Russell Roberts's Blog, page 90

Some Links

(Don Boudreaux)

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My Mercatus Center colleague Dan Rothschild understandably is a huge fan of Samuel Gregg’s new book, The Next American Economy. Two slices:

The chapter on industrial policy and its failures is particularly strong and could stand on its own as a review of the literature around this au courant fad that has gained purchase on the left and right. Gregg reviews Japan’s history with industrial policy; oft-touted as a success, this simply was not the case, which Tokyo even acknowledged in 2002, simply stating that “The Japanese model [of industrial policy] was not the source of Japanese competitiveness but of our failure.” He then goes on to critique the recent Chinese experience with industrial policy—which, improbably, is treated with an almost mythical reverence by people like Senator Marco Rubio who should know better—before concluding with a review of various American attempts to undertake economic planning and the difficulties inherent in implementing technocratic policies through democratic political means.

…..

A contradictory and less sophisticated view is that free markets have been allowed to run amok in America for a half century, with (fictional) financial deregulation or spurious claims about particular industries held up as evidence. In this telling, the economy has become unmoored from the nation-state, and the libertarians secretly running Washington can be confounded by anodyne statements like “we are a nation with an economy, not an economy with a nation.”

Of course, neither of these views is correct. While calls for a protectionist, economically interventionist government are as old as the country, Gregg points out that they were never a majority view, much less representative of an actually executed plan. Clay’s American System, for instance, was realized only in “a watered-down compromise . . . and the implementation was anything but noble.” Rather, the internal improvements funded by Congress provided a platform for patronage and pork, and tariffs aggravated tensions between different regions.

Michael Strain is somewhat of a fan of Liz Truss’s economic policies. A slice:

The prime minister’s plan also involves deregulation. For example, Truss would accelerate the completion of infrastructure projects by reducing the scope of environmental impact assessments. She would also reduce the tax on property transactions, creating a more fluid housing market and increasing economic efficiency and labor mobility.

Arnold Kling is no fan of the award of the Nobel Prize in economics to Ben Bernanke.

Writing at Forbes, Art Carden explains why Sandy Darity, M’Balou Camera, and Nancy MacLean are mistaken to portray W.H. Hutt as a racist. A slice:

Their argument falls apart under scrutiny. The version of Hutt they present is like the version of Buchanan that MacLean presents in her book Democracy in Chains: an unrecognizable caricature.

Writing in the Wall Street Journal, Catherine Semcer explains that a ban on trophy hunting for big game in Africa “could hurt animals more than it helps.” Here’s her conclusion:

Trophy hunting isn’t perfect, but it is providing the revenue that helps make conservation possible. Until credible alternatives to generate significant resources for African wildlife conservation materialize, it would be foolish to take away this source of revenue.

GMU Econ alum Byron Carson relates important history about American labor markets and health insurance.

Damon Root explains that state legislators cannot ban traveling interstate for purposes of seeking abortions.

Jay Bhattacharya tweets:

Vaccine discrimination is socially divisive and is anti-science.

John Tierney applauds Sen. Rand Paul (R-KY) for his continued efforts to hold Fauci’s shifty feet to the fire. Two slices:

For all its virtues, Mr. Smith Goes to Washington has never been considered a realistic film. Critics complain that Frank Capra’s movie is at once too corny and too cynical: one brave senator singlehandedly defending the public good against the thoroughly corrupt political and journalistic establishments. But we’ve been seeing a version of that plot for two years now, thanks to Senator Rand Paul’s lonely battle against Anthony Fauci, the Centers for Disease Control, and the mainstream press.

Like the politicians meekly following orders in the film, most of Washington has bowed to the CDC’s Covid edicts, but Paul has never tired of challenging the agency’s futile policies and dubious science. Like the movie’s media baron Jim Taylor, Fauci’s cheerleaders in the press and on social-media platforms have shamelessly pushed the party line—and worked hard to squelch opposing views, though they prefer to use “fact-checkers” rather than the street thugs whom Taylor hired to silence a rival newspaper. Journalists have smeared Paul, and censors have removed some of his scientifically accurate heresies from YouTube, but no one can stop him from regularly berating Fauci at the televised hearings of the Senate health committee.

Paul isn’t as folksy or likable as Jeff Smith (Jimmy Stewart), and his tousled hair isn’t quite as disheveled as during Smith’s epic filibuster, but he, too, likes to deliver lectures on democracy and liberty. Unlike Smith, he hasn’t read the Declaration of Independence to his jaded colleagues—at least, not yet—but he did invoke Friedrich Hayek’s The Fatal Conceit at a hearing early in the pandemic, when he was pleading with Fauci to stop locking down Americans in their homes.

“The fatal conceit is the concept that central planning, with decision-making concentrated in a few hands, can never fully grasp the millions of complex individual interactions occurring simultaneously in the marketplace,” Paul told Fauci. “Only decentralized power and decision-making based on millions of individualized situations can arrive at what risks and behaviors each individual should choose. That’s what America was founded on, not a herd with a couple of people in Washington telling us what to do and we like sheep blindly follow.”

Paul sounded this theme throughout the pandemic, denouncing Fauci as a “petty tyrant” and “dictator in chief” who needlessly stoked fear to create a “nanny state” and “corral our freedom.” In the spring of 2020, when Fauci referred to the lockdowns as merely “inconvenient,” Paul lambasted him for ignoring the vast economic and social damage, and presciently warned, “Our reaction to the virus may turn out to be worse than the virus itself.”

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The journal Science saluted his retirement with a long interview mixing adulation (“You’ve never been much motivated by money”) with softball questions (“Is some of the vitriol toward you about being a flip-flopper with your pandemic advice a result of having to make public health decisions in public in real time?”). The only awkward moment came when the interviewer brought up Paul’s interrogations (“Why does that guy piss you off so much?”) and suggested ever so gently that Fauci should have admitted to Paul that his agency had indeed funded gain-of-function research at the Wuhan lab.

“You’re absolutely right,” Fauci said. “If I had to do it over again, I would have done it a little differently.” But, as usual, he knew it wasn’t his fault. The problem, he explained, was that Paul’s belligerence had so stunned him that he’d lashed out instead of remaining calm. “I just should have dropped back off and said, this guy’s a jerk.”

Fortunately, Paul aims to be even more of a jerk in the future. If Republicans regain a majority in the Senate this election, Paul stands to become chairman of the health committee, and he has promised to subpoena Fauci’s records and bring Fauci out of retirement to answer more questions. It won’t be easy holding the public health bureaucracy accountable for the unprecedented damage it has wrought, but thanks to Rand Paul, this movie isn’t over yet.

Some Difficult Questions About Trade Policy

(Don Boudreaux)

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In my most-recent column for AIER I tackle some of the more difficult questions about trade policy. A slice:

It’s true, of course, that when EU countries before the Russia-Ukraine war imported gas and oil from Russia, Europeans came to depend, to some degree, for their standard of living on the government of Russia. Even a first-grader understands that if the Russian government later restricts its citizens’ ability to export, Europeans will suffer as a result.

But the reality of this suffering by Europeans today does not imply that European governments were earlier myopic or otherwise unwise not to obstruct their citizens’ ability to import energy from Russia. The pre-war gains that Europeans reaped as a result of this trade are real and must be counted against whatever harms Europeans now experience as a consequence of their dependence on trade with Russia.

And so we encounter one important tradeoff: The gains to the home country from pre-war trade with a foreign aggressor must be weighed against the losses that result from whatever dependence on this trade pinches on the home country during the war. In the heat of battle it’s tempting to leap to the conclusion that those pre-war gains cannot possibly have been worth their costs. But this conclusion might be mistaken; it’s an empirical question that cannot be answered in the abstract.

By acquiring gas and oil from Russia before the war, Europeans were able to devote more of their resources than would otherwise have been the case to producing goods and services other than gas and oil. Is the cost of Europe’s dependence today on Russian supplies of gas and oil greater than the accumulated benefits that Europeans reaped from this same dependence before the war?

In this particular case, much of what Europeans were instead enabled to produce as a result of buying gas and oil from Russia were inputs and infrastructure for a move to a ‘green energy’ economy. My own assessment is that this government-driven forcing of ‘green energy’ on itself was a calamitous policy mistake by Europe. And so if today it is in fact true that Europe’s dependence on Russian gas and oil isn’t worth the cost, the ultimate reason isn’t grounded in Europeans having had too much freedom of trade but, instead, in Europeans unwisely and myopically pursuing what we can now ironically describe as unsustainable sources of energy.

This fact points to a second tradeoff: Empowering the home government today to use trade policy to protect against unfortunate commercial entanglements in the future raises the prospect of failure by the home government.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 39-40 of my emeritus colleague Richard Wagner’s insightful 2016 book, Politics as a Peculiar Business:

Everyone, private citizens and political figures alike, acts on partial and incomplete information, for there is no other option in the presence of the scale and complexity of contemporary  societies. A chief and a council of five elders might reasonably know everything of relevance for keeping a tribe of 200 performing as they think it should. For democratic systems of tens or hundreds of millions, however, any such presumption is some combination of arrogance and fatuousness.

DBx: Yes. Unfortunately, contemporary society is cursed with a superabundance of individuals with such arrogance and fatuousness. These individuals come in all stripes of ideology and politics save one: classical liberalism.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 1031 of Will Durant’s 1950 volume, The Age of Faith:

There are few things in the world as unpopular as truth, and the backbone of men and states is a concatenation of romance.

DBx: This truth itself is not one that is welcome. We modern humans want to believe that we’re realists who are, at least in the large, unencumbered by superstition and reality-blinding romance. Some individuals do achieve this admirable and happy (Is it really, though, happy?) disposition. But most of us don’t. As observed by David Hume, and as more recently documented by Jonathan Haidt, equipped with brains large enough to self-delude, yet far too small to grasp more than a minuscule sliver of reality, most of us are quite willing and able to delude ourselves into believing that reality is pretty much whatever we want it to be.

Of course, for simple physical reality, this ability is severely limited. You might desperately want to be able to fly by flapping your feet. But those of our ancestors who attempted this feat from dangerous heights didn’t survive to pass along their genes. But for complex social and economic reality – especially in today’s incredibly complex world – there are virtually no limits on individuals’ abilities to delude themselves, to remain deluded, and to pass along their delusions to others.

Do you want to believe that socialism works? No problem! Believe it! You or some clever professor can explain why apparent failures of socialism in the past do nothing to discredit your belief in the glories and goodness of socialism.

Do you want to believe that America can improve her economic performance through industrial policy? No problem! Believe it! Many intellectuals – real, honest-to-goodness graduate-degreed intellectuals – have written papers insisting that industrial policy can work if it’s carried out by the appropriate government officials. What more proof do you really need?

Do you want to believe that the most prominent founder of public-choice economics, James Buchanan, was a racist? No problem! Believe it! Nancy MacLean wrote an award-winning book to this effect and larded it with lots and lots of footnotes. Case closed! And as for those persons who identified the countless instances in which MacLean’s footnotes do not support her textual assertions, or in which she simply mistakes the meaning of textbook economic terms or removes words from her quotations to change those quotations’ original meanings, well, no need to let those Buchanan defenders threaten your belief – for you know that your belief certifies you as a Very Good Person. Further, these defenders – Very Bad Persons all – are defending a racist white southerner (duh!), and they all have close-enough ties to Koch money so that it’s obvious that these defenders do what they do and say what they say only because they are on Charles Koch’s payroll (duh!). I mean, why else would anyone defend Buchanan against the charge of racism?

Quotation of the Day…

(Don Boudreaux)

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… is from page 235 of my colleague Peter Boettke’s 2017 paper “Rebuilding the Liberal Project,” as this paper is reprinted in Pete’s 2021 book, The Struggle for a Better World:

Liberalism is liberal. It is an emancipation philosophy, and a joyous celebration of the creative energy of diverse people near and far. The liberal order is about a framework of rules that cultivates that creativity and encourages the mutually beneficial interaction with others of great social distance – overcoming such issues as language, ethnicity, race, religion, and geography.

Some Links

(Don Boudreaux)

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My intrepid Mercatus Center colleague Veronique de Rugy, writing at National Review, rightly criticizes the witch-hunting now underway by the policy elite to escape blame for the economic damages now unfolding as a result of their policies. A slice:

The truth is that fiscal irresponsibility and excessive debt accumulation are to blame for the debt distress many countries are already facing and will continue to face. The whole point of being prudent and fiscally responsible during good times is precisely to be better able to face crises.

Also from Vero is this EconLog post on the folly of industrial policy.

Juliette Sellgren talks with Matthew Continetti about the American right.

David Henderson is a fan of Mercatus Center scholar Nolan Gray’s book, Arbitrary Lines: How Zoning Broke the American City and How to Fix It. Here’s the final paragraph of David’s review:

In the last five years, I’ve reviewed two other books for Regulation that make the case for easing up on zoning restrictions. Richard Rothstein’s 2017 masterpiece, The Color of Law, argues that exclusionary zoning laws, along with other government interventions, make it difficult for black people to find affordable housing. (See “How Government Enforced Segregation,” Fall 2017.) Conor Dougherty’s Golden Gates documents attempts in the San Francisco Bay area to loosen restrictions on housing. (See “The Solution to Expensive Housing Is More Housing,” Spring 2021.) We are seeing some attempts at the state level to relax or end California cities’ requirements for single‐​family housing. If we see more of that and in more parts of the country, as I think we will, some of the credit will belong to Gray’s Arbitrary Lines.

Andy Smarick explains what many of today’s conservatives are forgetting about subsidiarity and the common good.

Julie Ponesse identifies a core reason why vaccine mandates are immoral.

Ramesh Thakur is right: “The scandalous silencing of dissenting doctors imperils us all.”

Jay Bhattacharya: ““The idea that there’s a central authority that can distinguish true from false, that can ex cathedra on high.. And if you disagree, then you’re a heretic.. That’s a dangerous, dangerous idea.. It’s the return to a dark age.”

Even Ronald Reagan Couldn’t Use Protectionist Alchemy to Turn Engineered Scarcity Into Economic Abundance

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Dan DiMicco correctly reports that Ronald Reagan sometimes compromised in his opposition to protectionism (Letters, October 8). But Mr. DiMicco incorrectly insists that Reagan’s compromises are evidence of protectionism’s wisdom.

Consider the three examples of Pres. Reagan’s protectionism that Mr. DiMicco applauds. The 1983 tariff on motorcycles meant to save Harley-Davidson were, as described by leading trade economist Douglas Irwin, “completely ineffectual.” These tariffs applied only to bikes with 700cc or larger engines, while Harley’s engines were 1000cc to 1300cc. Further, Japanese manufacturers adjusted easily to the tariff by producing for the U.S. market motorbikes with 695cc and 699cc engines.*

Even worse were the “voluntary export restraints” that, starting in 1981 under Reagan administration pressure, the Japanese used to restrict their exports of automobiles to America. A 1984 FTC report estimated that these VERs annually cost U.S. consumers $1,109.2 million (in 1983 dollars), nearly ten times more than the $115.3 million of annual gains reaped from these VERs by U.S. automakers. The annual cost per job created was $216,137 – nearly 13.5 times more than the average annual earnings ($16,068) of the American worker in 1983.**

Finally, Mr. DiMicco praises the 1985 Plaza Accord for boosting U.S. exports. But it attempted to do so by devaluing the dollar – that is, by reducing Americans’ purchasing power. While a few domestic producers might have gained from the resulting dampened competition from imports, we Americans as a whole can only have lost from that engineered reduction in our ability to acquire on global markets goods for our consumption as well as inputs for use by businesses here at home.

Even in the hands of Ronald Reagan, protectionism is economic alchemy.

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

* See also Scott Lincicome, “Doomed to Repeat It,” Cato Policy Report, August 22, 2017, page 17.

** David G. Tarr and Morris E. Morkre, “Aggregate Costs to the United States of Tariffs and Quotas on Imports,” Federal Trade Commission (Washington, D.C.), December 1984. See especially pages 8-9. (I estimated the 1983 average annual earnings of the American worker from Table 1 here.)

Quotation of the Day…

(Don Boudreaux)

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… is from page 234 of economist Lionel Robbins’s superb and still-relevant 1937 book, Economic Planning and International Order:

From the forties to the seventies of the nineteenth century the trend of legislation almost everywhere was liberal. Tariffs were lowered. Personal unfreedom was abolished. Enterprise was freed. Monopolies were dissolved. International division of labor was extended. And the consequential increase of wealth was spectacular.

Some Links

(Don Boudreaux)

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Writing in the Wall Street Journal, Todd Henderson and Max Raskin argue that the Securities and Exchange Commission should leave Kim Kardashian alone. A slice:

The ban on celebrity endorsement is at odds with accepted practice elsewhere in the economy. Does anyone believe Samuel L. Jackson is touting Capital One because he really likes their credit cards? Americans are aware that celebrities are paid for their endorsements and discount those endorsements accordingly. Similarly, there aren’t anti-touting rules for selling gold, pharmaceuticals or even online gambling sites. Why would the SEC believe that investors are susceptible to believing Ms. Kardashian is a fan of EMAX, when they surely know she is being paid when she hawks countless non-investment products?

The SEC’s action might have a perverse effect on investor behavior. By going after Ms. Kardashian, the commission sends the signal that it is aggressively protecting investment opportunities in an effort to make them safe for average Americans. On their view of the world, information-poor retail investors are likely the only people who could possibly be duped into following what they thought was Ms. Kardashian’s altruistic investment advice. But crypto is an inherently speculative market, and the SEC shouldn’t be creating a false sense of confidence in retail investors. Investors would be better served if the SEC put up a sign that said that all investments, crypto or otherwise, run the risk of fraud and chicanery.

David Henderson – starting off with a quotation from R.W. Grant’s Tom Smith and His Incredible Bread Machine – writes about “our amazing somewhat free economy.” Two slices:

Last Saturday, I woke up at 1:45 a.m. feeling sick as a dog. I didn’t get back to sleep. I had a bad cold, a stuffed-up nose, a headache, and lots of phlegm. (I apologize if this is TMI.) When my wife woke up, she told me I should take Advil. I’m careful not to overdo drugs, and so I took only one Advil. Within an hour, I felt better, not better enough to do anything other than sleep, but better. My headache was gone.

Because I had time to reflect, I told my wife that I didn’t remember having Advil as a child. She said that was because it didn’t exist then. She was right. Ibuprofen, of which Advil is a particular brand, didn’t become available in the United States until 1974, when I was in my early twenties. That got me thinking about the huge range of high-quality cheap goods that we have available in this economy. Of course, because I’m an economist, it reminded me of what’s required for those goods to keep being made and for better ones to replace them. What we need is a fairly free economy. Virtually every government move to make that economy less free, whether by regulating, having the government take over an industry, or taxing more, will reduce our economic progress.

It’s striking to see how many people quickly get used to a good they value and take it for granted. Thus, the quote above from R. W. Grant’s poem about the incredible bread machine. People took the low-price, high-quality bread for granted: “Was it not always so?”

Economists are not exempt from this tendency. I’m not sure why. One possible reason is that it’s not “cool” to appreciate and celebrate life’s everyday treats. I’m so not cool. When I see the things we have, I want to say, “Pinch me.” Whether it’s access to Advil, the ability to listen to a song on my phone whenever I want, the fact that I’ve been to Disneyland multiple times, or the fact that I can get on an airplane and be almost anywhere in the continental United States in under eight hours by spending less than one week’s income, I still wonder at what we in America have. It’s true that I’m in the upper 10 percent of the income distribution. But that’s why I chose these examples. Most of them would apply to most people in the upper half of the income distribution and some even to people in the lower half. We’ve come a long way, baby.

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For various goods and services to improve, government has to allow people to improve them. This sounds obvious, but in some industries, people must get government permission before putting products on the market. Most notorious is regulation by the Food and Drug Administration that prevents people from selling pharmaceuticals until they have shown, to the FDA’s satisfaction, that the drugs are both safe and effective. In a path-breaking study in the early 1970s, University of Chicago economist Sam Peltzman showed that the requirement for efficacy, which was added in 1962, caused more than a 50 percent reduction in the annual number of new chemical entities, i.e., new drugs.

Jeffrey Singer writes about Biden’s (welcome but unfortunately too modest) decision to pardon those persons convicted under federal legislation for marijuana possession. (Also writing about this move by Biden is Jacob Sullum.)

Pat Lynch sings the well-earned praises of Guatemala’s remarkable Universidad Francisco Marroquín.

My intrepid Mercatus Center colleague Veronique de Rugy isn’t impressed with Biden’s grasp of fiscal reality. A slice:

None of this takes under consideration the increase in interest payments on the debt with rates rising substantially for the first time in decades. According to the Treasury Department, in August, payment on U.S. government debt was $63 billion, up from $34 billion in January. What’s more, the CBO’s interactive budget tool illustrates what an interest rate increase above the baseline means for interest payments. The answer is “expensive.” As Jack Salmon and I wrote over at Discourse magazine, “If the interest rate on the 10-year Treasury note is…1 percentage point higher than expected, the cumulative deficit will be $2.85 trillion larger over the decade.”

Jeffrey Tucker asks an important question: “Why did so many intellectuals refuse to speak out?” – speak out, that is, against covid hysteria and covidocratic tyranny.

And Ramesh Thakur wants to know “where is the accountability for covid policy harms?”

Jay Bhattacharya tweets:

There is a strong desire after seeing the results of a disastrous choice like the lockdowns to validate it in retrospect. People sacrificed so much. It must have been worth it.

But the hard truth is that it was destructive and entirely unnecessary. A predictable disaster.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 134-135 of an advance copy of Samuel Gregg’s excellent and important 2022 book, The Next American Economy: Nation, State, and Markets in an Uncertain World (typo corrected):

Pursuing shareholder value and maximizing profits is how publicly traded businesses create economic value by facilitating choice in goods and services for consumers, providing wages and benefits to their employees, repaying their loans to banks, and paying just taxes. This helps increase the total material wealth in society, something that permits people who have never owned a share in their lives to realize goods ranging from health care to education. Capacious ideas of who and what is a stakeholder – especially when accompanied by social pressures from activist groups and back up by regulations that make ESG [environmental, social, and governance] compliance a requirement of law – compromise the ability of businesses to make its unique contribution to the wider common good.

DBx: Yes.

Contrary to what many people believe, the market process is quite the opposite of (to use inappropriate imagery suggested by Oren Cass) the meandering of a “drunk donkey.” There is an internal logic to the market process that tends to seek out, discover, and seize opportunities to create value for strangers – strangers as consumers and strangers as workers and other input suppliers. This process is guided by market prices and the desire to earn profit and to avoid losses. The result over time is economic growth and ever-greater prosperity for the masses.

This prosperity, it’s vital to note, comes not merely – indeed, not chiefly – in the form of material goods and services that gratify sensual pleasures or the urges of the moment. This prosperity comes largely in the form of longer lives and healthier lives (and, hence, reduced chances of parents burying their own children), more education, more leisure, greater access to art, more travel, and more and better science. That this process doesn’t work perfectly (whatever such a standard might be in practice) is, of course, indisputably true. But that this process works remarkably well is attested to by the astonishingly high standard of living of ordinary people in today’s market-oriented economies.

In contrast, those persons who propose to override the market process with “ESG investing” requirements or with industrial policy offer no substantive, competing explanation of how decision-makers under their schemes will accurately identify opportunities to improve the allocation of resources and then be able to move quickly enough to achieve these improvements. Proponents of “ESG investing” and of industrial policy – no less than do proponents of full-on socialism – simply assume that all the vast and detailed knowledge necessary for their schemes to succeed as advertise will somehow be gotten by the managers or mandarins given power to ignore market signals as they make resource-allocation decisions. Such proponents of overriding market processes believe in miracles.