Russell Roberts's Blog, page 98

Antitrust Ain’t Groovy

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Slip into a mini-skirt and do the Watusi, for the 1960s are returning – at least if we judge by trends in antitrust enforcement. As you report, California today announced a major antitrust action against Amazon (“California Sues Amazon, Alleging Antitrust Violations Inflated Prices and Stifled Competition,” Sept. 14). This action heralds a revival of the hyperactive, arrogant, and anticompetitive antitrust interventions of 60 years ago. It’s not groovy.

Chief among California’s specific complaints is that Amazon requires third-party merchants who offer their wares for sale on Amazon to sign agreements that punish them for offering these same wares at lower prices on competing sites, such those of Target and Walmart. California’s Attorney General Rob Bonta alleges that Amazon thereby “coerces merchants into agreements that keep prices artificially high, knowing full-well that they can’t afford to say no.”

This allegation fails the smell test. Third-party merchants have no incentive to agree to such terms with Amazon unless they get something of at least equal value in return from Amazon. Perhaps that something is especially high exposure to consumers. Or maybe it’s unusually trustworthy or complete customer testimonials. Who knows precisely what this something is, but we can be sure that merchants dig it because otherwise – especially given merchants’ easy ability to offer wares for sale on other sites owned and operated by competing retail giants – Amazon couldn’t entice merchants to voluntarily agree to these terms.

It’s far out for Mr. Bonta to complain that merchants “can’t afford to say no” to Amazon’s contractual terms. His complaint really amounts to unintentional praise of Amazon for being so entrepreneurially competitive as to offer merchants a service that’s obviously too good to miss out on.

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

Walter Williams on the Welfare State

(Don Boudreaux)

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During my final semester of law school at the University of Virginia I persuaded the UVA Law chapter of the Federalist Society to sponsor a talk by my then-former (and, as matters turned out, also future) GMU Econ colleague, the great Walter Williams. I didn’t realize that any recordings of this talk, which was delivered on UVA’s North Grounds, by Walter are available until my colleague Dan Klein alerted me to the one below (which is of only a portion of that talk).

The date was March 24th, 1992. I’m certain of this fact because, as I recall very clearly, in the Q&A session immediately after Walter’s talk, my friend Jim Lark asked for Walter’s reaction to the death the day before of F.A. Hayek. That was how I learned of Hayek’s death. I don’t remember the details of Walter’s response other than that Walter too, until that moment, had not learned of Hayek’s death.

Pittsburgh Tribune-Review: “Competitive regulation”

(Don Boudreaux)

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In the May 7th, 2013, edition of the Pittsburgh Tribune-Review I wrote about the surest method of regulation – namely, the regulation that’s supplied by competitive markets. You can read this column in full beneath the fold.

(more…)

Some Links

(Don Boudreaux)

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Two slices:

The Inflation Reduction Act has eight provisions intended to reduce future drug prices. Some observers were surely pleased that Congress gave the Centers for Medicare and Medicaid Services new powers to negotiate with pharmaceutical companies. They shouldn’t have been. The Inflation Reduction Act won’t noticeably reduce inflation and it will do little or nothing to lower the cost of healthcare. Forcing drug companies to charge lower prices will likely lead to fewer new drugs.

Virtually no products are more valuable than the modern medicines produced by the biopharmaceutical industry. They cure diseases and extend lives. We’ve all heard that Americans pay higher drug prices than people in other countries. That’s true, but only when comparing retail prices of brand-name drugs. Very few Americans pay retail prices; most pay a fraction—a copay dictated by their insurance plan. Most country-to-country comparisons also leave out generics. Nine of 10 prescriptions in the U.S. are filled with generic drugs priced lower than in most other countries.

…..

Even though the U.S. shoulders the lion’s share of global pharmaceutical R&D costs, Americans get a great deal. New drugs are a fantastic investment for humanity, and Americans benefit as much as everyone else. Whether to accept that deal and get a good outcome or reject the deal and get a worse outcome should be an easy decision. Before Congress attacks drug prices again, it should account for the tremendous value of the products that originate from this amazing yet maligned industry and consider the possibility that the U.S. will be shooting itself in the foot if it tries to imitate more-restrictive governments.

Americans’ health is being put in peril also by the FDA, as explained here by Martin Cullip.

Also writing in the Wall Street Journal is Ward Connerly, who urges us to recover the ideal, as expressed by JFK, that “Race has no place in American life or law.” A slice:

America has come a long way since 1939, when I was born in Jim Crow Louisiana. In 1961 President John F. Kennedy signed Executive Order 10925, which required federal contractors to take “affirmative action” to ensure that employees wouldn’t be discriminated against because of race, creed, color or national origin. It wasn’t meant to discriminate against formerly favored groups. “Race has no place in American life or law,” JFK said.

Martin Luther King Jr. believed Kennedy’s order was insufficient to achieve integration, and he lobbied President Lyndon B. Johnson to strengthen affirmative action. After Congress passed the 1964 Civil Rights Act, LBJ signed Executive Order 11246 on Sept. 24, 1965, firmly establishing that nondiscrimination in employment would be the law of our land.

Yet this strategy to prevent discrimination ended up driving discrimination against whites and Asians in education—all in the name of “diversity.” That’s a word I rarely heard before I began my 12-year term as a regent of the University of California in 1993, but I heard repeatedly until my departure in 2005. It wasn’t a description but a goal, something we were expected to make a conscious effort to “build.”

As I delved into this new world of building diversity, it became apparent that given the profound disparities in academic achievement, diversity could be achieved only by applying different standards. Wasn’t that discrimination—a violation of the 14th Amendment?

My intrepid Mercatus Center colleague Veronique de Rugy warns of the negative impact of rising interest-payment obligations on the U.S. government’s profligate indebtedness.

GMU Econ alum Dominic Pino, writing at National Review, explains that a rail strike in the U.S. could well cause a further rise in prices at the pump.

Richard Rahn applauds the increased economic freedom in many former communist countries.

Ralph Schoellhammer writes that “Germany is committing national suicide” by its allegiance to “an eco-obsessed elite.” A slice:

Indeed, Berlin plans to increase organic farming in Germany to approximately 30 per cent of all agriculture until 2030. As science journalist Axel Bojanowski points out, this policy would turn Germany from a self-sufficient grain producer into a net importer of grain.

This would be a disaster with global repercussions. We have already seen how Western nations’ decision to reject domestic gas exploration in favour of buying gas on the global market has driven up prices to a level only they can afford – while in developing nations like Pakistan the lights go out. Germany’s move towards organic farming, which the rest of Europe is expected to follow, will have a similar effect on the price of grain and other foodstuffs.

Jacob Sullum reports on “Biden’s sneaky censors.”

“Masks are not a small thing. They’re not sensible and they’re not normal. They’re ugly, they stink, many of them are full of carcinogens, and they’re ruining our kids and our lives. It’s time to stop.”

Vinay Prasad tweets: (HT Jay Bhattacharya)

It’s especially hard to read this knowing that the AAP reversed its initial position (discussed in article) to get all kids back to school in fall of 2020, the moment Trump wanted it. AAP hated Trump more than they loved kids. Thats exactly why the organization failed kids.

Quotation of the Day…

(Don Boudreaux)

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… is from page 10 of the late Nobel laureate Elinor Ostrom‘s important 1990 volume, Governing the Commons:

The optimal equilibrium achieved by following the advice to centralize control, however, is based on assumptions concerning the accuracy of information, monitoring capabilities, sanctioning reliability, and zero costs of administration.

DBx: Yes. And it is discouraging to realize just how commonplace these unrealistic assumptions about reality are.

The standard sequence is as follows:

– Oh dear, the world isn‘t as close to perfection (or to my personal notion of worldly perfection) as I can imagine it to be. That‘s a problem that simply must be ‘solved.’

– To solve this problem requires empowering officials of the state to use threats of coercion as they rearrange people and resources in ways that will bring the real world into better alignment with my imagined closer-to-perfect world.

– State officials so empowered (assuming, of course, that my preferred political party – the angels – is in office rather than some other political party – the devils) can be depended upon to rearrange people and resources in ways that will achieve my desired goals. We needn‘t trouble ourselves with questions about the incentives facing the government officials or about how these officials will learn what they must know in order to rearrange people and resources in ways that successfully achieve my goal for society.

– To those of you who oppose my enlightened plan to bring reality into closer alignment with perfection, I note that you are so ideologically blinkered as to prevent you from seeing the great merits of my proposal, or – more likely – your motives are less admirable than are my motives (perhaps because you‘re bankrolled by a greedy billionaire). And to that subset of you who incessantly chant ‘Hayek! Hayek!’ – or, here, ‘Ostrom!’ ‘Ostrom’ – followed by questions about how government officials will acquire the knowledge they‘ll need to perform as I know they will perform, you people mistake your abstract theories for reality. In reality, of course government officials can get the required knowledge because these officials operate in reality and not in your imaginary Hayekian world.

Such proponents of industrial policy don‘t really understand Hayek‘s point. From their ignorance springs their hubris.

Phil Magness…

(Don Boudreaux)

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… is interviewed by Nick Gillespie. This interview is must-watch.

52 Years Ago Today Milton Friedman Wrote Against Stakeholder Capitalism

(Don Boudreaux)

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Here’s a letter to National Review:

Editor:

Marc Sidwell eloquently explains that Milton Friedman’s case against “stakeholder capitalism,” or “ESG investing,” is today more relevant than ever (“Milton Friedman and the Back Road to Socialism,” September 13). Mr. Sidwell is also correct to describe as a “fatal conceit” stakeholder-capitalisms’ attempt, in Friedman’s words, “to achieve collectivist ends without collectivist means.”

But it’s worth emphasizing what I take to be the most fundamental of the conceits that Friedman identified as infecting stakeholder capitalism – namely, the conceit that each corporate manager can foresee in detail the full consequences across vast expanses of space and time of his or her actions.

If such near-omniscience were possible, then of course anyone who acted in ignorance of any of these countless consequences would be irresponsible and blameworthy. Yet contrary to the presumption of so many people who fail to grasp the lessons of Adam Smith and F.A. Hayek, no one – no consumer, no worker, no government official, no Nobel-laureate economist, not even a corporate manager – can hope to foresee any but the immediate consequences of each economic decision. And so pretending that a corporate manager today can intentionally act to successfully promote the well-being of multitudes of people distant in space and time from him or her is, to use another phrase from Hayek, “the pretense of knowledge.”

Stakeholder capitalism, therefore, is not only the misappropriation by corporate managers of shareholders’ funds; it’s not merely the substitution of collectivists’ goals for those of individualists; it’s not just a means of shifting responsibility for collective action from government to corporations; it’s not simply the politicization of corporate decision-making. No, it’s much worse. Stakeholder capitalism is the displacement of a doable task (that is, maximize shareholder value) by one that is literally impossible.

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

A Reflection on Bastiat’s “What Is Seen and What Is Not Seen”

(Don Boudreaux)

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Even those economic phenomena that the great Bastiat identified as being “seen” are, in reality, nearly always not literally seen but, instead, are inferred – or so I argue in my latest column for AIER. A slice:

Yet for all of his unquestionable brilliance, Bastiat himself missed a reality that should be revealed. Bastiat’s oversight is hardly a major blunder. It’s barely a blemish. The insight of his essay continues to inspire and its relevance to radiate. Yet he did miss something that’s worth pointing out.

Specifically, Bastiat missed the fact that many of the consequences that he identifies as “that which is seen” are themselves often just as invisible as are the countless consequences that he identifies as “that which is unseen.” The great majority of the populace regularly and immediately “see” a small handful of invisible consequences while they miss most others.

Bastiat’s justly famous account of the broken window, given near the start of his famous essay begins:

Have you ever witnessed the fury of the good bourgeois Jacques Bonhomme when his dreadful son succeeded in breaking a window? If you have witnessed this sight, you will certainly have noted that all the onlookers, even if they were thirty in number, appeared to have agreed mutually to offer the unfortunate owner this uniform piece of consolation: “Good comes out of everything. Accidents like this keep production moving. Everyone has to live. What would happen to glaziers if no window panes were ever broken?”

Bastiat then correctly explains that not only is Monsieur Bonhomme made poorer by his son’s careless wreckage, contrary to the mistaken assurances of the onlookers, society at large is also made poorer.

Notice, however, that the effects that Bastiat identifies as the seen – namely, the benefits to glaziers and their suppliers from M. Bonhomme spending money to replace his broken window – are in fact not actually seen. The onlookers who assure M. Bonhomme that his son has inadvertently done society a favor by prompting him to buy a replacement window literally see only that a window has been broken. These onlookers don’t actually see a glazier purchasing the supplies, and putting in the work necessary to replace the window. The onlookers instead use their reason to infer, in this instance correctly, the positive effects of the broken window on the actions and welfare of the glazier and his suppliers.

Likewise with protective tariffs. When changes in tariff rates are being debated, well-meaning supporters of higher tariffs don’t actually seeconsumers responding to tariffs on imports by shifting more of their purchases to domestically produced substitutes. These tariff supporters use their reason to infer the correct conclusion that higher tariffs will artificially increase employment in those domestic industries that compete with the tariffed imports.

In short, the economic consequences that Bastiat identified as “the unseen” do not differ as much as we might suppose from the consequences that he identified as “the seen.” Both sets of consequences come to be “seen” only through human reason. And so the question becomes this: Why does human reason so readily reveal even to people untutored in economics some unseen but real consequences, while it routinely fails to reveal others?

Some Links

(Don Boudreaux)

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My GMU Econ colleague Bryan Caplan shares highlights from his new book, Don’t Be a Feminist.

Samuel Gregg exposes the follies of mercantilism past and present. Three slices:

What’s clear from the extant literature is that mercantilism’s economic vision did not emphasize economic growth. Rather, economies were considered largely static. Wealth was thus not believed to come through entrepreneurship, competition, and free exchange. For mercantilists, countries prospered by acquiring as much of the world’s existing wealth as they could.

That basic conviction translated into several things. One was an effort by states to snap up as much territory and dominate as many trade routes as they could handle. Practically speaking, this meant European states like Britain encouraging or organizing colonial settlements around the world and barring British goods from being carried on non-British ships. These policies were backed up by a willingness to use force to protect territorial gains and enforce trade prohibitions.

…..

To say that Adam Smith’s Wealth of Nations intellectually demolished mercantilism is an understatement. For one thing, Smith showed how mercantilist efforts to protect domestic industries didn’t increase a country’s total output. No regulation, Smith stated, “can increase the quantity of industry in any country beyond what its capital can maintain.” Instead, they divert part of a country’s capital “into a direction into which it might not otherwise have gone.” But, Smith added, “it was by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.”

Smith’s point was that tariffs don’t bolster production. Output is driven by factors like efficiency, specialization, and the amount of capital invested in an enterprise. Tariffs can only encourage businesses to shift their investments elsewhere, and there is no possibility of knowing ahead of time if this will boost output.

…..

What economic nationalists downplay or ignore is that it is precisely through serving consumers in a competitive market that businesses produce wealth. In these conditions, companies must constantly innovate, find efficiencies, and reduce their margins to outpace their competitors. In the process of doing so, they create new wealth. That same wealth allows businesses to employ millions of people, thereby providing individuals and families with the salaries, wages, and benefits that enable them to pursue numerous non-economic goals. How, I ask, is this materialistic?

But this is not the only reason why “consumer sovereignty,” as the German ordoliberal economist Wilhelm Röpke called it, matters. If the well-being of producers becomes the focus of economic life, it opens the door to the cronyism and often outright corruption that characterized the mercantile system. Certainly, many businesses and their armies of lobbyists insist that they deserve government assistance because they claim to be essential to the well-being of a town, blue-collar men, etc. But as Adam Smith observed of the commercial and political purveyors of mercantilist doctrines of his time, “I have never known much good done by those who affected to trade for the public good.”

Terrence Keeley, writing in the Wall Street Journal, busts myths about ESG investing. A slice:

The implicit promise of ESG investing is that you can do well and do good at the same time. Investors presume they can make a market return while advancing causes such as lowering carbon emissions and income inequality. But multiple studies find ESG strategies are doing little of either. Bradford Cornell of the University of California, Los Angeles and Aswath Damodaran of New York University reviewed shareholder value created by firms with high and low ESG ratings—scores provided by professional rating agencies. Their conclusion: “Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising.”

What Messrs. Cornell and Damodaran found at the micro level is also apparent on a macro basis. Over the past five years, global ESG funds have underperformed the broader market by more than 250 basis points per year, an average 6.3% return compared with a 8.9% return. This means an investor who put $10,000 into an average global ESG fund in 2017 would have about $13,500 today, compared with $15,250 he would have earned if he had invested in the broader market.

Did the forgone $1,750 somehow do $1,750 worth of good for mankind? Apparently not. A new report from researchers at the universities of Utah, Miami and Hong Kong finds there is “no evidence that socially responsible investment funds improve corporate behavior.” But this shouldn’t come as a surprise. The same outcome followed decades of investors avoiding so-called sin stocks—alcohol, tobacco, firearms and gambling. In doing so, investors sacrificed returns while the behavior they disapproved of continued. Impact investors want their capital decisions to create outcomes that wouldn’t have existed otherwise, not perpetuate the status quo.

Stephanie Slade decries the convergence of both the left and the right on authoritarianism. Two slices:

In June 2019, Tucker Carlson spent five full minutes during his prime-time Fox News show praising a plan from Sen. Elizabeth Warren (D–Mass.) to promote “economic patriotism.” The proposal, which called for “aggressive” government action to bolster domestic manufacturing and keep American companies from creating jobs abroad, “sounds like Donald Trump at his best,” Carlson enthused.

President Donald Trump exhibited a high degree of comfort wielding state power for mercantilist ends, from his imposition of tariffs to his use of subsidies and bailouts to support American companies facing competition. Now a rising cadre of nationalist conservatives (a.k.a. “natcons”) are happy to provide the intellectual ammunition for this America First agenda.

In 2019, Republican policy wonk Oren Cass appeared at the inaugural National Conservatism Conference to argue for industrial policy—a robust program of federal interventions meant to resuscitate American manufacturing. He went on to found a think tank, American Compass, that promotes such familiar policies as making corporations give board seats to labor representatives.

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Whether from the left or from the right, such critiques suffer from the same accounting flaw: They see only the upsides of their proposed interventions and only the downsides of the status quo. Missing from the calculus is a recognition that tariffs, by driving up prices, hurt both American consumers and domestic producers who rely on inputs from abroad; that federal “buy American” mandates mean our tax dollars don’t go as far; that subsidies insulate incumbent players from competition and lock in old ways of doing things; that wealth expropriation is a death sentence for risk taking and innovation; that someone still needs to produce the goods and provide the services that have been “decommodified”; and that—as the labor market of the last year suggests—people become less willing to work the more they’re told that government is responsible for meeting their material needs.

Eric Boehm reports on Marco Rubio’s scheme to further raise the prices of groceries.

Jeffrey Tucker reviews Andrew Cuomo’s book, American Crisis. Two slices:

But the book is also strange for what it takes for granted, namely that locking down is the proper path to deal with infectious disease. Viruses in all times and places arrive, infect some portion of the population depending on prevalence, bear responsibility for the death of others, and eventually become endemic, which is to say, something we live with. This one was no different in any of its properties. What made this one different was its politicization and the casual but universally held view that life itself had to be fundamentally disrupted by government because of it.

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In case you are wondering, there is not one word about “Cuomo chips” in this book. That was the ludicrous mandate that all bars serve food with drinks else you can’t get a drink because somehow the virus spreads more in plain bars than in restaurants. True story.

In short, don’t read this book looking for an apology. These politicians all panicked, as John Tamny argued from the beginning. No matter the policy, the pandemic was going to recede into memory, as it has. No matter how badly this class of politicians performed, somehow they all managed to claim to have done the right thing, and to earn royalties on their ghost-written accounts of their genius.

Will Jones warns that “lockdown lovers” are still amongst us. A slice:

Such defences fall flat, of course, because it’s now well-established that new daily infections were already falling several days before the first lockdown was imposed.

Some of the more hardcore pro-lockdown journalists have also sallied forth in defence of the old cause. Tom Chivers at the i is still clinging to the discredited claim that the U.K. lockdown saved 200,000 lives, even though there have only been 150,000 excess deaths in total over the past two and a half years (many of which are not due to Covid) and countries such as Sweden and states such as Florida which eschewed lockdown never saw anything like the predicted level of deaths.

Chivers mentions Sweden, but only to dismiss it. People in Sweden were “hiding in their homes anyway out of fear of a deadly virus” he claims, so not locking down made little difference. This claim is demonstrable nonsense, as Chivers should know as he was covering the pandemic at the time. The images of life continuing as normal in Stockholm were beamed round the world that spring.

“China Covid lockdowns leave residents short of food and essential items.” (DBx: But at least these people might delay that worst of all curses, namely, exposure to SARS-CoV-2!)

Kevin Bardosh tweets: (HT Jay Bhattacharya)

Covid-19 policy in China is a human rights disaster*

* Unless you equate ‘human rights’ to the avoidance of an endemic respiratory virus above all other human needs and believe the state should regulate human interaction using wartime social engineering techniques.

Not a Promising Start for Liz Truss

(Don Boudreaux)

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Here’s a letter to CNBC

Editor:

Britain’s Prime Minister Liz Truss plans for government effectively to reimburse each household for energy expenses above £2,500 annually, with (as you describe it) an “equivalent guarantee for businesses for the next six months [and] further support for vulnerable sectors such as hospitality” (“New British PM Liz Truss announces a cap on energy bills to combat cost-of-living crisis,” Sept. 8). In making this announcement, the prime minister, as you report, “also suggested businesses should look at ways to become more energy efficient.”

I’ve never encountered a clearer example of economic illogic than this scheme by Ms. Truss to shield Brits from high energy prices. High energy prices reflect the underlying reality that energy in Britain today is especially scarce. This reality is unfortunate, but as the economist Thomas Sowell reminds us, reality isn’t optional.

Yet by reimbursing each household and business in Britain for energy that it uses above a certain amount, the government will encourage, not the energy efficiency for which Ms. Truss pleads, but energy inefficiency. With each household and business able to offload its cost of high energy consumption on to taxpayers, each household and business will be shielded from the reality of energy scarcity. Collectively, all will thus attempt to use far more energy than is available. The results will be ugly.

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