Cafe Hayek

Caring About the World's Poor

Don Boudreaux

In his column in today's Washington Post, Harold Meyerson rightly applauds the fact that Robert Rubin is "concerned with the world's poor."  But I wonder if Meyerson himself gives a damn about the world's poor.

In many of his columns Meyerson argues against free trade.  He does so because it obliges high-wage Americans to compete against low-wage foreigners, and thus allegedly puts downward pressure on Americans' wage rates.  Forget that neither theory nor data support Meyerson's claim about trade's effect on high-wage Americans.  If Meyerson himself were truly concerned with the world's poor, he would unconditionally support free trade - a proven means for raising the wages of low-wage foreign workers.

Who's Powerful?

Don Boudreaux

John Stossel makes an important - but, alas, typically ignored - point about power.

Barack Obama, Supply-Sider

Don Boudreaux

Here's a letter that I sent recently to the Washington Post:

Seeking to encourage African governments to embrace institutions that promote economic growth, President Obama said yesterday in Accra that "No business wants to invest in a place where the government skims 20 percent off the top" ("Text of Obama's speech in Ghana," July 11).

He's absolutely correct.  So I trust that he'll offer the same advice to the U.S. Congress, for this body taxes every dollar of corporate income above $50,000 at a rate of 25 percent - and raises this rate to 39 percent on corporate incomes between $100,000 and $335,000.  The average tax rate on corporate incomes higher than $335,000 is greater than 35 percent.

Surely Mr. Obama's understanding of the destructiveness of government confiscation ought not be lost on Rep. Pelosi, Sen. Reid, and Co.

Sincerely,
Donald J. Boudreaux

Capitolism

Don Boudreaux

Here's a letter that I sent a few days ago to the Washington Post:

Dear Editor:

Five-hundred and thirty-six officials - one at 1600 Pennsylvania Ave. and the others a few blocks down that boulevard of brazen busybodies - are frenetically trying to lord it over ever-more vast aspects of our lives.  Sen. Orrin Hatch wants Washington to correct what he divines to be imperfections in the method of choosing which teams compete in post-season college football games.  Pres. Obama wants to mute changes in oil prices.  And a majority of these savior-wannabes seek to remake health-care delivery, run automobile companies, protect us from financial risks, and, generally, to mandate, prohibit, and regulate us all into velvet-lined shackles.

I have a name for this repulsive social system: Capitolism.

Sincerely,
Donald J. Boudreaux

Elitism, When Convenient

Don Boudreaux

In yesterday's Washington Post, Peter Wallison rightly challenges the Obama administration's conclusion that ordinary Americans lack the capacity to understand complex financial instruments - an incapacity so overpowering that even full disclosure by sellers of these instruments is insufficient to ensure that the typical person can be trusted to choose whether or not to invest in such instruments.

But let's accept, for argument's sake, the administration's judgment that ordinary Americans can't adequately assess complexity.  Doesn't it then follow that Americans' election of Mr. Obama to high office deserves no credit?  After all, isn't the task of assessing the merit of one person's ideas on economics, foreign affairs, ethics, law, and other difficult topics extraordinarily complex?  Given that Joe Six-Pack and Jane Soap-Opera cannot be trusted with the relatively straightforward task of sensibly investing their own money, how can they be trusted to meet the far more complex challenge of choosing powerful national leaders?

The Perils of Central Banking

Don Boudreaux

I just discovered this April 2008 essay by George Selgin.  It's filled with important facts that give us reasons to be skeptical of giving the Federal Reserve new powers -- and facts that cast further doubt on the common understanding that the Great Depression was caused by unfettered capitalism.  Here are some key paragraphs:

How well did the Federal Reserve use its original powers? During World War I it abandoned penalty rates for "easy" money, and then began buying Liberty Bonds to support the government's war effort. Those actions helped hoist the inflation rate from close to zero in 1915 to almost 20 percent in 1920 — a level not seen since the Civil War. When the war ended the Fed reversed course, triggering the severe (though mercifully brief) plunge of 1920-1921.

Instead of learning a lesson, in the later 1920s the Fed turned to easy money again. But bankers had learned a lesson, and so refused to borrow from it even at low rates. Consequently the Fed, taking advantage of some fine print in the Federal Reserve Act, started buying large quantities of U.S. securities on the open market. The result was an unprecedented stock bubble, which the Fed only managed to prick, in late 1929, by choking-off normal business credit. During the ensuing panic the Fed, pleading impotence, stood by while the U.S. money stock lost a third of its pre-crash value. The "great contraction" — the worst credit-crunch in U.S. history — culminated in the national bank holiday of March 6th through March 12th, 1933, during which the domestic gold standard, which the Fed was supposed to preserve, was permanently disabled.

By the way, George's new, wonderful book, Good Money, is reviewed here by the noted economic historian Robert Whaples.

Who's the Materialist?

Don Boudreaux

Here's a letter that I sent recently to the Washington Post:

E.J. Dionne describes capitalism as "a system rooted in materialist values" ("To the Right of the Pope," July 9).  "Materialist values" is a vague term, but if - as seems to be the case - Mr. Dionne thinks the chief justification for capitalism is that it generates lots of stuff for consumers, he's mistaken.

While capitalism emphatically does improve material living standards, all the great champions of economic freedom (aka capitalism) ultimately justify this system because only it affords true dignity to individuals - the dignity that is denied by interventionist systems which arbitrarily diminish each person's freedom to choose.  For "Progressives" such as Mr. Dionne not to share the value of freedom is fine.  But it's rather cheeky to accuse, with one breath, proponents of capitalism of being unduly focused on material goods, and with the next breath to insist that a major problem with capitalism is that some people get fewer material goods than do other people.

Sincerely,
Donald J. Boudreaux

..........................................

"I want to keep what I earn" is regarded as greedy and unenlightened.

"I want to take what you earn" is regarded as selfless and progressive.

Why are poor nations poor

Russell Roberts

From Planet Money:

The planet's rich nations met this week to discuss, among other issues, ways to help the planet's poor nations.

But those poor (and developing) nations have their own group. It's called the anti-G20, in a nod to the G20 collection of industrialized states. The anti-G20 met at the U.N. last month, where Nobel Laureate Joseph Stiglitz and Martin Khor explained what keeps impoverished countries down. Answer: Their debt to the IMF and wealthier nations.

There are plenty of things rich countries do to make poor countries poor. Refuse to trade with them. Give the thugs who run the country money. But this IMF argument has always struck me as strange. The poor countries are poor because they IMF expects them to pay back the money that the poor countries borrowed? How do the loans get made in the first place? Don't the thugs who borrow the money bear some of the responsibility? How would forgiving those loans solve the problem?

Driving the debt car

Russell Roberts

This is extremely clever. (HT: Vicki Boykis) Don't know if the numbers are right. But it sure is well-executed. I didn't think it was going to work but he pulls it off beautifully.

Gregg Easterbrook on the GM Bailout

Russell Roberts

Go here and scroll down to near the bottom. It's all good. But this part is the punchline, where he imagines Nancy Pelosi negotiating a car purchase. The picture is good, too:

DEALER: Yes sirree, I can let you have this cherry-red baby for $19,999.99! Plus undercoating and dealer prep.

PELOSI: I'll pay $50,000.

[+] Enlarge

AP Photo/Pablo Martinez Monsivais"Children, this is where we give away your future."

DEALER: For a limited time only, I can throw in remote-controlled eight-way power cupholders, for another $999.99.

PELOSI: I'll buy them at $75,000.

DEALER: Do you want the extended warranty?

PELOSI: No. But I'll pay another $25,000 for it.

DEALER: Aren't you worried something will go wrong?

PELOSI: If it does, I'll just send the bill to the taxpayer.

DEALER: So you are willing to pay $150,000 for a $20,000 car? I'll have to go ask my manager! (Disappears into back, pretends to talk to manager, returns.) Lady, you drive a hard bargain. He says that for $31 billion, we will give you absolutely nothing at all.

PELOSI: Sold.

Paul Graham, hacker

Russell Roberts

Does anyone have contact info for Paul Graham, author of Hackers and Painters?

Economics is hard

Russell Roberts

You could teach on course on the errors in this poster (HT: michelediane). Assuming it is real and that someone or some group in 1943 thought this made sense or that people would think that it did, is a testament to how hard economics is.

Whitman on Thaler

Russell Roberts

Glen gets it right. (HT: Seth Goldin)

Oily Speculations

Don Boudreaux

Here's a letter that I sent yesterday to WTOP radio (103.5 and 107.7 on your FM dial in and near DC):

News Editor, WTOP Radio
Washington, DC

Dear Sir or Madam:

This morning your anchors interviewed University of Maryland law professor Michael Greenberger on President Obama's plan to reduce speculation in oil markets.  Mr. Greenberger's answers revealed his own confusion.

Most obviously, Mr. Greenberger repeatedly objected to persons investing in oil futures "passively" - as he said, "with no interest in actively controlling these assets, just hoping to make a buck when their prices rise."  Ummm.... Does Mr. Greenberger own stocks only in companies that he actively manages?  If not, why is it okay for him passively (and speculatively!) to buy, say, a few dozen shares of Microsoft "hoping to make a buck when their prices rise" but not okay for other persons to speculate in oil for the very same reason?

Second, Mr. Greenberger presumes that all speculators speculate long and that doing so is a sure thing.  Neither presumption is valid.  It's just as easy to speculate short as it is to speculate long.  And if speculation were as risklessly profitable as Mr. Greenberger presumes it to be, then high gasoline prices would pose no problem because everyone and their grandmothers would be raking in riches by speculating in oil markets.

Sincerely,
Donald J. Boudreaux

A Win-Win

Don Boudreaux

Here's a letter that I sent today to the New York Times:

The Obama administration believes that the price of oil is fluctuating too much, and it blames speculators - whom it wants to rein in ("U.S. Considers Curbs on Speculative Trading of Oil," July 8).

Rather than issue new regulations that might distort prices - prices that typically convey important information about market conditions - Mr. Obama and his lieutenants can better address this problem by themselves becoming speculators.  Whenever they believe that speculators are driving oil prices too high (and, thereby, setting the stage for these prices to "fluctuate" back downward) Team Obama can go short in oil.   Likewise, whenever they believe that speculators are driving oil prices too low (and, thereby, setting the stage for these prices to "fluctuate" back upward), Team Obama can go long in oil.

Not only will these brilliant public servants earn personal fortunes in the oil market, they'll also, in the process, mute the allegedly excessive price fluctuations (because, for example, selling oil short when its price is rising adds supply to the market today, thus relieving the pressures pushing today's price upward).  And because Mr. Obama & Co. would use their own resources, we the public will be better assured that their actions aren't driven by opportunistic politics.

Sincerely,
Donald J. Boudreaux

Paul Krugman also stands to translate his reading of today's oil prices into big bucks.

Like Marginal Revolution's Slogan

Don Boudreaux

A Cafe Hayek reader writes the following to me in an e-mail:

You cannot be serious that sliced bread is a noteworthy achievement.  The saying 'Best thing since sliced bread' is meant to be ironic....  Sliced bread is one step away from totally insignificant.

I have no delusions that sliced bread (or the machines and processes for making it commercially profitable) is a world-changing phenomenon.  By itself, its contribution to human welfare is small compared to many other innovations and certainly compared to the accumulated innovations over time.  But this fact reveals one of the beauties of the decentralized market process.  To explain, I reprise here a June 28, 2004 post on the prosperity pool.

Responsibility. Not a Bankrupt Concept

Don Boudreaux

My colleague at GMU Law Todd Zywicki explains in today's Wall Street Journal why adults should be treated as adults -- even when it comes to their finances.

Perceptive title of a post by Kenneth Anderson

Russell Roberts

Kenneth Anderson's 16 year-old daughter reviews The Invisible Heart. Thanks, Renee. Glad you liked it.

The Best Thing Since....

Don Boudreaux

Today is the 81st anniversary of sliced bread -- an invention, as mundane as it seems to us today, that has contributed more to human welfare than any 1,000 randomly selected politicians you can name.  (This standard, I realize, is hardly a demanding one.)  Oh, and note: the successful invention of sliced bread was indeed an invention; it required human creativity and ingenuity.

(HT Carrie Conko)

Wages at Wal-Mart

Russell Roberts

Shopping at Wal-Mart yesterday, I asked the cashier if she liked her job. Yes, she said, smiling. How long had she been at Wal-Mart? Three months. Where had she worked before? Safeway, the grocery store. Why did she come to Wal-Mart? The pay was better. Really, I asked? How, yes. How were the benefits at Wal-Mart compared to Safeway? Not as good. But she needed the money, she told me. She had a young daughter.

I didn't get to ask her if she had health care coverage at either job. But the conversation reminds me that people prefer different mixes of cash, retirement, health care and so on.

Which is why the political pressure and the threat of coercion that lead to this kind of result is so dangerous and harmful to human beings and other living things.