Russell Roberts's Blog, page 87

Evidence That Time Makes Demand More Elastic

(Don Boudreaux)

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In agreeable response to my recent letter to the Wall Street Journal on the fact that, over time, consumers adjust to high gasoline prices by taking steps such as moving closer to their workplaces, Tim Worstall sent to me this e-mail:

Don,

My example of this has for many years been EU v US.

People in Europe live closer to work, shop more locally, drive shorter distances in cars with smaller engines and higher fuel efficiency than those in the US.

Petrol (gasoline) and diesel have been more expensive in Europe for at least a generation now.

We seem to have our proof.

Tim

Quotation of the Day…

(Don Boudreaux)

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… is from page 99 of NYU physicist – and former Energy Department undersecretary during the Obama administration – Steven Koonin’s excellent 2021 book, Unsettled? What Climate Science Tells Us, What It Doesn’t, and Why It Matters:

The bottom line is that the  science says that most extreme weather events show no long-term trends that can be attributed to human influences on the climate.

Rue Britannia

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

You rightly lament Britain’s refusal to escape the enterprise-crushing statism of its high-tax, high-spending, and high-inflation governing regime (“The Bad Alternative to Trussonomics,” Oct. 18).

In 1955 F.A. Hayek, speaking about Britain years after that nation embarked on its ill-conceived journey down the gloomy, no-growth path paved with oppressive taxation, enervating largess, and idiotic nationalization of many industries – a journey that Margaret Thatcher decades later reversed only partly – wrote that “I do not doubt … that for countries who are striving to rise, or to recover the wealth they have lost, the stimulus to all individual energies that the reign of freedom brings alone will lead to the goal.”*

So true – and yet so ignored by too many Brits. It’s a shame that the country that served as capitalism’s cradle seems determined now to be one of its coffins.

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

* F.A. Hayek, “The Political Ideal of the Rule of Law,” Commemoration Lecture of the National Bank of Egypt, Cairo, 1955; reprinted as Chapter Five of Hayek, The Market and Other Orders, Bruce Caldwell, ed. (Chicago: University of Chicago Press, 2014). The quotation above appears on page 125.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 117 of Eamonn Butler’s superb 2021 book, An Introduction to Trade & Globalisation:

Trade can be a convenient scapegoat for an industry’s failure to adapt to technological advances, financial upheavals, or changing markets.

DBx: Yes.

This insight reveals yet another cost of protectionism. Even if in a particular instance a protectionist intervention enabled the survival of an efficient domestic firm or industry that would otherwise have been destroyed by misguided market forces, this intervention creates or strengthens an unfortunate precedent – namely, domestic companies’ willingness to blame their fellow citizens who buy imports foreign competitors for their current woes and, thus, to plead to government for special protection or privileges.

Insofar as government is willing to listen sympathetically to such pleas, firms in the home country have muted incentives to achieve greater efficiencies, to innovate, and to charge prices as low as possible. Business-executives’ anticipation, with a probability greater than zero, of salvation through protectionism thus incites these executives to manage their companies in ways that actually increase the likelihood of being out-competed by foreign rivals and, hence, of ‘needing’ the pleaded-for protection or subsidies.

This moral hazard is real but too-seldom accounted for in discussions of trade policy.

Some Links

(Don Boudreaux)

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Scott Jason’s letter in today’s Wall Street Journal is excellent:

Jeb Hensarling’s op-ed “GOP Needs to Leave Trump Behind on Trade” (Oct. 3) could also have mentioned the Jones Act, an indirect tariff on domestic trade. The 100-year-old law has several elements, but its most archaic is the requirement for vessels moving goods between U.S. ports to be American ships with American crews.

Like most who promote protectionist tariffs, proponents of the Jones Act make claims of protecting domestic jobs and national security. Yet there are decades of evidence that show the exact opposite. The U.S. moves only a tiny percentage of its domestic tonnage by water—appalling (and costly) for a nation with our extensive coastline and river systems. Under this protectionist regime, our commercial shipbuilding has also been reduced to near zero and our military shipbuilding is plagued by cost overruns and a capacity shortage that hamstrings the existing fleet. For members of the Republican Party who think that tariffs and protectionist measures are a good idea, the Jones Act provides a case in point as to why they are not.

Scott Jason
Portland, Maine

I agree with Arnold Kling that the best feature of democracy is that it, better than other systems of choosing rulers, ensures that transfers of power are peaceful.

Brian Smith talks with AIER’s Samuel Gregg about markets in America.

Here’s another interview with Samuel Gregg.

Bryan Caplan: Song (re)writer!

Matt Welch isn’t impressed with Margaret Sullivan’s new book.

Will Jones reports on the new study by John Ioannidis, et al. A slice:

COVID-19 is much less deadly in the non-elderly population than previously thought, a major new study of antibody prevalence surveys has concluded.

The study was led by Dr. John Ioannidis, Professor of Medicine and Epidemiology at Stanford University, who famously sounded an early warning on March 17th, 2020 with a widely-read article in Stat News, presciently arguing that “we are making decisions without reliable data” and “with lockdowns of months, if not years, life largely stops, short-term and long-term consequences are entirely unknown, and billions, not just millions, of lives may be eventually at stake.”

In the new study, which is currently undergoing peer review, Prof. Ioannidis and colleagues found that across 31 national seroprevalence studies in the pre-vaccination era, the average (median) infection fatality rate of COVID-19 was estimated to be just 0.035% for people aged 0-59 years people and 0.095% for those aged 0-69 years.

Jay Bhattacharya tweets:

A Ministry of Truth is not less ominous just because it sometimes censors false ideas. More people now believe the vax is magnetic or some such nonsense because of government censorship efforts than if the government had not colluded with social media to suppress the idea.

Quotation of the Day…

(Don Boudreaux)

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… is from page 211 of economist Lionel Robbins’s superb and still-relevant 1937 book, Economic Planning and International Order:

For it is the essence of capitalist competition in a changing world that there should be a continual reinvestment of capital in new forms and combinations.

DBx: Yes. And therefore attempts by the state either to prevent this reinvestment or to direct it as politicians and bureaucrats – rather than as investors and entrepreneurs – desire are at odds with the essence of the capitalist market order.

There’s no doubt that the state can prevent reinvestment here and redirect reinvestment there. But there’s also no doubt that the state officials who today intervene in this manner do not know what will be the full range of the consequences of their interventions. Further, we can be sure that many of these unintended consequences will be undesirable. The reason for the former is inescapable human ignorance combined with the unfathomable complexity of modern economies. The reason for the latter – that is, the reason why many of the unforeseen consequences will be undesirable – is that these interventions pull resources away from where entrepreneurs and investors, spending their own money and guided by market prices, believe these resources will produce the most possible consumer satisfaction (as revealed in prices influenced by consumers spending their own money), and redirect these resources into uses that are little more than the abstract fancies of politicians or intellectuals – or into uses that serve the very concrete narrow interests of rent-seeking producer groups.

…..

Pictured above is one of America’s great entrepreneurial success stories – a story at the center of which is a process that, having earlier enabled this company to succeed, eventually enabled other entrepreneurs later to redirect capital away from it into newer forms of production and distribution. Both stages saw improvement in consumer welfare. (See also the Quotation of the Day from exactly on year ago.)

It’s Difficult to Believe That an Economist Can be So Terribly Clueless about Basic Economics

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

In “As Europe Caps Energy Bills, the Merits of Price Controls Get Another Look” (Oct. 10) you report on University of Massachusetts Amherst economist Isabella Weber’s support for energy-price controls. As you describe, Prof. Weber reasons that “unlike some other goods and services, households need energy to subsist, and how much they consume is relatively insensitive to changes in prices, or, in economic terminology, ‘inelastic.’ This means price caps would protect consumers without encouraging them to consume significantly more and exacerbate shortages.”

I weep for my profession – or at least for Prof. Weber’s students.

First, Prof. Weber ignores the second law of demand, which says that as time passes consumers adjust to price changes in ways that do significantly affect the quantities consumers seek to purchase. Upon discovering that gasoline prices have risen over night, the worker driving a honkin’-big SUV to his job 15 miles away can’t today easily avoid fueling his gas-guzzler in order to get to work. But over time he and other motorists will respond to higher fuel prices by switching to more fuel-efficient vehicles, moving closer to work, and making countless other adjustments that result in them buying much less gasoline.

Second, Prof. Weber astonishingly ignores the supply-side impact of price controls. If government keeps energy prices artificially low, energy producers have no incentive – unlike if prices rise – to increase the amounts they supply. So even if (contrary to fact) Prof. Weber is correct that the demand for energy is so inelastic that higher prices never significantly reduce the quantities that consumers seek to buy, keeping energy prices artificially low results in sellers bringing to market fewer quantities than they would bring at higher prices – meaning, practically, fewer quantities than consumers demand at the artificially low prices. The inevitable result is shortages.

I don’t know Prof. Weber’s age, but if she’s too young to recall the 1970s all she must do is to google “1970s gasoline lines” to see powerful evidence of the calamitous shortages caused by energy price controls.

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 23 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:

The liberal conception of freedom has often been described as a merely negative conception, and rightly so. Like peace and justice, it refers to the absence of an evil, to a condition opening opportunities but not assuring particular benefits; though it was expected to enhance the probability that the means needed for the purposes pursued by the different individuals would be available. The liberal demand for freedom is thus a demand for the removal of all man-made obstacles to individual efforts, not a claim that the community or the state should supply particular goods.

Some Links

(Don Boudreaux)

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Michael Shellenberger decries the fanaticism and danger of too many of today’s ‘climate activists.’ (HT Tim Townsend)

Arnold Kling understands much better than does Jason Furman the case for free markets. A slice:

Furman comes close to making what I call the straw-man argument against libertarianism and for technocracy. That argument goes:

Libertarianism relies on markets.Markets are optimal only under conditions of perfect competition.The conditions for perfect competition are rarely satisfied.There are many instances of market failure.Therefore, libertarianism does not work.

This argument constantly emanates from economists of Harvard and MIT and their disciples. Students and journalists, who are inclined to resent markets and despise libertarians, feel vindicated when they hear this argument. They come away believing that markets are never any good, even when professors who teach this way, like Jason Furman, are less dogmatically anti-market.

What is wrong with the argument? Step (2) is a swindle. It sneaks in the assumption that markets have to be optimal in order to be preferable to government intervention.

Instead, long ago I offered the aphorism “Markets fail. Use markets.” That is, I readily concede that the market economy is not at some theoretical optimum. The question is what will lead to improvement. I believe that government intervention will often make things worse. Meanwhile, entrepreneurial innovation and creative destruction tends to solve economic problems, including market failures.

James Pethokoukis offers some worthwhile thoughts about capitalism and inequality.

Bjorn Lomborg is here a bearer of good news.

Writing in the Wall Street Journal, Northwestern University law professor John O. McGinnis argues that the U.S. Supreme Court should have an easy time preventing race-based discrimination at U.S. universities. A slice:

The U.S. Supreme Court will hear two cases on Oct. 31 about whether universities have illegally discriminated against Asian-Americans. In both cases, Students for Fair Admission asks the court to overturn Grutter v. Bollinger, the 2003 case that held the pursuit of diversity satisfies the strict scrutiny required to overcome the constitutional presumption against discrimination under the 14th Amendment’s Equal Protection Clause.

But the justices can put a stop to racial preferences without reaching the constitutional question. Universities are required to abide by Title VI of the Civil Rights Act of 1964, which is unambiguous about preferential admission on the basis of race. The provision reads simply: “No person in the United States shall, on the ground of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.”

Here’s the abstract of a new paper by Angelo Maria Pezzullo, Cathrine Axfors, DespinaContopoulos-Ioannidis, Alexandre Apostolatos, and John P.A. Ioannidis: (HT Jeffrey Tucker)

The infection fatality rate (IFR) of COVID-19 among non-elderly people in the absence of vaccination or prior infection is important to estimate accurately, since 94% of the global population is younger than 70 years and 86% is younger than 60 years. In systematic searches in SeroTracker and PubMed (protocol: https://osf.io/xvupr), we identified 40 eligible national seroprevalence studies covering 38 countries with pre-vaccination seroprevalence data. For 29 countries (24 high-income, 5 others), publicly available age-stratified COVID-19 death data and age-stratified seroprevalence information were available and were included in the primary analysis. The IFRs had a median of 0.035% (interquartile range (IQR) 0.013 – 0.056%) for the 0-59 years old population, and 0.095% (IQR 0.036 – 0.125%,) for the 0-69 years old. The median IFR was 0.0003% at 0-19 years, 0.003% at 20-29 years, 0.011% at 30-39 years, 0.035% at 40-49 years, 0.129% at 50-59 years, and 0.501% at 60-69 years. Including data from another 9 countries with imputed age distribution of COVID-19 deaths yielded median IFR of 0.025-0.032% for 0-59 years and 0.063-0.082% for 0-69 years. Meta-regression analyses also suggested global IFR of 0.03% and 0.07%, respectively in these age groups. The current analysis suggests a much lower pre-vaccination IFR in non-elderly populations than previously suggested. Large differences did exist between countries and may reflect differences in comorbidities and other factors. These estimates provide a baseline from which to fathom further IFR declines with the widespread use of vaccination, prior infections, and evolution of new variants.

Wall Street Journal columnist Allysia Finley decries the demonization of Florida Surgeon General Joseph Ladapo. Two slices:

Florida Surgeon General Joseph Ladapo stirred a hornet’s nest when he released an analysis of state death and vaccine records that showed young men experienced an 84% increased risk of cardiac death within four weeks of receiving an mRNA vaccine. Actually, that’s unfair to hornets. They aren’t as mindless or vicious as the self-anointed experts attacking Dr. Ladapo.

Eric Topol, director of the Scripps Research Translational Institute and one of America’s leading Covid scolds, condemned Dr. Ladapo’s study as “baseless, reckless, and irresponsible” because it seemingly contradicted the expert consensus that myocarditis caused by vaccines is “typically mild and fully resolves in nearly all affected” (emphasis added).

The latter is probably true, but Dr. Ladapo’s study shows that some young men may experience severe effects. And it’s far from clear, as Dr. Ladapo notes, that the benefits of the mRNA vaccines for young, healthy men—who were at low risk to begin with, and the vast majority of whom now have some immunity from prior infection or inoculation—outweigh the risks.

…..

Or recall how Dr. Fauci and former National Institutes of Health director Francis Collinsconspired to discredit the authors of the Great Barrington declaration, which urged focused protection on the vulnerable while liberating young people from lockdowns. “There needs to be a quick and devastating published take down of its premises,” Dr. Collins wrote to Dr. Fauci

Mr. [Holden] Thorp participated in the takedown of this approach too, writing that the “risky and misguided course” of “opening of colleges and schools has accelerated the spread of the virus and will mean untold suffering among both students and the people to whom they are now spreading the virus.” Imagine how much bigger youth mental-health problems and learning loss would be if the “consensus” hadn’t been challenged.

The Telegraph‘s editors are correct: “China’s ‘zero Covid’ policy is an exercise in autocratic hubris.” Two slices:

More than a year after most of the world dropped the majority of pandemic restrictions and sought to live with the virus, China remains mired in an ultimately fruitless battle to eradicate it entirely.

The Communist Party’s “zero Covid” policy has become an exercise in autocratic hubris, a belief that the strength of a political system can be measured by its ability to subjugate a respiratory disease in a densely populated country of 1.3bn people. The hardships that have been inflicted by this approach have been considerable, with millions trapped in their homes, often without sustenance, and businesses unable to operate.

People suffering mild or even no symptoms are forcibly removed to quarantine camps. There have been protests but as in any dictatorship these are quickly snuffed out. Indeed, as the Party’s 20th congress opened in Beijing yesterday, Xi Jinping was unapologetic and vowed to pursue the policy.

…..

The fear now is that if they try to live with the disease, there will be widespread deaths among the unprotected elderly and sick. In addition, retaining the strictest of measures allows the party to exert total control over the populace. These “digital handcuffs” have been used to stop protests that have nothing to do with the virus.

Quotation of the Day…

(Don Boudreaux)

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… is from page 129 of the 1903 3rd edition of Edwin Cannan’s excellent slim volume, Elementary Political Economy:

If we could have a statement of the value of the imports and exports of each county in the United Kingdom put before us every year, we should think less of the imports and exports of the whole country.

DBx: Reports of “county balances of trade” should reveal the policy-making folly of keeping country balances of trade. No one in my county of Fairfax, Virginia, knows or cares if the County of Fairfax this month or this year has a “trade deficit” or a “trade surplus” either with the rest of the world, with all other counties in Virginia or in the U.S., or with any particular county such as Culpeper County, VA, or Montgomery County, MD. And yet we Fairfaxians are none the worse for our ignorance of these irrelevant statistics.

Indeed, we are better off without such pointless information. I fear, however, that, contrary to Cannan’s optimistic prediction of the educational result of keeping county-level trade accounts, the results of gathering such pointless information would in fact be negative. Were county-level trade accounts kept and reported, we Fairfaxians would almost surely suffer the demagoguery of any number of politicians who, if Fairfax this month is discovered to have a “trade deficit” with Albemarle County, would accuse the evil Albemarleans of unfair trade practices and promise to arrange to protect us Fairfaxians from being impoverished by our imports from Albemarle Co.