Monday , October 22 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

Pity Protectionists for Having Nothing to Work with but Misinterpretation and Illogic

16 hours ago

Here’s a letter to the American Conservative:
One of my blog’s readers – Mr. Stefan Kløvning – alerted me to your favorable tweet yesterday of a link to a 2003 article in your pages by one R.B. Calco titled “The Misunderstood Adam Smith.” The title is unintentionally appropriate as Calco’s understanding of Adam Smith is deeply flawed.
For example, consider Calco’s assertion that “Smith operated under the assumption that everybody, yes, even capitalists, was [sic] fundamentally patriotic….” This assertion is nonsense; Smith’s Wealth of Nations is filled with observations that contradict it. Here’s just one: “A merchant, it has been said very properly, is not necessarily the citizen of any particular country. It is in a great measure indifferent to him from what place he carries on his

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Quotation of the Day…

1 day ago

… is from chapter 4 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth:
It is argued that hardship disciplines a man and is good for him; hence, that the free-traders, who want people to do what is easiest, would corrupt them, and that protectionists, by “making work,” bring in salutary discipline for the people. This is the effect upon those who pay the taxes. The counter operation on the beneficiaries of the system I have never seen developed.
DBx: By protecting some domestic producers from foreign competition, the state does indeed make easier the lives of these firms’ owners, investors, and workers and other suppliers. It does so by artificially increasing the burdens that others in the country must bear.
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Abundance Does Not Impoverish

2 days ago

Here’s a letter to a new Cafe Hayek reader (who apparently believes me to have multiple heads):
Mr. Ernie McDonald
Mr. McDonald:
You write that “our survival as a nation is threatened by never ending floods of cheap imports priced below their full value.” And after asserting that because I’m a tenured “heads up [my] ass” professor I “have no right” to criticize protectionists, you call me “gullible, blind and ignorant about the Real World.”
I’ll treat you here with the respect that you deny to me in your hostile and impolite letter.
First, like you I have a right to criticize or to praise anyone or anything I wish as long as I do so peacefully. You have no duty to listen to me, but my job status does nothing to strip me of my right to speak and to write freely.
Second and more

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Wages Reflect Underlying Economic Realities

2 days ago

Here’s a letter to the Wall Street Journal:
Lamenting that final assembly of manufactured goods occurs today mostly in low-wage countries rather than in the United States, Walker Martin mistakes effect for cause (Letters, Oct. 20).
For much of the 20th century American workers were (by the standards of the day) paid well to perform the sort manufacturing tasks that are now performed abroad because American workers back then had a comparative advantage at performing those tasks. But contrary to Mr. Martin’s implication, having a comparative advantage at performing those tasks was not the result of the high pay that American workers received to perform them.  Instead, having a comparative advantage at performing those tasks was the source of the high pay that American workers received

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Quotation of the Day…

2 days ago

… is from William Graham Sumner’s Preface to his 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth:
Protectionism arouses my moral indignation. It is a subtle, cruel, and unjust invasion of one man’s rights by another. It is done by force of law. It is at the same time a social abuse, an economic blunder, and a political evil. The moral indignation which it causes is the motive which draws me away from the scientific pursuits which form my real occupation, and forces me to take part in a popular agitation. The doctrine of a “call” applies in such a case, and every man is bound to take just so great a share as falls in his way.
DBx: The human mind is creative. It often creates marvelous things that improve human welfare – things such as reinforced concrete,

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Some Links

3 days ago

My intrepid Mercatus Center colleague Veronique de Rugy writes about the winningest losers in Trump’s trade war. A slice:
In theory, the goal for all of this trade disruption was to negotiate lower tariffs. In reality, it hasn’t worked. Global tariffs have gone up. That’s a bummer for the small and midsize companies that moved production back to the United States from China before the trade dispute started. Over 50 percent of the U.S. tariffs on Chinese imports are on intermediate goods, parts and materials used to make finished U.S. products. This reality means that production costs have increased for these firms dramatically.
Chelsea Follett explains how women are empowered by free trade and hurt by tariffs.
Pierre Lemieux identifies one benefit of tariffs: they can be

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Quotation of the Day…

3 days ago

… is from chapter 1 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (footnote omitted):
Protectionism is not a theory in the correct sense of the term, but it comes under some of the popular and incorrect uses of the word. It is purely dogmatic and à priori. It is desired to attain a certain object – wealth and national prosperity. Protective taxes are proposed as a means. It must be assumed that there is some connection between protective taxes and national prosperity, some relation of cause and effect, some sequence of expended energy and realized product, between protective taxes and national wealth. If then by theory we mean a speculative conjecture as to occult relations which have not been and can not be traced in experience,

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Two Wrongs Really Don’t Make a Right

4 days ago

Here’s a letter to a Cafe Hayek reader:
Mr. Michael Preston
Mr. Preston:
Unhappy with my recent letter to the Wall Street Journal, you argue that it is ethical for Uncle Sam to impose tariffs on Americans “because of the chance that US tariffs would force other countries to cut theirs – meaning we’d be freer then to trade with other people.”
I disagree that any such chance supplies an ethical justification for U.S. tariffs.
Suppose that your neighbor regularly and severely beats his children, who are your children’s best friends, and that your children are thereby denied the opportunity to enjoy playing with their friends. Further suppose that there’s a positive chance that your neighbor will stop beating his children if he observes you beating your children. Does this positive chance

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Free Trade, Unconditional and Unilateral

4 days ago

Here’s a letter to the Wall Street Journal:
Steve Forbes, Arthur Laffer, Fred Smith, and Stephen Moore are correct that a world of zero tariffs would be ideal (“Mr. President, It’s Time for Zero Tariffs,” Oct. 18). But they err in advising that U.S. tariffs be cut to zero only on condition that other governments cut their tariffs to zero. Instead, the U.S. should do what Hong Kong has done, to its enormous benefit, for most of the past century, and what it continues to do: carry out a policy of free trade unconditionally and unilaterally.
Because in economics the only justifications for protectionism are so narrow and recondite as to have no real-world applicability – and because in ethics the justifications for protectionism are completely nonexistent – there is no reason why we

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Quotation of the Day…

4 days ago

… is from chapter 2 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (link added; footnote omitted):
They have never had any plan or purpose in their tariff legislation. Congress has simply laid itself open to be acted upon by the interested parties, and the product of its tariff legislation has been simply the resultant of the struggles of the interested cliques with each other, and of the log rolling combinations which they have been forced to make among themselves. In 1882 Congress did pay some deference, real or pretended, to the plain fact that it was bound, if it exercised this mighty power and responsibility, to bring some intelligence to bear on it, and it appointed a Tariff Commission which spent several months in collecting

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More on the Long-Run

5 days ago

Two or three days ago on the radio – I think NPR, but I don’t recall with certainty – I heard a report on climate-change research. This report was prompted by William Nordhaus being named co-winner of the 2018 Nobel Prize in Economic Sciences. The reporter mentioned, correctly, that estimates of the size of the optimal tax on carbon emissions depend on the rate of discount – that is, on the rate at which we today discount well-being in the future relative to well-being today.
In practical terms, the higher the rate of discount, the greater the value we attach to consumption today relative to consumption tomorrow. Someone with an infinitely high “time preference” (as economists sometimes call it) cares nothing about even the nearest future and only about the now. Such a person would

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Quotation of the Day…

5 days ago

… is from page 101 of Eamonn Butler’s excellent 2018 monograph, An Introduction to Capitalism:
There is actually plenty of planning in capitalism: individuals and firms make plans all the time. Those plans get constant and instant feedback from the daily decisions of customers on what they will or will not buy, and producers quickly adjust their plans accordingly. If they make a mistake, it is only they who suffer. But things are quite different when a nation’s entire production is planned. Such huge schemes are slow to put into effect and to change; there is less feedback because consumers have less choice; so there is less dynamism and progress. And if the plan proves mistaken, the whole nation suffers.
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Bonus Quotation of the Day…

6 days ago

… is from pages 25-26 of the original edition of IHS-founder F.A. “Baldy” Harper’s 1949 tract, Liberty: A Path to Its Recovery:
The problem of economic liberty touches every exchange of goods and services, the ownership of property, and every contractual arrangement involving these “economic” affairs, because human relationships are involved in all of them.
Economic liberty is absent to whatever extent a person is prohibited from using his talents and his property to produce and sell (or exchange) anything he desires, at whatever price is agreeable to him and to the buyer. If he is prohibited from doing this, by another person or by any combination of persons who are not direct parties to the deal, his liberty is thereby transgressed. And further, it makes no difference, so far as

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Some Links

6 days ago

Walter Olson draws an important lesson about antitrust policy from the demise of Sears.
My intrepid Mercatus Center colleague Veronique de Rugy laments the demise of federalism in the United States. A slice:
This lack of meaningful interstate competition is a boon to state and local legislators but bad for taxpayers. The states and the federal government now act as a tax cartel. They are in a position to charge more for their services even when the quality is getting worse.
While I could pick a few nits with this Wall Street Journal op-ed by Jason Furman, he is correct to argue that the Trump administration is mistaken to accuse Beijing of keeping the value of the Chinese yuan artificially low. A slice:
Another law of economics explains why China’s currency has slid somewhat more

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Quotation of the Day…

6 days ago

… is from chapter 3 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (original emphasis; footnote omitted):
Trade is a beneficent thing. It does not need any regulation or restraint. There is no point at which it begins to be dangerous. It is mutually beneficent. If it ceases to be so, it ceases entirely, because he who no longer gains by it will no longer carry it on.
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Again, What a Bargain!

7 days ago

In my latest column for AIER I riff on Nobel-laureate William Nordhaus’s 2004 paper on the widespread sharing of the benefits of market innovations. A slice:
And yet Jeff Bezos is just one entrepreneur among a multitude. A handful of these entrepreneurs, like Bezos, are famous, but the vast majority are unknown. Do you know the name of the inventor of the shipping container that dramatically reduced the cost of shipping cargo? I’ll tell you: Malcom McLean – who, when he died in 2001, was worth $330 million. McLean, therefore, likely increased humanity’s collective well-being to the tune of about $15 billion, or by just about $2 for every person alive today.
Or have you heard of Janus Friis? He’s a high-school-dropout Danish entrepreneur who was critical to the development of Skype.

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Tariffs are Coercive

7 days ago

Here’s a letter to the Wall Street Journal:
Zachary Karabell writes that the Trump’s administration’s use of tariffs is like “bringing a knife to a gunfight” (“Tariffs Are Like a Knife in a Gunfight,” Oct. 15). This description could not be more wrong.
Because tariffs obstruct peaceful commerce between buyers and sellers – each of whom expects to gain from trading – in order to artificially enrich politically powerful producer groups, the Trump administration’s use of tariffs is like bringing a knife to a bazaar to commit robbery.
Sincerely,Donald J. BoudreauxProfessor of EconomicsandMartha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus CenterGeorge Mason UniversityFairfax, VA 22030
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Quotation of the Day…

7 days ago

… is from page 641 of the 1950 Augustus M. Kelley reprint of Philip Wicksteed’s magnificent, if wordy, 1910 work, The Common Sense of Political Economy:
The United States of America are often cited as furnishing a typical case of protection, but we should never lose sight of the fact that there is free trade within the United States themselves, so that it seems safe to assert that there is no other free trade area of so great an extent and embracing so wide a variety of natural and social conditions in the whole world. Moreover, it is generally supposed that the United States would welcome the accession of Canada, and in case of a union would at once throw down the fiscal barriers that now separate the two countries. If this is so, one is led to the conclusion that the tariff is not

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Trump is No Smithian

8 days ago

Here’s a letter to the Financial Post:
Lawrence Solomon argues that Adam Smith would applaud Donald Trump’s trade policies (“Trump’s tariff war has one surprisingly strong supporter: Adam Smith,” Sept. 25). But in doing so, Solomon ignores the bulk and core of what both Smith and Trump say about trade.
Smith’s Wealth of Nations is, above all, a broadside against mercantilism. Trump, though, is nothing if not a mercantilist, as evidenced most clearly by his obsession with the balance of trade and his belief that U.S. trade deficits mean that America is ‘losing’ at trade. In complete contrast, Smith insisted that “Nothing, however, can be more absurd than this whole doctrine of the balance of trade,” and would have regarded such talk by Trump of ‘losing’ at trade as preposterous.
The

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Quotation of the Day…

8 days ago

… is from page 226 of Thomas Sowell’s excellent 1987 volume, A Conflict of Visions (original emphasis):
Results matter – they are the ultimate justification of processes – but it is only the general effectiveness of particular processes (competitive markets, constitutional government) that can be gauged by man, not each individual result in isolation.
DBx: Indeed so. Isolated instances of success or of failure are never reliable evidence of the goodness or badness of any rule or policy.
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Some Links

9 days ago

My great colleague Walter Williams reviews Universal Economics – a new edition of the greatest economics textbook ever written. A slice:
The authors give a long list of erroneous beliefs that people hold. Here’s a tiny sample: Employers pay for employer-provided insurance; larger incomes for some people require smaller incomes for others; minimum wage legislation helps the unskilled and minorities; foreign imports reduce the number of domestic jobs; “equal pay for equal work” laws aid women, minorities, and the young; labor unions protect the natural brotherhood and collective well-being of workers against their natural enemies, employers; and we cannot compete in a world in which most foreign wages are lower than wages paid to domestic workers.
Deirdre McCloskey asks “what’s still

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Quotation of the Day…

9 days ago

… is from my emeritus colleague Vernon Smith‘s profound 2002 Nobel Prize lecture, “Constructivist and Ecological Rationality in Economics” (footnotes and citation deleted):
The early “law-givers” did not make the law they “gave”; they studied social traditions and informal rules and gave voice to them, as God’s, or natural, law. The common lawyer, Sir Edward Coke, championed seventeenth-century social norms as law commanding higher authority than the king. Remarkably, these forces prevailed, paving the way for the rule of law in England. Similarly, the cattlemen’s associations, land clubs, and mining districts in the American West all fashioned their own rules for establishing property rights and enforcing them: the brand on the hindquarters of his calf was the cattlemen’s indelible

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Bonus Quotation of the Day…

10 days ago

… is from chapter 3 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth (internal citations and footnote omitted):
The protectionists say that their system advances civilization inside a state and makes it great, but the facts are all against them. It was by trade that civilization was extended over the earth. It was through the contact of trade that the more civilized nations transmitted to others the alphabet, weights and measures, knowledge of astronomy, divisions of time, tools and weapons, coined money, systems of numeration, treatment of metals, skins, and wool, and all the other achievements of knowledge and invention which constitute the bases of our civilization. On the other hand, the nations which shut themselves up and

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Reality is Far More Complex than Protectionists Realize

10 days ago

Here’s more in my continuing correspondence with a proud protectionist:
Mr. Nolan McKinney
Mr. McKinney:
You’re correct that in his letter to the Wall Street Journal Trong Bui attempts to bolster his case for protectionism with an appeal to national security. Specifically, Mr. Bui argues that “There are also national security and economic dangers that would come with not having a robust manufacturing base right here in the U.S. and instead depending on other countries to manufacture goods for us. Time to go back to the ‘we’ll design, and we’ll manufacture’ approach that has served this country so well in the past.”
His argument suffers from several flaws. I mention here only two.
First, Mr. Bui’s argument ignores costs. It’s easy to write that we Americans should do, not only the the

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Can You Outsmart an Economist?

10 days ago

Steve Landsburg’s new book – Can You Outsmart an Economist? – is out. I just ordered my copy and cannot wait to read it. Steve has a remarkable gift for asking questions that are both probing and interesting.
Comments

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Quotation of the Day…

10 days ago

… is this recent Facebook post by Steve Horwitz:
Instead of “trade wars,” let’s call them what they really are: economic suicide bombings.
DBx: Indeed so.
Like physical bombings, the economic suicide bombings that are tariffs and other trade restrictions create particular jobs by destroying real wealth. Those who then resupply the wealth that is destroyed applaud the suicide bombings, and tirelessly repeat ancient, absurd dogmas to justify the bombings. But unlike physical bombings, the victims of economic suicide bombings are largely unseen and, hence, ignored.
The people – and they are many – who cling to the dogma of protectionism do so as a matter of faith. This dogma cannot withstand the scrutiny of reason or be justified by any competent observation of reality. Yet the

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Americans’ Wages are High Because Americans’ Productivity is High

11 days ago

Here’s a letter to the Wall Street Journal:
Trong Bui warns that “we cannot afford as a country to abandon the low-margin/low-tech manufacturing businesses to other countries as Mr. Kessler and others have been advocating. Many Americans are not cut out for designing high-margin microprocessors. Where would they find jobs if the U.S. follows the ‘we’ll design (high margin), and they’ll manufacture (low margin)’ paradigm?” (Letters, Oct. 12).
To see the error in Mr. Bui’s warning, imagine if someone 150 years ago had warned that “we cannot afford as a country to abandon the low-margin/low-tech agricultural tasks to mechanical innovations as Mr. Cyrus McCormick and others have been advocating. Many Americans are not cut out for designing farm equipment and working at other non-farm

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Some Links

11 days ago

Quoting Jonathan Rauch, George Will eloquently exposes the deceptiveness of the typical politician. A slice:
Modernity began when humanity “removed reality-making from the authoritarian control of priests and princes” and outsourced it to no one in particular. It was given over to “a decentralized, globe-spanning community of critical testers who hunt for each other’s errors.” This is why today’s foremost enemy of modernity is populism, which cannot abide the idea that majorities are not self-validating, and neither are intense minorities (e.g., the “Elvis lives” cohort). Validation comes from the “critical testers” who are the bane of populists’ existence because the testers are, by dint of training and effort, superior to the crowd, “no matter how many” are in it.
How fiscally sound

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If Trump is a Free Trader, then I’m a Protectionist

11 days ago

Here’s a letter to a new Cafe Hayek reader:

Mr. David Epstein
Mr. Epstein:
Thanks for your e-mail.
With respect, I disagree that Pres. Trump’s expression of desire for a world of zero tariffs “proves that he is a free trader at heart.” While recognizing the desirability of a world of zero tariffs is a necessary characteristic of all true free traders, it is hardly a sufficient characteristic. A genuine free trader supports a policy of free trade at home regardless of the trade policies of other governments. That is, the appellation “free trader” applies only to those who support a policy of what is, perhaps confusingly, called “unilateral free trade.”
Pres. Trump obviously is no proponent of unilateral free trade. For years, every word out of his mouth about trade has revealed him to

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Quotation of the Day…

11 days ago

… is from page 11 of the 2000 Liberty Fund reissue of Geoffrey Brennan’s and James M. Buchanan’s 1980 volume, The Power to Tax:
[I]n all practically relevant cases, governments – or more accurately the individuals involved in governmental process – do possess the power to coerce. They do exercise genuinely discretionary power, and it is both empirically reasonable and analytically necessary to assume that over some range they will exploit that power for their own purposes, whatever these may be.
DBx: Throughout all of modernity this insight was – and was correctly regarded to be – a mark of prudence, maturity, and seriousness of thought about the nature of humans and of politics. Yet there seems to be today an increasingly large number of people who childishly interpret such

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