Russell Roberts's Blog, page 95

There’s More to It Than That Which Meets the Eye

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Pleading for U.S. industrial policy, Rick Switzer and David Feith commit an error famously described by Frédéric Bastiat – namely, being enchanted by that which is seen while ignoring that which is unseen (“China Hit Some Bumps on Its Road to Semiconductor Dominance,” Sept. 22).

One can question the accuracy of Messrs. Switzer’s and Feith’s claim that China’s industrial policy unfairly hamstrings American rivals of Chinese producers; see, for example, research by Scott Lincicome and Alfredo Carrillo Obregon showing that investment in U.S. semiconductor production is quite robust. But even if we stipulate that this claim of Messrs. Switzer and Feith is accurate, it follows neither that Chinese industrial policy is successful nor that America should respond in kind.

What these authors don’t see is that which the Chinese necessarily sacrifice by diverting resources to politically favored producers. Which firms in China are artificially weakened, or annihilated altogether, by having resources stripped away from them by Beijing’s industrial-policy mandarins? Which advanced industries are failing to thrive in China because high-tech workers are directed by bureaucrats into semiconductor production? Which economic sectors are now floundering in that country only because the CCP forcibly shoves manufacturing resources and workers into building solar panels and ships?

Only by ignoring such questions can Messrs. Switzer and Feith conclude that “Beijing’s policy is finding success.” Because there’s no doubt that particular industries can be sustained with tariffs sufficiently high and subsidies sufficiently profuse, it’s not news that industries so favored in China are now growing. But there’s also no doubt that these ‘successes’ are bought at the terribly high price of the many unseen firms and industries in China that are artificially stymied in their growth. And because resource allocation is sure to be more wasteful when done by government officials spending other people’s money than when done by markets in which entrepreneurs and consumers spend their own money, industrial policy is a recipe for economic decline. We Americans should not mimic China’s economic self-destruction.

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 140 of Robert Higgs’s excellent July 1994 paper, originally published in Explorations in Economic History, “The Cold War Economy: Opportunity Costs, Ideology, and the Politics of Crisis” as this paper appears as Chapter 6 of Robert Higgs’s 2006 collection, Depression, War, and Cold War (footnote deleted; link added):

Manipulation of information is central to what modern governing elites do. Senator Daniel Patrick Moynihan, himself no stranger to the inner sanctums of government power, observed [as quoted on page 5 of this book] that “knowledge is power, and the ability to define what others take to be knowledge is the greatest power.”

Some Links

(Don Boudreaux)

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Jay Bhattacharya and Mikko Packalen continue to decry the silence of so many economists in the face of covid tyranny and its associated irresponsible fiscal and monetary policies. Four slices:

Did economists not see inflation coming? Or, if inflation was not a surprise, why did economists not raise the alarm about the policies that led to it?

The answer to these questions is disheartening. Many in the economics profession did see that government policies of the last couple of years would result in high inflation. But most who saw it coming chose not to inform the public or raise the alarm until it was too late.

Jason Furman, former Chairman of President Obama’s council of economic advisors and current Harvard professor, commented recently that most academic economists have been ‘skeptical (mostly silently)’ of the stimulus packages. The high inflation we see today is partly the price of the economics profession’s self-censorship.

The economics profession’s determined silence on inflation is on display in regular surveys of top U.S. economists conducted by the Initiative on Global Markets of the University of Chicago School of Business. The initiative and surveys aim to help policymakers make informed decisions on ongoing policy debates.

None of the 35 surveys from January 2020 to May 2021 included questions about the potential inflationary impacts of covid restrictions and relief packages. Neither did the respondents bring up this concern in their free-form answers to the many survey questions about covid policy during this time.

…..

However, economists’ application of the precautionary principle was tragically one-sided. Economic analysts assumed the worst about the virus and the best about the effectiveness of lockdowns and other restrictions in limiting disease spread. A consistent application of the precautionary principle would also have assumed the worst about the collateral harms of covid restrictions.

…..

The idea that people would have voluntarily locked anyway is spurious and ignores the grave distributional impacts of lockdowns. A lockdown imposes the same restrictions on everyone, whether or not they can bear the harm. Nevertheless, many economists favoured imposing formal lockdowns and shelter-in-place orders rather than offering public health advice.

Epidemiologists knew the staggeringly steep age gradient in the mortality risk from infection with covid from the pandemic’s start. This meant that vulnerable older people were wise to take precautionary measures. These formal orders meant that those for whom covid posed much less risk but who suffered great harm from lockdowns—such as children, teens, the poor, and the working class—could not avoid the worst of lockdown harms.

Economists justified lockdowns by the idea that people were appropriately panicked. However, a substantial part of the fear of covid was irrational, which led many people to overreact to covid. Surveys show that people vastly overestimated the mortality and hospitalization risks of covid and vastly underestimated the degree to which risks rise with age.

For example, one survey indicated that for under 40-year olds the average perceived mortality rate from a covid infection is up to one thousand times higher than the approximate actual mortality rate (10% versus 0.01%). Though the first surveys on excess fear of covid were published in April 2020, media outlets such as the New York Times waited until March 2021 before discussing excess covid fear, reflecting a widespread unwillingness to accept these facts.

Public fear of covid thus did not correspond to the objective facts of the disease. This undermines economists’ argument that people stayed home voluntarily as a rational response to the spread of covid in the Spring of 2020.

The economics profession has yet to explore what role lockdowns played in fomenting the excess fear of covid. Faced with a lack of public information about the risks posed by covid, people sought to infer the risks partly from observed policies—lockdowns were one such policy.

…..

The lockdowns of Spring 2020 were likely responsible for much more of the economic decline than the consensus among economists still admits. Though economists’ reasoning justifying the covid consensus was flawed from the start, the profession has been unwilling to examine the implications of the excess fear of covid and the decision to stoke fear in the public.

Ultimately, whether economists can gain back the public’s trust depends on their honesty in admitting the profession’s failure. The profession needs reform so that dissent from orthodoxy is encouraged and self-censorship seen as a failure to live up to economists’ basic professional obligations.

And here’s George Leef on Bhattacharya and Packalen.

Paul Offit writing in the Wall Street Journal:

The Centers for Disease Control and Prevention recommends that everyone over 12 receive a “bivalent” Covid-19 vaccine as a booster dose. But only a select group are likely to benefit, and the evidence to date doesn’t support the view that a bivalent vaccine containing omicron or its subvariants is better than the monovalent vaccine. The CDC risks eroding the public’s trust by overselling the new shot.

Good news on the covid-hysteria front from the Netherlands.

“On Wednesday, a federal judge struck down the Biden administration’s vaccine and mask mandate for the early education program, Head Start” – so reports Reason‘s Robby Soave.

This Cafe Hayek “Quotation of the Day” from Thomas Sowell and posted ten years ago yesterday contains a lesson that proponents of industrial policy would be wise to learn. (I thank A. McKenzie for reminding me of this long-ago QoD.)

Writing in the Wall Street Journal, Helen Raleigh argues that the west’s “green scramble to transform energy is reminiscent of China’s forced industrialization.” Two slices:

The green movement’s rush to transform the energy economy while ignoring the laws of nature and economics calls to mind China’s ruinous Great Leap Forward.

…..

Like Mao, today’s advocates for the green-energy revolution have become impatient with the slow progress made by renewable energy. Fossil fuels and nuclear power provide 80% of the energy the world needs. Despite years of subsidies, renewable energy is still unstable and unreliable, since the sun doesn’t shine at night and the wind doesn’t blow all the time. Almost all renewable-energy power plants require either nuclear or fossil fuels as backups.

Rather than gradually phasing out fossil fuels while investing in renewable energy research and development, Western green-energy revolutionaries have launched their own version of the Great Leap Forward in Europe and the U.S. Today’s greens operate in a democratic system unlike Mao, but they have resorted to government coercion to replace fossil fuels (and nuclear power) with renewables on an aggressive deadline. The European Union is set to cut greenhouse-gas emissions by at least 55% by 2030, and the Biden administration promises to “achieve a 50-52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030.”

One of the essential lessons from China’s Great Leap Forward is that catastrophic failures inevitably follow from politicians’ insistence on ignoring reason, logic, truth and economics. Europe’s current energy crisis, California’s continuing power outages and Sri Lanka’s food shortages are all warning signs. The Green Leap Forward has set humanity on a fast track to another man-made catastrophe.

The woke mob cancels Dilbert.

Telegraph columnist Tom Harris is justly critical of progressives’ use – partly lazy, partly opportunistic – of empty tropes such as “trickle-down economics” and “neoliberal.” A slice:

And so to neoliberal, the stablemate of trickle-down economics, if for no other reason than that, like its stablemate, it cannot be defined in any serious way. Again, it is used by parts of the Left to describe anything it disagrees with. This philosophy holds that neoliberalism was championed by Margaret Thatcher and then by all her successors, including the Labour governments of 1997 to 2010. And so we are left with a definition of neoliberalism as a policy that avoids nationalisation and big tax rises.

The final sentence of George Will’s latest column – it’s a sentence about John Fetterman, Democratic candidate for a U.S. Senate seat from Pennsylvania – is brilliant:

There are so many progressives like him straining to be transgressive, and so few standards remaining to transgress.

Quotation of the Day…

(Don Boudreaux)

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… is from page 142 of an advance copy of Samuel Gregg’s excellent and important forthcoming book, The Next American Economy: Nation, State, and Markets in an Uncertain World:

In a corporatist world, success depends less on innovation and much more on your institutional clout.

DBx: Indisputably so. In free markets the allocation of resources is informed by prices (including wages) and incited by the prospect of profit and the fear of loss. These prices, profits, and losses are generated by consumers and producers spending their own money, and with no one having the power to compel anyone either to take some action or to refrain from some peaceful action.

In stark contrast, under industrial policy – which is a species of corporatism – the information and incentives of the market are forcibly overridden by the commands of politicians and bureaucrats spending other-people’s money. Anyone who believes that resource allocation done by political machinery will be superior – from the perspective of improving the living standards of ordinary men and women – to resource allocation done by the market process lives in a dream world. That person not only has no credible explanation of how government officials will acquire the information that they need in order to allocate resources productively, that person also is as naïve as is a dull pre-schooler about the reality of politics.

Such a person believes in miracles.

Pittsburgh Tribune-Review: “Meet the real engine of equality”

(Don Boudreaux)

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Before I got my twice-monthly column in the Pittsburgh Tribune-Review – a column that ran from early 2005 through early 2020 – I published a few guest op-eds in that newspaper, including one on Sunday, June 9th, 2002, titled “Meet the real engine of equality.” You can read this op-ed – in which I sounded a theme that is for me familiar – in full beneath the fold.

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Bonus Quotation of the Day…

(Don Boudreaux)

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… is this Facebook comment by Richard Fulmer in response to my posting yesterday on Facebook a link to a Cafe Hayek entry on the meaning of “production”:

If consumption is immoral, then production – which makes consumption possible – must also be immoral. One who aids and abets a crime is as guilty as the perpetrator.

DBx: Mr. Fulmer’s excellent point applies no less forcefully to the arguments of those who insist that, although consumption isn’t immoral, it’s also, when done above a certain level, not honorable and, hence, is to be discouraged.

Adam Smith was correct to observe in 1776 that

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.

Alas, Smith’s very next line, unfortunately, is incorrect:

The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

To too many people this reality about consumption and production is missed; this maxim is not at all self-evident (although it should be).

Too many people, when they encounter the terms “consumption” and “production,” don’t bother to think seriously about the meaning of these terms and about the connection in reality between consumption and production. Too many people – many of whom wish to advertise their moral elevation – leap to denounce consumption and to praise production as if the former is of questionable moral value, and also as if consumption and production are nothing but simple substitutes for each other, with consumption being a negative and production being a positive.

Some Links

(Don Boudreaux)

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Arnold Kling looks back with wisdom on the reactions to covid. A slice:

I give President Trump a bad grade. He could have elevated Scott Atlas and sidelined Birx and Fauci, but he did the opposite.

The teachers’ unions were awful. I will grant that there were many parents who wanted their kids to learn at home or to have them masked in school, and those parents might have had their way in some districts. But the teachers should have been willing to come to work and not make kids wear masks.

Colleges also over-reacted. And they should not have charged full tuition for Zoom learning.

Paul Elias Alexander correctly describes as “ludicrous” the 11th renewal of the U.S. government’s emergency covid declaration. A slice:

Omicron as the current dominant variant and its subvariants (clades) is very mild for most people, even many high-risk people. They can adequately handle the infection and cope with it. The reality is that while Omicron can still present a challenge (as does seasonal influenza and common cold and a range of respiratory illnesses) to elderly persons and especially those with comorbidities (as well as obese persons, immune-compromised persons), it is revealing itself to be no more severe than seasonal flu, and generally less so.

Moreover, we have used repurposed therapeutics (as prophylactics and treatment) effectively and we have availability. We also know who is the at-risk group and how to effectively manage, and hospitals were given hundreds of billions of dollars in PPE, PPP, and COVID relief money to prepare. They are prepared.

Kat Rosenfield decries the eagerness with which mainstream media in America spread false stories about racism. A slice:

It was the kind of correction you love to see. The story that originally broke in the final days of August, about a young black athlete being racially heckled in front of a crowd of thousands at Utah’s Brigham Young University, was not just exaggerated but completely false. The n-word was not shouted, let alone repeatedly, at Duke volleyball player Rachel Richardson when she went up to serve. A crowd of more than 5,000 people did not stand idly by during an act of malignant racism. The United States is not, apparently, a socially backwards hellscape where people openly scream slurs at packed sporting events without compunction or shame.

Unfortunately, it’s a correction that many people are probably never going to see — or if they do, they won’t believe it.

Like many stories of its oeuvre, this one began on Twitter, when Richardson’s godmother Lesa Pamplin claimed in a series of since-deleted posts that the young volleyball player had been subject to racist abuse throughout the game: “My Goddaughter is the only black starter for Dukes [sic] volleyball team,” she wrote. “While playing yesterday, she was called a [n-word] every time she served. She was threatened by a white male that told her to watch her back going to the team bus. A police officer had to be put by their bench.”

Pamplin hadn’t been at the game herself, but the claim was incendiary. The story was soon picked up by mainstream outlets, which treated the alleged harassment — and discovery of its perpetrator — as verified fact. From USA Today: “Brigham Young fan banned after directing racial slurs toward Duke volleyball player.” The Washington Post: “BYU bans fan, relocates volleyball match after racist slurs, threats.” The New York Times: “Racial Slur During College Volleyball Game Leads to Fan Suspension.”

Additionally, readers were warned that failing to believe this story, or even asking questions about it, was simply not an option. An op-ed from USA Today columnist Mike Freeman declared any doubts about Richardson’s veracity to be a “Right-wing conspiracy theory”, like QAnon or Pizzagate or 9/11 trutherism. Ditto the suggestion that she might have made a mistake: “The other conspiracy theory is that she misheard the word. That is a word you don’t mishear. You certainly don’t mishear it more than once.”

And yet, despite Freeman’s insistence to the contrary, not only is this a word that people do mishear, it has been only a year since the last high-profile incident in which someone misheard it in a similar context: in a raucous crowd at a sporting event, and, yes, more than once. In this case, the culprit was a man trying to get the attention of the Rockies mascot, whose name is “Dinger.”

Writing in the Wall Street Journal, Phil Gramm and John Early offer corrections to the data on child poverty in the U.S. A slice:

If the Census Bureau had included the missing $1.9 trillion in transfer payments, child poverty would have been only 3.2% in 2017, compared with the official rate of 17.5%. Government transfer payments that were distributed in 2017 had already cut child poverty by 82%.

The administration has made a lame effort to deflect attention from this structural flaw in the official poverty measure by referencing a so-called supplemental poverty measure. This is one of many experimental efforts to measure poverty using a different method from the official one. This experimental measure shows that poverty for children fell by 4.5 percentage points, from 9.7% in 2020 to 5.2% in 2021. This supplemental rate does count refundable tax credits and some other transfer payments not counted by the official measure, but it still fails to count about half of all transfer payments and significantly overstates the amount of child poverty in America. No matter what supplemental measure the Census Bureau uses to produce the results predicted by Mrs. Pelosi, Mr. Schumer and Mr. Biden, the official measure of poverty, which will be the focal point of debate in future years, won’t record any reduction in the child poverty level from the refundable child tax credit.

The official poverty estimate by the Census Bureau not only overstates the level of poverty, but it distorts the policy debate. Politicians use the overstated poverty numbers as a rationale for additional transfer payments. The new transfer payments aren’t counted as household income, so there is no improvement in the official poverty rate. This process is repeated over and over. In the past 50 years the real value of taxpayer funding for transfer payments to the poorest 20% of American households has risen from an average of $9,677 to $45,389.

Kimberly Josephson writes soberly about work. A slice:

More often than not, a job is a means for making a living or furthering a skillset, rather than finding one’s passion or fulfilling a dream. If more young people listened to Mike Rowe on this point, we’d likely have more students eager to learn a trade rather than pursue debt-accruing degrees for supposedly higher callings.

Alberto Mingardi remembers Basil Yamey, who died in 2020.

Quotation of the Day…

(Don Boudreaux)

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… is from page 317 of George Will’s 2021 book, American Happiness and Discontents: The Unruly Torrent, 2008-2020 – a collection of many of Will’s columns over these years; (the essay – now titled “Another Yale Burlesque, ‘Contextualized’” – from which the quotation below is drawn originally appeared in the Washington Post on August 31st, 2017):

The therapeutic university’s language – students are “vulnerable” to routine stresses and difficulties that are defined as “traumas” – also becomes self-fulfilling. As a result, students experience a diminished sense of capacity for moral agency – for self-determination. This can make them simultaneously passive, immersing themselves into groupthink, and volatile….

Cato Journal: A Review (co-authored with Adam Pritchard) of Leonard W. Levy’s ‘A License to Steal’

(Don Boudreaux)

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In the Spring/Summer 1996 issue of the Cato Journal Adam Pritchard and I reviewed Leonard Levy’s 1996 book, A License to Steal – an aptly titled volume on the uncivilized banana-republic practice of civil asset forfeiture. You can read my and Adam’s review in full beneath the fold (link added).

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Production Occurs Only If It Increases Ability to Consume

(Don Boudreaux)

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Here’s a letter to a new correspondent:

Mr. B__:

Thanks for your e-mail.

“Uneasy” with my letter to John Burtka, you tell me that you’ve “reached the conclusion that by privileging consumption ahead of production free trade is philosophically and morally defective.” And you regard the differences that separate you “and other thoughtful conservative critics of free trade” from me “and other libertarians” to be “fundamentally about deep values, and hence not resolvable through appeals to economics.”

I don’t doubt that some people oppose free trade not because they disagree with me and other free-traders about free-trade’s consequences but, instead, because these people have values that differ fundamentally from the values held dear by those of us who espouse free trade. But your wording of your objection to free trade suggests that, in fact, you and I likely don’t (at least on this matter) have fundamentally different values. Instead, your wording suggests that you simply don’t understand what is meant by “consumption” and “production.”

Imagine a society in which all people work diligently from dawn to dusk every day, from birth to death, to build nothing but sandcastles. I trust that you agree that this society would be not only desperately poor, but also one in which no human being is of any service to his or her fellows. No one produces anything of value. Now suppose that one day Mr. Smith speaks up to recommend that the people of this society turn their work effort away from the production of sandcastles and toward the production of goods and services that are actually of use to fellow human beings. Would you applaud or oppose Mr. Smith’s recommendation?

I’m confident that this recommendation would earn your applause. If I’m correct, then you would find yourself in the ranks of those who you accuse of (as you put it) “privileging consumption ahead of production.” You recognize that expending effort, no matter how tirelessly and skillfully, to ‘produce’ things of no or of little use to anyone is not really, in any meaningful manner, to produce. Instead, it is to waste; it is to waste resources, including that very scarce input we call human labor.

When we proponents of free trade follow the path blazed by Adam Smith by insisting that the ultimate purpose of economic activity is consumption, we don’t mean that life’s goal is or ought to be to wallow in frivolous pleasures, or that there’s no dignity in work. Nor do we reveal a blindness to the inescapable reality that everything of value that is consumed must first be produced. And we certainly don’t advocate gobbling seed corn today without any concern for the suffering that such gobbling would bring tomorrow. We mean none of that.

We mean, instead, that genuine production occurs only when the results are outputs that are of use to human beings. It follows that more output is produced only if and when the results of productive efforts are larger amounts of goods and services for consumption.

In short, because – as we can show with theory supported by historical evidence – only with free trade will firms and workers produce the greatest possible amount of value in terms of goods and services for consumption, the economic case for free trade is fairly described as the case for maximizing the value of that which firms and workers produce.

Pronouncing, in effect, ‘I, unlike those free traders, value production over consumption’ might provide a sensation of moral superiority. But in fact such a pronouncement only reveals profound misunderstanding – misunderstanding of the meaning of “production” and of “consumption,” as well as misunderstanding of both the economic and ethical case for free trade.

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