Cafe Hayek

Broder Unwittingly Helps to Expose the Beast

I sent this letter a few days ago to the Washington Post.  I truly don't get the faith that so many people have in politicians and in politics.

The Post's dean of political analysts, David Broder, today unwittingly reveals two malignancies of politics ("The Price of Delay," May 11). First, politicians are cowards.  Broder notes that dozens of Democratic Senators "desperately" want their party's primary race finally to end, but still refuse publicly to endorse Barack Obama.  Broder quotes Majority Whip Dick Durbin for an explanation: "They want to avoid hard votes."

Second, successful politicians must behave duplicitously.  Here's Broder: "Since McCain effectively cinched his nomination in February and mostly fell out of the news, he has accomplished a lot. He has targeted potential constituencies with appearances and messages tailored for them, knowing that other voters probably are not paying attention."  Broder casually adds that "Obama needs to do similar work."

This isn't leadership; it's cowardly con-artistry.

Sincerely,
Donald J. Boudreaux

A Great Arrrgggument

One of my and Russ's impressive young colleagues, Pete Leeson, has his research discussed in today's edition of the Boston Globe.  (HT Pete Boettke)

Leeson makes clear that pirates on the high-seas evolved their own social order, one that makes good sense from the perspective of positive economics.  Here's a slice from the article:

The pirates who roamed the seas in the late 17th and early 18th centuries developed a floating civilization that, in terms of political philosophy, was well ahead of its time. The notion of checks and balances, in which each branch of government limits the other's power, emerged in England in the Glorious Revolution of 1688. But by the 1670s, and likely before, pirates were developing democratic charters, establishing balance of power on their ships, and developing a nascent form of worker's compensation: A lost limb entitled one to payment from the booty, more or less depending on whether it was a right arm, a left arm, or a leg.

The idea of enlightened piracy is strange swill to swallow for those steeped in a pop culture version of the pirate - chaos on the high seas, drinking and pillaging, damsels forced onto the plank. Sure, there's something about the independence of piracy that still speaks to people today. (Even the founders of International Talk Like a Pirate Day acknowledge that there is, in people who love to say "Aargh," a yearning for a certain kind of freedom.) But it turns out that pirate life was more than just greedy rebellion. It offers insights into the nature of democracy and the reasons it might emerge - as a natural state of being, or a rational response to a much less pleasant way of life.

To Leeson, pirate democracy was an institution born of necessity. In one successful cruise, a pirate could take home what a merchant sailor earned in 50 years. Yet a business enterprise made up of the violent and lawless was clearly problematic: piracy required common action and mutual trust. And pirates couldn't rely on a government to set the rules. Some think that "without government, where would we be?" Leeson says. "But what pirates really show is, no, it's just common sense. You have an incentive to try to create rules to make society get along. And that's just as important to pirates as it is to anybody else."

So just as Buchanan, Tullock, and Mancur Olson were pioneers in using economics to help us to better understand the behaviors and institutions of stationary bandits, Pete Leeson is using economics to help us to better understand the behaviors and institutions of floating bandits

Stamping Our Feet

Tomorrow, the price of a first-class postage stamp in the U.S. rises from 41 cents to 42 cents.  This price hike by a legally protected monopolist (the United States Postal Service) prompts me to reprint the following letter that my friend (and former colleague at GMU) George Selgin and I published in the April 4, 1994 edition of the New York Times:

To the Editor:

It has been suggested that, because the nominal price of first-class postage is about where it was in the late 18th century, Americans who complain about the proposal to increase postal rates are merely whining wimps who are lacking in historical perspective.

However, the real price of transportation (a key input in postal service) has plummeted over the last 200 years. In 1799 it took 53 days for an Army courier to travel from Detroit to Pittsburgh.

Today the same trip can conveniently be made in minutes. Likewise, the productive efficiency of the United States is vastly greater now than it was even a few decades ago.

Given the plunge in transportation costs, joined with other technological improvements and a large increase in the scale of postal activity, the price of postage should have fallen dramatically.

Americans do not oppose postal-rate increases because of their ignorance of history. 

Rather, opposition to these increases grows from the correct perception that a legally protected monopolist such as the United States Postal Service can keep prices higher, and service inferior, to what these would be under competition.

Regardless of how today's postal rates compare with rates in the past, opening the delivery of first-class mail to competition would lower rates still further while improving service.

DONALD J. BOUDREAUX, G. A. SELGIN
Clemson, S.C.,
March 24, 1994

The writers are, respectively, an associate professor of legal studies at Clemson University and an assistant professor of economics at the University of Georgia, Athens.

Workers and Employers

Let's reflect on an implicit presumption -- indeed, I'm sure, a presumption held unawares -- that undergirds many familiar discussions of workers' relationships with employers.

This common presumption is that employers generally are philanthropic benefactors of their employees.

Consider that many pundits, politicians, and ordinary folks believe that workers are expendable - that one of the surest and least-painful ways for firms to cut their costs and improve their bottom lines is to fire workers.  This belief make sense only if workers contribute little to firms' profits.  Put differently, this belief make sense only if, in employing workers, firms don't expect much in return.

In short, this belief makes sense only if most workers are overpaid.

A worker who is not overpaid is a worker whose compensation reflects pretty accurately that worker's contributions to his employer's revenues.  So if a firm fires workers who are not overpaid, that firm suffers a loss of revenue at least equal to the compensation that that firm would have to pay those workers in order to keep them in its employ.  Such properly paid workers are not expendable; firing them is not key to improving the firm's bottom line.

Of course, if workers are underpaid, the above holds true with special ummpphhh.  An underpaid worker is one who contributes more to his employer's revenues than that employer pays to keep that worker on the job.  So firing underpaid workers is an especially bad deal for their employers.

So in this view – what we might call the “Progressive” view - workers are seen as contributing little to their employers (which is why employers can so blithely fire workers).  At the same time, employers are seen as contributing enormously and philanthropically to their workers.  “Enormously” because the presumption is that the typical worker’s next-best employment option would pay him or her much less than he or she makes in the current job, and “philanthropically” because the presumption is that the worker is paid more than he or she is worth to the employer.

Strange economics.

Rational Depending on Context

Bryan Caplan's book The Myth of the Rational Voter : rationally, I'm a big fan.

Unreasonable Reasonableness

Here's a letter that I sent today to the Wall Street Journal:

Adhering to the general practice of saying that free trade has both winners and losers, you introduce two letters on Nafta with the heading "Nafta Has Helped Some, Hurt Some" (Letters, May 2).  But this familiar endeavor to appear reasonable misleadingly implies that trade across political boundaries has a unique propensity to help some and hurt others.  In fact, any economic change helps some and hurts others.

Would you introduce letters on the polio vaccine with "Vaccine Has Helped Some, Hurt Some"?  After all, the vaccine eliminated jobs for workers who made crutches, wheel chairs, and iron-lung machines.  Of course, the benefits of the vaccine - especially over the long run - far outweigh the costs.  Likewise with consumers' freedom to spend their incomes as they choose.  And free trade is nothing more than consistently allowing consumers to spend their incomes as they choose.

Sincerely,
Donald J. Boudreaux

This earlier post of mine addresses the same point in a slightly different way.

Frankly, Zywicki's Got the Better Argument

GMU law professor, and my former classmate at UVA Law, Todd Zywicki wrote this excellent letter appearing in today's edition of the Washington Post:

In his April 27 op-ed, "Don't Blame All Borrowers," Robert H. Frank argued that the quest for better schools for their children has led many parents to overspend on housing. He cited "The Two-Income Trap," a book by Elizabeth Warren and Amelia Warren Tyagi, to make this argument.

But Ms. Warren and Ms. Tyagi's own data do not support Mr. Frank's claim. In fact, from the 1973 to 2000, the percentage of household income dedicated to mortgage payments actually declined. So where did all the money go? To taxes -- which, all told, rose a whopping 140 percent in constant dollars.

In some part, this is a result of "the two income-tax trap": When a spouse enters the workforce, he or she is immediately taxed at a higher marginal rate than one worker would be alone. But it is also because of increases in myriad state and local taxes, notably property taxes, which have risen along with real estate prices.

If Mr. Frank is concerned about the financial plight of the middle class, the answer seems clear: He should be arguing for a reduction in the tax burden, not about some chimerical "bidding war" for homes near good schools.

TODD J. ZYWICKI

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?"

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.

The Goal Is Consumption

I sent this letter a few days ago to the Washington Post:

Emily DeRocco complains that "The April 9 Business article 'Don't Blame NAFTA for Downturn, Many Economists Say' quoted politicians, economists and labor representatives but not a single manufacturer - those at the heart of this wrenching debate" (Letters, April 12).

She's mistaken. Those at the heart of this debate aren't manufacturers (or politicians, economists, or labor representatives).  Those at the heart of this debate are consumers.  Or, those at the heart of this debate should be consumers.  Unfortunately, consumers are too large in number and too disparate in interests to organize effectively for political purposes.  The result is that consumers' interests in trade discussions are largely ignored, even though an economy's success is measured not by how well that economy satisfies the wishes of producers, but exclusively by how well, over time, it satisfies the demands of consumers.

Sincerely,
Donald J. Boudreaux

Producers exist to satisfy consumers; production is the means and consumption is the end.  Protectionism is a policy built on the premise that consumers exist to satisfy producers.

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.

Mark Perry on Krugman and the Jobless Rate

Carpe Diem's Mark Perry carefully investigates and clearly explains -- much better than I do here -- the likely source of Paul Krugman's mistaken claim, in yesterday's New York Times, that "the percentage of prime-working-age Americans without jobs . . . is historically high."

Mark reached the same conclusion that I reached: Krugman mistook "men" for "all workers."

Using what is likely the same data source used (but carelessly so) by Krugman -- and looking at the jobless rates of both men and women -- Mark concludes

Krugman says "the percentage of prime-working-age Americans without jobs is historically high," which is clearly not accurate. It would be more accurate to say that it is close to being historically low.

Krugman's Peculiar Sense of History

Paul Krugman makes a claim in his column (appearing in today's New York Times) that is both wrong and misleading.

The column features his familiar theme that ordinary Americans are suffering terribly as a result of the decrepit shape of America's current, GOP-ransacked economy.  Krugman's offending statement is the one in bold:

Our [that is, ordinary Americans'] bleakness partly reflects the fact that most Americans are doing considerably worse than the usual economic measures let on. The official unemployment rate may be relatively low — but the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high. [emphasis added]

Sounds ominous.  But what does this figure mean?  The closest statistic that I can identify to "percentage of prime-working-age Americans without jobs" is to start with (one minus) the labor-force-participation rate of Americans aged 25-54.  Then adjust that figure for the unemployment rate of Americans in that age group.

For example, if 90 percent of Americans between the ages of 25-54 are participating in the labor force (that is, either have or are seeking employment), then ten percent of Americans in this age-group are without jobs by choice (some, for example, are stay-at-home parents).  These ten percent of Americans without jobs are not "unemployed," for they are not in the labor force.

Then, to determine the actual number of prime-working-age Americans who are "without jobs," we must add to this 10 percent of Americans, in this age group, who are without jobs because they aren't in the labor force whatever percentage of the remaining 90 percent of Americans aged 25-54 are unemployed.  BUT because there's no reason to suppose that unemployment is hitting workers in this age group today significantly any harder or less hard (relative to workers in other age groups) than in the past -- and because, by Krugman's own admission, today's unemployment rate of 5.1 percent isn't especially high -- we can ignore this unemployment rate for my purposes.

So what am I getting at?  This: Krugman's statement that "the percentage of prime-working-age Americans without jobs, which isn’t the same thing, is historically high" is, as I said above, both wrong and misleading.

Look at Figure 1B on this page from the San Francisco Fed.  (HT Russ.)  It does not show the labor-force-participation rate for all Americans aged 25-54; rather, it breaks down the participation rate for Americans in this age group by sex.

Look at the labor-force-participation rate of men (aged 25-54).  That rate is indeed lower than in the past.  For the full time period reported in this Figure, that rate is indeed at an all-time low.  It peaked in 1953, and has been declining ever since.

Now look at the labor-force-participation rate of women (aged 24-54).  Not surprisingly, it has surged in recent decades, although leveling off a bit since around 1990 and even declining a tiny bit since around 2000.

It's highly unlikely that, given that today prime-working-age women participate in the labor force at rates vastly higher than was true even in, say, 1975, that the percentage of all Americans aged 25-54 who are "without jobs" is today lower than it was thirty or even twenty years ago.

Whatever is the percentage of prime-working-age Americans who are today "without jobs," it surely isn't -- contrary to Krugman's hysterical claim -- "historically high."

One possibility is that Krugman saw these, or similar, data and confused "men aged 25-54" for "all workers aged 25-54."  If so, then he's correct that the percentage of men in this age group "without jobs" is "historically high" (where "history" here is confined by the data that go back no farther than the late 1940s).  But today's "historically high" figure is part of a trend that began during the first year of the presidency of Dwight Eisenhower.  At that time, George W. Bush was seven years old.

(Note also that, although the labor-force participation rate of prime-working-age men has been declining for a half century, the trend is slight.  Even today's "historically" low figure is pretty darn high.)

So, to summarize.  Krugman is simply wrong to assert that the percentage of Americans of prime-working-age without jobs is "historically high" -- and misleading to suggest that, whatever this percentage might be today, that it is evidence of some major economy malady.  A rise in the percentage of prime-working-age persons "without jobs" might just as well reflect greater middle-class prosperity -- resulting in more years of schooling or early retirement -- as it reflects economic hardship (such as workers so discouraged by their futile job searches that they just call such searches to a halt).

BTW, this post from Megan McArdle on labor-force-participation is worth reading.

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.

Optimal Population?

In his new book, Common Wealth, Jeffrey Sachs expresses his concern about population growth.  Worried by a U.N. prediction that global population will rise to 9.2 billion by the year 2050, from 6.6 billion today, Sachs says (on page 23 of his new book) the following about these additional 2.6 billion persons:

I will argue at some length that this is too many people to absorb safely, especially since most of the population increase is going to occur in today’s poorest countries.  We should be aiming….to stabilize the world’s population at 8 billion by midcentury.

(HT Karol Boudreaux)

Eight billion.  I'm not sure where Sachs got that number.  And, to be frank, I'm not curious about where he got it.  He could have dreamed it up in his sleep, or taken it from a multi-year study conducted by a lavishly funded committee made up of the world's most accomplished economists, demographers, environmentalists, statisticians, physicians, and other Very Smart Experts.  No matter where the number comes from, it's worthless.  There is simply no way to know how many persons the earth can "support" in the year 2050 (or any other year, for that matter).

First is the question: support at what standard of living?  Even if we grant the validity of the resources-are-very-tightly-limited supposition (upon which fear of population growth chiefly rests), there is no objective, scientifically determinable "optimal" number of people who can be alive at any one time.  According to the resources-are-very-tightly-limited supposition, the less that people consume, the greater are the amounts of resources that will be left for the future -- the greater is the earth's carrying capacity.  In this view, resources are simply 'out there,' waiting to be gathered, processed, and consumed by humans.  So more humans (or the same number of humans consuming more) will deplete resources faster than will fewer humans (or the same number of humans consuming less).

So on this resources-are-very-tightly-limited supposition, as people decrease their material standard of living, the earth can sustain a larger population.

How do we know today at what average standard of living persons alive in 2050 will seek to achieve?  We don't.  It's conceivable that the typical person alive in 2050 will have become so devoted to saving the earth that the prevalent culture and norms will dictate that most persons settle for material living standards lower than those that ordinary Americans enjoy today -- or, perhaps even lower than ordinary Americans enjoyed in 1950.  If so, then surely the "optimal" global population in the year 2050 will be lower than it would be if most persons alive in 2050 will seek to achieve living standards much higher than ordinary Americans now enjoy.

A much deeper problem with Sachs's eight-billion number is that, in calculating it, there is no way to predict how human creativity will alter the world during the next 42 years.  It's ludicrous to pretend that we can know now what, say, the average MPG will be for internal-combustion engines in 2050.  Hell, we don't even know if automobiles and lawnmowers and the like will still use such engines then.

Will another Norman Borlaug arise, between now and 2050, to spark another green revolution?  Will someone invent a way to efficiently power automobiles with air?  Will someone develop new and better techniques for defining and enforcing private property rights in ocean-going fish stocks so that the tragedy of the commons called "over-fishing" is eliminated?  Will an enterprising entrepreneur invent a means for ordinary households to power their homes with mulch or autumn leaves or small fragments of fingernail clippings?

Think back 42 years to 1966.  Who in that year imagined personal computers in nearly every home in America?  The Internet?  Digital cameras?  Cell phones?  Quality wines sold in screw-top bottles?  Buying music with literally the click of a button (and not having to burn fossil fuels in driving to the record store).  Aluminum cans that contain only a fraction of the metal that cans contained back then?  The Kindle (that will reduce the number of trees cut down to enable people to read books)?  Medical advances that make hip-replacements about as routine as getting cavities filled by the dentist?  Microfiber?

There is no way -- literally, no way -- to know how technology and social institutions will change between now and 2050.  Given this impossibility -- and given the fact that we can nevertheless predict with confidence that technology will advance and that social institutions will change -- to assert that "optimal" population in the year 2050 will be eight-billion persons is ludicrous in the extreme.  It's faux-science, and deserves only ridicule.

The Market, Not Nature, Is Bountiful

Robert Kennedy, Jr., recently wrote this letter to the editor of the New York Times expressing his opposition to building hydroelectric dams in Chile.  I sent my own letter in response to Mr. Kennedy's missive:

Robert Kennedy, Jr., might be correct that electricity is best provided in Chile by means other than hydroelectric dams (Letters, April 8). His presumption, however, about the source of prosperity casts doubt on the quality of his argument.

Mr. Kennedy opposes dams because he wants to protect "nature's bounty."  But nature is not bountiful. If it were, human history would be one of prosperity and long, healthy lives rather than one of oppressive poverty and short, miserable lives.  Nature is miserly.  The bounty that Mr. Kennedy presumes comes from nature is, in fact, the relatively recent product of human creativity and industry unleashed by free markets - and now threatened by the mindless worship of nature.

Sincerely,
Donald J. Boudreaux

The Monster That Is Mercantilism

The Washington Times recently published this letter by William Hawkins.  It's proof that the monster that is mercantilism remains alive, kicking, and screaming.

Today's edition of the Washington Times published a letter that I sent in response.  Here it is:

Not only does William Hawkins misunderstand the principle of comparative advantage, but he incorrectly suggests that it is the lone pillar supporting the case for free trade ("Economic theory ignores reality," Letters, Monday).

Adam Smith didn't know about comparative advantage when he wrote "The Wealth of Nations," but his case for free trade remains powerful. Smith explained that free trade expands the size of markets, making possible capital investments and greater specialization of workers.

These investments, along with the improved skills that highly specialized workers learn, increase output and wages. Confining economic activity to the nation keeps the market artificially small and, thereby, reduces opportunities for output-expanding investment and specialization.

Smith also explained a danger that Mr. Hawkins who wants government to pick economic "champions" overlooks: "The statesman who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."

DONALD J. BOUDREAUX

Get Involved By Avoiding Politics

Get involved!  And the best way to do so is to avoid politics.  I elaborate in my column appearing in today's Pittsburgh Tribune-Review.  Here are a few paragraphs:

It's a mistake to applaud greater involvement in politics as if such involvement is by its very nature the best use of people's time and effort. A more serious delusion is that politics is the only -- or, at least, the most noble -- venue for each of us to get "involved" with our fellow humans.

In fact, though, we are involved even when we pay no attention to politics. We care for our families, support our friends, work at jobs that produce goods and services for millions of people and are active members of churches and clubs. Each of us is intensely involved, daily.

Indeed, we are involved better and more fully when we act privately (that is, outside of government) than when we act politically.

Acting privately, none of us intrudes without invitation into other people's affairs. I might volunteer my opinion to my friend that he drinks too much but my friend can ignore me if he chooses. I have no way to force him to live as I believe he should live. For me, then, to become as involved as possible with my friend, I must strive to share my concerns with him in ways most likely to resonate with him.

Good friends and close family members are involved in each other's lives truly and deeply. Our friends and loved ones are not faceless abstractions ("drinkers" or "smokers" or "workers"). Each is an individual with unique desires and complexities. To share friendship or love with someone is to learn, understand and generally respect these individual characteristics.

Regardless of what any silver-tongued politician says, no stranger feels our pain or can otherwise be involved with us in ways remotely as real as are the ways that our friends and loved ones are involved with us.

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.

I [Heart] America's Trade Deficit!

In his brilliant book, The Myth of the Rational Voter, my colleague (and EconLog's) Bryan Caplan identifies the "anti-foreign bias" as a major impediment to economic enlightenment.  That bias is real and ubiquitous -- see, for example, this recent essay by Peter Morici at Forbes.com.

I sent the following letter in response to Mr. Morici's essay:

Peter Morici unloads a riotous barrage of accusations against free trade: Free trade caused, among other misfortunes, the collapse of the market for adjustable-rate mortgages, excessively high CEO compensation, inflationary monetary policy, and Uncle Sam's inexcusable bailout of Bear Stearns ("It's Time To Cut The Trade Deficit," March 26).  Mr. Morici, however, doesn't explain how allowing consumers to take advantage of bargains from abroad caused these calamities.  He simply assumes it to be self-evident that America's growing trade deficit proves that free trade triggers countless system-wide maladies.

Alas, Mr. Morici doesn't know what he's talking about.  America's trade deficit represents capital flowing into the U.S.  True, some of this inflow finances Uncle Sam's Eliot-Spitzer-party-like spending.  But that spending is caused by reckless politicians, not consumers.  Nearly all the rest of the trade deficit represents positive investments in America - investments that not only signal continued investor confidence in the U.S. economy but, more importantly, investments that finance R&D, product development, worker training, new firms, factory modernization, and other activities that promote economic growth.  Does Mr. Morici really think that such investments harm Americans?

Sincerely,
Donald J. Boudreaux

Nothing Unbalanced About So-called "Trade Deficits"

In this recent Wall Street Journal op-ed, Dartmouth economist Matthew Slaughter describes some of the benefits of foreign direct investment (FDI).  Here's an important part of his essay:

Foreign direct investment (FDI) has long been a source of strength for the American economy. In 2005, insourcing companies employed nearly 5.1 million Americans, 4.4% of the private-sector labor force. Beyond their employment, insourcing companies perform large amounts of the crucial activities that make their workers and the overall economy more productive. They invest in physical capital and in research and development, and they help connect the U.S. to the global economy through international trade. The bottom line is larger paychecks. In 2005, compensation per worker at insourcing companies was $66,042 -- 31.8% above the average for the rest of the private sector of $50,124.

I do, though, pick one (admittedly small) nit with Mr. Slaughter's exposition, as I explain in this letter that I sent to the WSJ:

Bravo for Matthew Slaughter's outstanding explanation of the pattern and enormous benefits of foreign direct investment (FDI) in the United States ("What Tata Tells Us," March 27).

I've one nit to pick: Mr. Slaughter incautiously aids and comforts protectionists when he writes that FDI today is driven by "the evolving pattern of global imbalances." While incoming FDI does indeed increase America's current-account deficit and many other countries' current-account surpluses, there's nothing unbalanced - either in the sense of being unsustainable or of being harmful - about America's attractiveness to investors, or about foreigners being especially keen to invest their dollars in the U.S. rather than spend these dollars on American-produced goods and services.  Indeed, as Mr. Slaughter ably explains, such actions by foreigners are a great boon to foreigners and Americans alike.

Sincerely,
Donald J. Boudreaux

"Earth Hour" and the Dark Ages

The World Wildlife Fund arranged today's "Earth Hour" -- a pledge by many people from around the world to turn off lights for an hour.  The following is from a page on the WWF website:

Earth Hour is a global event created to symbolize that each one of us, working together, can make a positive impact on climate change - no matter who we are or where we live.

Created by WWF in Sydney, Australia in 2007, Earth Hour has grown from a single event into a global movement. In 2008, millions of people, businesses, governments and civic organizations in nearly 200 cities around the globe will turn out for Earth Hour. More than 35 US cities will participate, including the US flagships--Atlanta, Chicago, Phoenix and San Francisco.

Earth Hour brings together communities, local governments, corporate and nongovernmental organizations to heighten awareness about climate change and to inspire our nation to take practical actions to reduce their own carbon footprints.

Reading about the WWF's "Earth Hour" -- and hearing on the radio and t.v. too many mindless endorsements of this stunt, and seeing Google's special black "Earth Hour" design for its opening page today -- I sent the following letter to Carter Roberts, President of the WWF:

Dear Mr. Roberts:

You and members of your organization worry that industrialization and economic growth are harming the earth's environment.  I worry that the intensifying hysteria about the state of the environment - and that the resulting hostility to economic growth - might harm humankind's prospects for comfortable, healthy, enjoyable, and long lives.

So I commend you on your "Earth Hour" effort.  Persuading people across the globe to turn off lights for one hour supplies the perfect symbol for modern environmentalism: a collective effort to return humankind to the dark ages.

Sincerely,
Donald J. Boudreaux

By the way, of course, the WWF should award some special prize to the North Korean government, for that government keeps North Koreans not in any meager "Earth Hour," or even "Earth Day," but in what WWFers might call "Earth Decades" -- very little light ever.  This picture of the Korean peninsula speaks volumes -- the Dark Ages today; a society keeping its carbon footprint tiny.  Of course, in doing so it keeps itself also desperately poor, often even to the point of starvation.

Memories

I certainly remember attending the December 1985 meeting of the American Economic Association in New York.  When I walked into the hotel lobby, I was immediately surrounded by economists, dozens, perhaps hundreds, of them praising my unpublished doctoral dissertation.  Ronald Coase was in the front line, telling me what a genius I am.  Paul Samuelson fell to his knees before me, embarrassingly worshipful, to exclaim that my work has finally shown him the light.  That's what happened.

..... What?  You say that there's no record of my legions of fans greeting me and singing my praises in December 1985?  Do you mean to say that the record quite clearly shows that, while I did indeed attend those meetings, my presence there made absolutely no discernible impact?  Is it true that the cameras did not record Coase's encomiums to me or Samuelson's homage paid to me?  Hmmm.....  Well, perhaps I misspoke.  It proves, you know, that I'm human.  Anyone, after twenty-two years, could mistake his complete anonymity at a meeting of illustrious scholars for his being feted, celebrated, and glorified.  I am, you know, only human.

Joe Kennedy II Wants More Regulation of the Oil Industry

Joseph Kennedy II knows neither the relevant history nor economics.  Here's a letter that I sent today to the Wall Street Journal in response to Kennedy's essay that appeared yesterday in that paper.

Joseph Kennedy argues for more government regulation of the oil industry ("We Need a New Bargain With Big Oil," March 22).  His argument, however, is suffused with ineffective anecdotes (such as the untearful tale of the "young mother, who had to move in with her mother to keep her children warm and healthy") - with mistaken history (Teddy Roosevelt's attack on Standard Oil was for "the good of the nation" only if the nation was served by breaking up a firm that steadily pushed the price of kerosene down) - with naivete about government (Mr. Kennedy assumes that all those additional powers that he demands for government will be exercised by apolitical geniuses) - and with bad economics (his assertion that private firms have no right to charge "whatever they want" reveals his failure to understand that prices convey vital information and incentives to producers as well as to consumers).

So why, exactly, did you publish Mr. Kennedy's uninformed and ill-reasoned essay?

Sincerely,
Donald J. Boudreaux

A Non Sequitur

Just last week, David Brooks described many successful politicians (such as Eliot Spitzer) thusly: "their sensitivity synapses are still performing at preschool levels" and they "have an almost limitless capacity for self-pity."  Not a pretty picture of people in power.

But reading Brooks's latest column (in yesterday's edition of the New Orleans Times-Picayune), I discover that Brooks -- with disquieting inconsistency -- nevertheless trusts these emotional and ethical dwarves with power to regulate persons' private choices.  I sent this letter in response.

David Brooks notes that "behavioral economists demonstrate every day [that] human beings are powerfully and unconsciously influenced by ... ideas and assumptions" that cause them sometimss to make systematic mistakes ("Not a good time to trust the market," March 20).  True.  But Mr. Brooks himself mistakenly draws the conclusion that this fact justifies government regulation.

The undeniable truth that each of us frequently makes foolish decisions does not justify overriding our freedoms, especially if (as is likely) the same "powerful and unconscious ideas and assumptions" that cause us to err when acting privately will cause us to err when acting politically -- and will cause also those persons in political office to err when exercising their power.

For all of their insights, behavioral economists have never demonstrated that political power cures its holders of any of the cognitive ailments that afflict the general lot of humankind.

Sincerely,
Donald J. Boudreaux

Our Economy Is Not a Child's Erector Set

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

Like Gail Collins, I was unimpressed with George Bush's speech yesterday to the Economic Club of New York ("George Speaks, Badly," March 15).

But I disagree with Ms. Collins that "in times of crisis you would like to at least believe your leader has the capacity to pretend he's in control."  A defining characteristic of this economy that produces such enormous abundance for us all (and yes, despite the current downturn, it continues to produce prodigiously) is that no one is "in control."  Indeed, no one could possibly be "in control."  A far greater danger to Americans' prosperity than a President with a poor speaking style and a penchant for standard-fare political shenanigans is the spread of the belief that economic salvation lies in having someone "in control."

Sincerely,
Donald J. Boudreaux

Remember, no one knows, no one has ever known, and no one can possibly know, all that is necessary to make even the ubiquitous commercial-grade pencil.  It's astonishing how prevalent is the view that economies are "run" by people pulling levers -- or should be, or could be, run by people pulling levers.  This misconception is the economics equivalent of the belief that the earth is flat, or that volcanoes won't erupt if they are fed a sufficient number of virgins.

If I Were A Shill for Industry....

In this recent blog-post at "Notes," I and my fellow GMU bloggers such as Bryan Caplan, Tyler Cowen, Arnold Kling, Alex Tabarrok, and, of course, Russ Roberts were said to "seem to be shills for industry."  Actually, I really like the full quotation, so here it is:

If we were to judge by the internet, then the most influential economists in the world are the George Mason economists of Marginal Revolution, Cafe Hayek, and Econlog. These guys seem to be everywhere. I don't like them much -- they seem to be shills for industry, and just plain lazy. (Consider Kling's offhand comment that dogs impose more of a burden on the environment than SUVs, without any research.) They aren't exactly mainstream, either, but their views are fairly stereotypical.

This accusation of seeming to be a "shill" for industry prompted me to write this column, published today in the Pittsburgh Tribune-Review.  Here's a key paragraph:

If I were a shill for industry...I would oppose free markets. Free markets, after all, are markets open to competition that invariably keeps the profits of existing firms from remaining excessive and, often, even bankrupts firms once thought to be invincible industry leaders. Existing firms almost all deplore competition in their industries. They seek government regulations that hamstring rivals and potential rivals. And, of course, firms are forever pleading for "protection" from foreign competition.

I just wrote a book ("Globalization") in which I make a strong and principled case for completely free trade - not free trade sometimes, for some firms, under some circumstances, with some qualifications, but free trade always, for all firms, under all circumstances, and with no qualifications.

Whether my book's case for unalloyed free trade is correct or not, it is surely not the sort of book that causes the heads of many corporate CEOs to nod in eager agreement. The typical reaction of business people whenever they hear or read me make my case for genuinely free trade is to say something like, "Professor Boudreaux, you don't understand the peculiarities of my industry." And then each executive launches into a laundry list of excuses for why Congress should protect his industry from foreign rivals.

If I were an industry shill ...

• I'd express agreement with these self-serving claims and do my best in my writings and speeches to make a case for "fair trade," or "balanced trade," or "trade that's in our national interest" -- but never for free trade.

Hooray for America's Trade Deficit

The Financial Times published this letter of mine yesterday:

From Mr Donald J. Boudreaux.

Sir, Pat Buchanan's hostility to free trade (Letters, March 5) reflects his misunderstanding of fundamental concepts. He complains that "since Nafta . . . we have run $5,000bn in trade deficits". For Mr Buchanan, this fact is clear evidence of the dangers of freer trade. But let us reword his complaint: "Since Nafta, we have run $5,000bn in investment surpluses." Putting it like this - which is simply another way of reporting the fact that Mr Buchanan finds so troubling - reveals that, since Nafta, $5,000bn worth of capital has flowed into the US.

This capital helped to create and modernise many US companies, to fund research and development, to train workers, and to ease the burden imposed on Americans by Uncle Sam's profligacy. Does Mr Buchanan really lament this capital inflow?

It is worth pointing out, too, that this inflow of capital is precisely the opposite of what Ross "Giant Sucking Sound" Perot predicted would happen if Nafta were passed.

Donald J. Boudreaux,
Chairman,
Department of Economics,
George Mason University,
Fairfax, VA 22030, US

The Practicality of Free Trade

One of the most intellectually shallow arguments against free trade is the one that motivates this op-ed in today's New York Times by Robert E. Lighthizer.  In short, the argument is that free traders are impractically principled; a better policy (the argument implies) is one that recognizes that trade is sometimes good and sometimes not so good.  Here are two letters that I sent to the NYT in response.

Robert Lighthizer dismisses principled free-traders as dogmatists who impractically stick to their guns "no matter how many jobs are lost, how high the trade deficit rises or how low the dollar falls" ("Grand Old Protectionists," March 6).  Alas, the impractical dogmatists are Mr. Lighthizer and his fellow trade "pragmatists."

There is no credible evidence - none, nada - that free trade causes net job losses.  Moreover, far from being undesirable, a higher U.S. trade deficit means increased foreign investment in the American economy.  And a falling dollar generally reflects worsening U.S. domestic policies, such as inflationary money-supply growth, the likelihood of higher taxes or more command-and-control regulations, and, indeed, an increased probability of U.S. protectionism - protectionism that, by stifling entrepreneurial dynamism, makes America a less attractive place for foreigners to do business.

Sincerely,
Donald J. Boudreaux

My second letter:

Among Robert Lighthizer's objections to principled free-traders is their opposition to protectionism "no matter how many jobs are lost" ("Grand Old Protectionists," March 6).

If Mr. Lighthizer is referring to overall employment, his facts are wrong.  Free trade does not reduce net employment.  But perhaps he's talking about specific jobs, such as those lost in Carolina textile mills when Americans buy more textiles from abroad.  The argument seems to be that practical statecraft often justifies protecting such jobs even if doing so prevents the creation of other jobs in their place.  If this is Mr. Lighthizer's point, he's too modest when calling for trade policies that allow for "practicality, nuance or flexibility."  Because technology destroys far more jobs than does trade, Mr. Lighthizer should endorse also a "pragmatic" approach to innovation - empowering government with the flexibly and nuance to block firms' introduction of efficiency-enhancing production techniques that displace workers.  Surely, according to Mr. Lighthizer's practi