Russell Roberts's Blog, page 86
October 22, 2022
Bonus Quotation of the Day…
… is from page 262 of F.A. Hayek’s insightful 1957 paper “What is ‘Social’? What Does It Mean?” as this paper appears as chapter nineteen 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:
True service to the social concept is not rendered by the imposition of absolute authority or leadership, nor does it even consist of common endeavor towards a common aim, but rather of the contribution that each and every one of us makes to a process which is greater than any one of us, from which there constantly emerges something new, something unforeseen, and which can flourish only in freedom.
Quotation of the Day…
… is from pages 192-193 of Edwin Cannan’s 1902 address to the British Association (Section F) – an address titled “The Practical Utility of Economic Science” – as this address is reprinted in the 1912 collection of some of Cannan’s essays, The Economic Outlook (E. Cannan, ed.):
In regard to international relations, the first business of the teacher of economic theory is to tear to pieces and trample upon the misleading military metaphors which have been applied by sciolists to the peaceful exchange of commodities. We hear much, for example, in these days of “England’s commercial supremacy,” and of other nations “challenging” it, and how it is our duty to “repel the attack,” and so on. The economist asks “what is commercial supremacy?” and there is no answer. No one knows what it means, least of all those who talk most about it. Is it selling goods dear? Is it selling them cheap? Is it selling a large quantity of goods in proportion to the area of the country? or in proportion to its population? or absolutely, without any reference to its area or population? It seems to be a wonderful muddle of all these various and often contradictory ideas rolled into one. Yet what a pile of international jealousy and ill-feeling rests on that and equally meaningless phrases! The teacher of economic theory analyses or attempts to analyse these phrases, and they disappear, and with them go the jealousies suggested by them.
October 21, 2022
Bonus Quotation of the Day…
… is from page 7 of the late Columbia University economist Donald Dewey’s 1974 paper “The New Learning: One Man’s View,” which is the introductory chapter to the pioneering 1974 volume edited by Harvey Goldschmid, H. Michael Mann, and J. Fred Weston, Industrial Concentration: The New Learning:
Personally, I have never been one to depreciate the concern of so many economists with the problems of monopoly power. However, I have always been puzzled by the tendency to search for monopoly in concentration ratios rather than in the myriad of entry restrictions embodied in federal, state, and local legislation.
DBx: Pictured here is Airlie House, which is in Warrenton, Virginia. Airlie House serves as a conference center. It was the site of a famous and influential conference in early March 1974 of antitrust scholars. These scholars were among those who successfully exposed the economic fallacies embodied in the so-called “structure-conduct-performance” approach to industrial-organization economics. The SCP model – rooted as it is in the theory of perfect competition – prompted those who used it to endorse active antitrust interventions into the economy.
The research of scholars in the “new learning” tradition thankfully helped to toss SCP theorizing into history’s trash bin – or so we naively believed, as a new breed of antitrust activists are today on the rise and in positions of power. Members of this new breed are utterly ignorant of history, intellectual and economic. And they are just as ignorant of economics.
We need a new “new learning.” Or, rather, we need to apply the new learning represented at Airlie House nearly 50 years ago to the fallacy-filled assertions made today about antitrust and industry structure, conduct, and performance.
Quotation of the Day…
… is from page 31 of F.A. Hayek’s 1973 essay “Liberalism” as this essay appears as chapter one 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:
Thus, though the consistent application of liberal principles leads to democracy, democracy will preserve liberalism only if, and so long as, the majority refrains from using its powers to confer on its supporters special advantages which cannot be similarly offered to all citizens.
October 20, 2022
Bonus Quotation of the Day…
… is from page 229 of economist Lionel Robbins’s superb and still-relevant 1937 book, Economic Planning and International Order (original emphasis):
It is not certain that on every possible occasion the mechanism of markets will function satisfactorily. But experience suggests that in most cases where it does not investigation shows that there is some deficiency in the law.
Some Links
My GMU Econ colleague Pete Boettke is a fan of Samuel Gregg’s new book, The Next American Economy. A slice:
Gregg is no doubt correct when he states that “economic truth is not sufficient to settle these questions.” But it sure would help if teachers and communicators stressed to the young sound economics: the logic of choice against given constraints, the beauty and complexity of modern economic life, the hope of human betterment through mutually beneficial exchange and entrepreneurial ingenuity that discovers cost-saving techniques in production and distribution, creating new goods and services. And it would also help if our teachers and communicators of economic truth stressed the consequences of economic freedom for the least advantaged and most vulnerable. In 2015, it was recorded that for the first time in human history, less that 10% of the world’s population was living in extreme poverty. When I was a college student learning economics, that number hovered around 37%. Think about that for a second. The Age of Milton Friedman produced that! It wasn’t an Age of Chaos, but an Age of a Great Escape from the misery of the Malthusian trap for billions. Our college students today need to understand that. They don’t. Or at least they don’t understand the full meaning and implications of that number.
Let me end where I started. Samuel Gregg has produced a fantastic book that should be on the shelf of all citizens who care about our future as a self-governing political community. As he argues, we must embrace the American experiment and fulfill its promise of freedom and prosperity for a new generation. With The Next American Economy, Gregg has made a significant contribution to the political economy of our times. He has effectively countered the arguments on right and left that agitate for protectionism and industrial planning and against free enterprise and free trade. He has also given us a vision of a creative, competitive, and peaceful America for the 21st century. It is my sincere hope that his book gets a wide readership and that it impacts the public discourse in this country, which desperately needs Samuel Gregg’s calm voice and deliberate and scholarly demeanor to counter the poisonous and odious rhetoric that defines our current political culture.
Art Carden reviews Marian Tupy’s and Gale Pooley’s Superabundance. A slice:
Superabundance is the kind of book that needs to be written, that needs to be read widely, and that will likely not move the needle for the people who most need to read it. “We are running out of resources” is a fundamental tenet of secular environmental religion; it is not a hypothesis open to testing and possible falsification. Many people who most need Tupy and Pooley’s message, therefore, have neither ears to hear nor eyes to see. That’s both sad and frustrating. For people who aren’t yet on a steady diet of green Kool-Aid, Superabundance brings a message of hope and deliverance, one that might make them cancel their next appointment with their “eco-anxiety” counselor.
The main problem is that oil demand has outstripped supply amid the post-pandemic economic recovery owing to a lack of investment, especially in the U.S., which had been the world’s swing producer. U.S. production has been flat since May. Now the swing producers are Saudi Arabia and the United Arab Emirates. OPEC countries and their allies, which account for 45% of global oil production, accounted for 85% of new supply in September.
GMU Econ alum Dominic Pino explains that Biden continues to peddle nonsense about gasoline pricing. A slice:
Really, there are widely accepted reasons why prices in markets such as gasoline don’t go down as quickly as they go up. It’s called asymmetric price transmission, or “rockets and feathers.” I wrote about it in Julywhen Biden was blaming gas-station owners for high prices. Economists debate the causes of asymmetric price transmission, but empirical research finds that it occurs in competitive markets where firms do not have much pricing power. That means it’s not a consequence of a few powerful corporations holding prices up. The gasoline industry is extremely competitive. Most stations are independently owned and operated, and prices are based on a wide variety of factors that vary by region, even town-to-town.
Scott Lincicome and Ilana Blumsac help set the record straight on income differences in America.
No serious free marketer believes that markets are perfect. We aren’t utopians. Unfortunately, perfect markets and perfect competition are often the starting point of economic textbooks. This rosy starting point leads many to conclude that when conditions are less than perfect, the best course of action for a correction is government intervention. It’s wrong.
Not only is government itself imperfect, as anyone can plainly see, but the market is a process to find and fix errors. A market imperfection is an opportunity for entrepreneurs to profit. As Arnold Kling recently wrote, “Markets fail. Use markets.” That’s because, Kling adds, “entrepreneurial innovation and creative destruction tends to solve economic problems, including market failures.”
This isn’t to say that the government plays no role aside from protecting property rights. But it means that faith in government intervention should be tempered with an acknowledgment of government’s own flaws, including a tendency to favor one group of people over another and an inability to adapt when policies fail or circumstances change.
There is no contradiction between freedom and public health. Freedom is a requisite for good public health.
Jay Bhattacharya is unimpressed with the U.S. government’s new ‘plan’ for the next pandemic.
Quotation of the Day…
… is from page 1 of Edwin Cannan’s Preface to his 1914 tract, Wealth: A Brief Explanation of the Causes of Economic Wealth:
We should not tolerate a person who professed to explain the inefficiency of some locomotive and to provide a remedy for it, if we knew that he had never studied mechanics and was quite ignorant of the construction and working of locomotives. The existing economic organization is a much more complicated and delicate piece of machinery than a locomotive, and yet, whenever some imperfection in the work done becomes particularly prominent, we are overwhelmed with suggestions about causes and remedies by persons who have not the smallest general knowledge of the reasons why the machinery works at all. It often happens that a man of considerable eminence in his own profession, but without the smallest acquaintance with the fundamentals of economics, will make a suggestion which is precisely on a level with the proposition that the locomotive would be much more efficient if its weight were taken off the driving wheels so that they could revolve more easily.
DBx: And so matters remain more than a century later. People with no – or distorted – exposure to economic principles continue to believe about the economy the equivalent of what flat-earthers believe about the cosmos. Does trade destroy some particular jobs in the domestic economy? Yes! Therefore we in the domestic economy are impoverished by trade! Are some workers paid less than is thought acceptable by professors of English and sociology? Yes! Therefore the imposition or raising of a minimum wage will improve all of these low-paid workers’ welfare! Are there some people unemployed? Yes! Therefore more government spending will cure this problem! Does today’s economy not look like the lovely economy that my nostalgia-laden mind supposes is optimal? Yes! Therefore everyone will be improved if government engineers the economy to match what I envision in my nostalgia-laden mind! Are rents high? Yes! Therefore government control over rental rates will keep these rates down and thereby improve the welfare of tenants!
These and other ignorant opinions remain prevalent. They are likely always to remain so.
October 19, 2022
Bonus Quotation of the Day…
… is from page 374 of the late, great UCLA economists Armen A. Alchian’s and William R. Allen’s Universal Economics (2018; Jerry L. Jordan, ed.); this volume is an updated version of Alchian’s and Allen’s magnificent and pioneering earlier textbook, University Economics:
Traditional public schools do not compete with each other for customers – students and their parents. Children are assigned to a school and cannot choose to attend another school across town that may be getting better results. The consequence has been that public schools are primarily “producer driven” – teachers and administrators do not have to be concerned that customers – students – will take their business elsewhere if they are not satisfied. It is rather like being in an isolated town with only one restaurant and you are required to eat out five times a week; the cook will not be concerned about how much you like the food.
DBx: Yes, except that to make the restaurant in this example even more akin to government K-12 non-charter schools, that restaurant would have to be one that is funded out of tax revenues extracted from all citizens – even from those citizens who are excused from having to eat out five times weekly – with no funds coming from out-of-pocket expenses of diners. Anyone who believes that non-charter K-12 government schools have adequate incentives to adequately serve students rather than be primarily focused on inflating the salaries and reducing the workloads of teachers and administrators is someone who also must also believe that such a hypothetical restaurant will serve diners at least as well as diners are served by actual restaurants.
More on Some Difficult Questions of Trade Policy
Wouldn’t it have been better for Europeans not to become dependent in the first place on substantial amounts of Russian oil and gas?
Even with today’s full knowledge that Putin invaded Ukraine, this question is impossible to answer in the abstract. The downside of European dependence on energy supplies from the Russian aggressor is real and obvious. This dependence raises Europeans’ costs of halting their commercial exchange with Russia, a commercial exchange that helps to support a detestable and dangerous war machine. But there’s an upside to this dependence that could, under certain circumstances, outweigh the downside. It’s an upside that is typically ignored. This upside is the dependance of Russians on whatever it is they purchase with their export earnings from European (and European allied) countries.
Precisely because Russia profits from selling oil and gas to European countries, Russia depends on Europe no less than Europe depends on Russia. This dependence of Russians on Europeans is rooted in Russians’ use of the earnings they reap from their oil and gas exports to buy imports. If Russians received in exchange for their exports no real goods and services from non-Russians, Russian energy exports would be unambiguously harmful to Russians (and unambiguously beneficial to people outside of Russia). Under such circumstances, Russians, in exchange for nothing but cash, would send valuable oil and gas to other countries and thus better enable Europeans and other non-Russians literally to fuel their opposition to Putin’s aggression. If, in other words, Russians received in exchange for their oil and gas only money (that is, only cash, real or digitized) Russians would receive nothing of any use for waging a war. Cash as such, hoarded rather than used to purchase real goods and services, cannot be eaten, woven into military uniforms, or provide troop transportation. And as a military weapon, cash is utterly ineffective.
Putin, therefore, can successfully use Russia’s energy exports to strengthen his hand militarily only insofar as he and other Russians spend the earnings from these export sales on acquiring real goods and services from abroad. And so Russia’s exports of oil and gas make Russia dependent for real goods and services upon other countries.
What goods and services do Russians import as a result of their energy exports? If these Russian imports are frivolous (if, say, these imports are limited to children’s toys and high-fashion clothing) any reduction in Russia’s energy exports to Europe would practically impose a lesser burden on Russians than on Europeans. The reduction in Russian exports would result in Russians having less access to toys and fancy clothes, while Europeans would suffer reduced access to energy. But if Russians’ imports are more substantial (say, of food and materiel used as inputs in heavy industry) then if Putin follows through on threats to cut Russian energy exports, he and his fellow Russians would, in consequence, have to eat less or devote more labor and resources to food production. Russians would also have fewer inputs to use for producing weaponry.
While hardly guaranteed, it’s more than remotely possible that the costs to Russians, including to Putin and his generals personally, of cutting off Russian energy exports would be so great as to render empty Putin’s threats to cut off these exports. If so, Europeans would then have to trade off the costs of continuing to supply, in the form of their own exports, goods and services to Russia, against the benefits to them (Europeans) of continuing to import Russian oil and gas.
Whatever might be the ‘best’ way to make this trade-off in any real-world instance, discussions of one country’s or region’s dependence on imports from another country or region should stop being conducted as if this dependence is unilateral. It never is. Great confusion is stirred up by the failure to recognize that any country’s dependence rooted in international trade on other countries is always multilateral. It follows that if the government of the home country restricts imports today in order to avoid being dependent for supplies on a foreign country tomorrow, that import restriction will also reduce the economic dependency that the foreign country will have, either directly or indirectly, on the home country both today and tomorrow.
Some Links
No, China is probably not headed for another famine like the one that killed millions as a result of Mao’s insistence on a disruptive bid for simultaneous industrialization and agriculture collectivization between 1958 and 1962.
What’s comparable, though, are the mind-sets of Mao and Xi. Both set ostensible policy objectives — economic growth, public health — and called for party-led mass mobilization to achieve them. For both, party-led mass mobilization itself is the true point of the exercise.
Now, as then, the party will settle for nothing less than superhuman effort. “People must conquer nature,” Mao instructed during the Great Leap Forward. “Fighting against the epidemic is both a material struggle and a spiritual confrontation. It is a contest of strength and a contest of will,” an editorial on Xi’s coronavirus policy in People’s Daily recently said.
Mao proclaimed Chinese economic development would overtake that of Britain. Xi promises China will outperform Western countries at fighting the pandemic, without the help of their vaccines.
Xi’s speech to the congress Sunday offered no hint of a new approach, despite counterproductive results ranging from the crash of a bus carrying people to a quarantine facility, in which 27 people died, to a markedly slowing economy.
David Stockman reviews some of the economic consequences of lockdowns. A slice:
Nor does the Donald and Fauci’s Virus Patrol get off the hook on the grounds that these dispositive facts about the Covid were not fully known in early March 2020. But to the contrary, the results of a live fire case study involving the 3,711 passengers and crew members of the famously stricken and stranded cruise ship, the Diamond Princess, were fully known at the time, and they were more than enough to quash the Lockdown hysteria.
During late January and February the virus had spread rapidly among the large, close-quartered population of the cruise ship, causing nearly 20% of the population to test positive—about half of which were symptomatic. Moreover, the population skewed elderly as is normally the case on cruise ships, with 2,165 people or 58% over 60-years of age and 1,242 or 33% over 70-years.
So if there was a vulnerable population sample this was it: That is, a stranded population of the mostly elderly in the close quarters of a cruise ship.
But, alas, the known mortality count from the Diamond Princess as of March 13, 2020 was just nine, and ultimately 13, meaning that the overall population survival rate was 99.8%. Moreover, all of these nine deaths were among the 70 years and older population, making the survival rate for even among the most vulnerable sub-population 99.3%.
And, of course, for the 2,469 persons under 70-years of age on this ship, the survival rate was, well, 100%.
That’s right. Donald Trump and his way-in-over-his-head son-in-law, Jared Kushner, knew or should have known that the survival rate of the under 70-years population on the Diamond Princess was 100%, and that there was no dire public emergency in any way, shape or form.
Under those conditions, anyone with a passing familiarity with the tenets of constitutional liberty and the requisites of free markets would have sent Dr. Fauci, Dr. Birx and the rest of the public health power-grabbers packing.
That the Donald and Jared did not do. Instead, they got led by the nose for month after month by Fauci’s awful crew because basically Trump and Kushner were power-seekers and egomaniacs, not Republicans and certainly not conservatives.
The resulting unnecessary economic wreckage is almost unspeakable.
HART decries “the crushing of dissent throughout the covid era.” Two slices:
Since the emergence of the novel coronavirus in early 2020, there has been widespread censorship of views that do not support the two mantras of covid-19 orthodoxy: namely that, ‘Lockdowns and other restrictions were appropriate responses’ and ‘The mRNA vaccines are safe and effective’. Indeed, the unprecedented and non-evidenced covid restrictions could not have been so successfully imposed without propaganda in all its forms. Contrary to popular opinion, techniques of manipulation do not only characterise recognised totalitarian regimes, but are now endemic within contemporary liberal democracies. And three, overlapping, forms of non-consensual persuasion have been widely deployed throughout the covid era to control the narrative and subsequent behaviour of citizens….
…..
In the UK, there has even been military involvement in the form of the 77th Brigade with their explicit mission to create and spread material ‘in support of designated tasks’ while also ‘supporting counter-adversarial information activity’. Internationally, the WHOhas effectively modulated the flow of information via the use of fact-checking organisations and collaborations with Facebook, Twitter, WhatsApp and YouTube, so as to guarantee that ‘science-based health messages from official sources’ (aka the dominant narrative) appear first when one searches for covid information.
Specific examples of the impact of this – seemingly global – operation to control information flow are numerous. They include: Professor Gupta (an epidemiological expert) being instructed not to mention the Great Barrington Declaration prior to appearing on a BBC discussion programme about lockdowns; academic journals blocking the peer-reviewed covid research of Dr Peter McCullough and the suppression of trial findings that had concluded that Ivermectin was an effective treatment; the removal of Dr Robert Malone (the inventor of mRNA technology) from Twitter; and the removal of MPs Sir Christopher Chope and David Davies from YouTube for, respectively, raising concerns about vaccine damage and vaccine effectiveness.
One fundamental consequence of this selective regulation of information was that our Western media – a supposed pillar of democracy – failed us all in their refusal to scrutinise and evaluate the actions of public officials.
Fauci is a liar. (HT Jay Bhattacharya)
The Administration seems to be firing at any merger that moves to create enough regulatory uncertainty to discourage businesses from combining. Businesses may decide it’s not worth the expense and time, which has a monetary value, to defend against even meritless government lawsuits. Several companies have called off mergers after antitrust regulators sued.
Another problem is New York’s blockade on pipelines transporting natural gas from Appalachia. Northeasterners who use oil for heating will spend on average $2,354 this winter, up from $1,212 two years ago. Folks with gas furnaces will spend only about $1,094. Democrats in Albany who are blocking the gas pipelines aren’t content with raising energy costs in their own state. They want people in neighboring states to shiver too.
New York’s pipeline obstruction is forcing New England to import more liquefied natural gas (LNG) from overseas, which costs multiples more than domestic gas. The Jones Act, which says that only American-built, -flagged and -crewed ships can transport cargo between U.S. ports, limits LNG from the U.S. Gulf Coast. Six Governors of New England states in July asked Energy Secretary Jennifer Granholm to consider suspending the Jones Act to alleviate their energy costs this winter. But that would offend the AFL-CIO.
Instead, the Administration is threatening to restrict U.S. refined fuel exports. This would increase global fuel prices and result in higher heating costs in New England, which relies on oil imports. One bad protectionist policy may thus produce another. All of which means that Americans will pay again for the Democratic Party’s war on fossil fuels. U.S. gasoline prices have been rising again after OPEC’s production cuts, and swelling heating bills will compound the pain.
Phil Magness writes on his Facebook page:
In a world where elite academia consistently prioritizes politically fashionable causes over intellectual merit or even intellectual honesty, we should not be surprised to see similar preferences emerging among persons and organizations who currently sit outside of elite academia but desire to rub elbows within its ranks.
David Henderson shares a snippet from a 1943 report – “report” – in Life on the U.S.S.R. (DBx: Reading this snippet only further confirms the sad truth that intellectuals, such as the Life reporter, become utterly deluded as a result of their jejune infatuation with centralized power.)
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