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

You applaud efforts by the Campaign for a Commercial-Free Childhood to thwart “Big Business’ attempts to turn [children] into consumers of junk food, junk toys, and junk entertainment” (“Bowing to corporate America, Judge Baker center loses face,” March 13).  While I admire these activists’ zealous concern for children, I think it to be misdirected.

No business – “big” or otherwise – can, without special privileges from government, force children or parents to do anything.  Disney doesn’t imprison parents who don’t let their kids watch the Disney Channel, and Little Debbie doesn’t pull out a gun to shoot children who turn up their noses at her cupcakes.

So, a far better use of these activists’ energies would be in a Campaign for a Government-Free Childhood.  This campaign would work to protect children from truly harmful exercises of genuine power and judgment-impairing fraud – such as government schooling, minimum-wage legislation that prices many teenagers out of the labor market, and the obvious scam of each politician boasting the title “Honorable.”

Sincerely,
Donald J. Boudreaux

At Economist.com, my friend Andy Morriss debates Van Jones on so-called “Green Jobs.”

One difference between economists and others is that economists tend to be less impressed by motivation and more impressed by what people actually do. Economists are also less impressed by what people say than by what they do. So they are particularly unimpressed by people who profess to be motivated by the public good, for example. This is one reason some economists have little inherent sympathy for politicians–economists are not impressed by people who say they are working to serve the public.

So at one extreme you have non-economists who trust politicians because they say they are serving the public, but who distrust businesses because we know deep down that they really only care about profits. The economist answers that talk is cheap. Politicians are self-interested. So are people in business but because there is more competition in business relative to politics, businesses often do a better job of serving the public than politicians do.

So here is a thought experiment to help you (and me) think about motivation and competition and self-interest.

There is a charity that does wonderful work with terminally ill cancer patients making sure the end of their life has dignity. It helps family and friends of the dying cope with loss. It is a wonderful organization led by a fine woman who lost a child to cancer. This charity is her response to her loss. As the director of the charity, she is a passionate voice of the organization. She raises the money. She sets the tone and the direction of the charity. She thinks big. She hopes one day to open a hospital specializing in innovative treatments.

People find the director inspiring and unforgettable They are glad to give her money. Her board is a collection of wealthy philanthropists, some of whom, like her, have been touched by cancer, but others simply admire her deeply.

As much as people like the charity and its visionary leader, everyone agrees that they could do even better work if they had more money. They could reach more people. Help more people. Do more for them. The current budget of the organization is $10 million.

One of the members of the board is well-connected politically. He finds a way to make sure that the charity no longer has to rely on donations. Instead, it will receive an annual appropriation of $1 billion from the federal government. There is wild celebration at the charity. Their work will finally be unconstrained by the necessity of fund-raising. They will finally be able to do all that they’ve dreamed of doing, unconstrained by their meager budget of the past.

The annual funding by the government comes with one string attached. The leader of the organization will be no longer be chosen by the board but instead will be elected by a popular vote between two competing candidates each year. After all, the money is coming from the public. So the public should get to decide who leads the organization.

How would the performance of the organization change over time now that the budget is taken care of by the federal government? Would the scope and activities of the organization change? Who would succeed in leading the organization? Would the original director be elected?

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

Paul Krugman thinks it wrong that health insurers don’t cover pre-existing conditions (“Health Reform Myths,” March 12).  Apparently, he believes that each market participant should ignore the value of what she gets in exchange for what she gives.

I wonder if Prof. Krugman has thought through the implications of his belief.  I propose a bet to test the soundness of his thinking.  Let’s flip a coin.  If it lands on its edge, I pay Prof. Krugman $1; if it lands either heads or tails, he pays me $1,000,000.

If he genuinely believes that health-insurers should ignore pre-existing conditions, then surely Prof. Krugman won’t allow the pre-existing condition of the coin’s shape to prevent him from accepting my bet.

Sincerely,
Donald J. Boudreaux

A headline in today’s Wall Street Journal reads “Obama Details Effort to Double Exports Over Five Years.”

Translation: “Obama Details Effort to Increase Corporate Welfare Over Five Years.”

If you scroll down at this link, you’ll find a video of my colleague Walter Williams discussing the U.S. Census.

Here’s a letter that I sent to the Washington Post:

George Will wisely warns against reason unreasonably applied (“As a progressive, Obama hews to the Wilsonian tradition,” March 11).  Pres. Obama and his ilk are guided by an irrational faith that human reason is so potent and encompassing that it permits the Best and the Brightest to consciously design society, or at least to successfully rearrange significant parts of society (such as the health-care industry).

This hubris is dangerous.

F.A. Hayek, defending reason reasonably applied, wrote more than 60 years ago that “the fundamental attitude of true individualism is one of humility toward the processes by which mankind has achieved things which have not been designed or understood by any individual and are indeed greater than individual minds.  The great question at this moment is whether man’s mind will be allowed to continue to grow as part of this process or whether human reason is to place itself in chains of its own making.  What individualism teaches us is that society is greater than the individual only in so far as it is free.  In so far as it is controlled or directed, it is limited to the powers of the individual minds which control or direct it.  If the presumption of the modern mind, which will not respect anything that is not consciously controlled by individual reason, does not learn in time where to stop, we may, as Edmund Burke warned us, ‘be well assured that everything about us will dwindle by degrees, until at length our concerns are shrunk to the dimensions of our minds.’”*

Sincerely,
Donald J. Boudreaux

* F.A. Hayek, “Individualism: True and False,” Chapter 1 of Hayek, Individualism and Economic Order (U. Chicago Press, 1948).

In this post, I disagreed with Menzie Chinn and argued that CBO estimates of the impactof the stimulus are not estimates. Charles Steele writes in a comment:

CBO’s approach *is* an analysis of what stimulus actually did; such analysis necessarily requires a counterfactual, based on an underlying model of what would have happened otherwise.

So while we might disagree with the neoKeynesian underpinnings, this is an argument about the best macro model. So… what’s your alternative model? And could you suggest an alternative approach to gauging the effects of stimulus?

I would start by saying that I’m not sure we can gauge the effects of the stimulus. It’s possible that is not measurable. Given that the range of multipliers in the profession these days is from .4 t0 1.5 (at least), it is clear that there is no consensus as to how to predict the impact of the stimulus.

That brings me to my second point that seems to be difficult to make clear. The CBO estimates are not estimates. They are forecasts based on previous estimates. They are akin to a golfer who is 150 yards from the flag and asks his caddy for advice on what club to use. The caddy knows that in the past, the golfer has averaged about 150 yards with a 7-iron, so he takes one out of the bag and hands it to the golfer. The golfer swings. He can’t see the green—it’s obscured by trees. The golfer asks the caddy to estimate how far his shot landed from the hole. If the caddy replies that he estimates without looking that the ball is surely within a few feet of the hole because the average 7 iron goes 150 yards when this golfer uses a 7-iron, you don’t call that an estimate. It’s a hope. An expectation. And it might be true. But it’s not an estimate. No caddy would say such a thing. He would wait till he could see where the ball actually ended up.

Surely where the ball goes depends on the execution of this particular swing. The wind. The humidity. How much sleep the golfer got the night before. And so on. Doesn’t the impact of ARRA depend on how it’s structured, who gets the money, the mood of the country, the expectations of increases in future taxes and so on? Yes, these things are hard to measure. So is the mood of the golfer and the angle of club as it strikes the ball. But that’s why the caddy looks and sees where the ball is. Even if the stroke appears to  be well-executed, his ex ante prediction of 150 yards can be way off. That’s why he looks.

In economics, we can’t look. We can’t say that because unemployment remains high the stimulus failed. We can’t say that because GDP grew a lot, the stimulus was a success. We understand there is other stuff going on. But if we can’t control for that stuff, then how can we know (or even estimate reliably) the effect of the stimulus?

I argue this is partcularly true if one caddy says that this golfer usually hits a 7-iron 40 yars while another, says no, no, no–it’s usually 156 yards.

I argue this is particularly true when the CBO says:

Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO’s judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.

The phrase “CBO’s judgment” means “we don’t know.”

BTW, Menzie Chinn reasonably disagrees (see the his comment in the comments section as well) with me about whether there is a consensus in the profession over the efficacy of deficit-financed government spending being successful in fighting recessions. He might be right. I don’t think so. But I am happy to be find out otherwise. I’d like to see the paper or papers that established this consensus or the studies that generated the multipliers that were used by the CBO and the consensus around them. I also want to know in particular the paper that justified the multiplier of 1.56 that Jared Bernstein and Christina Romer used in their forecast of the effects of the stimulus package.

Here’s the abstract of George Selgin’s excellent new article, “Central Banks as Sources of Financial Instability,” published  in The Independent Review:

The present financial crisis shows how central banks can fuel the financial booms that make severe busts possible. Unfortunately, theoretical discussions of central banking badly neglect its role in fostering financial instability, in part because they ignore its history and political origins.

Writing in Investor’s Business Daily, Robert Higgs documents the fact that private investment is drying up in the U.S. – and he explains why.  Here’s a key selection:

Unfortunately, while private investment is the engine of economic growth, government spending (despite what generations of Keynesian economists have asserted) is the brake. To understand this negative relationship, we need only scrutinize how the federal government’s spending is determined: namely, by political processes devoid of economic rationality.

In this light, we can appreciate that enhanced government spending does not bulk up the economy, nor merely crowd out worthwhile private activity. Instead, it undercuts, penalizes and distorts everything that private parties attempt to do to create wealth. Ham-fisted government regulations and additional taxes are known killers of economic growth.

The investors’ famine and the government’s feast therefore are not merely coincidental, but causally connected.

Making matters worse, the explosion of the federal government’s size, scope and power since mid-2008 has created enormous uncertainties among investors.

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

Bret Stephens interprets Iraq’s recent democratic election as proof that western modernity, with all of its marvels and freedoms, is dawning in that country (“Iraqis Embrace Democracy. Do We?” March 9).  And, of course, the Great Liberator who rescued Iraqis from barbarism’s clutch is none other than George W. Bush.

Mr. Stephens is mistaken.  Democracy neither brings modernity nor is an essential element of it.  The fountainhead of the western freedoms and institutions that Mr. Stephens rightly admires was the fractured and overlapping jurisdictions that emerged in western Europe following the collapse of the Roman empire.  The happy, if unintended, result was an inability of any one authority (say, a prince or a pope) to exercise complete sovereignty over the populace.  From this fractured sovereignty the rights of man slowly sprung, and only much later did democracy as we know it develop.

Our democracy wasn’t imposed by force of arms and could not have been so imposed.  More importantly, what makes us modern and free is not that we trot off to polling places regularly to make collective decisions but, rather, that our institutions still afford spaces in which each of us, as individuals, is free to make private decisions without significant interference from either the state or any reigning superstitions.

Sincerely,
Donald J. Boudreaux

Menzie Chinn invokes the CBO “estimates” to argue against those who say the stimulus didn’t work. Did the stimulus help turn the economy around and create jobs?  I’m skeptical on logical grounds but I confess that I do not have strong empirical evidence on my side.

But those who defend the stimulus have no empirical support either. The CBO “estimates” are not an analysis of what the stimulus actually did but rather what some predicted it would do. They have done NO independent non-partisan analysis of what actually happened.

Here is all you need to know about what the CBO actually did that Chinn and others cite:

CBO’s current estimates differ only slightly from those CBO prepared in March 2009. At that time, CBO projected that in the third quarter of 2009, U.S. employment would be higher by 600,000 to 1.5 million people with ARRA than it would be without the law, and real GDP would be 1.1 percent to 3.0 percent higher. CBO’s new estimates reflect small revisions to earlier projections of the timing and magnitude of changes to spending and revenues under ARRA.

And:

CBO has also examined incoming data on output and employment during the period since ARRA’s enactment. However, those data are not as helpful in determining ARRA’s economic effects as might be supposed, because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.

And the best part:

Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO’s judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.

As I wrote here, that is one interpretation. The other is that the model doesn’t work very well.

8 March 2010

Mr. Barack Obama
President, Executive Branch
United States Government
1600 Pennsylvania Ave., NW
Washington, DC  20500

Dear Mr. Obama:

CBS radio news this morning ran a clip of one of your recent speeches.  In it, you criticize insurance companies because they “ration coverage … according to who can pay and who can’t.”

My first thought was “not exactly; coverage is rationed according to who pays and who doesn’t.”  Ability to pay isn’t the same thing as actually paying, and what insurers care about is the latter.  Many folks – especially young adults – have the ability to pay but choose not to do so.  They get no coverage.

But further pondering of your point leads me to look beyond such nit-picking to see fascinating possibilities.  Not only insurers, but all producers who greedily refuse to supply persons who don’t pay should be set aright.  Now I’m sure that you don’t ration the supply of the books you write according to any criteria as sordid as requiring people actually to pay for them.  But our society is full of people less enlightened than you.

For example, the typical worker rations his labor services according to who pays and who doesn’t.  That must stop.  Oh, and supermarkets!  Every single one rations groceries according to who pays.  Likewise with restaurants, clothing stores, home-builders, furniture makers, even lawyers!  You name it, rationing is done according to who pays.  Indeed, my own county government has been corrupted by this greedy attitude: if I don’t pay my taxes, the sheriff takes my house – effectively booting me out of the county merely because I didn’t pay for its services.

Preposterous!

I look forward to your changing this selfish and unfair system of rationing that for too long now has kept Americans impoverished.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

Daniel Kuehn comments on this post about how United States Sugar used environmentalism to exploit the taxpayer:

From a purely environmental perspective, the move does make a lot of sense. The location of the refinery is very damaging for the everglades. And my understanding is it has been talked about and planned since Jeb Bush was governor – so it’s not purely for the sake of U.S. Sugar during a tough time.

But the way that it has unfolded in the last year – particularly with Crist’s connections and the timing – obviously stinks.

That is the beauty (and the ugliness) of  public policy.

The “move does make a lot of sense.” So people who are sympathetic to the environment support the move to restore the Everglades by buying land currently owned privately. The sympathizers include economists who will argue that the Everglades is a public good so there is a justification for owning it publicly.

When the policy unfolds in practice, howerver, it isn’t done the way the economists or the environmentalists recommend. It is done to benefit the special interests. So when you look more closely and how the policy unfolds, it “obviously stinks.” Not only does the policy get shaped to profit the special interest. It sometimes does that in a way that voids the benefit that justified the policy originally.

The problem with intervention is that the special interest pays a lot more attention than the rest of us do when it comes time for the implementation.  That should give all of us pause when recommending a particular intervention.

How many fans of the Everglades knew that this was how it actually panned out? How many fans know now?

But United States Sugar is all over it.

There is always a bootlegger. The only question is how much of the benefit does he siphon away. Is it enough to offset potential benefits to others?

Shocking. Not.

Florida’s plan to save the everglades really saved United States Sugar. The New York Times reports:

Nearly two years later, the governor’s ambitious plan to reclaim the river of grass, as the famed wetlands are known, is instead on track to rescue the fortunes of United States Sugar.

The proposal was downsized only five months after it was announced. By April 2009, amid the deepening recession, the state said it could afford to purchase only 72,800 acres of United States Sugar’s land, for $536 million. The company would stay in business and the state would retain the option of buying the remaining 107,000 acres at a future date.

United States Sugar dictated many of the terms of the deal as state officials repeatedly made decisions against the immediate needs of the Everglades and the interests of taxpayers, an examination of thousands of state e-mail messages and records and more than 60 interviews showed.

Bootleggers and Baptists, anyone? The most important part of the B and B theory for me is not that politics makes strange bedfellows–it’s that special interests use the high-minded moral high ground folks to hide their theft.

Here’s a letter to the New York Times:

Paul Krugman says that it is “bizarre” during today’s downturn to worry that unemployment benefits reduce people’s incentives to find jobs — indeed, that this concern is even at odds with “textbook economics” (“Senator Bunning’s Universe,” March 5).

Prof. Krugman must count himself and his wife, Robin Wells, among those who hold bizarre ideas – or who, when writing economics textbooks, misrepresent economists’ views.  Here’s what they wrote on page 210 of their jointly authored textbook Macroeconomics (2nd ed.), published in 2009: “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . .  In other countries, particularly in Europe, benefits are more generous and last longer.  The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job.  Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.”

Sincerely,
Donald J. Boudreaux

(HT to Walter Williams, who sent me James Taranto’s smackdown.)

UPDATE: I’ve modified the opening paragraph of my letter, and have sent the revised version to the NYT.  I do not, though, see that it changes anything substantive.  It remains over-the-top misguided to label as “bizarre” the concern that the disincentives that unemployment benefits unleash on searching for and accepting employment might outweigh any pro-employment stimulative effects of these benefits.

Here’s my letter to the NYT on the op-ed by Alan Tonelson and Kevin Kearns:

Arguing for higher tariffs, Alan Tonelson and Kevin Kearns claim that the Labor Department is wrong to “deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain” (“Trading Away Productivity,” March 6).  These authors insist that, because American firms import increasing amounts of component parts for processing into final goods in the U.S., American workers’ productivity really does not rise when more of the work required to produce final outputs is done by foreigner workers.

This argument is nonsense.  If yesterday American workers required two hours to produce an electric drill, and today those same workers require only one hour to produce an identical drill, those workers’ productivity has risen.  Whether this higher productivity is the result of importing (rather than producing in the U.S.) more component parts of the drill, or instead the result, say, of a new machine that today produces some parts that yesterday were produced by hand, the result is the same: it requires fewer hours of work by Americans to produce a given amount of output.

Sincerely,
Donald J. Boudreaux

By Tonelson’s and Kearns’s logic, American farmers are really not so much more productive today than they were in 1800, for (these authors would say, if they were consistent) much of the alleged higher productivity of American farmers is really due to the higher output made possible by tractors, fertilizers, insecticides, and other techniques of modern agriculture.

Quiz time.  Read this op-ed, by Alan Tonelson and Kevin Kearns, that appears in today’s New York Times and explain how the authors’ understanding of productivity is confused – and fatally so for their case for higher tariffs.  (I’ve already sent my answer to the NYT in the form of a letter-to-the-editor.)

I get a lot of emails from people worrying about America losing jobs to China. But most jobs are “lost” to technology. Here is a beautiful pictorial of some of the obsolete jobs of yesteryear. (HT: Planet Money) Mostly or all gone because of technology. Does anyone want their kid to grow up to be an iceman? Or a typesetter?

I’m taking this letter down for while in order to see if I can place it in a more-prominent location.  Sorry that it was up for a mere 15 minutes.

- Don