Cafe Hayek

Paper Principles

The danger to America posed by imports from China apparently has intensified.  Uncle Sam will now force American buyers of allegedly subsidized Chinese paper products to pay higher prices for these products.  (He'll do so by raising the tariff he imposes on these imports.)

Of course, as this report from today's New York Times reveals, labor-union leaders applaud this tariff hike because it helps "paper workers throughout the United States."  No doubt it does -- that is what is seen.

What is not seen is the harm done by such protectionism, such as--

- Obliged now to fork over more money to buy paper, American consumers have less money to spend on other goods and services.  As demand for these other goods and services necessarily falls, firms and workers in those other industries suffer unnecessarily.

- Foreigners, now earning fewer U.S. dollars, will spend fewer dollars in the U.S.  Demand for U.S. goods, services, and assets will fall.  To the extent that demand falls for U.S.-made goods and services, workers in the industries suffering the largest declines in demand suffer the most.  To the extent that demand falls for dollar-denominated assets, potentially even more workers suffer because such a fall in asset demand means higher real interest rates.  In turn, there will be less investment and, hence, slower growth in worker productivity and real wages.

Of course, some of the fall in demand for dollar-denominated assets might be reflected in lower demand for debt issued by Uncle Sam.  The consequence here, too, will be higher real interest rates and a greater reliance upon Americans to lend to Uncle Sam.

As William Graham Sumner observed in 1881 (in his essay "The Argument Against Protective Taxes"):

Any favor or encouragement which the protective system exerts on one group of its population must be won by an equivalent oppression exerted on some other group.

Protectionism is the freakish poster-child for the failure to see the full range of consequences of a policy action.  This latest episode is no different.  Nothing at all about subsidies -- real or imagined -- to foreign exporters changes matters.

Who's Irresponsible?

Here is a letter of mine published in today's edition of the Boston Globe:

OBJECTING TO an earlier op-ed that endorsed legalizing marijuana for medical use, Maro Sciacchitano says that "it is irresponsible to promote policies that ignore the illegal drug trade and the complex problems US recreational consumption causes other countries" ("Pro-marijuana argument blows smoke," Letters, March 23).

I say to Mr. Sciacchitano: It is irresponsible to promote policies that create a multibillion-dollar underground economy, that further gang violence, police corruption, and deterioration of our liberties, and that ignore the complex problems US drug-interdiction efforts cause other countries.

DONALD J. BOUDREAUX
Fairfax, Va.

Golden Straw Man

In response to this note that Paul Krugman has in the current issue of The New York Review of Books, I sent this letter:

Dear Editor:

Discussing Milton Friedman's monetary economics, Paul Krugman says that "he showed himself much less doctrinaire and much more realistic than many of his acolytes: many conservative economists are drawn to visions of a restored gold standard or a world currency, dismissing the problems such a system would create" (Letter, April 12).

Krugman utterly distorts the views of market-oriented economists.  Only a tiny, insignificant fringe advocates a gold standard.  Many more - influenced by the works of F.A. Hayek, Ben Klein, Gordon Tullock, Larry White, George Selgin, and Kevin Dowd - support competition among money issuers.  This proposal is as far from advocacy of a gold standard or a "world currency" as one can get.

Krugman's creation and destruction of straw men is deplorable.

Sincerely,
Donald J. Boudreaux

Creating Value

There are two kinds of people in the world.  Members of the first group think of jobs as being rather like boxes, each of which has a monetary figure on it as well as a set of levers inside.  A job-holder occupies a box, yanks on the box's levers, and in return receives pay in the amount of the prescribed monetary figure.  Lucky workers are those who land in boxes paying big money and whose levers are easy to manipulate; unlucky workers are those who find themselves in boxes paying little money and whose levers are difficult to manipulate.

The second group of people in the world understand that real jobs are a matter of creating value for buyers.  The greater the amount of value I create for others, the better -- or, at least, the higher-paying -- is my job.  In markets, your job isn't a box that you get assigned to; your job is an opportunity to perform, to help improve the lives of others and, in return, to persuade these others to help you improve your life.

And one of the most important of these performances is corporate management -- the ability to coordinate large amounts of resources, time, and workers in ways that create large amounts of value for others and that makes it easier for those of us with less vision and administrative ability to find jobs that maximize the value that each of us, individually, creates for others.

Charles Koch, CEO of Koch Industries -- and author of the just-released The Science of Success -- is one of our era's great entrepreneurs and managers.  (He is also a stalwart supporter of economic education and classical-liberal values.)  Washington Times columnist Richard Rahn has this nice overview of Charles Koch and his book.

Some Basic Economics

The economics of steel daggers and rent-control: here's my latest column in the Pittsburgh Tribune-Review.

Our Books

We've added a new feature in the right hand margin, a list of our books. Coming soon, Don's book on trade and my book on prices, prosperity and unmanaged order. The version of The Choice that's there is the new edition, the third. It's almost $10 cheaper than the last edition and I've added new chapters on outsourcing, manufacturing jobs, the IMF and the World Bank, and tightened the writing throughout. You can read the first three chapters of the new edition, here (along with the opening chapters of The Invisible Heart, as well.)

Kevin Kelly

The latest EconTalk is a conversation with Kevin Kelly, the founding editor of Wired magazine and the author, among other books, of Out of Control, a wonderful book on spontaneous order. He has a very interesting brain. He has a lot of deep insights into technology and the future. Listen in and find out about his role in the Matrix and Minority Report as well as how you can time travel, both forward and backward.

Mercantilist Illogic

In this letter appearing in yesterday's New York Times, the University of Maryland's Peter Morici accused Beijing of subsidizing Chinese exporters.  Morici calls on Uncle Sam to protect Americans from such treachery.  According to Morici,

Were these mercantilist practices [China's subsidies] stopped, many more American products would flow out of West Coast ports to Asia. That would mean many more high-paying jobs for Americans than additional government largess could ever create.

Mercantilist policies do indeed include export subsidies.  But they include also protection of domestic firms from (real or imagined) export subsidies dished out to foreign producers.  The poisonous core of mercantilism, you see, features the silly belief that a nation's wealth lies in what its people produce rather than in what its people consume.

Mercantilism also includes the myth that protecting domestic producers of high-value consumption items makes the domestic economy thrive.  Again I ask: suppose a generous Namibian scientist discovers a very inexpensive way to combine table salt, tap water, and ordinary bread crumbs into a medicine that cures -- and inoculates against -- cancer, tuberculosis, and erectile disfunction.  This generous scientist gives his knowledge away for free, publishing it on the web so that ordinary men and women throughout the world can, at virtually zero cost, protect themselves from these diseases.

Would Americans be made worse off as a result?  Treating these diseases today is big business.  People pay lots of money for treatment by highly skilled specialists, as well as lots of money for medicines made by other highly skilled specialists.  Does America's wealth lie in the production of these high-valued outputs?  Or does America's wealth lie in Americans' ability to consume these high-valued outputs -- in our ability to take steps to cure ourselves of these ailments?

It's true that, given the current scarcity of resources and knowledge that enable us to cure ourselves of these awful diseases, the prices that we willingly pay for access to high-quality treatments are high.  Hence, the remuneration of the specialists who provide these treatments is generally high.  But it is a mistake to assume that we are made wealthy by the existence of such high-paying jobs -- for such an assumption implies that the greater the number of obstacles that we face, the wealthier we become.

If Prof. Morici's mercantilist logic were correct, then America would become a poorer place if an inexpensive sure-cure for cancer, tuberculosis, and erectile disfunction were discovered and information about it widely distributed.  But clearly we would be wealthier, not poorer, if such a wonderful discovery were made -- just as we are wealthier the greater is our access to low-cost goods and services produced whereever, even abroad.

Richard Lindzen, Skeptic

Here's a ten minute podcast from Tom Keene at Bloomberg with Richard Lindzen of MIT, one of the more prominent scientific skeptics of global warming. (HT: Bayesian Heresy)

The imperfect market for passports

Plenty of fodder here (HT: Doug Ransom) for an Econ 101 class discussion or exam. Because of a new requirement that Canadians visiting the US need a passport, there's been an increase in demand to get a passport and the Canadian bureaucracy hasn't responded as briskly as they might. The result is excess demand for a passport on short notice and that means price gets paid in other

Pat has a layer of cardboard beneath him, a wool blanket on top of him, two paperbacks found in a dumpster in his hand and the promise of $80 when he wakes up.

     “I’m a lucky guy,” the 40-year-old homeless man said, from one of the most coveted spots in town these days.

Pat was first in line at the Fort Street passport office lineup yesterday. He claimed his spot at 1 p.m. the afternoon before, and slept out on the sidewalk with about 15 other homeless people who have put themselves to work holding space in line for those a little more fortunate.

“I’m taking advantage of an opening in the marketplace,” Pat said. “Capitalism is what our whole society is based on. It’s the foundation of what we are and what we’ve become.”

If people don’t want to wait the hours in line that it’s taking to get passports processed, Pat and others are willing to sleep on the street — as many of them would be anyway — and get paid for it.

One of the nice lessons here is that even though the homeless are willing to sleep on the street for nothing, the market is rewarding them. I'll leave as a homework question (use the comments if you'd like) why the market works this way. Another lesson comes from Pat's analysis:

"I’m taking advantage of an opening in the marketplace,” Pat said. “Capitalism is what our whole society is based on..."

The first sentence is true. The second? Let's just say the decision of how many clerks to put int he passport office isn't exactly capitalism in action.

Resource Conservation in Namibia

Karol's latest paper in her Enterprise Africa! project is now available.  In it, she explains how community-based natural-resource management is working in Namibia -- and how it might be used successfully elsewhere.

People before profits

Here is what happens when the government runs everything. Here is what happens when the people come before profits. You get a paradise. Reuters reports (HT: Drudge):

Almost half a century of communist rule has saved Havana's eclectic architecture from the urban developer's bulldozer, but a lack of repair has taken a ruinous toll on its neo-Baroque and Art Deco gems.

Dozens of colonial buildings and beautiful squares in Old Havana have been restored since the U.N. cultural agency UNESCO designated it a world heritage site in 1982. But the rest of the city of 2.2 million people is falling into decay.

It's pretty surreal:

Amidst the squalor and rubble, tourists brave darkly-lit streets to climb to the city's best-known private restaurant, La Guarida, perched on the top floor of a palatial town-house built by a sugar baron in 1913.

The building of marble staircases and statues today houses 30 families who built small two-floor apartments inside formerly high-ceilinged rooms, called "barbacoas" because of the way a new floor is inserted like a barbecue grill. A washing line with drying clothes hangs between elegant columns.

In the restaurant upstairs, where a main course costs the same as an average monthly wage in Cuba, photographs on the wall recall celebrity visitors, from Jack Nicholson to the Queen of Spain.

"This building would have collapsed without the restaurant. Its owner has helped a lot with money for repairs," said Enio Ochoa, a former naval engineer living on the second floor.

And this:

Iraelio Fernandez's building did collapse. He and his wife moved into an abandoned cinema across the street where he raises chickens and a pig in a roofed space that once housed a 1,000-seat theater called the Palace.

"We moved here until they build new houses," he said.

At least he's smart enough not to raise a cow. Here's an excerpt from a March 18, 2004 Chicago Tribune story by Gary Marx, recently thrown out of Cuba for "negative" reporting. (The whole story is reprinted here in this CubaNet news digest):

In communist Cuba, only the state is allowed to slaughter cattle and sell the meat. Citizens who kill a cow--even if they raised it themselves--can get a 10-year prison sentence. Anyone who transports or sells a poached animal can get locked up for 8 years.

"My brother-in-law got a 12-year prison sentence for killing 12 cows," said an accountant who lives in the cattle-raising region.

But it's not unheard of for Cubans to sneak into a pasture at night and butcher a cow on the spot. Residents have been known to descend on a cow struck by lightning, carving it up in minutes even though the meat often is charred and they risk a fine if caught by police.

The same thing can happen if a cow is hit by a car or dies of illness or malnutrition,   in giving birth or of old age, even though residents admit the law requires them to      leave the carcass alone and notify local officials.

How to Succeed in New Orleans

My friend and former NYU classmate Sandy Ikeda has this outstanding op-ed in the current issue of Forbes.  In it, Sandy argues that New Orleans would be rebuilt better if neighborhoods there secede from the City.  Here are some key paragraphs:

At first blush this idea [of secession] probably sounds radical, even absurd. But secession is the logical extension of the Unified New Orleans Plan, which, in an earlier incarnation, allowed each neighborhood to hire urban planners to coordinate post-Katrina reconstruction. If neighborhoods can be trusted with this vital task, why can't they manage their own security, garbage collection, noise ordinances and road maintenance? Devolving power in this way goes far beyond UNOP's proposed "citizen participation" and enables neighborhoods to more effectively mobilize their energy and know-how.

Consider this: Secession has been happening for decades. Almost a fifth of Americans now live in suburbs, private neighborhoods with deed restrictions and community-oriented governance. Why shouldn't urban dwellers have those options?

Easterly on Africa

Bill Easterly -- who recently taught a seminar for our graduate students here at George Mason -- has this nice op-ed in today's Wall Street Journal.  It's entitled "Africa's Poverty Trap."  Here are Bill's final three paragraphs:

The cowed IMF and the World Bank never mention the words "free market" in thousands of pages devoted to ending poverty. Even the World Bank's 2005 World Development Report "A Better Investment Climate for Everyone" doesn't mention the forbidden words.World Bank economists are so scared of offending anyone on Africa that they recite tautologies. The press release describing the findings of the 2006 World Bank report "Challenges of African Growth" announces: the "single most important reason" for Africa's "lagging position in eradicating poverty," finally "has been identified." It is "Africa's slow and erratic growth." The next World Bank report may reveal that half a dozen beers has been identified as the single most important reason for a six-pack.

Today Unctad (in its 2006 "Big Push" report) still offers to make possible government "infant-industry policies" for "small, fragmented economies" by setting up a regional market, presumably so Burkina Faso and Niger can help absorb the potential output of the Togolese automobile industry. Unctad lacks everything but chutzpah: All aid to Africa, it said, should be moved into a new U.N. Development Fund for Africa, to which Unctad helpfully offered its "in-house experience," by creating a Commission on Aid and Development inside of Unctad. Unctad will thus permit the economics of Africa to at last "escape from ideological biases," so we can finally understand "why economic activity should not be left entirely to market forces."

The free market is no overnight panacea; it is just the gradual engine that ends poverty. African entrepreneurs have shown what they are capable of. They have, for example,launched the world's fastest growing cell phone industry to replace the moribund state landlines. What a tragedy, therefore, that aid agencies have foisted the poorest economics in the world on the poorest people in the world for 50 years. The hopeful sign is that many independent Africans themselves are increasingly learning the economics of how to get rich, rather than of how to stay poor.

Great minds think alike

Here is Al Gore testifying before Congress on the virtues of small-scale energy production:

Gore advised lawmakers to cut carbon dioxide and other warming gases 90 percent by 2050 to avoid a crisis. Doing that, he said, will require a ban on any new coal-burning power plants—a major source of industrial carbon dioxide—that lack state-of-the-art controls to capture the gases.

He said he foresees a revolution in small-scale electricity producers for replacing coal, likening the development to what the Internet has done for the exchange of information.

Here is Mao on the virtues of small-scale steel production:

In the August 1958 Politburo meetings, it was decided that steel production would be set to double within the year, most of the increase coming through backyard steel furnaces. Mao was shown an example of a backyard furnace in Hefei, Anhui in September 1958 by provincial first secretary Zeng Xisheng. The unit was claimed to be manufacturing high quality steel (though in fact the finished steel had probably been manufactured elsewhere). Mao encouraged the establishment of small backyard steel furnaces in every commune and in each urban neighbourhood.

If Al Gore thinks energy can be produced the way information is produced, he either doesn't understand energy or he doesn't understand information. Here is the Wikipedia summary of the decentralized experiment of Mao:

Huge efforts on the part of peasants and other workers were made to produce steel out of scrap metal. To fuel the furnaces the local environment was denuded of trees and wood taken from the doors and furniture of peasants' houses. Pots, pans, and other metal artifacts were requisitioned to supply the "scrap" for the furnaces so that the wildly optimistic production targets could be met. Many of the male agricultural workers were diverted from the harvest to help the iron production as were the workers at many factories, schools and even hospitals. As could have been predicted by anyone with any experience of steel production or basic knowledge of metallurgy, the output consisted of low quality lumps of pig iron which was of negligible economic worth.

Castro had similar failed experiments that impoverished his people.

Giving up the economies of scale we currently use for energy production is going to be very expensive.

What's the Difference?

Here's a letter that I sent today to the New York Times, in response to this letter from two politicians.

To the Editor:

Sen. Charles Schumer and Rep. Jim McDermott want trade agreements that are "fair" (Letters, March 21) - by which they mean trade agreements that protect American workers from having to compete very hard against foreign workers.

I wonder if Messrs. Schumer and McDermott regard Xerox, IBM, Apple, Dell, and Hewlett-Packard to have been "unfair" traders. By making copiers, personal computers, and desktop printers so incredibly inexpensive, these firms destroyed countless jobs for office-pool typists.  An American worker simply cannot compete with these machines.  Would we have been well served had government restricted our ability to purchase these machines?  If not, why suppose that we will be well served if government restricts our ability to purchase goods and services produced by workers whose wages are now lower than ours?

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Global warming tragicomedy

Funny? Not funny? Here at Cafe Hayek, we link and you decide. The Onion reports on a protest by snowmen and snowwomen against global warming.

The company I keep

Which of these is not like the other?

Here I am in the LA Times on inequality alongside Peter Singer (Princeton philosopher) and Sam Webb (head of the Communist Party). My take is different from their's.

Leonhardt on the media

The latest episode of EconTalk is a conversation with David Leonhardt, columnist for the New York Times. We talk about bias at the Times and elsewhere, what niche remains for newspapers, whether global warming skeptics should get any coverage (he says no) and some very interesting stuff on how time from door-to-balloon can save or cost you your life with a heart attack.

Out of Africa

The smarter, wiser, and more-talented half of the Boudreaux team has this very nice essay in yesterday's edition of Nairobi's The Nation.  In it, Karol encourages Kenya's government to increase that country's elephant population by lifting its ban on trophy hunting and by decentralizing control over natural resources.

By the way, because of Karol's leadership of Enterprise Africa! -- and her work that grew out of that effort -- she has been appointed to the Working Group on Property Rights of the U.N.'s Commission on Legal Empowerment of the Poor.  This news is good for Karol; it's wonderful for millions of poor people in Africa.

More on Interpreting Statistics

Here's more, now from The Economist.com, on the need to be careful when interpreting statistics -- such as that infant-mortality rates in the United States are higher than in many countries much poorer than America.  A snippet:

Comparing infant mortality rates between countries is fraught with uncertainty—after all, it's hard to argue that every country's figures are reliable. But it's still worth asking what more we can do to stop babies from dying. Defined as death before one year of age, infant mortality frequently gets framed in the United States as a problem of insufficient health-care funding. In December, for example, a New York Times column blamed it on the lack of a single-payer health insurer. However, a closer look reveals the counterintuitive possibility that high infant mortality in the United States might be the unintended side effect of increased spending on medical care.

Read the whole Economist.com post.

(HT: Liberty Alone)

Flagging Unconstitutional Protectionism

Constitutional Law was not my best subject in law school, but I am pretty darn confident that the Commerce Clause was meant to strip individual states from exercising their own international-trade policies.

Shame on the Minnesota House of Reps.

(HT to Dan Rothschild.)

Using and Misusing Statistics

Statistically speaking....

War on Humanity

I cannot hear or read of such developments without feeling outrage.  The "war on drugs" is a war on humanity -- a cruel hoax -- an unalloyed evil.  If humankind continues to progress, one day the "war on drugs" will be regarded in the same way that we today regard the burning of witches.

(HT Fred Dent.)

One of the most thorough scholars of the economic consequences of prohibition, by the way, is Jeffrey Miron (currently visiting at Harvard).

UPDATE: The Agitator, Radley Balko, offers his always-valuable opinion here.

Globalization and Income Inequality

Another investigation -- this one by Fernando Borraz and Jose Ernesto Lopez-Cordova -- of some of the economic consequences of freer trade finds that freer trade has not increased income inequality in Mexico:

Our findings strongly indicate that globalization has not raised income inequality in Mexico. On the contrary, we present compelling evidence showing that income distribution is more equitable in states that are more closely linked to the world economy and that those states exhibit larger declines in inequality. We also find some statistical evidence suggesting that deepening globalization results in reduced inequality, although our results are sketchier on this point, perhaps because such effect is only observable in the long run. As a potential explanation of why globalization might improve the distribution of income among Mexican households, we show that states that are more integrated to the world economy offer better work opportunities for low-skilled women relative to more educated female workers.

Economic Consequences of NAFTA

Economist Dominick Salvatore recently measured the economic consequences of NAFTA.  Here's his conclusion:

The economic effects of NAFTA on Mexico have been discussed and measured mostly in terms of their effect on employment on both sides of the border and by the increase in Mexico-US trade and investments, before and after NAFTA. These are not the appropriate ways to measure the effects of a free trade area on a member state. The theoretically correct way of measuring the economic effects of a FTA on a member nation is through its effects on trade, investments, competition and efficiency. It is though these effects that the growth and employment in the nation are affected. To measure the direct effects of a FTA on member nations requires using a counterfactual simulation. That is, comparing trade, investments, competition, and efficiency in general and, through them, their effect growth and employment in the nation, with and without the FTA.  In the case of NAFTA, the benefits flowing to Mexico seem to have resulted more from the general liberalization of trade and investments than directly from NAFTA, as such. That is, the general liberalization of trade and investments that accompanied NAFTA led to a general increase in Mexican exports and inflows of FDI, which increased specialization, competition, productivity and efficiency in Mexico. But the increase in total Mexican exports and FDI inflows from the rest of the world was as large or larger than that from the United States. Furthermore, most of the (indirect) benefits that Mexico received from NAFTA occurred in the years immediately preceding the creation of NAFTA rather than in the years soon after its creation. Mexico was unable to capture more of the potential benefits from NAFTA or for a longer period of time because of the economic crisis that afflicted Mexico in 1994-1995, the slowdown of U.S. growth in 2000 and recession in 2001, increased competition from China, but most importantly because Mexico failed to adequately restructure and liberalize its economy and improve the education and training of its labor force.

The implementation of NAFTA benefited the United States by increasing  competition in product and resource markets, as well as by lowering the prices of  many commodities to U.S. consumers. Because the U.S. economy is so much  larger than Mexico’s, however, U.S. gains from NAFTA as a proportion of its  GDP were much smaller. Canada was the least affected by NAFTA because  Canada had already negotiated a free trade agreement with the United States in  1988, and so most of its economic effects had already taken place by the time NAFTA came into effect in 1994.

Who Shoulders the Tax Burden?

The IRS just released some data.  One of the most interesting reported facts is this:

For tax year 2004.... Taxpayers with an AGI [adjusted gross income] of at least $328,049, the top 1 percent of taxpayers, accounted for 19 percent of total AGI, representing an increase in income share of 2.2 percentage points from the previous year. These taxpayers accounted for 36.9 percent of the total income tax reported, an increase from 34.3 percent in 2003 [emphasis added].

(HT: Andy Roth at the Club for Growth)

The Trade Deficit and Economic Performance

Cato's Dan Griswold amasses further evidence against the myth -- a myth piled higher than the dung in King Augeas's stables -- that the U.S. trade deficit is a drag on American economic growth, or that this "deficit" is necessarily evidence of poor American economic performance:

[T]here is no evidence that an expanding current account deficit is associated with slower economic growth. In fact, data show the opposite correlation:

• In those years since 1980 in which the current account deficit actually shrank as a share of GDP, real GDP growth averaged 1.9 percent.
• In those years in which the deficit grew modestly, between 0.0 and 0.5 percent, GDP growth averaged 3.0 percent.
• And in those years in which the current account deficit expanded by more than 0.5 percent of GDP, real GDP growth grew by an average of 4.1 percent.

In other words, economic growth has been more than twice as fast, on average, in years in which the current account deficit grew sharply compared to those years in which it actually declined. If trade deficits drag down growth, somebody forgot to tell the economy.

All global warming, all the time

This is not from The Onion, but from the Associated Press (HT: Drudge):

A North Pole expedition meant to bring attention to global warming was called off after one of the explorers got frostbite. The explorers, Ann Bancroft and Liv Arnesen, on Saturday called off what was intended to be a 530-mile trek across the Arctic Ocean after Arnesen suffered frostbite in three of her toes, and extreme cold temperatures drained the batteries in some of their electronic equipment.

"Ann said losing toes and going forward at all costs was never part of the journey," said Ann Atwood, who helped organize the expedition.

On Monday, the pair was at Canada's Ward Hunt Island, awaiting a plane to take them to Resolute, Canada, where they were to return to Minneapolis later this week.

Bancroft, 51, became the first woman to cross the North Pole on a 1986 expedition. She and Arnesen, 53, of Oslo, Norway, were the first women to ski across Antarctica in 2001.

But the latest trek got off to a bad start. The day they set off from Ward Hunt Island, a plane landing near the women hit their gear, punching a hole in Bancroft's sled and damaging one of Arnesen's snowshoes.

They repaired the snowshoe with binding from a ski, but Atwood said the patch job created pressure on Arnesen's left foot, which led to blisters that then turned into frostbite.

Then there was the cold — quite a bit colder, Atwood said, then Bancroft and Arnesen had expected. One night they measured the temperature inside their tent at 58 degrees below zero, and outside temperatures were exceeding 100 below zero at times, Atwood said.

That seems pretty cold. The school children are going to be so disappointed.

The explorers had planned to call in regular updates to school groups by satellite phone, and had planned online posts with photographic evidence of global warming. In contrast to Bancroft's 1986 trek across the Arctic with fellow Minnesota explorer Will Steger, this time she and Arnesen were prepared to don body suits and swim through areas where polar ice has melted.

But just in case you were thinking of adding this data point to the skeptical column:

"They were experiencing temperatures that weren't expected with global warming," Atwood said. "But one of the things we see with global warming is unpredictability."

That's the true Onionesque part of the story. See, it's all about the science. The model is perfect. There are no outliers to be explained, no data that doesn't fit the model. Really hot? Global warming? Really cold? Global warming! It's a very powerful theory that explains everything.

A Marginal Podcast

In the latest EconTalk, I talk with my colleague Tyler Cowen of Marginal Revolution about global warming, why French food is great but eating in France is not so great, the future of blogging, the best and worst art museums in Washington, DC, high vs. low art and markets in everything. Thanks to Cafe Hayek readers who suggested interesting questions.

Next week's scheduled guest is David Leonhardt of the New York Times.

Protectionists Never Learn

The Cafe's own Russ Roberts hits a home run in today's Wall Street Journal, with an op-ed entitled "Protectionists Never Learn."  Here are the final few paragraphs of Russ's op-ed:

Yes, China holds a lot of our bonds. But Japan holds more. Yes, we run a big trade deficit with China. But that lets us buy lots of inexpensive stuff instead of having to make it for ourselves. Yes, there are more than a billion Chinese. I guess that means they can take all of our jobs four times! But our economy keeps growing. We have more jobs than ever before. And contrary to popular belief, the American standard of living and the American middle class are thriving.

We were told that at a minimum China (and India with its own billion-strong population) would take all our high-tech jobs. But the high-tech sector bounced back from its downturn (a downturn that had nothing to do with outsourcing) and is growing again, partly because we can get some of the simplest database and programming tasks done so cheaply by Indians and Chinese.

So why can politicians still make China scary? Why didn't Americans learn from the previous sky-is-falling episodes? The simple answer is that if you don't understand economics, you might be convinced by a politician who says that trade with China is bad for America.

The next time you find yourself losing sleep over China, remember that you were worried about Japan and Mexico and everything turned out OK. Then ask yourself if America would be a richer country if China cut itself off from the rest of the world.

On Expectations and Flexibility

As Russ (and some of the commentors on Russ's post) pointed out, this claim by Harold Meyerson isn't supported by the facts:

Over the past 35 years, the massive changes in the U.S. economy have largely condemned American workers to lives of economic insecurity. No longer can the worker count on a steady job for a single employer who provides a paycheck and health and retirement benefits, too. Over the past three decades, workers' individual annual income fluctuations have consistently increased, while their aggregate income has stagnated. In the brave new economy of outsourced jobs and short-term gigs and on-again, off-again health coverage, American workers cannot rationally plan their economic futures.

Robert Samuelson, a couple of days earlier in the same newspaper (Washington Post), addressed the same issue, but with much more wisdom than Meyerson displayed.  Here are the key paragraphs from Samuelson's column:

For Americans, what's curious is that people seem to feel more economically insecure even though the economy has become more stable. Since 1982, there have been only two recessions, lasting 16 months. In the past 10 years, unemployment has averaged 4.9 percent; in the 1970s, the average was 6.2 percent. Yet in 2006, only about half of workers were satisfied with their job security, reports a poll from the Conference Board. In 1987, when unemployment was higher, about 60 percent were satisfied.

One explanation of the paradox is that the uncertainties and insecurities that assault workers, investors and firms actually foster overall economic stability. There are constant upsets -- business expansions and closures; greater competition from emerging technologies and foreign economies; shifting prices for stocks and bonds. These put people on edge. But many small adjustments may smooth out the business cycle. They may minimize deep recessions, stock crashes and panics [emphasis added].

One lesson here is that, rather paradoxically, allowing some expectations to be upset is a means of ensuring that a greater number of other expectations -- and, arguably, expectations over more important matters -- are more likely to be regularly fulfilled.

Another, related lesson is that a society that aims to prevent any and all expectations from being upset can, in the end, succeed in this quest only by impoverishing itself -- but reducing itself to such a level of simplicity that expectations finally can be nearly universally guaranteed to be fulfilled, but only because that society's division of labor has been dramatically reduced, and because all entrepreneurial dynamism and consumer sovereignty have been snuffed out.  The risk of "job loss" will replaced by a far greater risk of "life loss."

Mantra vs. Reality

In this piece in the Washington Post, Harold Meyerson makes a common complaint about the American economy and our standard of living:

Over the past 35 years, the massive changes in the U.S. economy have largely condemned American workers to lives of economic insecurity. No longer can the worker count on a steady job for a single employer who provides a paycheck and health and retirement benefits, too. Over the past three decades, workers' individual annual income fluctuations have consistently increased, while their aggregate income has stagnated. In the brave new economy of outsourced jobs and short-term gigs and on-again, off-again health coverage, American workers cannot rationally plan their economic futures.

Unfortunately, this mantra contradicts an earlier statement by Meyerson  on the facts of the matter. This earlier statement was not made four years earlier or four months earlier or four weeks earlier or four days earlier. The earlier statement was made FOUR PARAGRAPHS earlier in the SAME COLUMN. Here's the quote, referring to an article in the Post by reporter Blaine Harden:

Taking into account all households, married couples with children are twice as likely to be in the top 20 percent of incomes, Harden reported. Their incomes have increased 59 percent over the past 30 years, while households overall have experienced just a 44 percent increase.

So over the last 30 years, married couples with children have seen their incomes increase 59%. The increase for all households is 44%. Both of these numbers suffer from composition bias. Over the last 30 years, the number of single-headed households has grown dramatically, dragging down the average for purely statistical reasons. So the overall change in household income of 44% is not representative of the average family. Increased immigration, the addition of households with lower than average incomes, also reduces measured household income and understates the gains to families who were already here.

But even with this bias, a 44% increase isn't stagnation.

BTW, the Harden article doesn't make it clear, but these are probably averages. A better number is the change in the median. This report from the Census Bureau shows that between 1967 and 2005, real median household income was up 31% for all households. Using 1970 as the starting point and the increase is about 25%. So even including the compositional problems I mentioned and even the flaws in the CPI (see here and here and here) which cause the increase in real income to be understated, the median household isn't stagnating financially. 

Renovating the cafe

We've made some changes to Cafe Hayek. Many thanks to Ben Parizek for technical assistance and execution.

We've made Snap optional. Depending on your tastes, Snap is the infuriating or fascinating preview you get when you roll over any link on the page. Some people love it. Some people hate it. So have it your way. If you like it, you can activate it by clicking on the Snap link down near the bottom of the left hand column. If you don't like it, deactivate it.

We've added a drawing of Hayek at the top of the right hand column. Many thanks to reader Ray Gardner for the wonderful illustrations. More coming from time to time. Not sure how we'll use them but I hope you like them as much as we do. Trying to sort out the legal issues but we'd like to offer some Hayek-illustrated mugs and t-shirts if you're interested. Just not sure if we have to get permission from the Hayek estate. Free and accurate legal advice much appreciated.

We've added a "books we like" feature toward the bottom of the right hand column.

At a reader's suggestion, we've allowed "limited HTML mark-up" in the comments. Is that working?

We've added a "Subscribe to EconTalk" option in the left hand column and gotten rid of the little player there.

Let us know what you think of these changes. Other suggestions welcome.

Ignore Foreign Subsidies

In my latest column in the Pittsburgh Tribune-Review I argue that subsidies allegedly paid -- or even unquestionably paid -- by foreign governments to exporters within their jurisdictions do not justify any "retaliatory" actions by Uncle Sam.

Here's my concluding paragraph:

I know of no cases in which a country was impoverished, or even measurably damaged, by its refusal to "retaliate" against alleged instances of foreign subsidies. This fact, combined with the ease of abusing the ability to accuse foreign rivals of being subsidized, counsels strongly in favor of our own government turning a deaf ear to such accusations.

Vernon Smith on Free Market Environmentalism

My colleague Vernon Smith -- who has one of the most curious and creative minds I've ever encountered -- is a fan of free-market environmentalism (FME).  Here are some of his recent thoughts on the topic:

Traditional thinking about environmental issues tends to emphasize incentive problems inherent in markets but ignores them in the context of political processes. Many economists and policy analysts assume that an efficient allocation of resources will be reached when government correctly accounts for the costs and benefits. Free Market Environmentalism challenged this presumption and provided a more realistic way of thinking about environmental policy—a way that emphasized the important role of incentives, transaction costs, and well-defined property rights to natural resources. These rights, whether held by individuals or a group, create inherent incentives on resource users because the wealth of the property owner is at stake if bad decisions are made.

The interesting essay, published in PERC Reports, from which the above quotation is pulled can be found here.

Adaptation, Prices, and Climate Change

Both the Atlantic (not yet online) and Sports Illustrated (HT: Michael Rizzo) feature cover stories on global warming. The Sports Illustrated piece is a bit of a stretch. They have a long tradition of trying to be about something more consequential than sports. Does global warming have anything to do with sports? Sure:

The next time a ball game gets rained out during the September stretch run, you can curse the momentary worthlessness of those tickets in your pocket. Or you can wonder why it got rained out -- and ask yourself why practice had to be called off last summer on a day when there wasn't a cloud in the sky; and why that Gulf Coast wharf where you used to reel in mackerel and flounder no longer exists; and why it's been more than one winter since you pulled those titanium skis out of the garage.

Global warming is not coming; it is here. Greenhouse gases -- most notably carbon dioxide produced by burning coal, oil and gas -- are trapping solar heat that once escaped from the Earth's atmosphere. As temperatures around the globe increase, oceans are warming, fields are drying up, snow is melting, more rain is falling, and sea levels are rising.

All of which is changing the way we play and the sports we watch.

  It's a bit of a stretch. A huge stretch. And of course it's a stretch in one direction only. It could have been written this way:

The next time you get to enjoy throwing a baseball in February or enjoying a December game at Chicago's Soldier Field instead of viewing it mostly as a rite of passage or a test of your toughness, thank global warming.

Oops. Not scary. The cover of the magazine is the way to go—a Florida Marlin (the baseball kind) in thigh-deep water in the outfield of the Marlins' stadium. I'm going to save the cover. It will be either the crow I eat in 25 years as a repentant ex-skeptic or the poster to share with friends who thought the experts were right all along.

Over at the Atlantic, recent EconTalk guest Gregg Easterbrook has the courage to stretch in both directions, looking at who might lose, yes, but also who might benefit from global warming. There's some good stuff in it. Lots of interesting speculation for example, on land values and how Buffalo might again become the place to be, while Arizona real estate plummets in value.

Toward the end, he offers this insight into coping with global warming:

The market has caused the greenhouse-gas problem, and the market is the best hope for solving it. Offering market-incentives for the development of greenhouse-gas controls—indeed encouraging profit making in greenhouse-gas controls—is the most promising path to avoiding the harm that could befall the dispossessed of developing nations as the global climate changes.

He then goes on to say that because global warming is already here, adaptation is also important.

Crops that grow in high temperatures, homes and buildings designed to stay cool during heat waves, vehicles that run on far less fuel, waterfront structures that can resist stronger storms‚the list of needed adaptations will be long, and all involve producing, buying, and selling. Environmentalists don't like talk of adaptation, as it implies making our peace with a warmer worlds. That peace though, must be made—and the sooner businesses, investors, and entrepreneurs get to work, the better.

Well said, but there is one more key point to make. Prevention, if it is indeed prudent, is likely to require collective action, government action, internationally imposed action. Action that is going to have all the rent-seeking and other mistakes that come from centralizing power. Adaptation comes from the market, as he calls it—from individual action. It is self-organizing. We don't need to exhort entrepreneurs to come up with cooler homes or better crops. Their own self-interest will push them to discover those innovations and at the right pace. And sooner isn't necessarily better with adaptation. Sooner comes at a cost of foregone other innovations and uses of time and energy and the sweat of the brow. Entrepreneurs have an incentive to take those costs into effect. Politicians don't. So don't worry. All the adaptations that you can make money from will come into being without any exhortation. Money talks. Loudly, but not too loudly.

One more thought on adaptation and the role of prices. If the worriers are right, if global warming really does threaten to make Miami uninhabitable, we'll see real estate prices in Miami start to fall as Easterbrook points out. The fact that they are not falling means that people do not believe the worriers. So someone is wrong. Either Al Gore or the guy who is paying the going rate for a lot in South Beach. My impulse is to choose Al Gore as mistaken simply because there is no consequence for him being wrong and the purchaser of the real estate has a much greater incentive to act on an inconvenient truth.

But maybe people are myopic. Maybe they inadequately perceive the risk of one-time events. Maybe it will take a while for all those Sports Illustrated covers to sink in. Even so, if sea levels really rise, eventually buyers and sellers of land will catch on. The demand for Florida real estate will go down and the prices will start to fall. The prices elsewhere will rise. Not uniformly. Some places will go up more than others. These changing prices will encourage some people to go to Buffalo and others to Omaha. Some people will leave Florida quickly while others will stay for a while as the waters rise.

The changes in the price of real estate will not happen overnight. They will happen gradually over time, giving people the signals about which places are relatively attractive and which places are less so. This adaptation will take place without any centralized direction.

When the price of land in Miami starts to fall relative to the rest of the country, then you'll know people are taking global warming seriously. That is one more piece of evidence you can use to figure out whether any political action will take place. Until that happens, bet on the status quo politically.

Storing Our Prosperity

This report in today's New York Times on us Americans and our storage space doesn't prove anything -- but it does offer yet more evidence that ordinary Americans in fact are much wealthier today than we were just a few years ago.  Here's the gist:

According to Michael T. Scanlon Jr., president of the Self Storage Association, a trade group, 11 million American households currently rent storage space, an increase of 90 percent since 1995 — even as the size of new American houses has grown and the size of the American family has shrunk.

In the last two years, close to a million more households have joined the ranks of storage renters, and there is now more than two billion square feet of rental storage space in the United States, earning more than $22 billion in gross revenue in 2006.

Walter Reed and Government-Provided Universal Health Care

The New York Post today published this letter of mine:

Conditions at Walter Reed Army Medical Center truly are deplorable ("Sick Army Hosps," March 6).

This "flagship" institution is at the heart of Uncle Sam's system of socialized medical care for military personnel.

So, why are many politicians and pundits clamoring for socialized medical care for all Americans?

A GMU graduate student in economics, Ms. Meredith Jones, makes this additional point in an e-mail to me:

Walter Reed Army Medical Center is set to close (in 2010, I think) and most of its work is being moved to either Ft Belvoir or Bethesda, so naturally any incentive to maintain the facilities was further muted after that decision was made. Of course, such lengthy closings are typical of inefficient social programs, and not of privately operated businesses.

Skeptic of Combating Global Warming

For those many people who believe that the case for "combating" global warming is open and shut -- for those people whose jaws drop in disbelief or whose eyes roll with contempt and ridicule when they encounter someone who is skeptical about rushing headlong into action against global warming -- the video that Russ posted yesterday is especially relevant.  (Or, I should say instead, that video should be especially relevant.)

People in the world today -- especially those of us in the industrialized, commercia