Cafe Hayek

The Coming Recession?

Along with persons far more insightful than me, I offer a few thoughts on the current economic downturn in the new issue of Reason.

Seeing Past the Chicken Littles

Denver Post columnist David Harsanyi is superb.

Wal-Mart Facts

A few days ago I sent this letter to the New Republic:

Jordan Stancil alleges that "rural Americans have seen their ownership of their communities hollowed out by relentless consolidation in the retail and financial sectors" ("It's the Wal-Marts, Stupid," April 18).  He laments that he and his fellow thirtysomethings from rural America are "the first generation of non-owners."  To support these claims, however, he offers only personal anecdotes and impressions.

Fortunately, economists Andrea Dean and Russell Sobel have investigated this oft-told tale using data.  Their findings cast serious doubt on the veracity of Mr. Stancil's allegations.  For example, Dean and Sobel find that the five U.S. states with the greatest number of Wal-Mart stores per-capita have a self-employment rate identical to the self-employment rate in the five states with the fewest Wal-Mart stores per-capita.  And in those states enjoying a high density of Wal-Marts, the number of businesses with nine or fewer employees is higher per-capita than in those states with a low-density of Wal-Marts.  Dean and Sobel conclude that "Wal-Mart has had no significant impact on the overall size and growth of U.S. small business activity."

Sincerely,
Donald J. Boudreaux

You can find the Dean-Sobel paper here; it's entitled "Has Wal-Mart Buried Mom-and-Pop?"

People Harmed by Capitalism or by "Green" Policies?

Indur Goklany's 2007 book, The Improving State of the World , is impressively fact-packed and well-argued.  I recommend it highly.  I recommend also his op-ed appearing in today's edition of the New York Post.  Here are a few paragraphs.

President Bush's call yesterday for a dramatic slowdown of green-house-gas emissions reflects growing concern for the consequences of climate change. But what about the consequences of the world's response?

The fact is, food riots resulting partly from the United States' alternative energy policies have arrived at our front door. Crowds of hungry demonstrators swarmed the presidential palace in Haiti last week to protest skyrocketing food prices.

In recent years, we've heard that climate change could be catastrophic for nature and humanity. But it's becoming increasingly evident that over the next few decades, climate-change policies could prove even more catastrophic.

....

Supposedly climate-friendly policies in the United States and the European Union - subsidizing the production and consumption of such renewable biofuels as ethanol and biodiesel - have diverted such crops as corn, soybeans and palm oil from food to fuel. This, in turn, has increased prices for food worldwide at a time when the highly populous and newly prosperous East and South Asian countries are demanding more of it.

Shughart on Bailouts

My former GMU colleague (now at the University of Mississippi, and a Senior Fellow at The Independent Institute) Bill Shughart wrote this important warning about government-funded and directed bailouts.  Here's an excerpt:

The record of government bailouts of private financial institutions in the 1930s, of Continental Illinois Bank in 1984 (which cost $8 billion) and of the entire U.S. savings & loan industry in the late 1980s and early 1990s (which cost $125 billion) teaches that emergency loans keep weak institutions alive just long enough for their problems to increase. Bailouts encourage more risk-taking and eliminate the freedom to fail that is just as essential to a free-market economy as the freedom to succeed.

The end result is likely to be further government intrusion into the private economy.

No Cause for Pessimism

George Will has long been one of my favorite conservative columnists.  I often disagree with him, but even more often I agree with him.  And, boy, do I agree with the lesson he conveys in his column appearing in today's Washington Post.  Will's point is that to call today's economic woes a "crisis" is to define the word "crisis" way, way down.  Here's are the opening few paragraphs from this excellent column:

During presidential elections, when candidates postulate this or that "crisis" for which each is the indispensable and sufficient cure, economic hypochondria is encouraged, so a sense of suffering is rampant. Recently the Wall Street Journal, like Joseph Conrad contemplating the Congo, surveyed today's economic jungle and cried, "The horror! The horror!"

Declines in housing values and the stock market are causing some Americans to delay retirement. A Kansas City man had been eager to retire to Arizona but now, the Journal says, "figures he'll stay put for another couple of years." He is 59.

So, this is a facet of today's hydra-headed "crisis" -- the man must linger in the labor force until, say, 62. That is the earliest age at which a person can, and most recipients do, begin collecting Social Security.

The proportion of people aged 55 to 64 who are working rose 1.5 percentage points from April 2007 to February 2008, during which the percentage of working Americans older than 65 rose two-tenths of one percentage point. The Journal grimly reported, "The prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."

Oh? The idea that protracted golden years of idleness are a universal right is a delusion of recent vintage. Deranged by the entitlement mentality fostered by a metastasizing welfare state, Americans now have such low pain thresholds that suffering is defined as a slight delay in beginning a subsidized retirement often lasting one-third of the retiree's adult lifetime.

George Will's wisdom inoculates him from the pessimistic bias.

I would add only that government subsidies to Americans in their 60s and older (most notably, Social Security and Medicare) are not the only forces enabling Americans today to retire earlier than in the past.  The increasing wealth generated by the private sector is another reason -- in fact, I suspect, the principal reason.

The Pessimistic Bias

Reading the comments on this post (which in many ways are very much like the comments on many other posts, both here at the Cafe and on other blogs) prompts me to make a couple of points that I've put off making for too long now.

In his indispensable book, The Myth of the Rational Voter, my GMU colleague (and EconLog's) Bryan Caplan finds powerful evidence that non-economists suffer from the "pessimistic bias," which Bryan defines (on page 45 of his book) as

a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy.

Russ and myself (because we're economists?) and many of the commentors here at the Cafe are not pessimistic about the long-run.  Problems come; problems are solved.  Inability to see the details of the future scare many people; this inability doesn't scare me.  As long as individuals have a sufficient quantum of freedom, their self-interest and creativity and inevitable competition will "solve" almost any problem over the long-haul.  It's a pattern repeated countless times over the past two-hundred years in capitalist countries.  (Please, please don't trot out the Great Depression as a counter-example.  First, it was clearly worsened by the Federal Reserve's catastrophically bad monetary policy, and by the worldwide spread of protectionism -- helped along by the Smoot-Hawley tariff.  More importantly, there's compelling evidence that the risks of full-throttle socialization of the economy were then real enough to scare investors away until the mid-1940s.  And even this greatest of all of America's depressions lasted only ten or fifteen years, depending on how you define the end of the Depression.)

Being optimistic doesn't mean being blindly insistent that the future will always be better than today.  Take away enough freedom and, kaboom!, the economy implodes.  (Or should I instead say "moobak!"?)  Fortunately, though, the capitalist economy is so remarkably robust that it can take lots of beatings -- lots of interventions -- lots of unnecessary taxation -- lots of foolish dissing -- and keep on keeping on at raising living standards.

I'm more optimistic today than I was ten or twenty years ago about just how much counterproductive regulation and taxation the capitalist economy can take before it really starts to fail.  But my sense is that the American economy still retains enough freedom -- that property rights remain sufficiently secure -- to ensure continued economic growth over the long run.

I remain bullish over the long run.  Very bullish indeed.
....
My second point is that it is a curious phenomenon that those who want more government control over the economy tend to be those who insist that the American economy has performed poorly over the past thirty-five years.  Again, as regular patrons of the Cafe know, Russ and I are quite sure that the economy has done very well during these years, even for poor and middle-class workers.

But if I were a pro-regulation and high-tax kinda guy, why would I dispute the claim that America's economy has performed remarkably well for everyone even since 1973?  Why would I not say "See, the government programs enacted from the New Deal forward are working!"  At no time during the past 35 years has Uncle Sam's budget been severely reduced.  During those years, some welfare programs have been scaled back, while others have been expanded and even newly created.  Trade is freer today, but the post-WWII trend toward freer trade began in the 1940s, long before those allegedly blissful years of the early 1970s.  Since the early 1970s, some regulations have been repealed, while others have been created at both the state and national levels. 

In short, despite what some pundits mysteriously assert, America during the past twenty-five to thirty-five years has emphatically not been a laissez-faire society.  Not even close.  So why do so many persons on the political left see in the economic data of the past three decades a compelling case for even greater government control over our lives and pocketbooks?  And why don't more of these same persons on the left respond to those of us who advocate less government by pointing to the evidence of continued and widespread growth in prosperity by saying proudly "See!  We're right and you're wrong: government intervention does work well!"

I believe that I know the answer to my (non-rhetorical) question, but this post is long enough, so I'll end it here.

Good Sense on the Housing Market

Ed Glaeser speaks much good sense in his column appearing in today's Boston Globe.

A Sad Anniversary

Ten years ago today we suffered the terrible loss of Julian Simon.  Not only was he a creative and careful scholar, Julian was a remarkably fine person.

Butt Out

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

Senator Arlen Specter imagines that it is his and his fellow maharajahs' duty to investigate why the National Football League destroyed the Patriots' tapes of the Jets ("Goodell Defends Handling of Patriots' Spying Case," February 2).

If I were NFL Commissioner Roger Goodell, I would respond to Sen. Specter's threat to call a Senate committee hearing to investigate this matter by saying only "Dear Sen. Specter:  The rule that the Patriots violated is one that the NFL, not Congress, created.  We are a private organization quite capable of enforcing our own rules.  So butt out; this matter is none of your damn business.  Sincerely...."

Sincerely,
Donald J. Boudreaux

I Worry Much Less About the Reality than About the Reactions

Brian Wesbury, writing in today's Wall Street Journal, offers excellent reasons why the anxiety over the current state of the economy is overblown.  Here are some key paragraphs:

Beneath every dollar of counterparty risk, and every swap, derivative, or leveraged loan, is a real economic asset. The only way credit troubles could spread to take down the entire system is if the economy completely fell apart. And that only happens when government policy goes wildly off track.

In the Great Depression, the Federal Reserve allowed the money supply to collapse by 25%, which caused a dangerous deflation. In turn, this deflation caused massive bank failures. The Smoot-Hawley Tariff Act of 1930, Herbert Hoover's tax hike passed in 1932, and then FDR's alphabet soup of new agencies, regulations and anticapitalist government activity provided the coup de grace. No wonder thousands of banks failed and unemployment ballooned to 20%.

But in the U.S. today, the Federal Reserve is extremely accommodative. Not only is the federal funds rate well below the trend in nominal GDP growth, but real interest rates are low and getting lower. In addition, gold prices have almost quadrupled during the past six years, while the consumer price index rose more than 4% last year.

These monetary conditions are not conducive to a collapse of credit markets and financial institutions. Any financial institution that goes under does so because of its own mistakes, not because money was too tight. Trade protectionism has not become a reality, and while tax hikes have been proposed, Congress has been unable to push one through.

Which brings up an interesting thought: If the U.S. financial system is really as fragile as many people say, why should we go to such lengths to save it? If a $100 billion, or even $300 billion, loss in the subprime loan world can cause the entire system to collapse, maybe we should be working hard to build a better system that is stronger and more reliable.

Pumping massive amounts of liquidity into the economy and pumping up government spending by giving money away through rebates may create more problems than it helps to solve. Kicking the can down the road is not a positive policy.

The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year and it's the development that investors should really worry about. It reads just like the 1970s.

The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress. Assuming a 1.5% annualized growth rate in the fourth quarter, real GDP will have grown by 2.8% in the year ending in December 2007 and 3.2% in the second half during the height of the so-called credit crunch. Initial unemployment claims, a very consistent canary in the coal mine for recessions, are nowhere near a level of concern.

I would add that one major cause of the collapse of so many U.S. banks during the Great Depression was the fact that branch banking in the U.S. was highly restricted.  This restriction on branch banking (1) denied banks the opportunity to diversify their operations geographically.  (See, for example, this paper by my GMU colleague Carlos Ramirez.)  (Also, Canada, which had no restrictions on bank branching, suffered, I think, only one bank failure during the Depression.), and/or (2) reduces competition among banks, thus making them less efficient.

Tyler's Latest in the Times

My GMU colleague -- and blogger extraordinaire -- Tyler Cowen's monthly New York Times column is never to be missed.  This month's column (published today and entitled "So We Thought.  But Then Again...") is no exception.  Here's a teaser from Tyler's column:

There has been plenty of talk about “predatory lending,” but “predatory borrowing” may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default.

Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers. Too often, mortgage originators and middlemen looked the other way rather than slowing down the process or insisting on adequate documentation of income and assets. As long as housing prices kept rising, it didn’t seem to matter.

In other words, many of the people now losing their homes committed fraud. And when a mortgage goes into default in its first year, the chance is high that there was fraud in the initial application, especially because unemployment in general has been low during the last two years.

A Critical Distinction

Today's New York Times ran this report on the attempt by the government of California to gain statewide control over private thermostats.  I sent the following letter in response.

Government officials in California now seek power to centrally control thermostats in private buildings ("California Seeks Thermostat Control," January 11).  In an attempt to paint those who object to such government intrusion as alarmists, your reporter explains that "The fact that similar radio-controlled technologies have been used on a voluntary basis in irrigation systems on farm fields and golf courses and in limited programs for buildings on Long Island is seldom mentioned" by opponents of such power.

Suppose Sacramento proposes to remotely control, in "emergency" situations, all newspaper presses.  Would you remain sanguine about such government powers if someone explained that history is full of instances of the press voluntarily restraining itself?

Sincerely,
Donald J. Boudreaux

Call me pedestrian -- bourgeois -- simple-minded -- dumb-as-dirt, but I see a huge difference between voluntarily doing something and being forced to do that same something.

More on Hillary Clinton's Tears

"Student" and some others wonder what Ms. Cllnton said, during her tearful episode yesterday in New Hampshire, that gives me solid ground for pointing out that the former First Lady and current U.S. Senator from New York lusts for power and shed her tears, sincerely, at the (terribly delusional) thought of her own greatness and importance.  You can read here what Ms. Clinton said.  And below is a letter that I sent earlier today, on this matter, to the Wall Street Journal:

Surely I'm not alone in being horrified by the soaring narcissism and arrogance that Hillary Clinton revealed yesterday during her tearful moment in New Hampshire ("Tears Have Turned Campaigns," January 8).  She confessed that she could not maintain her brutal campaign pace if she "didn't just passionately believe it was the right thing to do."  The Senator continued: "I have so many ideas for this country, and I just don't want to see us fall backwards as a nation. This is very personal for me."

No one person is as important to a free country as Ms. Clinton fancies herself to be.  More fundamentally, her burning "personal" desire to subject all Americans to her "many ideas" is evidence of a frightening itch to be a social engineer.  Anyone itching as badly as Ms. Clinton claims to itch to rule over others should never be trusted with power.

Sincerely,
Donald J. Boudreaux

Now here's an interesting discovery: just now, as I went back to this WSJ report, I see that the quotation attributed to Ms. Clinton is changed somewhat from what was reported earlier.  Now it is reported that she said "I have so many opportunities from this country, and I just don't want to see us fall backwards as a nation. This is very personal for me."  That is, "opportunities from" has replaced "ideas for."  I assume that the updated report is the correct one.  Still, I don't see that this update in any way diminishes the narcissism infecting Ms. Clinton's comments.  Indeed, "I have so many opportunities from this country" seems to me potentially even more revealing of the woman's power lust and grotesquely inflated sense of self-importance.  (The Wall Street Journal was not the only publication to mis-quote Ms. Clinton.  New York Magazine, for example, also did so.)

Tierney on "Availability Entrepreneurs" and "Availability Cascades"

For several reasons, this New Year's Day article by New York Times science writer John Tierney is a must-read.  Here are the opening several paragraphs:

I’d like to wish you a happy New Year, but I’m afraid I have a different sort of prediction.

You’re in for very bad weather. In 2008, your television will bring you image after frightening image of natural havoc linked to global warming. You will be told that such bizarre weather must be a sign of dangerous climate change — and that these images are a mere preview of what’s in store unless we act quickly to cool the planet.

Unfortunately, I can’t be more specific. I don’t know if disaster will come by flood or drought, hurricane or blizzard, fire or ice. Nor do I have any idea how much the planet will warm this year or what that means for your local forecast. Long-term climate models cannot explain short-term weather.

But there’s bound to be some weird weather somewhere, and we will react like the sailors in the Book of Jonah. When a storm hit their ship, they didn’t ascribe it to a seasonal weather pattern. They quickly identified the cause (Jonah’s sinfulness) and agreed to an appropriate policy response (throw Jonah overboard).

Today’s interpreters of the weather are what social scientists call availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor the globe looking for newsworthy evidence of a new form of sinfulness, burning fossil fuels.

A year ago, British meteorologists made headlines predicting that the buildup of greenhouse gases would help make 2007 the hottest year on record. At year’s end, even though the British scientists reported the global temperature average was not a new record — it was actually lower than any year since 2001 — the BBC confidently proclaimed, “2007 Data Confirms Warming Trend.”

When the Arctic sea ice last year hit the lowest level ever recorded by satellites, it was big news and heralded as a sign that the whole planet was warming. When the Antarctic sea ice last year reached the highest level ever recorded by satellites, it was pretty much ignored. A large part of Antarctica has been cooling recently, but most coverage of that continent has focused on one small part that has warmed.

Which Is It?

In his column appearing in today's edition of the New York Times, Paul Krugman wonders why Americans in 2007 allegedly are deeply worried about the economy.  This worry, according to Krugman, is largely a result of the growing "inequality" during the presidency of G.W. Bush.  And it's a worry that Americans of ten years ago didn't suffer.  Here's Krugman:

[T]he real explanation for the public’s pessimism is that whatever good economic news there is hasn’t translated into gains for most working Americans.

One way to drive this point home is to compare the situation for workers today with that in the late 1990s, when the country’s economic optimism was almost as remarkable as its pessimism today. For example, in the fall of 1998 almost two-thirds of Americans thought the economy was excellent or good.

The unemployment rate in 1998 was only slightly lower than the unemployment rate today. But for working Americans, everything else was different. Wages were rising, yet inflation was low, so the purchasing power of workers’ take-home pay was steadily improving. So, too, were job benefits, including the availability of health insurance. And homeownership was rising steadily.

It was, in other words, a time when Americans felt they were sharing in the country’s prosperity.

I did a double-take when I read Krugman's description of the fate of workers during the late 1990s.  (Before I write another word, I acknowledge that I agree fully with Krugman that American workers back then gained quite nicely.)  I recall the late 1990s as a time when what I call "the myth of '73" really grabbed hold of the popular mind -- or at least of large segments of the punditry.  This myth is the one that says that ordinary American workers (or, depending upon the version of the myth, ordinary American households) are no better off now -- or pathetically little better off now -- than they were in 1973.  Regular patrons of the Cafe know that Russ and I often challenge this myth.  This "myth of '73" continues, and Krugman is one of its most vigorous champions.

I remember also that championing this myth is no new sport for Krugman; he's been at it for some time.  That is, he has long argued that ordinary workers are getting virtually nothing from the growing prosperity in America.

A quick Google search revealed this October 17, 2005 NYT column of his -- "The Big Squeeze" -- in which Krugman asserted that "it has been a generation since most American workers could count on sharing in the nation's economic growth. America is a much richer country than it was 30 years ago, but since the early 1970's the hourly wage of the typical worker has barely kept up with inflation."

It is very difficult (although, I concede, not impossible) to square Krugman's now-rosy memories of the late 1990s with this statement of just two years ago that real wages have been stagnating "since the early 1970s."

There's No Farm Bill Like No Farm Bill

This letter of mine is published in today's edition of the Washington Times:

No farm bill is best farm bill

Among the jobs of any secretary of agriculture is to portray the administration as smart, fiscally responsible and in awe of farmers' goodness and wisdom. Secretary Chuck Conner tries to do his duty in "Farmers deserve better" (Commentary, yesterday).

But those of us who don't work for the Beltway circus should ignore the corny debate over the relative merits of the Bush administration's offensively expensive farm bill against those of Congress' obscenely expensive alternative bill.

We should instead tell our "leaders" that the best farm bill is no farm bill. There is no sound reason for government to subsidize farmers or to protect them from foreign competitors. Any farmer or rancher too incompetent to produce food that consumers pay for voluntarily should find other employment.

DONALD J. BOUDREAUX
Chairman
Department of Economics
George Mason University
Fairfax

The War and Wildfires

This morning I heard a report on the radio of Senator Barbara Boxer (D-CA) complaining that the war in Iraq interferes with government's ability to fight the wildfires in southern California.  No doubt.  But.....

I oppose the war in Iraq; I always have done so.  But this war, while it does interfere with efforts to extinguish wildfires, does not interfere any more so than does nearly any other government program you care to name.  Resources have multiple uses and are scarce.  To use a worker or raw materials fighting a war is to take that worker and those materials, at least for a time, away from other potentially valuable uses.

The same is true of using workers and other resources to fight the "war on drugs" -- or using workers and other resources to administer agricultural price-support programs -- or using workers and other resources to run the Departments of Education, Transportation, Commerce, and so on -- or using workers and other resources to enforce the Endangered Species Act.

The question is not does fighting the war in Iraq reduce government's (and private persons') ability to battle the wildfires.  Of course it does.  The questions are, rather, are too many resources devoted to fighting the war?  Will Americans likely be made better off by taking some resources away from the war effort and put instead to other uses?

My answer to these questions is yes, mostly because I believe that the war is both unjustified and counter-productive.  But the fact that the war effort detracts from the ability to get other goodies is not itself a sound argument against the war.

I'm delighted that Senator Barbara Boxer is aware of opportunity costs -- that she understands that resources used to do X become unavailable to do W,Y, and Z.   I hope that she'll extend this insight to ask hard questions about the desirability -- and about the costs -- of the countless government programs that she supports.

Uncle Sam's Mission

Part of the U.S. government's idea of spreading freedom in Iraq: uprooting "illegal fuel sellers."

(HT Brian Summers)

Up Is Down

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

Paul Krugman confusedly argues that stock prices are falling, in part, because the global economy is booming ("The Sum of Some Fears," July 27).  He asserts that investors now believe that this global boom will keep oil prices high, and he assumes that high oil prices are a significant drag on the value of corporations.

Even if global economic growth will continue to buoy oil prices (which isn't certain), such growth surely puts more upward than downward pressure on stock prices.  As people worldwide earn larger incomes to spend and invest, and as global supply networks improve, prospects increase for entrepreneurial American corporations to thrive - as long, that is, as Washington resists the temptation to "protect" us from the growing world economy.

Sincerely,
Donald J. Boudreaux

I suspect that, if the bears really are invading Wall Street, they are drawn there chiefly by the snarling protectionists now in ascendancy in Washington.

Chinese Atrocity

One of the great mistakes committed by many pro-liberty enthusiasts in America is to forget how free we Americans still are compared to persons elsewhere, especially to persons outside of western Europe and the English-speaking world.  Yes, we Americans are not as free as we should be; our government insults and harasses us continually with pernicious regulations and taxes; our "leaders" typically are venal liars, with no more personal integrity than ordinary pick-pockets -- they would be clowns worthy of belly-laughs if their access to power over us were only pretend.

And, yes, the "war on terror" has further diminished our freedoms -- just as any "war" on an abstraction will inevitably create excessive power for the state.

But compared to people in much of the world Americans remain free.  I can write this blog and say pretty much whatever I wish to say.  I might be called nasty names by commentors, friendly critics might express their constructive criticisms, but I never worry about being arrested, fined, or imprisoned.  I can call George Bush whatever names I want; I can accuse the Congress or the Supreme Court or the FDA of stupidity, cupidity, or even treachery, and then sleep like a baby at night without fear of a midnight pounding on my door.

I want to be more free -- much more free.  But at the same time I recognize that the fate being suffered now by these four innocent young men in China is a fate that I and other Americans need not fear.

The goons who run the government in Beijing imprison people merely for writing publicly about democracy and other alternatives to the centralized behemoth bequeathed to China by Chairman Mao.  The Chinese government prevents people merely from expressing opinions that, in the view of the government, might "subvert state power."

These political prisoners should be freed immediately.  And those of us who live in freer societies should continue to press for all of our rights, and not forget or to take for granted the ones that we do possess.  And we should condemn the greater assaults on freedom committed against our fellow human beings in other, less-free parts of the world.

Mayor Mike's Most Recent Folly

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

Dear Editor:

With the creativity of a drunk sailor, Mayor Bloomberg proposes that poor people be paid to care for themselves - given cash rewards to do things such as stay in school, go to the dentist, and hold steady jobs ("... And Paying the Poor," June 20).

Your criticisms of his plan are on target.

I ask the Mayor if in running his private business he would seriously consider hiring anyone so unmindful of his or her future that that person would go through the motions of self-responsibility only if bribed to do so?  Surely the answer is no.

Paying someone to playact at self-responsibility no more creates a self-responsible person than paying someone to playact as a lawyer creates a skilled attorney.

Sincerely,
Donald J. Boudreaux

If A Disdains B's Freedoms, B Will Return the Favor

Ross Kaminsky, who blogs at Rossputin.com, very effectively defends the dating site eHarmony.com against those who want to use government to force it to cater also to gays.

Heterosexual me says, as Ross says, that I am neither Christian nor of the opinion that homosexuality is immoral.  But -- also like Ross -- I value freedom.  No private company should be compelled to cater to any group or groups that it chooses to avoid.  eHarmony has every moral right -- and should have every legal right -- to choose its clients and customers as it wishes.

Actions Speak Louder than Boos

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

Michelle Malkin is hot'n'bothered by the booing of Miss USA at the Miss Universe pageant in Mexico City ("Hostility...and hypocrisy," June 1).  She even wants President Bush to "speak out against" this dissing of America.

But actions speak louder than boos.  The actions of millions of Mexicans who come to America seeking opportunity demonstrate a profound affection for American civilization - a civilization rooted in an openness and optimism that Ms. Malkin and her xenophobic comrades want to replace with a nativist nationalism rooted in ignorance and fear.

Sincerely,
Donald J. Boudreaux

Civilized? Progressive?

Socialists do, after all, appeal to people who have little or no respect for private property rights....

(HT Jan Jorgensen)

Walter Williams and Casey Lartigue

Casey Lartigue, who hosts an exciting new XM radio show -- XM channel 169 -- will tomorrow interview GMU economist Walter Williams.  Time: 8:15am Eastern Time.  Tune in for entertaining enlightenment!

I Do Not Endorse The Policy Described Here (But Sen. Clinton Should)

Unlike Sen. Hillary Clinton, I do not believe that large holdings by foreign governments of debt issued by Uncle Sam is a cause for great concern.

But let me grant, for sake of argument, that Sen. Clinton's concerns about the amount of U.S.-government debt held by foreign governments are both real and justified.  Does it follow that the best remedy for this problem is trade restrictions?  I think not.

Remember, Uncle Sam is the one who spends much more than he reaps in taxes -- and this fact is not due to a decline in tax revenues.  If Sen. Clinton and her comrades in Washington did not spend so much, there would be less government debt for Tokyo, Beijing, London, and governments in other foreign capitals to buy.

In short, ultimate blame for the problem rests with Congress acting in cahoots with the President to spend beyond Uncle Sam's gargantuan tax-take.

So, if we take also as a given that Uncle Sam will continue to spend irresponsibly, why not attack the problem of foreign ownership of U.S. debt directly: why doesn't Uncle Sam announce that he will not pay debt held by foreign governments?  Sen. Clinton can make the announcement herself, something like "My colleagues and I, with the approval of the President, have decided that all debt that our government issues from this day forward will be paid on schedule only if it is held by non-foreign governments.  We will honor no debt obligations, issued from today forward, held by foreign governments."

I'm no financial wizard.  Perhaps there are ways that foreign governments can circumvent this restriction and still manage to hold in their portfolios lots of U.S treasuries.  But to the extent that Uncle Sam's refusal to pay debt obligations held by foreign governments would indeed reduce the amount of U.S.-government debt held by those governments, this policy would be a more direct means of addressing the concerns that motivated Sen. Clinton's letter to Treasury Secretary Paulson and Fed Chairman Bernanke.

Of course, such a policy would also reduce the attractiveness of U.S. treasuries, increasing Uncle Sam's cost of borrowing.  But so what?  If Sen. Clinton's concerns are valid, why not attack the problem directly -- by refusing to pay debt held by foreign governments -- rather than indirectly by imposing trade restrictions on American consumers?

Let me be clear: I do NOT favor such a policy of Uncle Sam refusing to pay off any of its debts that are held by foreign governments.  Nor do I favor trade restrictions as a means of dealing with this alleged problem.

But I do wonder why Sen. Clinton doesn't propose and support a policy of Uncle Sam refusing to pay any of its debts held by foreign governments.  The fact that she does not suggest and support such a policy -- the fact that, among the remedies she praises for this "problem," are protectionist legislative proposals offered by her Senate colleagues Byron Dorgan and Art Carden -- tells me that Sen. Clinton's motives are really protectionism in ugly disguise.

Defending Free Speech and Free Trade

Cato Institute scholars have very recently published important op-eds in Washington's daily newspapers.  The first appeared in yesterday's edition of the Washington Post; it is by Raja Kamal and Cato's Tom Palmer.  They defend the right to free speech in Egypt -- where it is, sadly, now under severe attack.  Kamal and Palmer open their op-ed with this sad fact:

A former college student, Abdelkareem Nabil Soliman, is sitting in an Egyptian prison, awaiting sentencing tomorrow. His alleged "crime": expressing his opinions on a blog. His mistake: having the courage to do so under his own name.

The second op-ed, in today's edition of the Washington Times, is by Cato's Dan Ikenson who challenges the arguments and assumptions trotted out almost daily now by the current gaggle of mercantilists occupying offices on Capitol Hill.  Here's a selection from Ikenson's op-ed:

Too many in Congress view exports as good, imports as bad, and the trade account as the scoreboard. Because the United States has a large and growing trade deficit, they reckon we are losing at trade. The reason we are losing, the story goes, is because our trade partners are cheating, and the Bush administration has turned a blind eye. The Democrats therefore intend to reverse our eroding economic standing through greater enforcement of our trade agreements.

An honest discussion about trade would note that as imports and our trade deficit have increased over the past year, five years, 10 years and 25 years (take your pick), the economy has expanded, creating an average of 1.8 million net new jobs each year since 1981. There is very clearly no inverse relationship between the level of imports and U.S. job creation. And in the sectors that compete most directly with imports, productivity gains (not import competition)account for the preponderance of job attrition.

Xenophobia is Poor Public Policy

My friend Ryan Young has this very nice letter published in today's edition of the Washington Post:

The Jan. 31 front-page article "Va. House Approves Bill on Illegal Immigration; Aim Is to Block Access to State, Local Funds" provided a real-world example of why government should not be in the business of funding charities: The money comes with strings attached.

In this case, charities that accept funds from the state would no longer be allowed to give aid to illegal immigrants.

Put another way, these charities would essentially be required by law to be xenophobic. They would also lose their right to decide for themselves whom they help. Certain state legislators would rather make that decision for them.

The only way for charities to avoid being bullied like this is to refuse state aid.

If this legislation makes it to the desk of Gov. Timothy M. Kaine (D), I hope he has the good sense to veto it.

RYAN YOUNG
Arlington

The Downside of Empire

The new issue of Econ Journal Watch is out.  I especially like the lead article -- by Christopher Coyne and Stephen Davies -- on the downside of empire.  Here's the abstract:

Abstract: Theodore Roosevelt used the US military to create what he called “civilized societies.”  A growing literature focuses on the economic benefits of empires, benefits sometimes referred to as “global public goods”.  Some authors, such as Mitchener and Weidenmier (2005) and Ferguson and Schularick (2006), neglect the associated public bads.  This paper highlights the potential public bads.  We formulate the leading public bads.  We explore the public bads in the context explored by Mitchener and Weidenmier, namely, the Roosevelt Corollary and Latin America.  Our discussion also moves to the broader plane, suggesting that the Roosevelt Corollary set a precedent for subsequent US military interventions around the world.  We use the ratings of political institutions issued by the well-known Polity IV index to further support a skeptical view of imperial public good provision.

Still Cool With Being Sanguine

Quoting my Favorite American of All Time, H.L. Mencken, Boston Globe columnist Jeff Jacoby reminds us that there is wisdom in remaining sanguine in the face of the current hysteria over global warming.

The Mencken quotation -- characteristically brimming with insight, wisdom, and wit -- is this:

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

For this reason, among others, I cannot join my colleague Tyler Cowen in joining Greg Mankiw's Pigou Club.  Even if global warming is a reality, another reality -- one with a much more consistent track record throughout history and across different countries -- is the perversity of political incentives.  Given these perverse political incentives (not to mention the inevitiable scrawniness of government's access to information and knowledge), I don't trust government to impose and administer a Pigouvian tax with sufficient disinterestness and skill to make such a tax a plausible policy option.

As I've written before, I'm quite prepared to concede that global warming is real --  although I'll not be surprised if, should I live as long as Ronald Coase (who turns 96 this month ) fears of global cooling will again supplant fears of global warming as the excuse for government to seize more of our money and our liberties in "exchange" for its promises to save us and lead us to salvation in which all marginal social costs are nicely equal to all marginal social benefits.

More Rangeling With the Draft

My friend Garin Hovannisian, a student at UCLA, has a wonderful op-ed in today's Christian Science Monitor.  In it, Garin exposes many of the faults -- indeed, the deep immorality -- of Charles Rangel's call to reinstate conscription.  Here's a clip, with emphasis added:

"[Had] members of Congress and the administration thought that their kids from their communities would be placed in harm's way," they would have rejected the war, Rangel says. But in the same breath, ostensibly to make the idea more palatable, he admits that draftees could opt out of the bloody streets and register at "our seaports, our airports, in schools, [and] in hospitals" instead.

So, had Bush's daughters been forced to read Dr. Seuss to kindergartners, maybe their father wouldn't have been so quick to the trigger. That logic seems suddenly less glamorous - indeed, almost tragic - considering that both women are already meeting the draft's standards; Jenna Bush is an intern at UNICEF and Barbara Bush volunteers with African AIDS patients.

But even if the draft forced old Washington's young aristocrats to share symbolically in a national burden, it would relieve their warmongering parents of an even heavier burden: the job to prove and advocate a case for war. If wars are manufactured by rich white men, then an all-volunteer force at least gives poor black men the choice not to buy in.

Hanson, Caplan, & Knight

Bryan Caplan links to Robin Hanson's comparison of "the abject deference the public gives to physicists with the stubborn defiance the public gives to economists."  Robin is right-on.  His comments called to my mind this passage from Chapter I, Part I of Frank Knight's great 1921 book Risk, Uncertainty, and Profit:

Finally, it makes vastly more difference practically whether we disseminate correct ideas among the people at large in the field of human relations than is the case with mechanical problems. For good or ill, we are committed to the policy of democratic control in the former case, and are not likely to resort to it in the latter. As far as material results are concerned, it is relatively unimportant whether people generally believe in their hearts that energy can be manufactured or that a cannon ball will sink part of the way to the bottom of the ocean and remain suspended, or any other fundamental misconception. We have here at least established the tradition that knowledge and training count and have persuaded the ignorant to defer to the judgment of the informed. In the field of natural science the masses can and will gladly take and use and construct appliances in regard to whose scientific basis they are as ignorant as they are indifferent. It is usually possible to demonstrate such things on a moderate scale, and literally to knock men down with "results." In the field of social science, however, fortunately or unfortunately, these things are not true. Our whole established tradition tends to the view that "Tom, Dick, and Harry" know as much about it as any "highbrow"; the ignorant will not in general defer to the opinion of the informed, and in the absence of voluntary deference it is usually impossible to give an objective demonstration. If our social science is to yield fruits in an improved quality of human life, it must for the most part be "sold" to the masses first. The necessity of making its literature not merely accurate and convincing, but as nearly "fool-proof " as possible, is therefore manifest.

A Loathsome Persecution

Whenever a true liberal is persecuted -- whenever a friend of freedom is silenced -- whenever anyone who champions the individual against the ridiculous romance of the state is threatened with violence because of his or her opposition to tyranny -- people everywhere are assaulted.

Tom Palmer draws my attention to this inexcusable persecution taking place today in Turkey of Dr. Atilla Yayla.

Rangeling with the Draft

Charles Rangel has renewed his calls for conscription -- a heinous institution built on the presumption that people are property of the state.

Rangel's main argument for the draft is that it makes Uncle Sam less likely to embark upon unjustified wars.  Rangel said that "There's no question in my mind that this president and this administration would never have invaded Iraq . . . if indeed we'd had a draft."

Here's a letter that I sent today to the New York Post in response to Rangel's proposal.

21 November 2006

Editor, The New York Post

Dear Editor:

Rep. Charles Rangel (D-NY) believes that by forcing the children and grandchildren of high government officials into the military, the draft would reduce Uncle Sam's likelihood of going to war ("Rangel: Bring On the Draft," Nov. 21).  In other words, Rep. Rangel recognizes that government makes irresponsible decisions whenever politicians have no large, personal stakes in the matters they decide.

Rep. Rangel's insight applies more broadly than he suspects.  It means also, for example, that minimum-wage legislation is ill-advised, for very few politicians have family members who are likely to lose jobs as a result of raising the minimum wage.

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

The Great Friedman

The Washington Times today published this letter-to-the-editor that I wrote about Milton Friedman:

A champion of human liberty

Milton Friedman was indeed a brilliant economist ("Nobel-winning economist Friedman dies at 94," Nation, yesterday).

Mr. Friedman also was a virtuoso debater. When, to endorse conscription over the volunteer military, Gen. William Westmorland said that he did not want to command "an army of mercenaries," Mr. Friedman piped up and asked, "General, would you rather command an army of slaves?"

Milton Friedman was one of history's greatest champions of liberty and human dignity.

DONALD J. BOUDREAUX
Chairman
Department of Economics
George Mason University
Fairfax

Milton Friedman, for me, has always existed -- always been -- always stood strong as a champion of truth and freedom.  I am sad beyond words that he is no longer with us.

Agitating for Ending the Insanity Called "The War on Drugs"

If I were not going to be out of town this week at a Liberty Fund conference devoted to the role of property rights, I'd attend this conference.  Radley Balko's take on the "war on drugs" is always informed and enlightening.  Randy Barnett and Paul Armentano are also very good and especially worthwhile to hear.