Asking Again an Obvious Question
by Don Boudreaux on November 10, 2014
in Other People's Money, Politics
Here’s a letter to the Washington Post:
Your report “Left struggled to move voters with Koch attacks and other big-money messages” (Nov. 10) prompts a question: why are the people who clamor most loudly to get other people’s money out of politics also the ones who clamor most loudly to get politics into other people’s money?
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
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Quotation of the Day…
by Don Boudreaux on November 10, 2014
in Hubris and humility, Reality Is Not Optional
… is from page 16 of Angus Deaton’s 2013 book, The Great Escape:
The need to do something tends to trump the need to understand what needs to be done.
Yes. And typically, in my view, an understanding of what needs to be done reveals that, in fact, there’s nothing that government can do to ‘solve’ the problem at hand. The existence of a problem – which frequently is simply the reality of unavoidable trade-offs – does not imply the existence of a ‘solution.’
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Some Links
by Don Boudreaux on November 10, 2014
in Financial Markets, Myths and Fallacies, Other People's Money, Politics, Regulation
Bryan Caplan remembers Gordon Tullock.
Richard Ebeling explains why Israel Kirzner should win a Nobel Prize in Economics. (HT Pete Boettke)
Norbert Michel destroys some myths about financial-market regulation and deregulation.
Writing in Time, Nick Gillespie reflects on the GOP’s electoral victory in 2014…. while writing in the Washington Post, George Will reflects on the Democrats’ hope to retain the White House in 2016.
My Mercatus Center colleague Veronique de Rugy tells a spooky tale of special-interest politics.
Bart Hinkle highlights some instances of government waste.
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The Mystery of the Mundane
by Don Boudreaux on November 10, 2014
in Everyday Life, Seen and Unseen
I quote, with her kind permission, Mikayla Novak‘s e-mail to me of this morning; Mikayla is a Senior Fellow with Australia’s excellent Institute of Public Affairs (links added):
Your piece reminded me of my time at MPS [Mont Pelerin Society meetings in] Prague 2012, when I asked the taxi driver taking me to the hotel about life under communism and the benefits of the post-communism economy.
I asked the driver what has been the most advantageous thing about the end of communism in former Czechoslovakia. His reply, “I can buy any brand of yoghurt I want!”
This struck me as a most profound answer, not only because it lent great weight to the importance of economic freedom in people’s lives but because it gave even greater power to what we often refer to as “the mystery of the mundane.”
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Quotation of the Day…
by Don Boudreaux on November 9, 2014
in Hayek, Hubris and humility, Video
… is from a scholar who thankfully and most appropriately lived long enough to see the collapse of the Berlin wall and its attendant affirmation of the wisdom of his life-long project of warning us to beware of the pretense of knowledge: F.A. Hayek. Specifically, today’s quotation is from page 84 of the 2011 Definitive Edition of Hayek’s 1960 book, The Constitution of Liberty:
The benefits of freedom are therefore not confined to the free – or, at least, a man does not benefit mainly from those aspects of freedom which he himself takes advantage of. There can be no doubt that in history unfree majorities have benefitted from the existence of free minorities and that today unfree societies benefit from what they obtain and learn from free societies. Of course the benefits we derive from the freedom of others become greater as the number of those who can exercise freedom increases. The argument for the freedom of some therefore applies to the freedom of all.
Soon after the wall fell Pepsi made a commercial featuring scenes of the rejoicing that took place in Berlin during those marvelous days in November 1989. Some self-righteous “Progressive” – I forget who and where – complained with contempt that (I paraphrase from memory) “people didn’t destroy the wall to get the freedom to drink Pepsi!” When I heard or read this complaint about Pepsi’s commercial, I thought to myself ‘Wrong: the freedom to drink Pepsi – being, as it is, part of a much-expanded freedom to engage in consensual capitalist acts of all sorts – is precisely the most important reason why the wall fell.’
Let’s all today, on this 25th anniversary of that joyous event, each raise a glass (of Pepsi or of pilsner or of Petrus or of whatever) to freedom – and to Hayek, Mises, and the relatively small number of wise and humane scholars who, unlike too many other, more ‘scientific’ scholars, always understood the absurdity and inhumanity of socialism.
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Adam Smith Was No Proto-”Progressive”
by Don Boudreaux on November 8, 2014
in Adam Smith, Myths and Fallacies, Reality Is Not Optional, Work
Here’s a letter to the Boston Globe; (I thank Peter Minowitz for alerting me to Schlefer’s article):
Claiming that labor markets are not self-regulating, Jonathan Schlefer recently demanded stronger labor unions and a higher minimum wage – and he insisted that even Adam Smith shared his views (“Economists’ long-held beliefs make income inequality worse” Oct. 12). According to Mr. Schlefer, who quotes from The Wealth of Nations, “Smith believed that each society sets a living wage to cover ‘whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.’”
Mr. Schlefer’s seriously misinterprets Smith.
First, the quoted passage from The Wealth of Nations appears in a chapter on taxation;* it has nothing to do with labor policy. Second and more importantly, this passage is part of Smith’s explanation of how wages naturally adjust on the market in response to the demand and supply of labor. Smith’s point is exactly the opposite of Mr. Schlefer’s: Smith argued that wages in the free market rise automatically to enable workers to lead at least minimally decent lives by the standards of their time and place.
Whatever the merits or demerits of Smith’s analysis, he did not here (or anywhere else) argue that each society sets, or should set, a “living wage” through government policy or any other method of collective action. And while Smith did support workers’ freedom to organize, his understanding of (and confidence in) market forces – along with his deep skepticism of government intervention – makes it highly unlikely that Smith would have supported the minimum wage. As economist Timothy Taylor writes, “frankly, it is ridiculous to cite Adam Smith in support of minimum wage legislation.”
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030* Paragraph 148 of Book V, chapter 2: “Of the Sources of the General or Public Revenue of the Society.”
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Quotation of the Day…
by Don Boudreaux on November 8, 2014
in Competition, Creative destruction, Growth, Hubris and humility
… is from page 172 of W. Arthur Lewis‘s 1955 book, The Theory of Economic Growth:
Collective judgement of new ideas is so often wrong that it is arguable that progress depends on individuals being free to back their own judgement despite collective disapproval…. To give a monopoly of decision to a government committee would seem to have the disadvantage of both worlds.
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Quotation of the Day…
by Don Boudreaux on November 7, 2014
in Myths and Fallacies, Politics
… is from page 61 of Michael Huemer’s impressive 2013 book, The Problem of Political Authority:
If there is one thing that stands out when one reads philosophical descriptions of deliberative democracy, it is how far these descriptions fall from reality.
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The Prima Facie Case for Keynesianism
by Russ Roberts on November 6, 2014
in Stimulus, Uncategorized
Paul Krugman posts a chart showing the relationship between changes in government spending between 2009 and 2013 and changes in nominal GDP growth over the same time period:
Here is his description of the chart:
Instead of using changes in structural budget balance, I thought it might be useful to just look at spending. This one uses data from the IMF’s World Economic Outlook database to compare changes in total government spending (in national currencies — I didn’t correct for inflation, but that won’t matter) with changes in real GDP; I look at advanced countries, dropping the very small ones like San Mario. The picture looks like this:
And here is his conclusion:
Prima facie, cutting spending depresses economies.
As simple as that sentence appears, it’s hard to believe that’s his actual conclusion. Does he really mean that literally? There are only five countries in that chart that actually cut nominal spending. (It looks like four but one is almost on top of another.) I went to his data source. The five countries that cut nominal spending between 2009 and 2013 are Greece, Ireland, Portugal, Spain, and Taiwan. Of those five, one, Taiwan, cut nominal spending a tiny amount–less than 1% and managed to grow about 17%. Ireland cut spending about 10% but managed to grow a tiny amount but GDP didn’t shrink. Portugal and Spain each cut spending around 5% and nominal GDP fell in each country by about 2%. Greece cut spending about 30% and it’s economy shrunk about 20%.
That’s it? That’s the prima facie case that cutting spending depresses economies? Two countries cut spending and grew. Three cut spending and shrunk. And of course causation might be running in the other direction. Shrinking economies have trouble spending money especially when their credit ratings are not so healthy.
But maybe Krugman didn’t mean to make such a literal point, that cutting spending is what matters. Maybe he meant the smaller the growth in nominal spending, the smaller the growth in nominal GDP. Look at the chart. Do you see an upward sloping line there, suggesting a positive relationship between spending growth and nominal GDP? There’s a hint of one, but part of that’s because of Greece. The rest of the chart is a big mess–there’s not much of a relationship. Slovenia, for example, increased nominal spending by 18% and still managed to shrink. That’s the prima facie case for Keynesianism?
The prima facie case for Keynesianism is underwhelming.
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