Russell Roberts's Blog, page 8

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(Don Boudreaux)

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George Will is understandably unimpressed with both the conclusion and the reasoning of the U.S Supreme Court’s recent 7-2 ruling in Haaland, et al. v. Brackeen. A slice from Will:

The ICWA [Indian Child Welfare Act of 1978] was enacted to stop the wicked practice of forcing assimilation by removing Indian children from non-Indian families. Now it functions to yank even thriving Indian children from nurturing non-Indian families, in barbaric homage to Indian “blood.” This means that Declan Stewart and Laurynn Whiteshield and others died unremembered.

Shelby Steele, writing in the Wall Street Journal, describes the call for slavery reparations as “no more than a dream of privilege.” A slice (emphasis added):

Today we can see what we couldn’t in the ’60s: that this vast array of government programs has failed to lift black Americans to anything like parity with whites. By almost every important measure—educational achievement, out-of-wedlock births, homeownership, divorce rates—blacks are on the losing end of racial disparities. The reparational model of reform, in which governments and institutions try to uplift the formerly oppressed, has failed.

But why such immense failure in a post-’60s America that has only grown more repentant of its racist past? The answer, I think, is that the Great Society was profoundly disingenuous. It was a collection of reparational reforms meant to show an America finally delivered from the tarnish of its long indulgence in racism. The Great Society was a gigantic virtue signal. It was moral advertising when the times called for the hard work of adapting a long-oppressed people to the demands of the modern world.

My GMU Econ colleague Dan Klein wishes Adam Smith a happy 300th birthday.

Also celebrating Adam Smith’s works is Ian Vásquez. A slice:

Smith took a dim view not just of protectionism, but most any attempt on the part of the authorities to direct the economy. The true origin of wealth is explained by a counterintuitive concept based on another of Smith’s observations: The pursuit of self‐​interest in the marketplace, not mere benevolence or a plan imposed by rulers, ultimately produces prosperity and improves the welfare of others.

But Smith, a professor of moral philosophy, understood that people are complex and not just materialistic.

Inspired by Adam Smith, M. Nolan Gray explains that “markets find a way.”

Is Medicare coercing Merck?

Arnold Kling – wisely warning again of the inaccuracies that emerge when statistics are calculated on the assumption that a country’s economy is a GDP factory – is not convinced that the recent move to working-from-home is reducing worker productivity.

Norman Lewis isn’t buying the fear-mongering over artificial intelligence.

GMU Econ alum Ed Stringham – reviewing Maarten Prak’s and Jan Luiten van Zanden’s new book, Pioneers of Capitalism: The Netherlands 1000-1800 – explains that capitalism first emerged from the efforts of Dutch merchants and not from a strong state. Two slices:

Before writing this review, I asked Microsoft Bing: “When was capitalism invented?” Bing said: “1776.” Then I turned to Google: “What was the first capitalist country?” Google’s answer: “Great Britain.” I then asked the chatbot Lia27, “Was a strong state necessary to back the formation of capitalism?” It replied: “Yes, strong states are necessary to provide the infrastructure and legal framework that allows capitalism to thrive. Without a strong state, it would be difficult for businesses to operate and for markets to function efficiently.”

These answers are neat, clean, and wrong.

Maarten Prak and Jan Luiten van Zanden, two economic historians who do not have an obvious political agenda, tell a different story in a deeply researched and well-written new book, Pioneers of Capitalism. Differentiating small-scale markets from capitalism, they argue that a capitalist economy features advanced specialization and trade, the widespread use of wage labor, and financial markets. This sort of economy, they show, was neither invented in 1776 nor inseparable from a strong state. It evolved, from the ground up, over centuries, and Dutch merchants were some of its most important pioneers.

A thousand years ago, a traveling monk, Alpert of Metz, was dismayed by the scale of state collapse around him. In his visit to the merchants of Tiel, he saw, in Prak and van Zanden’s words, that “they enjoyed a certain degree of independence” and self-organized in various ways. They “used drinking societies to strengthen their mutual bonds, fostering trust and thus simplifying mutual trade.” They “also maintained their own system of justice, which deviated from canonical law.” In other words, order was coming from market participants through private governance, rather than being established by a strong state. (This irked Alpert, who was “annoyed by the customs of the merchants, with their own legal rules and pagan drinking societies.”)

The Netherlands was never entirely free from government. But through diligence, the Dutch eventually won various freedoms. In the early 13th century, a man from Friesland, in northern Holland, wrote that his region enjoyed “such great freedom that neither the bishop nor his henchman could rob us of even a chicken.” Friesland “is rich in freedom, which applies equally to the poor and the wealthy (an invaluable asset), and is prosperous,” he added.

…..

My own research (in my book Private Governance) shows that by the 17th century, Dutch stock markets had become surprisingly advanced. They featured the equivalent of modern derivatives, including futures, short sales, options, and shares pledged as collateral for loans (called hypothecation). Government officials had very little understanding of financial markets and considered trading in them a form of gambling; furthermore, they did not enforce any contracts in them. People nevertheless continued trading, and the stockbrokers subjected themselves to the discipline of continuous dealings, relying on reciprocity and reputation mechanisms. Government did not invent the advanced financial markets that changed the world.

Later stock markets in 18th century London and 19th century New York showed many parallels to their ancestor in 17th century Amsterdam. Russell Shorto’s The Island at the Center of the World makes the case that New Amsterdam (New York)—and America itself—inherited its commitment to commerce and religious liberty from the Dutch. The commitment to religious liberty, Prak and van Zanden argue, was linked with capitalism: “The tolerance of the Dutch (for which they would later become famous) that arose during this period had, therefore, also a materialistic basis: one had to respect the beliefs of merchants with whom one regularly did business.” Here markets themselves, not government edicts, created the freedom that we have today.

So don’t credit a strong centralized state for inventing capitalism. Credit the Dutch merchants, laborers, sailors, whalers, fishermen, peat diggers, cheese​ jenever distillers, financial innovators, and brewers, all led by an invisible hand.

Writing in the Telegraph, Daniel Hannan isn’t hopeful that Britain’s Covid Inquiry will inquire objectively. Three slices:

It already seems clear that the inquiry, which finally creaked and rattled into life on Tuesday, is taking a similar approach. That, though, is not the worst of it. The worst of it is that, by framing the investigation as, in effect, “did these useless politicians prepare properly?” Lady Hallett and her team are missing the far bigger issue of whether non-pharmaceutical interventions were the right policy tool.

This matters because, sooner or later, there will be another pandemic, and the conclusions of this inquiry will shape our response to it. Just as, after the Iraq war, the Civil Service became obsessed with being Chilcott-compliant, now it will fret about being Hallett-compliant.

There is an urgent need to cross-examine the idea of lockdown and its associated restrictions. How did the models on which the closures were based compare to real-world data? Did skewed incentives push officials into excessive authoritarianism? Did scientists’ predictions match the actual development of the disease? Did facemasks work? Did closing schools make a difference? Were we right to insist on vaccinating young people who had already acquired natural immunity?

…..

We learned last week that witnesses to the inquiry, as well as staff, will be required to take lateral flow tests. At first, I thought the report was a spoof. Covid-19 is an endemic disease, for heaven’s sake. Testing for it makes no more sense than testing for measles. Yet the inquiry solemnly tells us: “Though the UK government no longer requires people to self-isolate if they test positive for Covid-19, we are asking those who test positive to stay away from the hearings.”

There is a reason the UK Government, along with every other government in the world, dropped the self-isolation rule. The coronavirus has spread through the population, becoming milder in the process. It will come back every winter, along with the Spanish Flu virus, the Asian Flu virus, and hundreds of other rhinoviruses, adenoviruses and, indeed, coronaviruses that we now call “colds”.

Yet the people running the inquiry believe – or at least affect to believe – that it must be treated differently from other diseases. Such people, I put it to you, are unlikely to spend much time exploring the possibility that the restrictions were excessive.

Sure enough, proceedings on the first day were farcical. The counsel representing the bereaved families wondered whether NHS underfunding had contributed to the crisis (never mind that spending on the NHS had been rising). The inquiry’s chief lawyer, Hugo Keith KC, seemed to suggest that ministers’ focus on Brexit had distracted them from working out a pandemic strategy.

…..

Then again, maybe I am missing something. Maybe the alternatives would have been worse. Maybe letting exams go ahead, or letting people sit on park benches, or taking the padlocks off playgrounds, would have had some monstrous impact. If so, then let’s hear why – because we sure as hell never heard any serious argument for these policies at the time.

The experts need to prove their case. Brandishing their credentials doesn’t work any more. We heard them contradict themselves over herd immunity, then over facemasks. We watched Neil Ferguson, whose work was so influential in encouraging ministers to impose lockdown on the rest of us, break the rules to pursue an affair. We read the letter by 1,288 epidemiologists and public health officials saying that, although everyone must stay home, it was different if they felt like going out to join a Black Lives Matter protest.

Quotation of the Day…

(Don Boudreaux)

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… is from page 75 of William Easterly’s excellent 2013 book, The Tyranny of Experts (footnote deleted):

In 1944 [John Bell] Condliffe received a book to review that would crystallize further what he had observed in China. Reviewing Hayek’s Road to Serfdom, he observed that “the essential condition of effective planning is that the planners must be prepared to dragoon those who do not fit into their plans.” Planners could not allow individual rights, because the plan could only work if individuals followed the plan. Condliffe joined Hayek against the idea “that in some mysterious fashion the concentration of all power, political and economic, in the hands of those who control the State machinery will endow them with wisdom to direct the affairs of men better than they can direct them for themselves.” Condliffe understood that unchecked state power was one of the root causes of poverty, not one of the solutions. He closed his review by mocking the new bureaucratic machinery of the World Bank and other postwar international organizations, which offer “the apocalyptic vision of a new heaven and a new earth by reason of the apotheosis of the bureaucrat, as a result of which all the troubles which now vex us will pass away.”

DBx: Economist John Bell Condliffe (1891-1981, pictured here) reviewed The Road to Serfdom in the December 1944 issue of Think. I cannot find this review on-line.

Quotation of the Day…

(Don Boudreaux)

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… is from page 26 of Russell Shorto’s excellent 2004 bestseller about the early history of Manhattan, The Island at the Center of the World (original emphasis):

The Dutch – traders and sailors, whose focus was always out there: on other lands, other peoples, and their products – had always to put up with differences. Just as foreign goods moved in and out of their ports, foreign ideas, and for that matter, foreign people, did as well. To talk about “celebrating diversity” is to be wildly anachronistic, but in the Europe of the time the Dutch stood out for their relative acceptance of foreignness, of religious differences, of odd sorts.

DBx: Commerce civilizes. Commerce peacefully fashions people who are party to it – however many and diverse these people might be – into one society. In commercial society, everyone contributes through his or her productive efforts to the well-being of countless strangers within that society, and he or she depends for his or her existence and flourishing upon the efforts of those same countless strangers.

Commerce puts heavy prices on irrational prejudices, on bigotry, on intolerance. Commerce tamps such incivility down.

Commerce is voluntary – and, thus, mutually beneficial.

But, but …. many people either despise commerce or hold it in contempt. Progressives (misnamed bunch that they are) are deeply skeptical of commerce and downright infatuated with coercion. So, too, of course are national conservatives. Progressives and NatCons both regard those who advocate free markets as retrograde or unrealistic, and in either case as a witting or unwitting apologist for the rich and powerful against the poor and powerless.

Neither progressives nor NatCons understand commerce. They are ignorant of the single greatest force for civilization.

Some Links

(Don Boudreaux)

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Writing in the Wall Street Journal, Rainer Zitelmann recounts “Adam Smith’s solution to poverty.” Two slices:

A famous passage from “The Wealth of Nations”: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of so much of their own labor as to be themselves tolerably well fed, clothed, and lodged.”

Today, these words are sometimes misinterpreted to claim that Smith advocated government-led redistribution of wealth. That wasn’t his intention, and he certainly wasn’t calling for social revolution. Poverty, according to Smith, wasn’t preordained, and above all, he didn’t trust government. He points out that only economic growth can raise living standards. Continuous economic growth is the only way to raise wages, and a stagnant economy leads to falling wages. Elsewhere he writes that famines are the result of government price controls.

While Karl Marx claimed nearly a century later that capitalism would lead to growing impoverishment for workers, Smith predicted that economic growth would lead to an increase in living standards.

…..

Smith was right about the effects of economic growth, as the past few decades have confirmed. In recent years, the decline in poverty has accelerated at a pace unmatched in any previous period of human history. In 1981 the absolute poverty rate, which the World Bank currently defines as living on less than $1.90 a day, was 42.7%. By 2000, it had fallen to 27.8%, and today it is less than 9%.

Smith predicted that only an expansion of markets could lead to increased prosperity. This is precisely what has happened since the fall of socialist planned economies. In China, the introduction of private property and market reforms reduced the share of people living in extreme poverty from 88% in 1981 to less than 1% today. Free-market economist Zhang Weiying of Peking University says, “China’s rapid economic development over the past four decades is a victory of Adam Smith’s concept of the market.” Contrary to prevailing interpretations in the West, Mr. Zhang says economic growth and declining poverty in China weren’t “because of the state, but in spite of the state,” caused by the introduction of private property.

The Wall Street Journal‘s Editorial Board reports on a new study that shows superior performance of charter schools over non-charter government schools. A slice:

Stanford’s Center for Research on Education Outcomes (Credo) report is the third in a series (2009, 2013, 2023) tracking charter-school outcomes over 15 years. The study is one of the largest ever conducted, covering over two million charter students in 29 states, New York City and Washington, D.C., and a control group in traditional public schools.

Credo’s judgment is unequivocal: Most charter schools “produce superior student gains despite enrolling a more challenging student population.” In reading and math, “charter schools provide their students with stronger learning when compared to the traditional public schools.” The nationwide gains for charter students were six days in math and 16 days in reading.

The comparisons in some states are more remarkable. In New York, charter students were 75 days ahead in reading and 73 days in math compared with traditional public-school peers. In Illinois they were 40 days ahead in reading and 48 in math. In Washington state, 26 days ahead in reading and 39 in math. Those differences can add up to an extra year of learning across an entire elementary education.

Bravo for this letter in today’s Wall Street Journal by Floyd Abrams:

Jed Rubenfeld’s “The Censorship Machine Is Running in 2024” (op-ed, June 6), advocating legislation barring social-media platforms from determining not to carry certain speech during a political campaign, runs directly into a First Amendment barrier. That is the consequence of having the government decide what views social media must carry.

Racist political advocacy, which is protected under the First Amendment but hardly speech that must be carried by social media today, would have to be carried under such legislation. Potentially false statements about candidates couldn’t be “censored” by being rejected by social media, even though any newspaper would be protected by the First Amendment in doing so.

The Supreme Court put it well in its unanimous ruling in Miami Herald v. Tornillo(1974). In that case, the court held unconstitutional a right-of-reply statute adopted by Florida that gave political candidates an opportunity to respond to newspaper attacks. Any such law relating to the “choice of material” in a newspaper, the court concluded, was unconstitutional. In a concurring opinion, Justice Byron White correctly warned that “government tampering” with “news and editorial content” was precisely what the First Amendment most clearly protected against.

Floyd Abrams
New York

Stephanie Slade makes the case that “[l]eft-wing totalitarianism and right-wing authoritarianism are not our only options.” A slice:

[Donald Atwell] Zoll allowed that this was “not an easy choice to make.” But the risk, should his side choose not to fight uninhibited, was that “totalitarian radicalism would win the day.” Against such an outcome, what’s a little “countermilitancy, repression, force and forms of authoritarianism”? To survive, Zoll concluded gravely, conservatives would have to reject their traditional “anti-authoritarian inhibitions” and “prepare to fight—whatever this may entail—against the tide of contemporary Jacobinism, candidly facing the necessity of employing techniques generally ignored or rejected by contemporary Western conservatives.”

Among those who were disturbed by this vision was National Review senior editor Frank S. Meyer, who fired back in the following issue of the magazine. “Professor Zoll’s rejection of the values of an order directed toward the preservation of liberty and pluralism is a rejection also of the American tradition, the tradition of the Constitution and the Founding Fathers,” he wrote. The choice between hard left-wing totalitarianism and soft right-wing authoritarianism, Meyer argued, was a false one: “​There is a third alternative, and it is the only one conservatives can embrace if they are to remain conservatives”: neither Robespierre nor Bismarck but George Washington.

Pierre Lemieux warns of the assault in India on science and reason.

Here’s Alberto Mingardi on the late Silvio Berlusconi.

GMU Econ alum Nikolai Wenzel praises the heroic Jimmy Lai.

David Henderson talks with Juliette Sellgren about Nobel-laureate economists and some others.

My intrepid Mercatus Center colleague, Veronique de Rugy, explains that “the Rail Safety Act is about union handouts, not safety.” A slice:

Enter the Rail Safety Act, a joint product of Sens. J.D. Vance (R–Ohio) and Sherrod Brown (D–Ohio). This bill, introduced in early May, is touted as a legislative response to the February freight train derailment in East Palestine, Ohio, that spilled toxic material, forcing people out of their homes and filling the air with toxic gas. Thankfully, no one was injured. But before anyone understood what truly caused the derailment—most likely a faulty wheel—politicians of all stripes were out promising new regulations to improve rail safety.

The result is legislation with little connection to the derailment, or to any other derailments for that matter. Indeed, it appears to push pet projects that legislators wanted all along without any reckoning of costs and benefits. In consequence, says University of Dayton professor Michael F. Gorman in a new paper, none of the bill’s detailed prescriptions and rules “would reduce the risk of a serious accident involving the transport of hazardous material. Taken together, they will likely result in an inferior outcome to the status quo.”

This is not surprising. What the bill does have is an awful lot in it for unions to like. For instance, it would freeze train crew sizes (the opposite of efficiency and something unions were demanding long before the derailment) and require more inspections that can only be performed by, you guessed it, union workers.

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

Quotation of the Day…

(Don Boudreaux)

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… is from page 97 of my late, great colleague Walter Williams’s 1982 book, America: A Minority Viewpoint (original emphasis):

Free enterprise, laissez-faire, open markets, and capitalism are different expressions which describe a particular relationship between humans. That relationship is voluntarism. There are no third-party interferences with exchange between two or more individuals. Put another way, all relationships are seductive in nature. This means that I do something or give you something that you like if you do something or give me something that I like…. The essence of voluntary (seductive) exchange is that no one enters one unless he, in his own estimation, perceives that he will be better off than in his next best alternative.

Why Do Genius Angels Need Government Power?

(Don Boudreaux)

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Here’s a letter to my long-time hostile correspondent Nolan McKinney:

Mr. McKinney:

You’re correct that in his “Memo” (of which I am highly critical) Sam Hammond proposes that capital controls be imposed, not to limit all foreign investments, but only (as Hammond says) “to restrict foreign capital from entering sectors that are either politically sensitive or subject to financial speculation.” Yet you are incorrect, I believe, to describe this proposal as “sensible, practical and clearly beneficial.”

First, what exactly is meant by “politically sensitive”? Are investments politically sensitive if they’re made by foreigners who are portrayed in the press and by politicians as economic competitors to Americans? What about foreign investments that strike the public’s nerve because these happen to be declared to be dangerous by bleating heads on Fox News or MSNBC? In this era in which nearly everything is cast in a political light, almost all foreign investments in America could be classified as “politically sensitive.”

I remember when in 1989 Japanese investors bought Columbia Pictures, creating what is today Sony Pictures. Many Americans were outraged that an iconic American movie studio was to be owned and operated by the Japanese. One of my then-fellow law students, decrying this purchase, commented to me that “The last thing we need is glitzy Hollywood movies of Godzilla.” Did such irrational outrage back then make this purchase “politically sensitive” enough to have the government prevent it?

Second, financial speculation is inherent to all investment. No one purchases assets knowing that their values will rise; everyone who purchases assets hopes and speculates that their values will rise; and every asset’s value is subject to rising excessively because of investors’ mistaken optimism.

Taken literally, Mr. Hammond’s proposal would in fact prevent all foreign investments in America.

You’ll accuse me of hyperbole. You’ll insist that experts charged with power to impose capital controls could be trusted to distinguish ‘bad’ investments, which are likely to trigger bubblicious speculation, from ‘good’ investments, which are made with appropriate sobriety. To which I respond: People with access to such knowledge don’t need government power to protect the rest of us from doomed investments. Such oracles would simply short all assets the excessive values of which are destined to decline. Indeed, these soothsayers would not waste their time working for the government, as that time would be far more lucratively spent by taking positions as private investors against the less-well-informed investors who are moving asset prices in wrong directions. Anyone who needs government power to allegedly prevent undue speculation is someone who, we can be sure, is too poorly informed to exercise that power in ways that will achieve the advertised happy results.

Here’s the bottom line: You, Sam Hammond, Oren Cass, Marco Rubio, and all promotors of protective tariffs, subsidies, capital controls, and other industrial-policy interventions as means of improving the economy believe that if the right people are given such power to intervene they thereby become angels with super-human knowledge. In contrast, I believe no such thing.

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

Quotation of the Day…

(Don Boudreaux)

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… is from page 101 of the 1969 Arlington House edition of Ludwig von Mises’s 1944 Yale University Press book, Omnipotent Government: The Rise of the Total State and Total War (available free-of-charge on-line here):

Mere acquaintance with Western methods of production, transportation, and marketing would have proved useless for the backward nations. They did not have the capital for the adoption of the new processes. It was not difficult to imitate the technique of the West. But it was almost impossible to transplant the mentalities and ideologies which had created the social, legal, constitutional, and political milieu from which these modern technological improvements had sprung. An environment which could make for domestic capital accumulation was not so easy to produce as a modern factory. The new industrial system was but the effect of the new spirit of liberalism and capitalism. It was the outcome of a mentality which cared more about serving the consumer than about wars, conquest, and the preservation of old customs. The essential feature of the advanced West was not its technique but its moral atmosphere which encouraged saving, capital formation, entrepreneurship, business, and peaceful competition.

DBx: Yes.

The people of countries that rely for their economic growth chiefly on copying industrial and commercial methods developed by, and market-tested in, more-entrepreneurial and innovative countries will never be as prosperous as are the people of entrepreneurial and innovative countries. Even less prosperous are the people of countries that rely largely for their economic ‘successes’ on stealing from entrepreneurial and innovative countries.

Economic prosperity for the masses is far less a matter of physical activity and the accumulation of capital than it is of gumption, creativity, permissionless innovation, and the freedom of individuals to express their preferences as consumers and to adjust, as producers, to the fine details of often-changing economic realities.

Oh, And Naturally He Also Calls for Industrial Policy

(Don Boudreaux)

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American Compass continues to publish ill-informed commentary on trade. Here’s an open letter to that organization.

American Compass:

Samuel Hammond’s “Memo” titled “Capital Flows Are the Core Concern” is a dreadful mix of fallacies and faulty reasoning.

For starters, it’s not true that a U.S. “current account deficit means that the United States is a net borrower.” Many foreign investments that contribute to a U.S. current-account deficit create no debt obligations for Americans. If, for example, foreigners increase their net dollar holdings by $1 billion, the U.S. current-account deficit increases (beyond what it would otherwise be) by $1 billion, but there is no increase in Americans’ indebtedness. The same is true when foreigners use their export earnings to increase their equity holdings in the U.S. and – ironically – their ownership of real estate in America.

I say “ironically” because a foreign investment that Mr. Hammond explicitly identifies as being especially worrisome is Chinese purchases of U.S. farmland. Readers of Mr. Hammond’s memo can be forgiven for coming away thinking that the Chinese are dangerously gobbling up American farmland; after all, as Mr. Hammond reports (quoting Lars Schönander and Geoffrey Cain) “Chinese ownership of U.S. farmland leapt more than 20-fold in a decade, from $81 million in 2010 to $1.8 billion in 2020.”

Scary, right?

No, not when put into perspective. The 384,000 acres of U.S. farmland that Mr. Hammond complains is now owned by the Chinese is 0.04 percent of the total amount (893.4 million acres) of farmland in the U.S. The market value – $1.8 billion – of this Chinese-owned farmland in the U.S. is a minuscule 0.06 percent of the total value ($2.916 trillion) of all U.S. farmland. Only by reporting numbers out of context is Mr. Hammond able to have any hope of convincing his readers to join him in supporting stricter government controls on Chinese purchases of U.S. farmland.

Mr. Hammond’s command of the facts is no better when he lazily repeats the familiar protectionist refrain that “large trade deficits have hollowed out America’s productive capacity.” In reality, America’s industrial capacity has risen steadily over the past several decades; it is today near the all-time high that it hit in 2016 and 137 percent greater than it was in 1975 (the last year in which America ran a trade surplus).

On one matter Mr. Hammond is correct: the great willingness of non-Americans to invest their dollars in America – to send capital to our shores – does indeed keep Americans’ borrowing costs lower than these would otherwise be. Yet from this happy fact he bizarrely concludes that Americans are thereby harmed. Nowhere mentioning the factory expansions, R&D, worker training, and new entrepreneurial start-ups in America funded with much of this capital, Mr. Hammond instead complains that this abundance of capital lowers the U.S. government’s borrowing costs, thus allegedly prompting more government spending.

This complaint makes no sense. Unlike private firms and households which spend their own money prudently, politicians spend other people’s money politically. The likes of Sens. Schumer, Sanders, and Rubio, Reps. Pelosi, Ocasio-Cortez, and Santos, and Presidents Obama, Trump, and Biden do not consult current interest rates to determine how much to borrow and spend. They instead consult pollsters and special-interest groups and spend without regard for fiscal consequences beyond the next election. Higher interest rates resulting from the capital controls for which Mr. Hammond clamors would significantly obstruct entrepreneurs’ and businesses’ access to capital while doing practically nothing to temper the government’s fiscal incontinence. By reducing foreigners’ ability to lend to the U.S. government and thereby raising interest rates on government bonds, Mr. Hammond’s scheme would only further increase the fiscal burden that today’s irresponsible deficit spending imposes on future generations of Americans.

The above doesn’t exhaust all of the many errors packed into Mr. Hammond’s “Memo.” (He’s also wrong, for example, to assert that U.S trade deficits contribute to housing bubbles. I present it as a pop quiz for you to explain why he’s wrong on this front. It’s a pop quiz that most George Mason University undergraduate economics majors would ace.) What I identify above is more than sufficient to warn open-minded readers to approach your organization’s writings on trade with great skepticism.

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

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 70 of the late Anthony de Jasay‘s brilliant 1995 paper “Frogs‘ Legs, Shared Ends, and the Rationality of Politics,” as this paper is reprinted in the 1997 collection of some of de Jasay‘s writings, Against Politics:

Any political decision that, by invoking the common good, overrides the will and wishes of some to satisfy others, is the execution of a value judgment about individual wills and wishes. The more vulgar kinds of claims about the common good, of course, often masquerade as truth-claims.

DBx: Insofar as “common-good capitalism” is an economic system that differs from the liberal market order as championed by scholars such as Adam Smith, Ludwig von Mises, F.A. Hayek, Ronald Coase, Milton Friedman, Armen Alchian, and James Buchanan, it is falsely labeled. It is not really “common-good capitalism”; it is, instead, “what-some-particular-individuals-arrogantly-think-is-good authoritarianism.”

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(Don Boudreaux)

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Mike “Coase” Munger explains that “thinking in terms of transaction costs is central to understanding how real markets work.”

James Pethokoukis understands the most significant connection between tax rates and economic growth.

David Bier makes clear that “legal immigration is impossible for nearly everyone.”

David Henderson ponders Sam Peltzman pondering industrial deconcentration.

Wall Street Journal columnist Jason Riley decries today’s fever, among many progressives, for reparations. A slice:

California was never a slave state, and New York outlawed slavery in 1827, but the absurdities of these proposals don’t end there. Slavery was an atrocity, but all the slaves and all the slaveholders are long gone. Furthermore, the vast majority of whites living in the antebellum period, even in the South, never owned slaves. Most white Americans alive today are descendants of people who came to the U.S. after the Civil War. Proponents of reparations want people who aren’t even descendants of slaveowners in the U.S. to compensate black people who were never slaves.

Progressives insist that there is a direct link between the past mistreatment of blacks and black outcomes today, but that claim is undermined by the experience of other groups. Chinese- and Japanese-Americans were also mistreated in the U.S. They were lynched, placed in internment camps, forced to attend segregated schools and denied property rights. Yet today both Asian groups outperform white Americans academically and economically and have done so for decades. Conversely, according to the most recent Bureau of Labor Statistics report, median black weekly earnings are slightly higher than those of Hispanics, yet no one would argue that Hispanics have experienced more discrimination in the U.S. than blacks.

Those who want to blame the legacy of slavery for outcomes today are overlooking the legacy of the welfare state, which grew dramatically beginning in the late 1960s. The Great Society programs implemented under President Lyndon B. Johnson subsidized counterproductive behavior that took a huge toll on the black family. Subsequently, many of the positive trends among blacks in the first two-thirds of the 20th century—from declining crime rates to educational and economic gains that were narrowing the gap with whites—either stalled or reversed course.

Dartmouth student Jack Nicastro praises the defense of free speech recently co-authored by Dartmouth’s outgoing and incoming presidents.

Telegraph columnist Madeline Grant argues that Britain’s covid inquiry “must be willing to challenge such orthodoxies and question why sceptical voices were so often excluded from the debate.” A slice:

As such, many burning questions may not even be asked. Questions such as why the UK’s previous pandemic planning, emphasising advice rather than coercive measures, was so quickly jettisoned in 2020. What of the lack of examination of the likely collateral costs of lockdown, and the manner in which Parliament was quickly shut down, and for months barely performed a rubber stamp role? What was the purpose of the UK’s lockdown strategy after the initial flattening of the curve? For much of 2020, many policy-makers knew that outdoor mixing wasn’t driving transmission. Why did they ban it?

Will any attention be given to the media – especially the broadcast media – and their complicity in pushing for the suspension of liberties and creating a wider climate of sensationalism?