Cafe Hayek

Larry "Smith" Kudlow

Adam Smith wisely pointed out (in Book IV, Chapter 2, of The Wealth of Nations) that

What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.  If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.

Larry Kudlow very effectively and very appropriately strikes this same theme in this op-ed appearing in today's Washington Times.  Kudlow is angry (as he should be) that politicos in D.C. -- either out of ignorance or, more likely, because they themselves freely trade favors with K Street lobbyists -- are working now to prevent Americans and Chinese from trading freely with each other.

Kudlow opens his op-ed with an appropriate question: "If a store is selling quality products at low prices, why would anyone want to shut it down?"

Indeed, why?

I invite Sen. Charles Schumer, Sen. Lindsey Graham, or any other protectionist to offer a compelling justification for protectionism -- a justification that's consistent with what almost every economist this side of the AFL-CIO has long known -- one that deals with centuries of hard evidence showing that trade promotes prosperity and protectionism promotes poverty -- one that goes beyond scaring people with ominous-sounding but virtually meaningless terms such as "bilateral trade deficit" -- one that recognizes that the ultimate purpose and challenge of economic activity is not to 'create jobs' but to raise individuals' standards of living -- one that recognizes that trade is a positive-sum activity -- and one that honestly admits a ready willingness, if not an eagerness, to inflict violence on consumers who insist on spending their money as they see fit.

Tyler's Correct: Krugman Does Seem to Have Gone Mercantilist

Tyler Cowen suggests that Paul Krugman is now a mercantilist.  Tyler's evidence – and powerful evidence it is – is Krugman’s column in today’s New York Times.  In this column, Krugman argues that Uncle Sam should prevent the owners of the Unocal, an oil company headquartered in the United States, from selling their company to the China National Offshore Oil Corporation (CNOOC).

Krugman’s article is full of bewildering claims, not least of which is his explanation of why Japanese purchase of U.S. corporations and real-estate in the late 1980s is not a relevant precedent for assessing the merits of Chinese purchases of U.S. assets today:

One difference is that, judging from early indications, the Chinese won't squander their money as badly as the Japanese did.

In other words, the late-1980s Japanese purchases of assets from Americans were okay because the Japanese were irresponsible spendtrifts.  The Chinese, in contrast, are shrewder than the Japanese (so argues Krugman).  Therefore, Uncle Sam should police more diligently against acquisitions by the Chinese of dollar-denominated assets.

An interesting theory: the more irresponsible are foreign bidders for dollar-denominated assets, the more sanguine we should be about their attempts to buy dollar-denominated assets.

I wonder if the same principle applies to domestic bidders for dollar-denominated assets.

Anyway.... for a far-better analysis of CNOOC’s bid for Unocal, see this column in today’s Washington Post by Sebastian Mallaby.

Kelo and Just Compensation

Here's the Boston Globe's outstanding columnist, Jeff Jacoby, on the odious Kelo ruling.

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Speaking of Kelo, what compensation is "just" for the homeowners in New London, Connecticut, whose property is being stolen by the government? The market value of these properties before Pfizer and other private companies set their sights on them? Nope. That figure is far too low.

The government is very sure that its theft of private property will generate ample economic benefits to citizens at large, as well as increase the City’s own tax revenues. (As Justice Stevens put the matter in his opinion for the Court majority: "The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community, including – but by no means limited to – new jobs and increased tax revenue.") So why not base the calculation of the just compensation (owed by the thief-politicians of New London to their victims) on the City’s own estimate of the dollar value of these "appreciable benefits" that its thievery is expected to yield?

That is, if the City expects that its thievery will yield $X million in economic benefits, just compensation (given that the theft now enjoys the Supreme Court’s approval) is approximately .95 ($XM). Let the City keep about five percent of the additional value it expects to be created. Given current low interest rates and the fact that the City (ostensibly) is a not-for-profit outfit, the City should be quite content to keep a full five percent of this booty.

I thank my neighbor, the insightful attorney Ed Grass, for this suggestion about the proper magnitude of "just compensation" in Kelo.

Thomas Macaulay Boudreaux

It's not our practice to use the Cafe as a forum for discussing personal matters, but I break that rule this once -- on the pleading of my eight-year-old son, Thomas, who wants to be able to find his picture by searching Google Images.

The cute one is Thomas Boudreaux.  The eight-month-old puppy is Molly Thewheatenterrier.

More on Workplace Safety

Stirling Newberry disagrees with my argument that safety isn’t free. He says:

The assertion that safety must come at the cost of valuable goods and services is so laughably false that one wonders whether they actually believe this drivel. One more time for the economically impaired:

Increased safety standards don't necessarily decrease production, if the costs avoided - for example premature death, risk averse behavior leading to less work and so on - are less than the costs of safety standards themselves. They might as well assert that immunization reduces the total production. What safety standards do change is the ability of some individuals to externalize their costs on to other people by health pollution. We should expect the people externalizing costs - that is making money from others misery - to object. But that doesn't mean that their ability to improve their position at the expense of others adds to total productivity.

Mr. Newberry misunderstands the argument. The argument is neither that increased workplace safety has no benefits nor that these benefits are small. Of course there are benefits to increased workplace safety. But even benefits are not free.

To build a sturdier factory, to equip it with more fire extinguishers, sprinklers, and first-aid stations, to ventilate it better – whatever improvements in safety are supplied require resources for their realization. These resources have alternative uses. The value of the goods and services that these resources would have been used to produce were they not used to enhance workplace safety is the cost of enhanced workplace safety.

That’s the basic proposition.  Safety isn’t free.  (The proposition is not that, because safety isn't free, it isn't worthwhile or beneficial.)

Four follow-on propositions are worth noting. First, something that isn’t free – something that has a cost – will not be produced and consumed in quantities as large as it would be produced and consumed if it were free.

Second, benefits are supplied, and costs are incurred, at the margin.  The choice for a factory owner is not: "Shall I make my factory as safe as humanly possible or keep it as unsafe as the laws of physics permit?"  Instead, the question is always "Should I improve my factory's safety a bit more or not?"  The factory owner weighs the likely benefits to him of prospective incremental improvement in safety against the likely costs to him of supplying this incremental improvement.  If the costs to him are less than the benefits to him, he supplies this incremental improvement.  If not, he doesn't.

Third, as someone’s wealth grows, so too does his ability to afford greater quantities of desirable goods and services, including safety.

Fourth, the wealthier a society, the more able are its people generally to afford greater quantities of desirable goods and services, including workplace safety.

Mr. Newberry himself understands that workplace safety isn’t free, for he realizes that if a factory owner can externalize the cost of an unsafe factory, then that factory owner has no incentive to increase the safety of his factory. If safety were truly free – costless – even the most narrow profit-grasping factory owner would make his factory safer. ("Why not?" he would reason. "Improved safety costs me nothing and if it makes workers even slightly more pleased and content to work in my factory compared to working elsewhere, I gain.")

Nor do I argue that increased workplace safety reduces total productivity (or total output, which is what I suspect Mr. Newberry means). It might do so. But as Mr. Newberry suggests, it very well might not do so. Indeed, it very well might increase total output.

Let’s assume that increasing a factory’s safety by ten percent (however measured) does in fact increase that factory’s total output. Nevertheless, the factory owner will undertake this safety improvement only if the value to him of the resulting increase in output is greater than the cost to him of the increased safety.

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Free trade has a long, deep, robust, and compelling record of increasing the wealth of nations. Thus, free trade makes workplace safety more affordable over time. Shortsighted demands that factories in poor countries offer workers the same level of safety as factories in wealthy countries will not make workers in poor countries better off. They will make them neither more prosperous nor more safe.

By barricading poor-country people from integrating quickly and fully into the global economy, such efforts block their access to the wealth that is necessary not only for their greater prosperity, but also for their greater workplace safety.

Environmental Standards, Worker-Safety Standards, and Trade

I am urged by people wiser than me not to ignore the substantive questions raised in this challenge to the principle that people are not made better off when government arbitrarily prevents them from buying and selling peacefully as each chooses.

First question:

Imagine a country has the policy of imprisoning men and women between the ages of 15 and 25 and forcing them to work in factories. The government doesn’t pay the workers, but sells their labor to foreign corporations for $1/hour. Suppose Nike outsourced production of sneakers to this country and Dell outsourced customer service to it. The Nike factory dumps waste from sneaker production into the river that serves as the local water supply.

Would an American who found this reprehensible be chastised for being opposed to free trade?

Typically, the countries that we outsource jobs to have weaker environmental and labor laws. Isn’t it perfectly legitimate to be opposed to this practice, just like it would be perfectly legitimate to be opposed to the government in the hypothetical example?

Although not going to the heart of the above question, I begin with this prefatory note: Slaves generally make poor workers in all jobs but those involving the performance of very simple and repetitive tasks – tasks for which both the input and output are easily monitored. Dell surely wouldn’t want enslaved workers manning its call centers even if the wage it was asked to pay for this service were $0 per hour.

Now to the heart of the above question, which, as I understand it, is this: Isn’t it wrong to trade with people whose governments do not protect them with environmental and labor regulations that are as strict as those in operation here in the United States?

No.

First, there is no single, objectively correct level of environmental cleanliness.  Ditto for worker safety. A cleaner environment and safer working conditions are unquestionably desirable, but they are not free. To achieve any particular level of, say, factory safety requires resources that could be used to produce other valuable goods and services. Ditto for achieving any particular level of environmental cleanliness.

The wealthier a society, the better able are its people to afford greater worker safety and more reduction in pollution.

For an American today to prevent people in places such as China and Chad from trading with Americans because factories there are less safe than ours are today, and because they emit more pollutants into the air and waters than do factories here, is to punish these poorer people based on the insupportable presumption that our standards today are the correct ones – correct not only for us, but for peoples much poorer than us.

It’s a curious bit of American chauvinism that elevates Uncle Sam’s current, specific legislative standards on worker safety and environmental protection into a global standard of morality.

Second, because trade promotes wealth for all trading parties, hampering the ability of people in poor countries to trade keeps them poorer than otherwise – which keeps them less able to afford safer working conditions and cleaner environments.  (There's an enormous amount of empirical support for these claims.  See, for example, the just-released 2nd edition of Douglas Irwin's Free Trade Under Fire, Johan Norberg's In Defense of Global Capitalism, or Martin Wolf's Why Globalization Works.)

Third, government-specified environmental safety and worker safety isn’t the only (indeed, not even the main) source of cleaner environments and improved worker safety. Common-law processes and, more importantly, economic competition fueled by more open trade and greater material prosperity also work to improve environmental quality and worker safety. (I’ll not get here into the very difficult question of the relative importance of statutory specification of minimum environmental and worker-safety standards compared with improvements on these fronts brought about through more decentralized, less-formal methods. I seek here only to record that a country’s actual level of environmental cleanliness and worker safety is not synonymous with the standards written down in statute books of that country’s government. The actual achievement might be better or worse than what is officially declared.)

Fourth, calls to prevent trade with people in countries that have less-strict environmental and labor standards than we have in the U.S. are typically ruses to protect domestic industries from foreign competition – ruses meant to camouflage the vile and greedy protectionist intent behind a pretend concern for the welfare of people in poor countries.

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More later on other challenges offered by those who are opposed to people spending their money and selling their wares peacefully as each chooses to do.

Regal Regulators

Regulatory budgets and the number of regulators continue to grow. These facts are documented in this superb new study released by the Mercatus Center at George Mason University. Its authors are the always-insightful Susan Dudley (of the Mercatus Center) and Melinda Warren (of the Weidenbaum Center at Washington University).

In this op-ed, Richard Rahn summarizes Dudley’s and Warren’s findings.

Richman on Kelo

Sheldon Richman has this not-to-be-missed comment on the Kelo decision.

Hosannas to the Force-Specialists

Trying to identify the one thing – the one sentiment – the one perception – the one belief – the one value – that separates libertarians (and classical liberals) from others is risky. The world’s not that simple.

But I’ve become convinced that a major difference separating libertarians from non-libertarians is libertarians’ hostility to secular superstitions.

I’m not talking here about belief in spiritual deities. Many libertarians (like myself) are atheists; many others (like my co-blogger Russ Roberts) are deeply religious. But almost by definition, all libertarians reject the notion that the state is something other than a human institution deserving more credence, respect, deference, and trust than is commonly given to other human institutions such as supermarkets and bowling leagues.

Libertarians understand in their guts that flags, anthems, marble domes and columns, fancy titles, embassies, and majoritarian-voting procedures do not transform human beings and human institutions into something higher than human beings and human institutions.

There’s nothing special about the policemen who protect my house from burglars, my son from kidnappers, and my wife from rapists. There’s nothing special about the troops who protect us from foreign armies and terrorists. These activities are important and valuable when done properly. But there’s nothing special about them. Nothing about these activities gives the people who carry them out any exceptional claims upon our affections or wallets.

If the policeman or soldier agrees to render unto me a certain degree of protection in exchange for $100 of my money, neither of us owes anything more to the other as long as I pay him $100 and he performs his contractual duty accordingly. I owe him no special allegiance just because he specializes in using force to counteract force. Nor does he gain superhuman knowledge or wisdom just because he is a force-specialist.

And nor should the fact that we today choose our force-specialists collectively – mostly by voting – give force-specialists dispensation from the normal rules of decency that we expect to be followed by our friends, neighbors, and others who specialize in something other than force.

And yet secular superstitions routinely elevate force-specialists into a priestly class. Force-specialists do get special privileges; they are treated as if they are inherently more trustworthy and more important than non-force-specialists.

Consider the lamentable U.S. Supreme Court decision handed down today in the case of Kelo v. City of New London. In it, the Supreme Court (well, five of its members) ruled that local governments can seize property from private citizen A and give it to private citizen B if it, the government – the gaggle of force-specialists – declares publicly a belief that such seizures will create jobs and increase the amount of money the force-specialists will succeed in forcibly extracting from non-force-specialists.

Suppose that a majority of this very same group of nine black-robed worthies were to declare that I, a private citizen, can poke a gun in my neighbor’s nose and demand that he sell his house to me so that I can give or sell it to someone else. The only condition demanded of this ‘court’ is that I proclaim with as much sincerity as I can muster that my seizure of this house will ‘improve the neighborhood’ and generate more income for me -- more income that I promise, cross-my-heart-and-hope-to-die, to spend wisely on further efforts to improve the neighborhood.

Would you – would anyone – respect such a ruling of this ‘court’?

The only reason the City of New London and other governments have the audacity to seize the property of others, the only reason a ‘court’ of seemingly adult and learned citizens upholds such seizures, and the only reason such a ruling and the seizures it permits will be widely respected is because We the People believe, without warrant or reason, that force-specialists possess supernatural powers and dignity.

We worship and raise hosannas to force-specialists. Why?

Africa: Who is to Blame?

If you live in the U.K., tune in on the BBC.  If you live elsewhere, do your best to find a telecast of this special television program on satellite.  It's entitled "Africa: Who is to Blame?"  It features the brilliant and eloquent June Arunga.

Sunstein on Sovereignty II

Here are more reflections on Cass Sunstein’s notion that sovereign power is the necessary foundation of civil society.

Sunstein’s argument is not that sovereign power is a necessary part of the foundation of civil society.  Instead, he argues as if it is the entire foundation.

Now I suspect that Sunstein would deny that he takes such an extreme position.  But consider this passage from his admirably clear essay in the Summer 2005 Independent Review:

Without government protection of property, people cannot enjoy property in the way that a capitalist society requires.  In this sense, property is itself a positive right, and so too is contractual liberty.  It is all very well to say that people should be able to make contracts as they choose (subject to the limitations of the criminal law), but without a legal system to enforce contractual agreements, contractual liberty is often meaningless.

Let’s re-write this passage, substituting the agricultural sector for government:

Without farmers and ranchers to feed people who create, possess, and exchange property (and to feed those people who protect property), people cannot enjoy property in the way that a capitalist society requires.  In this sense, property is itself a positive right, and so too is contractual liberty.  It is all very well to say that people should be able to make contracts as they choose (subject to the limitations of the criminal law), but without farmers and ranchers to feed them, contractual liberty is often meaningless.

The re-written passage is just as true as Sunstein’s original.  (Actually, the re-written passage comes much closer to being true than does Sunstein’s original.  But I grant for now the truth of Sunstein’s version.)

Does it follow that all property and contract rights are ultimately the creation of farmers and ranchers?

Society is the product of literally millions of people, each doing his or her own thing – growing wheat, working in paper mills, writing computer programs, teaching kids to read, building houses, patrolling roads for drunk drivers, judging murder cases, etc.  No one of these people is indispensable, and relatively few individuals as such even make a noticeable impact on society’s course.

And while not all of these different types of activities is indispensable (society existed without, and could exist again without, computer programming), many of these types of activities are critical – agriculture, shelter-building, delivering potable water.

Let’s grant that protecting people and their property from violence and theft is not only important but indispensable – as indeed it is.  It does not follow that just because the person who specializes in protecting my cow from theft thereby creates for me the property right in my cow merely because he could refuse to protect my right.  Does a surgeon create my life just because, if after he opens me up on the operating table, he could but doesn’t walk away from his contractual agreement to perform life-saving surgery on me?

To Shriek Is Not to Argue

I received today this trackback to an earlier post of mine.  It’s quite hostile.  And its author – one Deb Frisch – commits several mistakes.

I began to write a reply, treating her comments seriously.  But after getting a few paragraphs into my reply, I decided to learn more about Ms. Frisch.  So I googled her name.  A few minutes of exploration convince me that any response would be futile, a waste of time.

Sunstein on Sovereignty I

The just-released Summer 2005 issue of The Independent Review (not yet available on-line) has a first-rate, critical review of Cass Sunstein’s book The Second Bill of Rights: FDR’s Unfinished Revolution and Why We Need It More Than Ever. The review is by philosopher Max Hocutt.

Immediately following Hocutt’s review is a rebuttal by Sunstein.

Sunstein is most notable for his view – expressed not only in this book, but in many of his countless other writings – that people ultimately owe everything to sovereign power. Because law is necessary for order, freedom, and prosperity – and because (the argument proceeds) government is the source of law – government is the source of all the freedom and prosperity that we enjoy.

Sunstein argument suffers both factual and logical fatal flaws. It does, however, reflect a modern presumption that is widespread.

The first part of Sunstein’s argument is undeniably correct: law is indeed necessary for order, freedom, and prosperity. But he’s factually incorrect that government is the exclusive source of law. Indeed, I would argue that government is not even the chief source of law, nor a particularly good source of law.

Harold Berman’s magisterial 1983 book, Law and Revolution, documents beyond reasonable doubt that the law of western societies is largely the product of medieval-era competitive struggles amongst different sources of law, many of which were wannabe sovereigns. Crown struggled with church and gentry; cities struggled with nation; merchants struggled with state. The product of these struggles was fractured sovereignty – which means no real sovereignty – no monopoly source of law. Over the centuries, this fractured sovereignty (although giving way somewhat to greater centralization of power in the 16^th and 17^th centuries) – this competitive struggle among different sources of law – produced a complex law that is the product of no sovereign. Instead, it is truly and very largely the product of spontaneous order. It is the result of human action but not of sovereign design. It evolved; it was not created.

This law is so deep, so nuanced, so flexible yet enduring, that it could not possibly have been designed by human consciousness. It is the product, not of a prince, but of a process.

And while the state today plays an unquestionably large role in helping to enforce this law, it also is the chief violator of this law. It fancies (as does Sunstein) that its sovereignty -- its vast, legitimized power to imprison and kill people -- gives it supernatural powers to declare willy-nilly what is and isn’t law.

In a phrase, it mistakes power for law.

I’ll write more about Sunstein’s critical misconception soon. In the meantime, here are some items worth exploring on the topic:

- Tom Palmer's review of Sunstein's book

- Anthony de Jasay’s "Your Dog Owns Your House"

- Bruce Benson’s "Where Does Law Come From?" (See also Benson’s superb book, The Enterprise of Law)

- my own essay "The Grateful Pedestrian"

An Interview with James Heckman

The June 2005 issue of the Minneapolis Fed’s publication The Region features this interview with one of the University of Chicago's many Nobel economists, James Heckman.

It’s worth a careful read.

Here are just some of the things Heckman says that deserve careful attention:

- Heckman argues that the civil-rights legislation of the 1960s “definitely" reduced racial discrimination.  And Heckman explains, quite plausibly, why he believes that this legislation was more of a cause (especially in the south) of greater integration of blacks and whites than an effect of changing attitudes about race.  Heckman says about this issue: “Markets do many useful things, but they did not solve the problem of race.  Not in America."

I’ll not argue with Heckman; he knows the data far better than I do.  But from what I know of the advent in America of insidious Jim Crow legislation (reaching an apogee, I believe, in the 1890s), markets did not cause racial segregation.  In fact, markets resisted such segregation.  This resistance broke down only because racial segregation was institutionalized by government command.  I do wish that the interviewer would have asked Heckman about the research along these lines by Robert Higgs and, later, Jennifer Roback-Morse.

- Heckman says that “The family is the major source of human inequality in American society.”  He draws this conclusion from much research built on an insight that he repeats again and again (justifiably): skills come in two types – cognitive and noncognitive.  The former include book learning and IQ; the latter include “motivation, self-control and forward-lookingness.”

Heckman scolds economists for focusing too much on the former relative to the latter.

- Heckman on communicating economics to general audiences:

I completely understand the risk [of communicating economic ideas confusedly]. In some sense economists help create the risk by using a jargon that's dense and by not trying to communicate. Many ideas in economics are fundamentally simple ideas. Of course, there's a danger that they'll be oversimplified. When you come to empirical estimates, inevitably there is a technical discussion if one is careful. But the main ideas can be said pretty clearly without a lot of jargon.

The training that professional economists have often leads us to speak a private language. Private languages can be productive in communicating subtle ideas. But simple, clear language can be understood. We should recognize the fundamental intelligence of most people. Some people are smarter than others, of course, but there's such a thing as common sense, and common sense often prevails. If you can appeal to that common sense, you've done your job as a communicator.

Annoying Ignorance

Here’s one Helen Schietinger writing in a letter-to-the-editor in today’s Washington Post:

Free trade is not fair trade – it primarily benefits corporate interests.

Although widespread, this sentiment is utterly fatuous.

If Ms. Schietinger were within earshot, I’d ask her how is it that allowing consumers to spend their money more freely "primarily benefits corporate interests." I’d ask her what is so unfair about government not reducing consumers’ options.

I’d ask her also if she is aware of the massive amount of evidence that free trade promotes deep, widespread, and ever-growing prosperity. (Doug Irwin’s Free Trade Under Fire, and Johan Norberg’s In Defense of Global Capitalism, are just two recent, superb sources summarizing this evidence.)

If Ms. Schietinger answers that she’s not aware of this evidence (which is probably the honest answer), I'd then ask her why she writes as though she knows the relevant facts while, in actuality, she doesn’t.

If instead she answers that she is aware of this evidence, I’d ask her what is it about this evidence that she finds unpersuasive. What reasons does she have for rejecting it as practical proof that free trade generates economic growth and enormous widespread prosperity? And can she point to credible empirical studies that refute the oceanic amount of evidence showing that free trade is enormously beneficial?

I don’t know Ms. Helen Schietinger. She’s probably well-meaning and very nice. But at least on matters of trade, she's altogether ignorant.

Free Trade's Darkest Hour

Thomas Sowell reminds us that today is the 75^th anniversary of an economic catastrophe – President Herbert Hoover’s signing of the Smoot-Hawley tariff.

My Jury Remains Out on this Issue

I was recently asked what issues I find to be especially perplexing. The correct answer is "lots of them." Here, though, is one of the most difficult issues for me: mandatory jury duty.

The voluntaryist in me cringes at mandating that any peaceful person do anything. So a significant part of me opposes mandatory jury duty. But I’m hesitant (in this state-infested world of ours) to come out strongly against mandatory jury duty.  I'm torn.

The reason for my hesitancy is that juries bring into courts of law the community’s sense of right and wrong – and give to communities (through juries) the power to protect defendants against arbitrary declarations of ‘law’ by legislatures and executives.

In short, jury nullification is a wonderful institution; it's vital to a free society.

Like every other human institution, it isn’t perfect. Sometimes, perhaps often, it’s used to free truly culpable creeps from justified punishment. (This was likely true in the O. J. Simpson murder trial.) But in my view, this imperfection is a small price to pay for an institution that lets ordinary men and women, with their own sense of right and wrong developed from everyday life, refuse to punish Jones even if Jones unquestionably violated express commandments of the legislature or executive.

But what would happen to the composition of juries if jury duty weren’t mandatory?  I fear that a class of professional jurors would emerge – who would surely be better at fact-finding than current juries but also less likely to bring with them into the courtroom the community’s (as opposed to the government’s) understanding of the law.

If anyone proposes a plausible way to end mandatory jury service while at the same time ensuring that juries continue to bring into the courtroom an understanding of – and a dedication to – the community’s sense of the law, I’ll be most relieved.

End the Hysteria Over China Already!

For the very best short assessment of the current, ridiculous hysteria over China’s economic growth, see this op-ed by Sheldon Richman, published in Monday’s San Francisco Examiner. It’s outstanding.

School, State, and Choice

Jeff Jacoby – the great voice of reason at the Boston Globe – calls for separating school and state.

Jacoby rightly understands that for the government to be formally in the business of providing something, that particular ‘something’ is not necessarily – or, perhaps, even likely – to be provided well. This insight holds even when, as in the case of elementary and secondary education, government makes the purchase and consumption of that ‘something’ mandatory.

He understands also that removing government from the business of providing 'something' emphatically does not mean preventing that 'something' from being provided.

Here’s part of Jacoby’s truly excellent column:

Imagine how diverse and lively American education would be if it were liberated from government control. There would be schools of every description -- just as there are restaurants, websites, and clothing styles of every description. Parents who wanted their children to be taught Darwinian evolution unsullied by leaps of faith about an Intelligent Designer would be able to choose schools in which religious notions would play no role. Those who wanted their children to see God's hand in the miraculous tapestry of life all around them would send them to schools in which faith played a prominent role.

Who can argue with this?

Ah, just as my fingers typed the previous sentence I recalled Stacy Schiff sneering in the New York Times at all the choices that today’s Americans suffer – I recalled the letters-to-the-editor, in yesterday’s edition of the Gray Lady, from readers figuratively shaking their heads in vigorous agreement that Americans are cursed with too damn much choice – and I recalled Swarthmore psychologist Barry Schwartz’s recent, attention-getting essays and books that warn of the dire consequences of having oh-so-many options to choose among.

Well now. Government education certainly is doing its part to protect Americans from choice-overload.  There's hardly any choice at all in the K-12 arena! In fact, except for families who can afford to pay twice for schooling – once for government schooling that they don’t use and again for private schooling (or home-schooling) that they do use – there’s virtually no choice at all.

So if Prof. Schwartz, et al., are correct about the perniciousness of choice, then all those parents out there complaining of lousy government schools should step back for a moment, take a deep breath, and realize that, sure, the schools that house their children daily don’t teach very much or very well, and what they do teach offends nearly everyone – but these parents are saved from the agony of having to choose!! What a bargain, really.

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The indomitable Marshall Fritz, President of the Alliance for Separation of School & State, praises Jacoby’s column with this letter published in the Globe.

Radley's Right

The Agitator’s Radley Balko hits the nail hard and square on the head when he says, in response to the wailing and whining about too much consumer choice in America:

Critics of capitalism once predicted that free markets would wreak mass starvation, depletion of resources, pollution, and death.

They're now reduced to bitching about too many flavors of mustard.

We've won the debate.

Rock on.

Sub-Saharan Africans Don't Suffer this Agony

As attention turns, if only too briefly, to the abject poverty of people living in sub-Saharan Africa – and as the New York Times’s draws its readers’ attention also to income "inequalities" here at home – well-to-do Americans do not forget their own troubles.

Here's a cri de coeur from a reader living in upmarket McLean, VA, published as a letter in today's NY Times:

"One Nation, With Niches for All," by Stacy Schiff (column, June 11), should be required reading for all retail marketing executives. Every word rang true.

Never mind the dental aisle. I can't get past the orange juice with pulp, some pulp, no pulp, with calcium, without calcium, with calcium and extra vitamin C, with calcium and added vitamin D, low acid, blended with other fruit juices, from concentrate, not from concentrate, low carb.

What happened to just plain orange juice? Only Tropicana and Minute Maid know for certain.

Now I'm off to seek mint-flavored Gortex tooth twine, color-coordinated to match my décor.

Thanks for addressing this distressing aspect of abundance in America.

Sharon K. Higgins

McLean, Va., June 11, 2005

Two other readers have letters appearing near that of Ms. Higgins, expressing similar anguish over this plight that ordinary Americans routinely endure.

....

Very seriously: I almost blogged on the Stacy Schiff column that ran in Saturday’s NYT, but I concluded that it was probably a satire. Foolish me.

Sowell on Class and Mobility in the U.S.

Thomas Sowell – here and here – takes on the recent New York Times and Wall Street Journal reports on the alleged growth in class divisions in the United States.

Talk About an Ungrateful Patient!

Once upon a time – in the early 16^th century – the alchemist and sometime brilliant physician Theophrastus Bombast – better known as Paracelsus – was offered by the canon of the Basel Cathedral 100 guilders if Paracelsus would cure him of a disease. Here’s Will Durant’s explanation of what followed:

Paracelsus cured him in three days; the canon paid him six guilders, but refused the rest on the ground that the cure had taken so little time. (Will Durant, The Reformation, p. 879)

The Cathedral canon excused his opportunism by invoking what would later be dubbed "the labor theory of value."

From now on, I will use this little historical incident when explaining to my classes that a critical reason why any good or service has market value is that people want to consume it (or to consume its fruits), and that this value varies directly with the intensity of the desire to consume that good or service.

I will ask my students to put themselves in the place of the diseased canon of the Cathedral. What do they really want from a physician? To be cured? Or to be treated? To be cured, of course. And surely the more rapidly the cure is achieved, the more valuable are the physician’s services to the patient. So not only is the amount a patient is willing to pay a physician determined by the value he or she places on being cured, this amount likely rises the faster the physician achieves the cure.

But if the labor theory of value were correct, the physician’s services would be more valuable to the patient the longer the time the physician devotes to treatment. If the physician had taken a week rather than a mere three days to bring about the cure, the patient should be willing to pay more – and to pay more still if the physician had taken an entire month to cure the patient. (Yes, yes. I know about the Marxist concept of "socially necessary labor time." This fudge doesn’t solve the problem, for it merely means that the market value of a cure whose "socially necessary labor time" is one week necessarily is greater than the market value of a cure whose "socially necessary labor time" is one day.)

It would be a bizarre experience being ill in a world in which the labor theory of value were valid.

The Status of Status

My case for ignoring income inequality brought several thoughtful rebuttals. The best of these focused on human beings’ undeniable desire for status.

The argument goes something like this: even if everyone has greater access to material goods and services, differences in people’s access to these goods and services still matters because each of us cares about his relative standing among others.

Suppose, for example, that in year one my real income is $50,000, same as Jones’s. In America today, this is no princely sum, but it’s more than enough to keep each of us far out of absolute poverty.

Now suppose that at the end of year two my real income has risen to $55,000 but Jones’s has shot up to $60,000. I’m worse off in a very real way – in a way that matters deeply to me. My subjective assessment of my situation at the end of year two might well be that I’m worse off than I was when Jones and I each earned an income of $50,000 (even though this amount is $5,000 less than I earn in year two).

The reason for my distress isn’t envy; it’s my lower status. In year one I was Jones’s equal; in year two, his status is higher than mine. I suffer. Most importantly for me as a male with a healthy sexual appetite, my chances of attracting desirable women to my bed are lower in year two than they were in year one.

What do all the leather-trimmed cars, vaulted foyer ceilings, and iPods matter if I can’t entice beautiful babes to sleep with me? What do I care if I can afford to eat more Chilean sea bass and drink finer wines if I’m looked upon by everyone other than my mother as a nondescript nobody?

Ultimatly, my relative status -- not my absolute level of income -- will determine my access to the acclaim of others and (most importantly) my access to young, attractive women.

I have no doubt that people care deeply about their status relative to others. And I have no doubt that higher relative income is one determinant and signal of higher status.

But why focus so obsessively on monetary income (or wealth) as the determinant of status?

Suppose a policy tool were available that would keep all sports and rock stars from earning incomes above that of the average factory worker. Would implementing this policy keep the social status of Shaquille O’Neal and Paul McCartney equal to that of the average factory worker?

My guess is that Shaq and Sir Paul would continue to enjoy more acclaim and access to beautiful babes – in general, more status – than would any factory worker who earns just as many $$$ as they do.

So, on one hand, if my guess is right, the status-based case for redistributive taxation to equalize incomes is weakened. The status problem isn't necessarily reduced just because post-tax $$$ are more equally distributed across the population.

On the other hand, though, if my guess is right, then one element of the case against redistributive taxation is weakened. To the extent that rewards from productive activity come in the form of higher status, then taking from the likes of Shaq, Paul McCartney, and Brad Pitt some, or even much, of the $$$ they earn in their high-status jobs would do less to dampen their incentives to do these jobs well than if their sole motivation were to consume as many goods and services as possible. (The economic and moral case against redistributive income taxation has other elements that are unaffected by correctness of my guess.)

Most generally, precisely because people do care so very deeply about status, it’s naive to suppose that eliminating income or wealth as a means of establishing or signaling higher status will equalize status. Competition for status will be diverted from income-getting efforts into other efforts.

Would these other non-income-earning efforts to secure high status be as productive to society as are efforts to secure high status by earning high incomes?

Bononomics

Julian Morris has this message for Live8 (and Live Aid) organizer Bob Geldof:

My message for Bob Geldof is get real. Look at the realities of the situation, look at how the very poorest people of the world actually live and what is preventing them from becoming richer. And if he looks at that, he'll realise that it's actually the governments who he wants to give aid money to that are causing the problem.

Julian is right.

Of course, Geldof and other practitioners of what might be call ‘Bononomics’ are mostly interested in their own moral posturing. My evidence for this accusation is the fact that their statements and proposed solutions range from the utterly shallow to the dangerously counterproductive. So all will dismiss Julian’s message.

Too bad for Africans.

Globalization's Real and Really Big Benefits

Gary Hufbauer and Paul Grieco of the Institute for International Economics have this nice op-ed in today's Washington Post.  In it, they report that their empirical research finds that freer trade has a significant material payoff to Americans.

No surprise.

Here's their summary of their research findings:

Using four different methods, we estimate that the combination of shrinking distances -- thanks to container ships, telecommunications and other new technologies -- and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household.

This op-ed draws on research reported more extensively in this paper by Hufbauer and Grieco and Scott Bradford.

My only disagreement with Hufbauer's and Grieco's op-ed is their claim that "it is morally imperative to address private losses incurred by dislocated workers."

Perhaps addressing such losses is imperative politically.  But there's nothing at all imperative morally.  One reason -- which I earlier explained here -- is that there's absolutely nothing unique about job losses caused by changes in the pattern or intensity of international commerce compared with job losses caused by changes in the pattern or intensity of purely domestic commerce.  Ditto with job losses caused by changes in technology.

Job losses -- like job creation -- are a natural part of a market economy.  A related explanation is here.

I Am Indeed a Radical Individualist

Keith S. writes that he reads Café Hayek "to see how [classical liberals / libertarians] think." But Keith seldom agrees because he is "not as infatuated with radical individualism as" he finds Russ Roberts and me to be.

Keith raises an important point. Those of us who applaud the market’s success at raising living standards – and who are skeptical of centralized power, regardless of its motive – are typically described as ‘individualists,’ and sometimes even as 'radical' ones.

There’s much truth in this description. Analytically, good economists trace all observed outcomes back to individual actions. While outcomes often are unintended – even unliked – by those individuals whose choices and actions bring them about, the fact that only individuals evaluate, choose, and act is one that no respectable social scientist ever loses sight of.

Adhering to methodological individualism, however, in no way requires analysts to deny that humans are highly social beings, each of whom depends enormously upon others and is inevitably influenced by others’ actions, words, smiles, frowns, offers of carrots, and threats with sticks.

I myself regard Leonard Read’s essay I, Pencil to be among the single most important pieces of wisdom ever penned – and its message emphatically is how very deeply each of us depends upon others. Indeed, each of us would surely not exist were it not for each of our abilities to tap into the talents of millions of other people – and for their abilities to tap into each of our talents – all in peaceful, mutually gainful ways.

But I don’t shy away from the label "radical individualist" if it is understood properly – by which I mean:

I, a radical individualist, --

- put no faith in the notion that Jones knows better than Smith what’s best for Smith, and that Smith knows better than Jones what’s best for Jones;

- deny that a dozen or a hundred or a thousand Jones know better than Smith what’s best for Smith;

- have no interest in saving the souls of strangers, and only limited interest in saving the souls of people I know and love;

- am quick to anger whenever I encounter any stranger trying to save my soul;

- cherish the freedom of each adult to do as he pleases so long as he accords all others the same courtesy;

- have good reason to believe that each of us acts more responsibly when we attend to our own business than when we attend to the business of others;

- retch at the very thought of being part of any mythical collective consciousness, or of being obliged or even expected to act as if some larger, collective consciousness has a claim on me and my affections.

In short, I – a radical individualist – find no romance in local or national collectives or in the state. To fancy the first as real, or the second as some sort of transcendent expression of people's hopes and dreams, is to fall victim to vile abstractions.  These abstractions perhaps afford some people temporary false comfort, but over the long-run they inevitably weaken the true fabric that alone gives real meaning to the term "human society": the voluntary market order.

The Laws of Economics are Universal

The great 14th-century Muslim scholar, Abu Zayd Ibn Khaldun, anticipated Arthur Laffer by 600 years:

In the early stages of the state, taxes are light in their incidence, but fetch in a large revenue...As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones. Their needs and exigencies grow...owing to the luxury in which they have been brought up. Hence they impose fresh taxes on their subjects...[and] sharply raise the rate of old taxes to increase their yield...But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes...Consequently production falls off, and with it the yield of taxation.

From Ibn Khaldun's magnum opus, Muqaddimah.

The Irrelevance of Income Inequality

The Cafe’s co-host, Russ Roberts, did a superb job discussing the many problems and pitfalls in analyzing data on income distribution.

Re-reading his posts got me thinking more deeply than I normally do about the issue of income distribution. Below are some of my ruminations.

But first a prefatory note: Never in my life have I worried in the least about a market-economy’s income "distribution." Perhaps this confession reveals my character to be flawed or my intellect to be feeble. Regardless – I tell you the truth. My reaction when I encounter intellectual discussions of the "distribution" of income is very much like my reaction when I read of sixteenth-century disputes about whether a wafer of bread turns into the actual body of Christ during a Catholic mass or simply comes to represent the body of Christ.

Read any history of Reformation Europe and you’ll see that lots of people – prominent people, smart people, educated people, people of means and influence – pondered and sweated and roared over this issue. People were burned at the stake for taking the wrong position on it. And yet, and yet.... so what??? What a pointless debate! What a nothing, empty issue!  All time and energy spent on this question is time and energy utterly, sadly wasted.

And so it is with the interminable discussions and concern about income inequality.

Putting aside all of Russ’s superb points, let’s pretend that the New York Times is correct that income inequality in America is increasing. So what?

Here are my top five reasons for ignoring this development. (These are forthcoming also, in the next day or so, in my Pittsburgh Tribune-Review column.)

First, income inequality says nothing about absolute levels of income. If the real incomes of society’s poorest people are rising by X%, what does it matter if the real incomes of society’s wealthiest people are rising by X+1%?.

Second, discussions of income inequality promote – psychologically if not logically – the mistaken notion that the amount of total income is fixed. This fact is one reason I use scare-quotes when I write about income "distribution": income in market economies isn’t a pie that is first produced and then distributed. Instead, income is earned simultaneously with its production. And in general, the more someone produces, the greater is the wealth not only of society but also of the individual who produced this greater output. Why worry if this increased production increases measured income inequality?

Third, obsessing on income inequality fosters envy – one of our ugliest and most-destructive emotions.

Fourth, concern with income inequality denigrates non-monetary sources of human happiness and flourishing. For example, in 1992 I turned down a job offer with a law firm in Washington, D.C. I accepted instead a teaching job at Clemson University – paying a much lower salary than the law firm offered to pay. Because my decision was voluntary, you can be sure that I found the lower-salaried teaching job more attractive than the high-paying law job. The greater leisure, the greater freedom to work on subjects of my own choosing, and the very deep enjoyment I get from teaching college students all combined to outweigh the value of the higher income.

Judging from what my law-school classmates currently earn at their law jobs, I estimate that my income today is a mere 40 percent of what it would be had I instead pursued a career in law. But I assure you that I’m much happier today in my teaching career than I would be as a high-paid and stressed-out practicing attorney.

The lesson, of course, is that money is not life’s be-all and end-all. (This, incidentally, is a lesson economists know better than non-economists.)

People frequently choose to forego higher monetary benefits in favor of greater non-monetary rewards. How much of the difference in incomes earned in America is due to such choices? I don’t know. Probably no one knows or even can know. But you can be sure that part of this difference reflects some people’s choices to forego higher dollar incomes in return for benefits such as more leisure, more on-the-job safety, and more-agreeable work conditions.

Fifth, in America’s market economy the "distribution" of income is merely a summary statistic of one among gazillions of unintended consequences springing from a hugely complex and on-going decision-making process involving hundreds of millions of consumers and producers. Income isn’t "distributed," or even earned, according to some grand plan. Therefore, income "distribution" is not a policy variable subject to easy manipulation by politicians and social planners.