candidate who wins only a plurality of votes, but not a majority, as the victor. The reason is that no other candidate has the support of as many voters as does the plurality winner. From this perspective, the plurality winner is the people’s choice. But once we recognize that votes can be “votes against,” then declaring as victor any candidate who wins only a plurality runs the very real risk of putting into office [or onto the November ballot] a person who the majority of voters oppose. The candidate who wins only a plurality might do so simply because the opposition vote was spread among two or more opposing candidates.

Because today a candidate is declared to be a political party’s presidential nominee if that candidate wins only a plurality of primary votes – winning an actual majority isn’t necessary – it should be no surprise if both the Democratic and Republican party each often sends into the general election candidates that a majority of that party’s voters oppose.

A Confused Review of Sam Gregg’s ‘Next American Economy’

(Don Boudreaux)

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This letter to the Claremont Review of Books is the first of two that I will write. Pilkington’s review is a whirlpool of confusion.

Editor:

Philip Pilkington’s review (“Protecting the Free Market,” Spring 2023) of Samuel Gregg’s The Next American Economy is confused and confusing. For example, some readers of the review will take Mr. Pilkington to believe that Mr. Gregg, by recognizing a national-security exception to the case for free trade, is insufficiently aware that politicians will inevitably abuse their powers to impose protectionist measures. Other readers will be left with the sense that Mr. Pilkington thinks that Mr. Gregg, by refusing to abandon free trade in favor of industrial policy, is insufficiently aware of the wonders that can be worked by politicians who are given more power to impose protectionist measures.

Having myself read The Next American Economy, I can attest that Mr. Gregg is not naïve about the former, and perfectly justified about the latter.

Mr. Pilkington’s own case for industrial policy is ironic. Inaccurately suggesting that Mr. Gregg’s case for free trade is grounded in unrealistic “island fantasies” – that is, simplifying assumptions about Robinson Crusoe and Friday – Mr. Pilkington himself falls for the fantasy that politicians will have both the incentives and the knowledge necessary to impose tariffs and dispense subsidies in ways that will improve America’s economy.

I challenge Mr. Pilkington to explain why the same politicians who he correctly recognizes cannot be trusted with power to impose protective tariffs for national-security purposes can be trusted with this power for other purposes. I challenge him also to explain how politicians and their bureaucratic minions will get the detailed knowledge they would need in order for their industrial policy to work as fantasized.

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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Writing in the Wall Street Journal, Thomas Sargent and William Silber criticize Jerome Powell for failing, unlike Paul Volcker and Alan Greenspan, to recognize the connection between monetary policy and fiscal policy. A slice:

In September 1981, after two years on the job, Volcker appeared before the Senate Budget Committee and spoke about lowering inflation and interest rates: “What can be done—and done consistent with our short and longer-run objectives—is to provide assurance that the federal fiscal position is indeed clearly on track to balance.” He followed up in 1984 by admitting during Senate Banking Committee hearings that “an inevitable consequence” of his tight monetary policy might help bring about the necessary crisis “so that we deal with the deficit.”

The Wall Street Journal‘s Editorial Board is rightly critical of FTC chairwoman Lina Khan’s arrogant lawlessness. A slice:

“In my view, such statements would raise a question in the mind of a reasonable person about Chair Khan’s impartiality as an adjudicator in the Commission’s Meta/Within merger review,” Ms. [Lorielle] Pankey wrote. “Accordingly, I recommend Chair Khan recuse to avoid an appearance of partiality concern,” adding that she did “not reach this conclusion lightly.”

Ms. Khan ignored the ethics official’s advice, and her two fellow Democratic commissioners approved of her participation in the case anyway. Republican commissioner Christine Wilson objected, and her dissent echoed arguments from the agency ethics official.

Yet the public couldn’t learn the full scope of Ms. Wilson’s concerns because the two Democratic commissioners imposed heavy redactions on her dissent, as she noted in a Journal op-ed explaining her resignation from the FTC. “The redactions served no purpose but to protect Ms. Khan from embarrassment,” she wrote. Now we know what they were covering up.

Also writing on Khan’s lawlessness is Elizabeth Nolan Brown.

GMU Econ alum Dominic Pino reports that manufacturing in the U.S. – which, despite repeated claims to the contrary, is doing quite well – is moving to the American south.

Pierre Lemieux is no fan of politicianspeech.

Christian Britschgi reports on the findings of an interesting new study on bans on certain kinds of investments in housing.

Russ Roberts talks with Mike Munger about “obedience to the unenforceable.”

John Edward Hasse celebrates the 75th anniversary of the advent of the vinyl LP. A slice:

The LP marked a creative disruption in the practice and business of music and revolutionized the recording industry. The meaning of the noun “record” changed: Instead of one song on each side of a disc, it now meant a series of songs on both sides of a single platter.

The LP cost less (and took up less space) per minute of music, delivered much longer uninterrupted listening and provided ample room for artwork and informative liner notes. The platters were more convenient, lighter in weight, virtually unbreakable, less scratchable, offered quieter surfaces and boasted higher fidelity. No wonder that by the end of 1948, Columbia sold an impressive 1.25 million LP records.

Jay Bhattacharya tweets:

Stunning FOIA revelation! Three quick items:
1. @CDCgov director Walensky knew about vax “breakthrough” infections in January 2021. So did Tony Fauci.
2. They continued to push vax mandates anyway.
3. CDC is abusing its FOIA redaction privilege. This is not a classified email.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 93-94 of Wilhelm Röpke’s February 1935 Economica paper, “Fascist Economics“:

On the whole, however, the military argument contains nothing to disprove the fact, equally established by experience and reasoning, that the competitive “market economy” renders the maximum of satisfaction of all wants which present themselves on the market, including the wants of a military character represented on the market by the State as consumer. Even the governmental intervention which may seem inevitable here or there cannot be pursued too far without defeating its own purposes. It is impossible for a country to have, at the same time, the largest possible population and the qualitatively best, the largest possible industry and the greatest possible independence in food and raw materials, if this must be brought about by all kinds of governmental intervention. Too much doctoring of the economic structure of a country is the surest way to make it less fit even for military purposes…. To sum up, even if unrestricted armaments have to be accepted as something inevitable, Liberalism has no need to surrender.

DBx: Only in the short-run is might there be a trade-off between the freedom of markets, including the freedom of international trade, and a country’s military might. In the long-run, the freer are markets – and the freer is international trade – the greater is the country’s material prosperity, as well as the spirit of enterprise, innovation, and commercial and industrial discipline that are necessary (if such is the goal) to produce the most effective weapons in the greatest possible abundance.

…..

Pictured above is Wilhelm Röpke (1899-1966).

“Shoddy, Shoddy, Shoddy”

(Don Boudreaux)

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“Shoddy, shoddy, shoddy” is how Duke University economist Bruce Caldwell, in an e-mail to me this morning, describes Patricia Cohen’s ‘report’ in yesterday’s New York Times about the global economy. I share here Bruce’s e-mail with his kind permission:

Hi Don,

Did you see the Sunday NYT?

The article online carries a much more neutral title. The one it carried in the paper, and the article was the far right hand side article on the front page, traditionally the most important article (or so I was taught in print class in 8th grade), was “Failures of Globalization Shatter Long-Held Beliefs: War and Pandemic Highlight Shortcomings of the Free Market Consensus.”

This title appalled but sadly did not really surprise me.

The examples cited as evidence for the thesis early in the article are the pandemic, the war in Russia, tensions with China, and inflation.

Of course none of these have anything to do with free markets! We had pandemics before; what really set the world economy back (especially the poorest people) was the near universal identical response of governments mandating lockdowns. Governments (Russia, China, the USA) make war or interfere with trade. And inflation is as we know due to the massive amounts of borrowing by govts, financed by printing money, made necessary by policies like lockdowns.

So from my perspective, the title should have been: “Resurgence of Mercantilism Shatters the Massive Benefits that Decades of Globalization Produced.”

It also irked me that this article was not billed as “Analysis” but as a news story.

And that the only economist cited was from U Mass Amherst, which is known among Econ departments as notoriously left-wing!

Shoddy, shoddy, shoddy.

Thank you for letting me vent.

B.

DBx: I wrote back to Bruce saying that I did indeed read that NYT ‘report’ but, uncharacteristically for me, I was left so dismayed and depressed about the low quality of ‘journalism’ that I simply couldn’t muster the resolve to deal with it seriously. Fortunately – as I also told Bruce – John Cochrane and David Henderson are more resolute than I am.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 127 of John Bell Condliffe’s paper in the May 1938 issue of Economica, “The Value of International Trade“ (footnote deleted; link added to the book – of Gottfried Haberler – from which Condliffe himself quotes):

While there is, among economists at least, little dispute concerning the general benefit of international specialisation, which presupposes international co-operation, certain misconceptions are apt to arise concerning it. The value of international trade does not depend upon a readiness to sacrifice national welfare for vague cosmopolitan sentiment. The case for freer trade is a national case. There is, clearly, a natural affinity between freer trade and international liberalism; but the essential case for freer trade is that it “increases the real income of all the participating countries.” Trade indeed shares the quality that Portia attributed to mercy

“it is twice blest;
It blesseth him that gives and him that takes.”

Some Links

(Don Boudreaux)

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In the Wall Street Journal, Deirdre McCloskey reviews Daron Acemoglu’s and James Robinson’s Power and Progress. Three slices:

Mr. Acemoglu is a prolific economist and a shoo-in for the Nobel Prize; his MIT colleague Mr. Johnson is an economist and professor of management. In “Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity” they claim that the billions of daily decisions by you and me—to venture on a new purchase or a new job or a new idea—do not “automatically” turn out optimally for ourselves or society. In particular, poor workers are not always helped by new technology. The invisible hand of human creativity and innovation, in the authors’ analysis, requires the wise guidance of the state.

This is a perspective many voters increasingly agree with—and politicians from Elizabeth Warren to Marco Rubio. We are children, bad children (viewed from the right) or sad children (viewed from the left). Bad or sad, as children we need to be taken in hand. Messrs. Acemoglu and Johnson warmly admire the U.S. Progressive Movement of the late 19th century as a model for their statism: experts taking child-citizens in hand.

…..

Since the 1920s, economists from John Maynard Keynes to Paul Samuelson to Joseph Stiglitz have been claiming, with increasing self-assurance though with surprisingly little evidence beyond the blackboard, that (1) private arrangements work poorly, (2) the state knows better, and (3) we therefore need more state. Messrs. Acemoglu and Johnson have long believed in this anti-liberal syllogism. Statism recommends a growing Leviathan, as Mr. Acemoglu argued equally eloquently in “Why Nations Fail,” a 2012 book with James Robinson.

We need, in other words, the legislation currently being pushed by left and right to try again the policies of antitrust, trade protection, minimum wage and, above all, subsidy for certain technologies.

…..

“Power and Progress” puts forward a new statist agenda and argues against a foolish reliance on individual discovery and free entry into jobs and markets. Well, so what? What’s wrong with their case for a new Leviathan, so long as it is advised by certain economists from MIT?

For one thing, Messrs. Acemoglu and Johnson use economic history uncritically. When they want to praise Progressivism, they do not mention its fascination with racism, eugenics, compelled sterilization and nativism, detailed in such works as Thomas C. Leonard’s “Illiberal Reformers” (2016). When they want to tar capitalism with slavery, they appeal to the recent “King Cotton” school, popularized in the “1619 Project.” When they want to criticize the practice of surveillance in the early factories, they do not acknowledge the universality of surveillance in any organization, as analyzed for the Royal Navy in the economic historian Douglas Allen’s book “The Institutional Revolution” (2011). When they want to cast doubt on the gains from early industrialization, they speak of “long hours” and “crowded cities” as though traditional jobs in the field and workshop did not have long hours and as if those who chose to go to cities seeking work went there mindlessly.

As an economic historian, I do admire their attempt to bring history to their argument. It’s something Mr. Acemoglu does in all his books. But it’s disastrous for real science to close your ears to the other side. Science advances by conjecture and refutation, both. If history is to be used, it must be tested. Messrs. Acemoglu and Johnson don’t.

The deeper problem in the science of the book is its economics. Look at the numbers. During the past two centuries, the world has become radically better off, by fully 3,000% inflation adjusted. Even over the past two decades the lives of the poor have improved. The “great enrichment” after 1800 and its resulting superabundance has brought us out of misery. Even the poor workers who did not benefit in the short run have done so enormously in the long run. In 1960, 4 billion of the 5 billion people on the planet lived on $2 a day. Now it’s fallen to 1 billion out of 8, and the income average is $50 a day. The state didn’t do it, and forcing short-run egalitarianism or handing power to the Office of Economic Development can kill it, as it regularly has. Messrs. Acemoglu and Johnson see great imperfections in the overwhelmingly private sources of the enrichment. With such imperfections, who needs perfection?

Another way to see the problem is to remember the common sense, refined in Economics 101 and Biology 101, of entry at the smell of profit. Messrs. Acemoglu and Johnson seem to have missed out on those courses. The great fortunes they deprecate have the economic function of encouraging entry into the economy by other entrepreneurs who want to get rich. This competition cheapens goods and services, which then accrues to the poor as immense increases in real income.

David Henderson dives into Patricia Cohen’s largely confused front-page NYT piece on the global economy.

Also diving into Patricia Cohen’s NYT ‘report’ is John Cochrane. A slice:

In this sense the classic teaching of economics does a disservice. We start with the theorem that free competitive markets can equal — only equal — the allocation of an omniscient benevolent planner. But then from week 2 on we study market imperfections — externalities, increasing returns, asymmetric information — under which markets are imperfect, and the hypothetical planner can do better. Regulate, it follows. Except econ 101 spends zero time on our extensive experience with just how well — how badly — actual planners and regulators do. That messy experience underlies our prosperity, and prospects for its continuance.

(DBx: Cochrane is correct about most Econ 101 courses, but not about all of these. I begin my Econ 101 course – actually, as George Mason University numbers it, Econ 103 – by describing in great detail just how very materially deprived were nearly all pre-industrial-era human beings compared to ordinary denizens of modernity. I make clear that our standard of living today is made possible only by free markets in societies that allow permissionless innovation.)

AIER president Will Ruger announces AIER’s new publication, New Deal Rebels, edited by Amity Shlaes.

Bob Murphy talks with Steve Landsburg.

The Wall Street Journal‘s Editorial Board reports that “evidence keeps piling up that children were the biggest casualties of the government’s response to Covid.”

Quotation of the Day…

(Don Boudreaux)

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… is from page 179 of my late, great colleague Walter Williams’s 1982 book, America: A Minority Viewpoint:

Conservatives, despite portraying themselves as guardians of American morality, have a long way to go before it can be said that they practice what they preach. This is particularly true of conservative politicians – congressmen, governors, mayors, and other officials, both elected and appointed. Conservative politicians, save a few … merely want to substitute their brand of government confiscation, control, and welfare for that of liberals [DBx: that is, progressives]. To boot, they use the same rationalization as do liberals to take away individual liberty: “For the good of the society” or “In the public interest.”

DBx: If Walter were still alive his voice would clearly and forcefully warn of the dangers lurking in the schemes of government interventions peddled as “common good capitalism.”

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 140 of Georgetown University philosopher Jason Brennan’s 2016 book, Against Democracy (original emphases):

I can point to the average voter and reasonably ask, “Why should that person have any degree of power over me? I can similarly turn to the electorate as a whole and inquire, “Who made those people my boss?”

DBx: Excellent questions.

Why, for example, should the person in this photograph have a say in my life or me a say in his? He doesn’t know me and I don’t know him. And what’s true of him is true for 99.9999% of all people in America who vote: Nearly all voters know nothing of me and I know nothing of any of them. It’s crazy that we all get to have a great deal of say in how the others of us will live.

Do not infer from the above any antagonism toward strangers. My wishing strangers to mind their own, and not my, business is not antagonism. It’s good sense for me. And it’s good sense for them because, in return for them agreeing to mind their own business and not mine, I agree to mind my own business and not theirs. I respect all people, almost all of whom are strangers to me, and I accord to each of them the full set of rights to which I believe I am entitled.

In addition, I not only recognize but applaud the fact that a distinguishing feature of modern society is that each of us depends, nearly every moment of every day, on the efforts of strangers. Every one of the material goods that make my middle-class American life in 2023 possible is produced for me by strangers. And the greater is my economic reliance on strangers, the wealthier I become. I detest, for example, ‘my’ government’s officious and obnoxious practice of restricting my ability to engage in peaceful commerce with strangers who happen to have their passports issued by an agency different from the agency that issues my passport.

But markets differ categorically from governments. In markets, each person is free to accept or to refuse any offer of exchange that comes from anyone, including of course from strangers. This ability to say ‘no’ incites strangers to learn about you just enough to enable them to make you offers that you wish to accept. In markets, strangers serve each other; in democratic governments, strangers rule each other.

…..

Democracy can be defended as a reasonable means of making truly collective decisions, such a ‘Should the Riverview Condominium enlarge its swimming pool?’ This is a collective decision on which all owners of units in the Riverview Condominium should have a say. But in the minds of many people, acceptance of democracy has metastasized into praise for mob rule.