Monday , September 25 2017
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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

Anthem

21 hours ago

Here’s a letter to the Washington Examiner:
You report that Donald Trump tweeted: “If a player wants the privilege of making millions of dollars in the NFL, or other leagues, he or she should not be allowed to disrespect our Great American Flag (or Country) and should stand for the National Anthem” (“Trump: Players with ‘privilege’ to make millions in NFL should not be allowed to ‘disrespect’ the USA,” Sept. 24).
This past January 20th Trump took an oath to “preserve, protect and defend the Constitution of the United States.”  Apparently he didn’t read the document that he solemnly swore to uphold.  Nowhere in the Constitution, or in any of the vast accretion of Anglo-American common law upon which that document rests, is there the faintest hint that an individual’s freedom to earn a

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Some Links

22 hours ago

Deirdre McCloskey celebrated her 75th birthday on September 11th.  My colleague Pete Boettke marked the occasion.  A slice:
Many years ago she [McCloskey] published a wonderful collection How to Be Human Though an Economist which I highly recommend, and which I reviewed very favorably in the now defunct Humane Studies Review for the Institute for Humane Studies.  The important point to always remember is that liberalism is liberal, it is a vision of a system that exhibits neither discrimination nor dominion, it promises to break all bonds of oppression, it unleashes the creative powers of a free civilization, it is a doctrine of freedom of thought, freedom of association, freedom of contract, and peaceful relationships among all.
And here’s Pete on F.A. Hayek’s epistemic liberalism.

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What’s the Opposite of Price Gouging?

1 day ago

Yesterday I spent the morning with The Fund for American Studies president, and my long-time friend, Roger Ream and his wife, Mary Kay.  Over coffee we touched briefly on so-called “price gouging.”  Roger had an insight that I’d never before encountered.  Roger asked: “What about the many merchants who lose consumer demand as a result of natural disasters?  Where’s the criticism of the consumers who greedily and suddenly ‘force’ those merchants to lower their prices, perhaps in some cases all the way to zero?  Where’s the outrage?”
Roger’s point is excellent.  While natural disasters cause the demand for many goods and services to rise (and, simultaneously, also cause the supplies of these goods and services to fall), every geographic area struck by a hurricane or other natural

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Quotation of the Day…

1 day ago

… is from pages 372-373 of David Boaz’s excellent 2015 book, The Libertarian Mind:
My ideal community would probably not be your utopia.  The attempt to create heaven on earth is more likely to produce hell, because we have different ideas of what heaven would be like.  As our society becomes more diverse, the possibility of our agreeing on one plan for the whole nation becomes even more remote.  And in any case we can’t possibly anticipate the changes that progress will bring.  Utopian plans always involve a static and rigid vision of the ideal community, a vision that can’t accommodate a dynamic world.  We can no more image what civilization will be like a century from now than the people of 1900 could have imagined today’s civilization.  What we need is not utopia but a free

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The State of the World Today

2 days ago

Solid, vast, and clear evidence of racism is dismissed as mistaken and unreliable if the persons charged, using this evidence, with being racists are “Progressive.”  Non-existent evidence of racism is elevated into incontrovertible truth if the persons charged, using this non-existent evidence, with being racists are classical-liberal advocates of a society grounded in private property and free markets.
Jonathan Haidt could write a long volume devoted exclusively to a study of the shoddy treatment of Thomas Leonard’s great book, Illiberal Reformers, and the silly applause offered for the carelessly researched, utterly shoddy, and absurd concoction of factual and logical fallacies that is Nancy MacLean’s Democracy in Chains.
(See also this related Cafe Hayek post.)
Comments

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Quotation of the Day…

2 days ago

… is from page 279 of my late Nobel laureate colleague Jim Buchanan‘s 1987 paper “Market Failure and Political Failure,” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:
The theoretical welfare economists of mid-century … assumed, implicitly, that the political alternative to the unimpeded operation of the market itself operated ideally.  That is to say, it was simply presumed that “failures” in market arrangements could be ideally corrected by politically directed adjustments in the rules guiding market participants.
The prospect that any feasible political corrective for market failure might also fail when compared against the ideal standard of efficiency was not examined.
DBx:

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Some Links

3 days ago

George Will is wise.
Also wise is my former student, Alex Nowrasteh.
Phil Levy is justifiably unimpressed with U.S. Commerce secretary Wilbur Ross’s take on NAFTA’s consequences.  (HT Bryan Riley)
Speaking of the seemingly bottomless ignorance about trade of Trumpians, my great Mercatus Center colleague Dan Griswold adds his clear voice to those who explain that Steve Bannon’s understanding of economic history is a misunderstanding.
David Henderson offers more evidence – as if more is needed – that that teller of fabulist tales, Nancy MacLean, paints a distorted portrait of my late colleague Jim Buchanan.
Matt Ridley explains that the costs of today’s climate policies fall disproportionately on the poor.
Ron Bailey asks if the Colorado River has rights.
Iain Murray is none too happy

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Trump’s Trade Policy is Not ‘Optimal’

3 days ago

This note is to a college student who often writes to berate me for my failure to appreciate the economic genius of his hero, Donald Trump.
Mr. Jake Ricci
Jake:
Thanks for your e-mail.  You write that Trump’s protectionism “reflects his intuitive grasp of optimal tariff theory.”
I disagree strongly, for two reasons.  First, because Trump exhibits no grasp, intuitive or otherwise, of basic economics, it’s impossible to believe that he intuitively grasps a concept requiring an understanding of more advanced economics.
Second and far more importantly, the optimal tariff (if and when the rare conditions for its successful use in reality exist) is a tool for increasing the amount of imports a country receives in exchange for any given amount of its exports.  As Richmond Fed economist Tom

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Quotation of the Day…

3 days ago

… is from pages 265-266 of Ron Bailey’s insightful and learned 2015 book, The End of Doom:
It is unfortunately the case that government meddling on a global scale has massively distorted energy markets through pervasive subsidies, mandates, and price controls.  The result is retarded innovation in the technologies of energy generation.  A big first step toward renovating our energy supply systems would be to eliminate those impediments to understanding the real competitive benefits and costs of the production and use of energy.  Ultimately, the better and far more effective way to ameliorate and avert future climate change is to mobilize human ingenuity through market processes to drive down the costs of no-carbon energy sources.
DBx: Among the many reasons that I oppose a Pigouvian

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Bonus Quotation of the Day…

4 days ago

… is from page 5 of the great Harold Demsetz’s insightful 2011 Review of Law & Economics article, “The Problem of Social Cost: What Problem? A Critique of the Reasoning of A.C. Pigou and R.H. Coase“:
I want to recognize Coase’s important demonstration that it makes no more sense to speak of A harming B than of B harming A when A and B seek to put the same scarce resource to competing uses.  The history of prior discussion of the externality problem is replete with mistaken attribution of causation when the real source of the problem simply is resource scarcity.
DBx: No externality in a market setting is unilateral.  All externalities in any market setting are merely conflicts over the use of scarce resources.
Comments

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Quotation of the Day…

4 days ago

… is from page 275 of my late Nobel laureate colleague Jim Buchanan‘s January 1989 Business Economics article, “On the Structure of an Economy,” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:
Let us by all means continue to strive for, and to support, efforts to analyze the structure of the economy, and to seek consensus on means to make this structure more capable of allowing us, as individual participants, to further those separately defined objectives that we seek.  Let us, however, guard against allowing intellectual confusion about what an economy is to offer legitimizing cover for the efforts of some persons and groups to impose their own purposes on others.  Beware of those

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Tariffs Did NOT Fuel American Economic Growth

5 days ago

Among the most destructive of the many zombie-like myths that continue to haunt the ideological and political landscape is the one that insists that because the U.S. government did not in the 19th century follow a policy of free trade, and because the American economy in the 19th century did grow very impressively, Uncle Sam’s tariffs are therefore responsible for – or at least helped to promote – this impressive economic growth.
Dartmouth economist Doug Irwin has done the definitive research on this specific question and finds the assertion indeed to be a myth.  Here’s a version of Doug’s pioneering paper, from 2000, on the matter.  And here’s the abstract of Doug’s paper:
Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century?

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Quotation of the Day…

5 days ago

… is from page 190 of Michael Huemer’s brilliant and important 2013 book, The Problem of Political Authority (emphasis added; footnote deleted):
[I]magine that you were to learn that you are going to die tomorrow.  Though it may be impossible to imagine accurately how you would feel, it is a safe guess that you would be quite upset.  Now I will tell you something that you probably do not know: based on recent worldwide mortality statistics, there are about 156,000 human beings who will in fact die tomorrow.  How do you feel now?  You may find this information disturbing.  But if you are like most people, you are far less upset at this news than you would be by the news that you yourself were about to die.  This suggests, again, that your concern for yourself is perhaps thousands of

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Why Democracy?

6 days ago

In my most recent Pittsburgh Tribune-Review column I argue that the American founders regarded democracy as a means and not as an end in itself.  A slice:

Even passing familiarity with U.S. history and the Constitution makes crystal-clear that the Framers were no gung-ho enthusiasts for majoritarian rule. They feared it because they feared government. Democracy — checked, balanced and limited — simply supplied the least-perilous ground upon which to erect a government able to perform what few tasks the Framers believed it should.
This historical reality is lost on many modern-day fans of democracy. They talk and write — and sometimes scream — as if it is criminal even to suggest that today’s majority ought not be allowed to do whatever it votes to do. For these naïve democrats,

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Bonus Quotation of the Day…

6 days ago

… is from pages 189-190 of James Gwartney’s insightful 2013 paper “The Public Choice Revolution and Principles of Economics Texts,” which is chapter 13 of Public Choice, Past and Present: The Legacy of James M. Buchanan and Gordon Tullock (Dwight R. Lee, editor, 2013) (original emphasis):​
The omission of public choice from mainstream economics creates a central planning mentality.  For the mainstream economist, economics is about deriving ideal solutions under restrictive assumptions.  Essential information such as consumer preferences, costs of production, rate of return for alternative investments, and size of spillover effects are generally assumed to be known.  For the proponents of this approach, economic analysis involves the derivation of “optimal” levels of taxation,

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Some Links

6 days ago

John Cochrane reveals the fundamental flaw at the heart of the “stranded profits” argument.  A slice:
(The following is a story, not a fact about Apple accounting.) Apple sells an Iphone in Spain. Apple Spain pays a huge licensing fee on software, owned by Apple Ireland, so it’s not a profit in Spain. Apple Ireland thus collects huge amounts of cash from all over the world, taxed at the low Irish corporate tax rate. Apple Ireland deposits this cash in an Irish bank. (I presume they do fancier things with the money, but I’m telling a story here). The cash is “stranded” overseas, right?
No. The Irish bank can lend the money anywhere. It can buy US mortgage backed securities, it can lend the money wholesale to US banks who lend it out to US businesses. It can even lend the money to Apple

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Is China’s Export Success Built on Slavery?

6 days ago

The Washington Post gives some details here on a new report by the International Labor Office (ILO) on modern slavery.  I’ve not yet read the report.  Nevertheless, I’ll make a quick point about the numbers in that report as conveyed by the Post.
The headline number is that, according to the ILO, there are today 40 million people who are enslaved.  This number seems big – and it is indeed 40 million people too big.  But it’s worth noting that 40 million is only one-half of one percent of the world’s current population of 7.5 billion.  Given that slavery was a common institution until well into the 19th century, one-half of one-percent is astonishingly better than the historical norm.  (It boggles my mind whenever I reflect on the fact that my own life – I was born in 1958 – overlapped

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Quotation of the Day…

6 days ago

… is from page 241 of William Easterly’s excellent 2013 book, The Tyranny of Experts (original emphases):
Another way to state the knowledge problem is that success is often a surprise.  It is often hard to predict what will be the solution.  It is even harder to predict who will have the solution, and when and where.  And it is even harder when the success of who, what, when, and where keeps changing.  This is just restating Hayek’s insight about the knowledge problem with conscious design….
All this means that solving the knowledge problem is hard work.  A lot of work requires a lot of rewards, so a successful problem-solving system must hand out such rewards to the problem-solvers.
DBx: When those who don’t understand economics see large profits being earned by someone through

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Bonus Quotation of the Day…

7 days ago

… is from page 347 of the 1990 Transaction Publishers reprint of W.H. Hutt‘s excellent 1936 book, Economists and the Public:
The supreme principle of liberty suggests that it is better to risk erring in the direction of allowing too much rather than too little freedom.
Comments

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Some Links

7 days ago

George Will is a fan of Ken Burns’s new documentary, The Vietnam War.  Last night I watched the first episode.  It is indeed excellent.  (A tangential question: How many are the notions or ‘theories’ that are more absurd than the “domino theory“?  Surely not many.)
Speaking of George Will, here’s a recording of a recent interview of him.
Here’s more useful information and perspective from Mark Perry on the recent U.S. Census Bureau report on income and poverty in the United States.
Eugene Volokh thoreauly explores the history of the phrase “The best government is that which governs least.”
Also see Jeffrey Tucker.
Alberto Mingardi ruminates productively on Gertrude Himmelfarb’s new book.
Richard Ebeling, with help from Ludwig von Mises, investigates the real meaning of liberalism.

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Quotation of the Day…

7 days ago

… is from pages 216-217 of the 1976 Liberty Fund edition of Henry Sumner Maine’s 1885 volume, Popular Government (footnote deleted):
The Supreme Court of the United States … is not only a most interesting but a virtually unique creation of the founders of the Constitution.  The functions which the Judges of this Court have to discharge under provisions of the Constitution arise primarily from its very nature.  The Executive and Legislative authorities of the United States have no powers, except such as are expressly conferred on them by the Constitution itself; and, on the other hand, the several States are forbidden by the Constitution to do certain acts and to pass certain laws.  What then is to be done if these limitations of power are transgressed by any State, or by the United

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Quotation of the Day…

8 days ago

… is from pages 248-249 of the 1998 Liberty Fund edition of Anthony de Jasay’s brilliant 1985 book, The State:
A political system which, by virtue of competitive bidding for consent, produces redistribution we regard as conducive to equality or justice, will also produce redistribution we will regard as pandering to interest groups.  By no means is it clear that there are “objective” criteria for telling which is which.  Still less evident are the means which could possibly constrain or stop one while letting through the other.
DBx: Power is a dangerous thing (not least because it intoxicates both those who have it and those who hope to have it).  Among humankind’s many ‘fatal conceits’ is the widespread belief that we possess the wisdom and the ability to create state power that will

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Bonus Quotation of the Day…

9 days ago

… is from my late colleague Jim Buchanan’s 1986 Nobel Prize lecture, “The Constitution of Economic Policy“:
Many critics of the “economic theory of politics” base their criticisms on the presumption that such theory necessarily embodies the hypothesis of net wealth maximization, an hypothesis that they observe to be falsified in many situations.  Overly zealous users of this theory may have sometimes offered grounds for such misinterpretation on the part of critics.  The minimal critical assumption for the explanatory power of the economic theory of politics is only that identifiable economic self-interest (e.g., net wealth, income, social position) is a positively valued “good” to the individual chooses.  This assumption does not place economic interest in a dominating position and

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Ignorant of Economics AND of History

9 days ago

Here’s a letter to a critic of mine on Facebook (who is not the famous filmmaker):
Mr. Michael Moore
Mr. Moore:
About my opposition to government prohibition of “price gouging,” you write sarcastically on Facebook: “Sounds like you trained at the Economic School of Robber Barons.”*
Bad example.  Contrary to popular myth, the so-called “robber barons” were reviled not by consumers for raising prices but by competitors for lowering prices.  John D. Rockefeller drove the prices of kerosene and other products made from petroleum down.  Cornelius Vanderbilt drove the price of steamboat transit down.  A&P founder George Gilman, with help from George Huntington Hartford, drove the prices of groceries down.  James J. Hill drove the quality-adjusted price of long-distance rail transportation

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“Price-Gouging” and Monopoly

9 days ago

Here’s a letter to a very thoughtful correspondent:
Mr. Robert Rohne
Mr. Rohne:
Thanks for probing my opposition to government prohibitions on so-called “price-gouging.”  You ask: “Why not see the high prices as caused by sellers who suddenly get monopoly power” in areas devastated by natural disasters?  Good question, for framing the issue as one of monopoly power creates the strongest possible case for government-imposed price ceilings.  Still, I believe that the case for price controls remains weak.
The chief problem that remains is that, even if the high prices are exclusively the result of monopoly power (rather than of a decrease in supply occurring suddenly and simultaneously with an increase in demand), prohibiting prices from rising nevertheless, as a practical matter, causes

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Quotation of the Day…

9 days ago

… is from page 97 of volume 13 of the Collected Works of F.A. Hayek (Studies on the Abuse & Decline of Reason, Bruce Caldwell, ed., 2010):
Society as we know it is, as it were, built up from the concepts and ideas held by people; and social phenomena can be recognized by us and have meaning to us only as they are reflected in the minds of men.
DBx: Social sciences such as economics, history, and political science cannot be usefully done using the same methods as the physical sciences.  Human meaning – human ideas and understanding – are, at their core, what these sciences seek to explain.  To treat prices and quantities, for example, in the same way that physicists treat molecules and planets reflects a complete failure of the economist to understand what it means to theorize usefully

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Does MacLean Really Want Economists to Drop this Assumption?

9 days ago

Lately I’ve immersed myself in the literature on externalities – a great deal of writing from Alfred Marshall‘s pioneering 1890 text through A.C. Pigou‘s central work on the topic, and up to and beyond the famous works of Tibor Scitovsky, Francis Bator, Ronald Coase, Jim Buchanan and Craig Stubblebine, and Steven Cheung (including Carl Dahlman’s brilliant assessment of it all).
The ‘why’ and the details of my research are here irrelevant.  When I learned yesterday from David Boaz that Nancy MacLean’s fabulist tale Democracy in Chains has been nominated for the National Book Award, I recalled one of the countless instances of childishly uninformed claims that constitute her book, in particular this one on page 98 about the assumptions used by Jim Buchanan and other public-choice

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Bonus Quotation of the Day…

10 days ago

… is from page 202 of David Boaz’s superb 2015 book, The Libertarian Mind:
Another benefit of private property, not so clearly economic, is that it diffuses power.  When one entity, such as the government, owns all property, individuals have little protection from the will of the government.  The institution of private property gives many individuals a place to call their own, a place where they are safe from depredation by others and by the state.  This aspect of private property is captured by the axiom “A man’s home is his castle.”  Private property is essential for privacy and for freedom of the press.  Try to imagine “freedom of the press” in a country where the government owned all the presses and all the paper.
Comments

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Some Links

10 days ago

Russ Roberts wonders what’s happening in the world today.
Bryan Riley rightly criticizes the labels used in international-trade statistics.  A slice:
First, the phrase “goods and services deficit” is arbitrary. The government could just as accurately have reported that Americans had a “$47.6 billion trade surplus for goods and services” because the value of foreign goods and services gained by Americans in April was $43.6 billion greater than the value of U.S. goods and services gained by foreigners.
Here’s how Mark Perry at the American Enterprise Institute put it: “If you think about America’s ‘trade deficit’ and look carefully at ‘who, on net, ends up with the most stuff (goods),’ you’d conclude that what is typically and pejoratively called a ‘trade deficit’ is actually a ‘stuff

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Quotation of the Day…

10 days ago

… is from pages 39-40 of F.A. Hayek’s April 1964 Rikkyo University lecture, “Kinds of Rationalism,” as this lecture is reprinted in the 2014 collection The Market and Other Orders (Bruce Caldwell, ed.) – a collection of some of Hayek’s essays on spontaneous-ordering forces:
All economic activity, in particular, is planning decisions about the use of resources for all the competing ends.  It would, therefore, seem particularly absurd for an economist to oppose ‘planning’ in this most general sense of the word.
But in the 1920’s and 1930’s this good word had come to be used in a narrower and more specific sense.  It had become the accepted slogan for the demand, not that each of us should intelligently plan his economic activities, but that the economic activities of all should be

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