Monday , August 20 2018
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Don Boudreaux

Don Boudreaux

He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

Articles by Don Boudreaux

No, Tariffs In Practice Cannot Be Useful (Except to Rent-Seekers)

1 day ago

Here’s a letter to the Wall Street Journal:
Arguing that “tariffs can be useful if they’re used wisely” (Letters, August 20), Paul Matten commits several errors. Among these is his blithe assumption that China’s economic growth during the post-Mao era was promoted by Beijing’s use of tariffs and other trade obstructions. In fact, as the late Nobel laureate Ronald Coase and Ning Wang document in their 2012 book, How China Became Capitalist, China’s post-Mao economic growth occurred only insofar as state direction of China’s economy was replaced by market direction.
For further evidence that China’s post-Mao growth occurred only insofar as the Chinese people turned away from state direction and toward market direction of the economy, ask this: If state direction of the economy is key to

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Quotation of the Day…

1 day ago

… is from an e-mail sent to me yesterday by my emeritus GMU Econ colleague and Nobel laureate Vernon Smith; Vernon’s e-mail was prompted by this letter of mine in which I criticized Matt Yglesias’s assertion that Sen. Elizabeth Warren’s economically calamitous and grotesquely unethical scheme to radically restructure corporate governance in the U.S. – a scheme that would effectively seize massive amounts of property from investors – would not cost us “a dime”:
And why would anyone work to replace the wealth created, if any they created was simply going to be taken away? Besides the wealth destroyed there would be a massive transfer from non-profits to the government since the wealthy contribute so much to these entities.
Welcome to the world of Venezuela and North Korea, whose

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Costs are Costs Whether or Not they Appear in a Government’s Budget

2 days ago

Here’s a letter to Vox:
According to Matthew Yglesias, Sen. Elizabeth Warren’s bill to fundamentally restructure corporate governance in the United States “would redistribute trillions of dollars from rich executives and shareholders to the middle class – without costing a dime” (“Elizabeth Warren has a plan to save capitalism,” August 15).
Without costing a dime?? Clearly not. Even according to Mr. Yglesias, it would cost hundreds of trillions of dimes – namely, that wealth that Mr. Yglesias believes will be transferred from rich executives and shareholders to the middle class. One can loudly applaud this scheme to transfer wealth or one can sorely lament it, but either way it obviously imposes costs on some people. The fact that these costs of Ms. Warren’s scheme won’t show up in a

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Quotation of the Day…

3 days ago

… is from George Will’s most recent column, “Another epic economic collapse is coming“:
Another hardy perennial among economic debates concerns the point at which the ratio of debt to GDP suppresses growth. The (sort of) good news — in that it will satisfy intellectual curiosity — is that we are going to find out where that point is: Within a decade, the national debt probably will be 100 percent of GDP and rising. As Irwin M. Stelzer of the Hudson Institute says, “If unlimited borrowing, financed by printing money, were a path to prosperity, then Venezuela and Zimbabwe would be top of the growth tables.”
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Bonus Quotation of the Day…

4 days ago

… is from Kevin Williamson’s brilliant smack-down of Elizabeth Warren’s most-recent spasm of lunacy:
It is remarkable that people who are most keenly attuned to the self-interest of CEOs and shareholders and the ways in which that self-interest influences their decisions apparently believe that members of the House, senators, presidents, regulators, Cabinet secretaries, and agency chiefs somehow are liberated from self-interest when they take office through some kind of miracle of transcendence.
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Some Links

4 days ago

George Will decries government’s eagerness to stifle competition both foreign and domestic – and he applauds the Institute for Justice’s heroic efforts to do all that it can to prevent the domestic stifling of competition. A slice:
There are three important lessons from North Carolina’s CON [“certificate of need”] mischief. First, domestic protectionism that burdens consumers for the benefit of entrenched economic interests (e.g., occupational licensing that restricts entry to professions for no reason related to public health and safety) is even more prevalent and costly than are tariffs and import quotas that interfere with international trade. Second, the sprawling, intrusive, interventionist administrative state — a.k.a. modern government — that recognizes no limits to its

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Quotation of the Day…

5 days ago

… is from page 267 of the 1992 Liberty Fund edition of John Taylor‘s 1822 tract, Tyranny Unmasked:
The commissions to overturn political idolatry thus entrusted to the United States, like that to overturn religious idolatry entrusted to the Jews, requires only that portion of sagacity, sufficient to discover a fact, of universal notoriety, incapable of contradiction, and acknowledged by every honest man, learned or unlearned. It is, that no species of property-transferring policy, past or existing, foreign or domestick, ever did or ever can enrich the labouring classes of any society whatever; but that it universally impoverishes them.
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Bonus Quotation of the Day…

5 days ago

… is from Joseph Epstein’s essay – “Don’t Invite Me to a Party if It’s a Political One” – in the August 16th, 2018, edition of the Wall Street Journal:
As difficult as it is to imagine the country functioning without political parties, equally difficult is to imagine political truth and America’s larger interests lying chiefly with either Republicans or Democrats. To sign on with one or the other is to give away too much in independence of thought, feeling, integrity.
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Boudreaux and Palagashvili on Worker Productivity and Pay

5 days ago

In the March 7th, 2014, edition of the Wall Street Journal, then-GMU Econ student (now SUNY-Purchase econ professor) Liya Palagashvili and I did our best to bust the myth that worker pay in the U.S. has failed to keep pace with worker productivity. I can now share the full text of this op-ed here. ‘Tis below the fold.

Donald Boudreaux and Liya Palagashvili: The Myth of the Great Wages ‘Decoupling’: There is no disconnect between productivity and worker pay if you use more accurate measures.
By Donald J. Boudreaux and Liya Palagashvili
March 6, 2014 7:23 p.m. ET
Many pundits, politicians and economists claim that wages have fallen behind productivity gains over the last generation. This “decoupling” explains allegedly stagnant (or in some versions of the story, declining) middle-class

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Scary. Deeply, Truly Scary

5 days ago

Here’s a letter to the Wall Street Journal:
Elizabeth Warren’s “Companies Shouldn’t Be Accountable Only to Shareholders” (August 15) is one of the most frightening displays of economic ignorance and intellectual arrogance that I’ve ever read from a high U.S. government official. Never mind that Sen. Warren mistakenly asserts that worker pay in the U.S. hasn’t kept pace with worker productivity. (Four years ago in these pages Liya Palagashivili and I offered evidence that directly contradicts Sen. Warren’s assertion.) And also forget that this former law professor, in her designs to radically remake the way in which corporations are governed, gives no evidence of familiarity with even the rudiments of corporate finance.
In effect, Sen. Warren’s aim is to confiscate a large chunk of the

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There are Lots of Ways to Be Wrong about Trade – and Protectionists Seize them All

5 days ago

Here’s a letter to the editor of Project Syndicate:
Robert Skidelsky’s apology for “liberal protectionism” (“Protectionism for Liberals,” August 14) is a flood of flaws. Here are just two.
First, contrary to Lord Skidelsky’s claim, the case for a country to freely trade with other countries is no more weakened by changes over time in the tasks for which that country has comparative advantages than is the case for an individual to freely trade with other individuals weakened by changes over time in the task for which that individual has a comparative advantage.
When I was 17 my comparative advantage was in bagging groceries; ten years later it was in teaching economics. Similar changes occurred in the comparative advantages of many of the people with whom I traded. And yet these

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Quotation of the Day…

5 days ago

… is from page 355 of Liberty Fund’s 2011 collection of Frédéric Bastiat’s writings, The Man and the Statesman: The Correspondence and Articles on Politics – which is the first volume in what will eventually be six volumes, expertly edited by David Hart, of The Collected Works of Frédéric Bastiat; specifically, this quotation is drawn from Bastiat’s 1846 letter “To the Electors of the District of Saint-Sever”:
Government power, a vast, organized, and living body, naturally tends to grow. It feels cramped within its supervisory mission. Now, its growth is hardly possible without a succession of encroachments upon the field of individual rights. The expansion of government power means usurping some form of private activity, transgressing the boundary that I set earlier between what is

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From the “You Can’t Make this Stuff Up” Department…

6 days ago

… comes this report, from May 2017, on a European Parliament resolution that is impossible to spoof because it is a spoof on itself. (My son, Thomas – erupting in laughter – just found this report and shared it with me.) The report’s title is “EU aims to abolish planned obsolescence.”
Damn all this rapid, incessant improvement in the likes of personal computers and cellular devices! Wouldn’t life be better if we all still used the perfectly functional devices pictured here rather than wasting our money, as we do in 2018, buying pads and smartphones? Politicians in Europe want the optimal rate of progress in technology to be set by the all-knowing and benevolent state rather than by all those unreliable choices made by myopic consumers frivolously spending their own money as they

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Quotation of the Day…

7 days ago

… is from page 53 William Bernstein’s 2004 book, The Birth of Plenty: How the Prosperity of the Modern World Was Created:
The right to property is the right that guarantees all other rights. Individuals without property are susceptible to starvation, and it is much easier to bend the fearful and hungry to the will of the state. If a person’s property can be arbitrarily threatened by the state, that power will inevitably be employed to intimidate those with divergent political and religious opinions.
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Bonus Quotation of the Day…

7 days ago

… is from page 94 of Razeen Sally’s excellent 1998 volume, Classical Liberalism and International Economic Order:
All the classical economists began their analyses with a theoretical statement on the static and dynamic gains that issued from unimpeded cross-border trade. Nevertheless, their clinching argument against the imposition of trade barriers relied primarily on the ‘political economy’ of empirical and policy observations.
DBx: Protectionists find unjustified comfort in some theoretical curiosa discovered by careful economists – curiosa such as “optimal tariffs” and “strategic trade theory.” But just as the operation of the private economy must be modeled realistically, so too must the operation of the state be modeled realistically. And when the operation of the state is

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Some Links

7 days ago

My intrepid Mercatus Center colleague Veronique de Rugy makes the ethical case for free markets and against nanny statism. A slice:
In his book Permissionless Innovation, my colleague Adam Thierer argues that creators of new technology shouldn’t have to seek the blessing of skeptical, out-of-touch regulators before they can develop and offer their innovations to consumers. In fact, it’s because some innovators have had the nerve to start a business without asking for permission that we all benefit now from services like Uber and Lyft, Homejoy, grocery-delivery services like Instacart, last-minute errand-running services like TaskRabbit, restaurant-quality meal-delivery services like SpoonRocket, and more.
Chris Koopman warns of the risks of risk aversion at the Federal Aviation

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Clear Evidence of Fuzzy Thinking about Trade Deficits

7 days ago

After explaining – and endorsing the explanation – that non-Americans’ demand to use U.S. dollars as the major global currency contributes to the U.S. running trade deficits period after period after period, Robert Samuelson offers this parenthetical disclaimer:
(Note: Many economists reject this theory. The problem, they say, is that Americans want to invest more than they’re willing to save. The gap is filled by an inflow of foreign capital converted into dollars. Despite differences, both theories operate similarly. They create a demand for dollars that affects the exchange rate.)
There are two flaws in this disclaimer, one minor the other major.
The minor flaw is that no economists of whom I’m aware deny that non-Americans’ demand to hold dollars or to use dollars as a major

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Abundance is a Blessing, Not a Curse

7 days ago

Here’s a letter to the Washington Post:
Editor:
Robert Samuelson is correct both that Pres. Trump’s understanding of trade deficits is completely flawed and that the U.S. dollar’s role as the major world currency is among the reasons why the U.S. consistently runs trade deficits (“Trump’s no-win trade war,” August 13). Yet Mr. Samuelson himself inadvertently fuels a common misunderstanding of U.S. trade deficits – and of trade generally – by favorably quoting C. Fred Bergsten’s claim that we Americans “disadvantage ourselves by running the world’s key currency.”
In fact, the U.S. dollar’s role as the major world currency is a huge advantage for Americans and not a disadvantage. Because non-Americans choose to use dollars as a world currency, they give to us lots of steel, chemicals,

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Quotation of the Day…

7 days ago

… is from the William Graham Sumner’s Preface to his 1885 book, Protectionism: the ism Which Teaches that Waste Makes Wealth:
Protectionism seems to me to deserve only contempt and scorn, satire and ridicule. It is such an arrant piece of economic quackery, and it masquerades under such an affectation of learning and philosophy, that it ought to be treated as other quackeries are treated.
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Political Borders are Economically Irrelevant

8 days ago

Steve Davies has an absolutely first-rate essay on trade over at AIER. Here’s a slice, but please be sure to read the whole thing. In fact, read it twice. Thoroughly.
Economically, countries are just aggregations of individuals who live under a common legal and political order. (Politically, of course, Portugal and England are meaningful entities; that, however, is another story that also needs unpacking.)
Borders Do Not Matter
What follows from this is that in terms of the nature of the exchange and the specialization that results, there is absolutely no difference between trade across a geopolitical border and trade within such a border. If someone in Chicago consumes a steak from a steer raised in Texas, he is trading with a person or persons in Texas; if he consumes an Argentine

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Quotation of the Day…

8 days ago

… is from page 141 of the 1994 re-issue of Charles Murray’s 1988 volume, In Pursuit: Of Happiness and Good Government (original emphasis):
The ubiquitous “unintended consequences” that have been found by the evaluators of social programs would not have mystified Publius. Constituencies of persons, Publius already knew, would seek to use the reforms for their own ends. They would form factions, bringing pressures to bear on the politicians who design the policies and the bureaucrats who implement them. The politicians and bureaucrats themselves would have ambitions that affect the way that the programs are run, not to mention other human frailties of vanity, ineptitude, and foolishness that would obstruct the implementation of the great schemes. And if all that were not enough, Publius

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A Note on Americans’ Intellectual Property and the Chinese

9 days ago

Over at EconLog Scott Sumner has an excellent post titled “Let’s transfer more technology to China.”
And here’s a comment, slightly modified, that I left on Scott’s post:
Scott: I join David Henderson in applauding the excellence of your post.
I comment here only to make more explicit a point in your post that deserves to be further spotlighted. It’s this: there’s a tension between those who worry that Chinese theft of American intellectual property dampens Americans’ incentives to create more innovative ideas worthy of being protected as intellectual property, and those who oppose the voluntary sale or transfer of American intellectual property to the Chinese. For government to restrict us Americans from selling or voluntarily transferring our intellectual property to the Chinese

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Quotation of the Day…

9 days ago

… is from page 180 of Razeen Sally’s important 1998 book, Classical Liberalism and International Economic Order (footnote excluded):
Such ‘political market failure’ is even more characteristic of foreign economic policy than domestic economic policy. Executive discretion, as well as weak parliamentary and judicial control, characterise foreign economic policy-making, at least in part because information on foreign economic policy is less readily available to the legislature, the courts and the broader public. This makes highly discretionary foreign economic policy processes more that usually amenable too capture by the rent-seeking activities of a relatively small number of well-organised and well-informed producer groups. Hence the frequency and staying power of protectionist

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20/20 Vision of Trade

10 days ago

Here’s my response to a follow-up e-mail from my new correspondent Jack Boudreaux (who, again, is not related to me):
Mr. Jack Boudreaux:
Mr. Boudreaux:
Thanks for your follow-up e-mail. You are mistaken to accuse free traders of being “insensitive to those that lose jobs to imports.” Free traders are in fact more sensitive to job losses than are protectionists.
The truth of my claim is attested to by two facts. First, unlike protectionists, free traders see not only workers who lose jobs to imports but also workers who lose jobs to protectionist policies that restrict imports. Finding no reason to favor workers who lose jobs because of trade over workers who lose jobs because of trade restrictions, free traders correctly reject protectionists’ claim that trade barriers uniquely

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Some Links

10 days ago

Protectionism has a multiplier effect: tariffs multiply additional market-distorting interventions. Jake Grant explains.
Oh, and lookie here: what protectionism giveth protectionism can taketh. (HT Bob Graboyes)
Colin Grabow rightly takes Rep. Duncan Hunter (R-CA) to task for his support of the cronyist-protectiionist Jones Act. A slice:
Formally known as the Merchant Marine Act of 1920, the Jones Act mandates that the domestic transportation of waterborne cargo be performed by vessels that are U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built. Vessels produced in U.S. shipyards, however, cost as much as eight times more than equivalent ships constructed overseas. Paired with reduced competition from these restrictions, the Jones Act results in artificially-inflated transportation

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Beware All Who Invoke ‘the Will of the People’

10 days ago

In my latest column in the Pittsburgh Tribune-Review I question the notion of the “will of the people.” A slice:
Suppose that you prefer to have 1,000 fewer of your tax dollars spent on health care in order to have 1,000 more spent on national defense, while I have the opposite preference. What’s the correct policy? What’s the “will” of the two of us collectively? There is no obviously correct answer.
Now add your cousin to our small group. Suppose that he prefers to have 10 fewer of his dollars spent on health care and 10 more spent on defense. Suppose also that we three vote on the matter. It seems that there will at least be a majority preference to decrease health care spending and to increase defense spending. But maybe not. You want defense spending to rise by $1,000 while your

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Quotation of the Day…

10 days ago

… is from pages 53-54 of Pierre Lemieux’s superb new book, What’s Wrong With Protectionism? (footnote deleted):
People produce in order to consume, not the other way around. Faced with the choice between working for an income or obtaining an equal (or even a lower) income without having to work, most people would choose the latter. The purpose of work is mainly to obtain an income and, even more fundamentally, the increased welfare that income makes possible. It’s true that the typical individual is both a consumer and a producer, and most people need a job to earn an income, but the goal is consumption, not sweat.
DBx: Protectionists attempt to counter the claim that consumption, not production, is the ultimate goal of economic activity by pointing out a fact that is denied by no

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Some Links

11 days ago

John Cochrane describes what a true free-trade agreement would look like.
My intrepid Mercatus Center colleague Veronique de Rugy clears away some of the confusion about trade deficits. A slice:
Trump is misinformed when he claims that the U.S. trade deficit is a sign that everyone is taking advantage of us. The reality is much more exciting, as it signals that the country is an attractive destination for foreign investors looking to make a profit. To the president’s credit, his tax-reform and deregulatory efforts, and the resulting booming economy, have made the U.S. market even more appealing. These positive developments likely shifted foreign-owned dollars away from buying U.S. exports (especially when their prices have gone up due to retaliatory tariffs and a stronger dollar) and

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Follow the Logic Through to Its Conclusion

11 days ago

Here’s a letter to the Wall Street Journal:
Terri Sewell and Jim Kessler correctly argue that a one-size-fits-all national minimum wage makes no sense because different workers face different economic conditions depending on where they live (“A Better Minimum Wage,” August 9). But in calling for Uncle Sam to set minimum wages regionally rather than nationally, these authors fail to follow fully the sound logic of their argument.
Worker conditions vary not just regionally; they vary individually – from worker to worker and from job to job. While it is indeed absurd to suppose that there is a single optimal minimum wage for all low-skilled workers in both Boston and Biloxi, it is no less absurd to suppose that there is a single optimal minimum wage for all low-skilled workers in Boston

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Quotation of the Day…

11 days ago

… is from page 285 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s marvelous 1956 collection, Minority Report; by “Dogberries,” Mencken refers to the bureaucrats appointed to run and staff all the many new U.S. government agencies during the New Deal:
Very few of the Dogberries, high or low, had been men of any genuine dignity or authority before they were given office by presidential fiat. For every one who had been in a responsible position, won by experience and ability, there were at least fifty who had been college tutors, charity racketeers, unsuccessful lawyers, petty jobholders, and other such nonentities…. It was simply not in human nature for such ignoble fellows, once they had the club of government in their hands, to refrain from using it recklessly.

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