Cafe Hayek

What Is Seen..... (by Don Boudreaux)

Washington Post columnist E.J. Dionne, perhaps channeling Malcolm Gladwell, commits a truly bad economic mistake. Like all such mistakes, it's one that results when someone looks only at the surface, with no analytical penetration beyond what is most easily seen.

Here's Dionne:

Few investments would help businesses more than offloading a share of their health-care costs to the government. It's social justice with an economic kick.

Rather than explain in detail the flaws that saturate this idea, I content myself now only to ask: If Dionne is correct that the efficiency of American businesses would generally be improved if government paid for all workers' health insurance - that is, if government paid part of firms' costs of employing workers - then is it also true that the efficiency of American businesses would be further improved if government paid firms' full wages bill?

Put differently, if the U.S. economy would get "an economic kick" from government paying part of firms' costs of employing workers, why would the economy not get an even bigger kick if government announces to all employers: 'From now on, government will pay all of the expenses you incur in hiring and maintaining employees. Government will pay not only one type of fringe benefit, as Mr. Dionne proposes, but all of your costs of employing workers.'

So no firm would any longer have to pay as much as a single cent to hire and maintain workers. Wages, salaries, and fringe benefits - all benefits from health-insurance premiums to office holiday parties - would be fully covered by government.
.....
Who thinks that it would be a good idea for government to pay all expenses that firms now incur in hiring and maintaining workers? Who supposes that the American economy would thereby become super-efficient? I'm pretty sure that E.J. Dionne would oppose any proposal to have government pay all such expenses now paid by individual employers. But if so, what is his logic for supposing that it would be good for the economy for government to pay only part of these expenses?

(I might post later on other problems with Dionne's proposal?)

The "Mysterious" Great Depression? (by Don Boudreaux)

This insightful op-ed by West Virginia University banking theorist and historian George Selgin (dispensing the myth of the alleged 'mysteries' of the Great Depression), although written more than a year ago, is especially relevant today. Here's a key paragraph:

Paradoxically, perhaps, the fact that orthodox economics has a good deal to say about how the Great Depression happened itself suggests that there is after all something puzzling about the Great Depression. What's puzzling is not that the depression happened, given policies that were resorted to, but that such destructive policies secured wide support despite their often readily-predictable, adverse consequences. But to call even such perversity a "mystery" is to be guilty of hyperbole. After all, politicians are rewarded for appearing to "do something," and not for their command of "abstract" theories.

Best Line That I've Heard in a While (by Don Boudreaux)

"If I believed that Bill Clinton really 'felt my pain,' I would have picked up a ball-peen hammer and banged it against my head violently." -- Economist Dwight Lee, lecturing today at the annual Public Choice Outreach Seminar.

On Term Limits (by Don Boudreaux)

In yesterday's USA Today, Howie Rich explains the benefits of term limits on politicians.

Jon Macey on Uncle Sam's Interventions (by Don Boudreaux)

Yale Law School's Jonathan Macey explains clearly, in today's Wall Street Journal, that George Bush's, Congress's, and the SEC's recent interventions into today's panicky market are making this panic not only more intense but justified. Here's an important passage:

Of course, market manipulation does exist, but federal regulators deserve much of the blame for this form of market abuse. For years the SEC has hampered companies' ability to protect themselves from manipulation by short-sellers. The most effective way for a company to respond to an attempt to manipulate its share prices is simply to repurchase its own shares, simultaneously "squeezing" the short positions and sending a clear signal of financial health to the capital market.

However, companies have long felt vulnerable to being charged by the SEC with manipulation whenever they go into the market to make share repurchases. The SEC finally acknowledged this problem after the collapse of Bear Stearns and Lehman when it stated publicly that "historically, issuers generally have been reluctant to undertake repurchases" when faced with manipulative short-sellers because of the massive amount of uncertainty about whether the SEC would sue them for trying to manipulate the market.

Bryan Sees Clearly (by Don Boudreaux)

Watch my colleague Bryan Caplan tonight on 20/20.

Who Cares? (by Don Boudreaux)

Here's a letter that I sent two days ago to CNN.com:

8 October 2008

Editor, CNN.com

Dear Editor:

According to a recent poll, "55 percent of registered voters questioned say that Obama 'cares more about people like you' than Sen. John McCain" ("Poll: Obama seen as more compassionate than McCain," October 7).

What do such alleged 'cares' signify? To win votes, politicians feign a god-like capacity to "feel your pain" and to be deeply concerned about persons they've never met. Mature people, of course, don't take such poses seriously.

At the very least, voters should heed Charles Dickens's warning, issued in A Tale of Two Cities, against persons who deal in "second-hand cares" - that is, persons who are "principally occupied with the cares of other people." This great novelist observed that "second-hand cares, like second-hand clothes, come easily off and on.”*

Sincerely,
Donald J. Boudreaux

Dubner on The Price of Everything (by Russell Roberts)

Stephen Dubner reviews The Price of Everything at the Freakonomics blog.

I'd Rather Listen to Insects Buzz (by Don Boudreaux)

Earlier this afternoon I received an e-mail from a very sincere local retiree here in Fairfax who boasts about how he "canvas[es] for Barack Obama." This gentleman is concerned that the public doesn't know where Sen. Obama stands on economic issues. So he asked me if I would help him organize a visit by Sen. Obama to GMU's campus -- a visit to give the Senator an opportunity to talk about the economy.

Here's my reply.

Dear Mr. _______:

Thanks for your note asking if GMU Econ is interested in inviting Barack Obama to campus in order for him to outline his "economic plan."

I can't go along with your suggestion. First, and most practically, such an invitation would really have to come from either the Office of the Provost or the Office of the President -- not from the Chairman of the Department of Economics.

Second, and most importantly, I have negative willingness to be part of an effort to give any politician a platform to speak about economics. Very few of them have any knowledge of the subject, and even fewer of them are courageous enough to speak about it honestly.

Listening to politicians, regardless of party, discuss economics makes me sick both to my head and to my stomach. And the only people who are not similarly affected, I fear, are persons whose knowledge of economics is sufficiently scant -- or whose ethics are sufficiently perverted -- to protect their senses from being insulted by what issues forth from the mouths of politicians speaking on economic topics.

So as an economist, I am no more interested in having Sen. Obama (or Sen. McCain) come to GMU's campus to lecture us on "how to manage the economy" than I would be, say, to have O.J. Simpson come to GMU's campus to lecture us on how to manage one's marriage.

Sincerely,
Don Boudreaux
Professor and Chairman
Department of Economics
George Mason University

My Argument for Redistribution (by Don Boudreaux)

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

William Joseph Leach is correct: arguments for income "redistribution" typically rest on nothing more firm than highly subjective assessments by Jones of what Smith "needs" or "doesn't need" (Letters, October 5).

If such assessments truly justify "redistribution," why start with monetary wealth? Far better first to redistribute political power. Such power - unlike wealth in market economies - is extracted from voters who have little incentive or ability to wisely assess what they receive in return for their votes. I believe that neither John McCain nor Barack Obama needs the power that one of them will soon acquire. The same is true of Members of Congress, high-level bureaucrats, and governors: they neither need nor deserve the power they possess.

Let's redistribute this power widely and more equally, to the masses, so that America is rid of unconscionable and socially destabilizing concentrations of power.

Sincerely,
Donald J. Boudreaux

On African Agriculture (by Don Boudreaux)

My wife, Karol, helps clear up the confusion about the sources of Africa's agricultural problems.

A bad sign (by Russell Roberts)

You know that things aren't going well when the vertical axis for the stock market chart on the front page of the New York Times web page is measured in percent instead of hundreds of points: