Cafe Hayek

Hi! Don Boudreaux Here for Free Markets!!!

It's easy for Very Smart People to poke fun at the likes of television pitchmen such as the late Billy Mays.  But John Stossel explains why such disdain is unwarranted.

The Unsung Successes of the Market

It's become an article of faith among lots of people that recent events prove (or at least suggest) that markets don't work very well.

Let's assume -- contrary to what my assessment of the evidence tells me -- that the housing bubble and its crash, along with the current ills suffered by Detroit and other sectors, are exclusively the fault of the market.

How much skepticism of markets would this fact generate relative to the amount of skepticism that is justified?  I think way too much.  The reason is that market successes go unnoticed and, hence, unappreciated.

The vast majority of market exchanges and relationships work smoothly and to the advantage of all participants.  Indeed, the market works so well and so consistently that it creates ever-higher expectations among the broad populace.  When these expectations are dashed, if only for a handful of persons and if only rarely, the market is deemed to have failed.

But despite the current downturn, the market continues to work well in its typical silence.  Do you have trouble today finding gasoline to buy?  Are your local supermarket's shelves not stocked with food, wine, and (watch for it soon!) Easter candy?  If your cat eats your socks, will you have trouble buying several new pair?  If your car's battery dies this afternoon, must you resort to bicycling or public transportation because you can't replace your dead battery?  If you're bored this evening with nothing to do, is there no movie you can go to or no DVD you can rent?  If you miss your mom in Minneapolis or your boyfriend in Boston, can you not call them on your cell-phone -- or even buy a plane ticket and go visit them?

Two items arrived in my e-mailbox this morning to drive home the remarkable success of markets.  The first is this excellent short essay by Bob Higgs.

The second is this hilarious, short dialog between the comedian Louis C.K. and Conan O'Brien.  (Note that O'Brien mistakenly believes that our modern standard of living is caused principally by technology.) (HT Rudy Schober)

Government Brings Out the (Undisciplined) Kid in Us

Here's a letter that I sent today to the Boston Globe:

Derrick Jackson wants government to reduce income differences among Americans ("Politely declining to touch the income gap," August 19).  Forget that even poor Americans today generally have greater access to goods and services than did middle-income Americans of a generation ago.  Instead ask: what kind of philosophy demands that government adopt and act on values that all decent parents teach their children to reject?

Who among us sends our children to school or to the playground with admonitions to begrudge classmates or playmates possessing nicer clothing or fancier toys?  Who among us counsels our youngsters to form schoolyard coalitions for forcibly confiscating expensive sneakers and video games from 'rich' kids for "redistribution" to poorer kids?  Who among us would not scold our children for such envy, and punish them severely if they participated in such thievery?

Children should avoid envy and learn to thrive by producing rather than by taking.  The same is true for adults.

Sincerely,
Donald J. Boudreaux

Reality Check

Everything is relative, of course -- but Jeff Jacoby's Boston Globe column of July 23rd offers evidence that Phil Gramm is correct that our economy today isn't as gruesome and foreboding as many pols and pundits proclaim it to be.  Here's a clip (citing, you'll notice, the important work of my colleague -- and EconLog's -- Bryan Caplan):

Voices of reason keep trying to point out that conditions are not nearly as bad as they were the last time consumers were this despondent. That was in May 1980, during the final year of the Carter administration, when the "misery index" - the sum of the inflation and unemployment rates - hit an excruciating 21.9. Inflation was then at 14.4 percent; unemployment was 7.5 percent. The numbers today are 5 and 5.5 respectively.

But voters don't want to be told to buck up. When former senator Phil Gramm, an economic adviser to John McCain, said last week that America had "become a nation of whiners" and described the current slowdown as a "mental recession," the backlash was immediate. McCain repudiated Gramm's remarks and quickly issued a statement assuring voters that he "travels the country every day talking to Americans who are hurting, feeling pain at the pump, and worrying about how they'll pay their mortgage."

Well, that's politics. Politicians who want to get elected genuflect to what Bryan Caplan, in "The Myth of the Rational Voter" calls the pessimistic bias: the "tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy."

Ideas Matter

Ideas do matter (or so I argue).

Two Letters on the Market

Today's edition of USA Today published this letter of mine:

Commentary writer Alan Webber applauds the idea of the so-called social business — one that "has a social cause, not just a financial goal." Webber also tells us: "Think of it as capitalism with a human face" ("Giving the poor the business," The Forum, Wednesday).

I don't question Webber's uncritical assumption that social businesses will work.

I do, however, question his hackneyed suggestion that the face of for-profit capitalism is inhuman.

No other economic system but capitalism has lifted billions of people so decisively out of poverty.

Economist Joseph Schumpeter noted this fact in 1942: "Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend them.

"It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to a rich man.

"Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."

And today's edition of the Baltimore Sun published this one:

Julie Sensat Waldren eloquently explains the difficulties of "being green" ("It's not easy being green," Commentary, May 17).

For example, consumers cannot possibly know how the environmental impact of disposable cups compares with that of ceramic cups whose production consumes lots of energy.

Contrary to a profusion of claims by naive pundits, the economy is far too complex for any person or even a committee of geniuses to trace the full environmental consequences of any of the hundreds of ordinary decisions consumers and producers make daily.

Economists since Adam Smith have taught that the best we can do is to have well-defined property rights that owners use and exchange as each judges best.

The unplanned result isn't an earthly paradise, but it's vastly superior to what emerges when people consciously aim to bring about a specific outcome in the overall pattern of economic activities.

"A Clean and Snappy Place!"

McDonald's makes the world a cleaner place.  So concludes Wharton's Adrian E. Tschoegl in his 2007 paper "McDonald's -- Much Maligned, But an Engine of Economic Development."  Here's the relevant passage (from page 12):

McDonald’s emphasis on cleanliness, including or especially in restrooms, has led its competitors to upgrade their facilities.  Before the first McDonald’s opened up in 1975, restrooms in Hong Kong’s restaurants were notoriously dirty (Watson 1997).  Over time, competitors felt compelled to meet McDonald’s cleanliness standards.  The same thing appears to be occurring in China (Watson 2000).  In Korea, McDonald’s introduced the practice of lining up in an orderly fashion to order food; traditional practice was simply to crowd the counter, with success in ordering accruing to the most aggressive (Watson 2000).  In the Philippines, Jollibee mimics McDonald's clean and well-lighted look.

Here's yet another small way that capitalism makes humans' environment safer and more pleasant.

Capitalism Day

On this Earth Day, I celebrate capitalism -- the institution that, far more than any other, has made human lives clean, safe, dignified, and culturally rich.  Capitalism is also responsible for giving people the wealth and leisure to permit them to mis-perceive nature as loving and bountiful, and to enjoy nature in a way that few of our pre-industrial ancestors could ever have enjoyed it.

So, on this Earth Day, I offer you here my essay, inspired by the work of Julian Simon, entitled "Cleaned by Capitalism."  Here are the central paragraphs:

Before refrigeration, people ran enormous risks of ingesting deadly bacteria whenever they ate meat or dairy products. Refrigeration has dramatically reduced the bacteria pollution that constantly haunted our pre-twentieth-century forebears.

We wear clean clothes; our ancestors wore foul clothes. Pre-industrial humans had no washers, dryers, or sanitary laundry detergent. Clothes were worn day after day without being washed. And when they were washed, the detergent was often made of urine.

Our bodies today are much cleaner. Sanitary soap is dirt cheap (so to speak), as is clean water from household taps. The result is that, unlike our ancestors, we moderns bathe frequently. Not only was soap a luxury until just a few generations ago, but because nearly all of our pre-industrial ancestors could afford nothing larger than minuscule cottages, there were no bathrooms (and certainly no running water). Baths, when taken, were taken in nearby streams, rivers, or ponds, often the same bodies of water used by the farm animals. Forget about shampoo, clean towels, toothpaste, mouthwash, and toilet tissue.

The interiors of our homes are immaculate compared to the squalid interiors of almost all pre-industrial dwellings. These dwellings’ floors were typically just dirt, which made the farm animals feel right at home when they wintered in the house with humans. Of course, there was no indoor plumbing. Nor were there household disinfectants, save sunlight. Unfortunately, because pre-industrial window panes were too expensive for ordinary families and because screens are an invention of the industrial age, sunlight and fresh air could be let into these cottages only by letting in insects too. Also, bizarre as it sounds to us today, the roofs of these dwellings were polluted with all manner of filthy or dangerous things. Here’s the description by historians Frances and Joseph Gies, in Life in a Medieval Village, of the roofs of pre-industrial cottages:

Roofs were thatched, as from ancient times, with straw, broom or heather, or in marsh country reeds or rushes. . . .  Thatched roofs had formidable drawbacks; they rotted from alternations of wet and dry, and harbored a menagerie of mice, rats, hornets, wasps, spiders, and birds; and above all they caught fire. Yet even in London they prevailed.

Peace and free trade.

Promoting Safe Driving

My George Mason University colleague Gordon Tullock famously remarked that the best way for government to reduce the number of traffic fatalities is for it to mandate that a sharp steel dagger be mounted on the steering column of each vehicle and pointed directly at each driver's heart.  Forget about all other regulations and mandates; that dagger will ensure safe driving.

This town in Germany is using the same sound economic reasoning that inspired Gordon's remark.

Progressive Superstition

Here's a letter that I sent today to the Gray Lady:

Opposed to globalization, Jeff Milchen asserts that "The only truly sustainable path for business in the 21st century is localization" (Letters, November 23).  Mr. Milchen should learn some history.  He can begin with Fernand Braudel's 1981 book The Structures of Everyday Life, which details the living standards of ordinary Europeans during the late middle ages.  This era was emphatically one of localization: people consumed only locally grown foods and locally made clothing.  All building materials were local.   There were no highways, railways, or CO2-emitting engines to pollute the local atmosphere with greenhouse gases or with foreign goods and foreign ideas.

But paradise had its price.  Starvation was common, as was death by plague.  Giving birth was more dangerous for women than a game of Russian Roulette. People lived in tiny one-room dirt-floor huts without indoor plumbing. During the winter, some of the farm animals (all local!) shared these accommodations.

What little "business" there was during the long era of localization - subsistence farming - might have been sustainable, but human dignity and human life certainly were not.

Sincerely,
Donald J. Boudreaux

I googled "Jeff Milchen" and, not surprisingly, found that he frequently is identified with so-called "Progressives."  Ironic, isn't it, that "Progressives" advocate a return to the economic arrangements of the dark- and middle-ages?

"It's Getting Better All the Time"

If the New York Times and other major, elite news outlets are to be believed, the only real question today is whether ordinary people will meet their end by being roasted or flooded to death by man-made global warming or by being crushed -- as they crawl in search of crumbs of toxic food not grown locally -- beneath the diamond-studded heels of boots worn by the richest one-percent of the population.

Patrons of the Cafe know that Russ and I are generally skeptical of most of the fear-mongering about the state of humanity.  Admittedly, we are both deeply influenced by the late Julian Simon, who is, in my opinion, the most underrated economist ever to live.

So I'm delighted to learn that Manoj Padki has started the wonderful new blog "It's Getting Better All the Time" (whose title comes from this book written by Julian Simon and his student Stephen Moore).  In this blog, Manoj will report and document many of the countless ways that humans are progressing.  I will visit Manoj's blog at least once each day.

Cleaned by Capitalism

I sent this letter today to the Baltimore Sun:

You again call upon government to force us Americans to reduce our emissions of CO2 ("Green and right," November 2).  And like nearly everyone else demanding further regulation of markets in the name of environmental protection, you overlook the fact that the very markets that you want to restrain save millions of lives annually by making people's living environments cleaner.

For evidence, read Margo Thorning's essay that appears today just inches from your own editorial.  In "Ending energy poverty," Ms. Thorning reports that "About 1.3 million people - mostly women and children - die prematurely every year because of exposure to indoor air pollution from burning biomass for fuel."  These deaths happen routinely in developing countries because people there have so little access to electrification, internal-combustion engines, and mass-produced consumer goods that they must burn biomass in their homes.  So in developed countries – whose denizens enjoy ready access to electric heating, home delivery of fuel oil, and other life-saving wonders - the capitalism that people loudly fear might raise global temperatures a few degrees over the next several decades silently yet effectively saves thousands of lives each and every day.

Sincerely,
Donald J. Boudreaux

And Think of the Horrors Unleashed by Penicillin!

Here's one of the most absurdly ridiculous lines that I've read in a long time; it was penned by Alexander Cockburn, writing in the November 5, 2007 issue of The Nation:

Line up some of the more notorious Nobel Peace Prize recipients, such as Kissinger, and if you had to identify the biggest killer of all it was probably Norman Borlaug, one of the architects of the Green Revolution, which unleashed displacement, malnutrition and death across the Third World.

Shameful, on so many levels (one of which is that this sentiment drains credibility from the bulk of this article by Cockburn, which attempts to expose Al Gore's hypocrisy).

(HT: Joe Mann)

By the way, Gregg Easterbrook, in his tribute to Norman Borlaug (from the January 1997 issue of The Atlantic) wrote that

Perhaps more than anyone else, Borlaug is responsible for the fact that throughout the postwar era, except in sub-Saharan Africa, global food production has expanded faster than the human population, averting the mass starvations that were widely predicted -- for example, in the 1967 best seller Famine -- 1975!   The form of agriculture that Borlaug preaches may have prevented a billion deaths.

And here's an earlier entry from here at the Cafe about Dr. Borlaug.

Mike Munger is never late

Or so you might think after reading his essay on the economics of meetings. What is certainly true is that a man of Mike's talents certainly spends too much time in meetings.

Tyler's New Book

I highly recommend Tyler Cowen's new book, Discover Your Inner Economist.

Here's one of my takes on it.

Jibbitzing in the Prosperity Pool

Earlier this month, Karol and Thomas and I vacationed at our favorite vacation spot: Cape Cod.

While there, Thomas and I bought our first pairs of Crocs.  They're wonderful shoes for casual wear.  The woman who sold them to us told us about something that we'd never before heard of: Jibbitz.  Jibbitz are little decorations that fit into any one of the many holes featured on each pair of Crocs.  These tiny items are mostly ornamental -- allowing each Croc wearer to express his or her individuality -- but they also are functional, for they can help to identify one pair of Crocs from another.

(Neither Thomas nor I wanted any Jibbitz, by the way.)

The fascinating thing about Jibbitz, though, is that the inventor turned this idea into a business that he and his wife sold for $20 million.  What a  wonderful outcome!

Note that this invention isn't high-tech -- it's about as simple as simple can be.  Yet it is indeed something that enough consumers choose to buy at prices that make the product profitable to produce.

Jibbitz -- another few drops of prosperity in our vast Prosperity Pool.

Abundant Social Change

I just started reading Brink Lindsey's new book, The Age of Abundance: How Prosperity Transformed America's Politics and Culture.  I'm just about 60 pages into it, and so far I'm enjoying it immensely.  I especially like this observation (that appears on page 3):

American capitalism is derided for its superficial banality, yet it has unleashed profound, convulsive social change.  Condemned as mindless materialism, it has burst loose a flood tide of spiritual yearning. The civil rights movement and the sexual revolution, environmentalism and feminism, the fitness and health-care boom and the opening of the gay closet, the withering of censorship and the rise of a "creative class" of "knowledge workers" -- all are the progeny of widespread prosperity.

Ooops

I took down my bottle top explanation until further review. There's a flaw in the reasoning so I'm now I'm even more perplexed. I hope to have a new post up next week.

Bottle tops

I went to the Nationals baseball game last night and was surprised to discover that when you buy a bottle of Pepsi, the concession stand person removes the top before letting you walk away. She was apologetic and I quickly discovered why—it's much harder to carry two sodas, a hot dog and a pretzel when the tops aren't on the bottles. When I asked her why she had to remove the caps, she explained that they don't want people throwing the tops onto the field. I have a different explanation. Can you come up with one?