Here’s why I so love Voltaire:
I don’t know which is the more useful to the state: a well-powdered lord who knows precisely when the king gets up in the morning… or a great merchant who enriches his country, sends orders from his office to Surat or Cairo, and contributes to the well-being of the world.
I found this quotation on page 398 of Deirdre McCloskey’s Bourgeois Dignity. Too good not to share.
Deirdre McCloskey thinks that a shift in rhetoric and public opinion is what made possible what she calls the Great Fact – the tenfold rise in global per-capita GDP from $3 per day in 1800 to around $30 today, and growing. The average person in rich countries make over $100 per day, more than a 30-fold increase. Remember, even the mighty U.S. was once a $3 a day nation. We had to start somewhere.
Sometime around the Enlightenment, public opinion shifted from hostility to entrepreneurship and innovation to at least a grudging acceptance. We liberals need to take great care to keep public opinion tolerant, or else the Great Fact could become a relic of history. Traders can only trade, and inventors can only invent, when people let them. Unfortunately, the clerisy (McCloskey’s word for the intellectual class that drives long-run public opinion) is strongly anti-commerce, as she points out:
Such antibourgeois people (many of them my good friends) do not believe the bourgeois axiom that a deal between two adults has a strong presumption in its favor, practically and ethically and aesthetically. They deny hotly that allowing such deals and honoring their makers has resulted in the modern enrichment of the poor. They think instead quite against the historical evidence, that governments or trade unions did it.
Deirdre McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World, p. 397-98.
The liberal’s job, then, is to legitimize the entrepreneur and the innovator, morally, ethically, and aesthetically, as well as economically. That wonderful project we call modernity hinges on it.
Comments Off on Bourgeois Dignity
Tagged bourgeois, bourgeois dignity, clerisy, deirdre mccloskey, innovation, liberalism, modernity
It’s much more fashionable to attack Adam Smith these days than to read him. Yes, he favored economic liberalism, which wasn’t exactly in style in his time. Nor is it in ours. History remembers him as cold and calculating. But in real life, he was neither.
There are two main drivers behind Smithian liberalism, neither of them cold or calculating. One is that man is a social animal. The foundation of Smith’s moral theory is the impartial spectator theory. People figure out the right thing to do by asking themselves if an impartial third party would approve of their actions. Empathy — thinking of others and feeling for them — is at the very heart of Smithian morality.
Take trade, for example. Smith is well known for being an ardent free trader. But why? Because trade is an inherently peaceful act. It is moral.
If you have something I want, I’m not going to hit you over the head and steal it. No impartial spectator would approve of that. Instead, I’ll trade it to you for something you value even more. Everyone wins.
If you don’t think you’ll gain from the exchange, then nobody can force you to make it. And no one will trade with you unless you treat them with civility and dignity. Trade is much more moral than the alternative.
These are not the thoughts of a selfish, atomistic, cold-blooded economist. And yet this warmth is the very stuff of economics. We liberals (in the correct sense of the word) get a bad rap.
The second driver of Smith’s brand of market capitalism is compassion for the poor. Liberalism properly understood — free markets, free trade, free migration, etc. — creates more wealth more quickly than any other economic system. And not just for the top one percent, as in other systems.
In Smith’s time, the average person worldwide made around $3 per day. In richer countries like England or the Netherlands, it was something like $5 a day. Today, in countries that have embraced liberalism, you can make $100 a day and consider yourself middle class. That’s a 30-fold increase, and arguably the most significant development in human history since the Agricultural Revolution. Prosperity is no longer a privilege for the few. Everyone can share in it now. Deirdre McCloskey calls this the Great Fact.
Meanwhile, countries that have rejected liberalism are still struggling to escape the $3 trap. Rejecting liberalism means forcing the poor to miss out on the Great Fact.
Smith favored liberalism because it is not only moral, it makes life better for the poor. On that second point, Yeshiva University economics professor James Otteson has more (click here if the video below doesn’t work):
Comments Off on The Compassion of Adam Smith
Posted in Economics
Tagged adam smith, deirdre mccloskey, great fact, impartial spectator, james otteson, learn liberty, learnliberty.org, the great fact
Here’s a letter I recently sent to The Economist:
SIR – you write that the “collective obsession with short-term austerity across the rich world is hurting” the prospects for global economic recovery; be afraid.
May the data allay your fears. From 2000 to 2010, the UK’s government spending boomed from 36.6 percent of GDP to 51.0 percent. France’s spending went from 51.6 percent to 56.2 percent. Even sober Germany grew its government from 45.1 percent of GDP to 46.7 percent.
When Bill Clinton left office, total U.S. government spending was 33.9 percent of GDP. It has blossomed to 42.3 percent under Presidents Bush and Obama.
If the rich world is indeed austerity-obsessed, it is no more than talk. That’s why this writer is afraid.
RYAN YOUNG
Fellow in Regulatory Studies
Competitive Enterprise Institute
Washington*All data from OECD, downloadable at http://dx.doi.org/10.1787/888932443396
My colleague Greg Conko pointed out that the letter might be more persuasive if it used data from 2008-2010, to isolate government growth since the Great Recession’s start.
It’s a good point, so I looked it up. And the song remains the same. France’s government grew from 52.9 to 56.2 percent; Germany’s grew from 43.8 to 46.7 percent; the UK’s grew from 47.4 to 51.0 percent; and the U.S. grew from 39.0 to 42.3 percent. All that in three short years.
CEI Founder and President Fred Smith compares the Occupy Wall Street movement with the Tea Party movement and finds similarities as well as differences. Both oppose bailouts and other forms of corporate welfare. But, as he points out in a recent USA Today op-ed, he fears the Occupiers are confusing such crony capitalism with the real thing. If corporations have undue influence over government, making that government bigger and more powerful will only worsen the problem. The solution is separation of corporation and state.
Comments Off on CEI Podcast for October 13, 2011: Occupy Wall Street
Posted in CEI Podcast, Economics, The Partisan Mind
Tagged #occupy, capitalism, crony capitalism, occupy movement, occupy wall street, tea party
Headline: “Town Spends $1,000 on Rubber Chickens”
And that’s not all:
[Cicero, Illinois] Town President Larry Dominick’s administration has also spent nearly $600,000 on promotional items, including mouse pads and ice cream scoops, from You & Me.
Hanania said he expects proceeds from the Houby Day festival to pay the bill for the chickens.
“It is what it is. We’re not hiding it. We’re trying to be aboveboard,” he said.
Comments Off on There Is Nothing Left to Cut
Tagged cicero, cicero il, cicero illinois, government waste, houby day festival, rubber chickens, waste
This video is a quick primer on trade from George Mason University economics professor (and CEI adjunct) Don Boudreaux, who literally wrote the book about it. Well, a book about it; see also here and here for quality reading on trade, not to mention Fran Smith and Nick DeLong’s new CEI study, “Free Trade without Apology.” Click here if the embedded video doesn’t work.
Comments Off on Don Boudreaux on Trade
Tagged Don Boudreaux, fran smith, free trade, george mason university, globalization, ihs, ihs learn liberty, learn liberty, nick delong, Trade
Until recently, I haven’t been paying much mind to the Occupy Wall Street protests. They’re a lot like tea party protesters. They’re upset with the status quo, and are being quite vocal about it. But – also like the tea partiers – they lack a unified voice. What do they want?
That incoherence was partially solved when one activist posted a list of thirteen demands on OccupyWallSt.com. It doesn’t stand for the whole movement, obviously. Some protesters are focused on different issues than the ones he chose. But it’s reasonable to assume that most of the protesters would agree with most of his demands.
From an economist’s perspective, the demands are both fascinating and disheartening. Fascinating because people who haven’t studied economics believe some really strange things; disheartening because many of the policies would hurt the very people they’re meant to help. Intentions are not results.
Let’s take a quick look at each of the demands. I have left his grammatical errors intact:
Demand one: Restoration of the living wage. This demand can only be met by ending “Freetrade” by re-imposing trade tariffs on all imported goods entering the American market to level the playing field for domestic family farming and domestic manufacturing as most nations that are dumping cheap products onto the American market have radical wage and environmental regulation advantages. Another policy that must be instituted is raise the minimum wage to twenty dollars an hr.
He’s being far too moderate here. Take as true that importing goods across international borders kills jobs. Well, as a matter of logic, importing goods across state borders is no different. Oregonians should be forbidden from importing goods from Californians. Inter-city free trade has the same harmful effects. Consistency demands banning that, too. Even inter-household trade kills jobs under this line of thought.
If the protesters arbitrarily draw the line at the national level, then there is an inconsistency in their thought. And economists from the left and the right have been openly poking fun at that inconsistency for over 200 years.
And why only a $20 minimum wage? Think big. If Congress can raise living standards simply by mandating higher wages, why not $200 per hour? Why not $2,000 per hour?
Demand two: Institute a universal single payer healthcare system. To do this all private insurers must be banned from the healthcare market as their only effect on the health of patients is to take money away from doctors, nurses and hospitals preventing them from doing their jobs and hand that money to wall st. investors.
Because monopolies work so well.
Demand three: Guaranteed living wage income regardless of employment.
This isn’t worded clearly. Does this mean a $20 minimum wage for all workers, as in Demand One? Or does it mean giving unemployment benefits equivalent to a living wage, however defined? If it’s the second case, it’s pretty easy to see that fewer people would choose to work if this demand was met. As any economist will tell you, incentives matter.
Demand four: Free college education.
This should be re-worded as “Demand Four: The poor and uneducated must give money to the rich and educated.” This just sounds like the protesters, many of them students, don’t want to pay their tuition and their student loans (see also Demand Eleven).
This demand is fundamentally unprogressive. Wealth redistribution from rich to poor is one thing. But asking the poor to subsidize the rich strikes this writer as morally wrong.
Demand five: Begin a fast track process to bring the fossil fuel economy to an end while at the same bringing the alternative energy economy up to energy demand.
This day will come. I look forward to it. Progress is a beautiful thing to behold. But these kinds of transitions can only happen from the bottom up. He is demanding that it be top-down, which is the same thing as demanding that it never happen at all. Top-down is how Solyndra happened. Top-down is how ethanol happened.
Top-down is also an open invitation to the exact kind of cronyism that the Occupy Wall Street crowd – and this writer – despise. Again, think results, not intentions. The best way to achieve this policy goal is to make entrepreneurship and innovation easier. It’s a bottom-up world. Policies must acknowledge that if they are to succeed.
Demand six: One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now.
He must be unfamiliar with the data. Government infrastructure spending is about 2.5 percent of GDP right now. That’s the highest it’s been since the 1950s, when the interstate highway system was being built. And today’s 2.5 percent is sliced from a pie that’s nearly 7 times larger in real terms. That puts current spending on par with about 17 percent of 1950 GDP. That is hardly austere.
Demand seven: One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America’s nuclear power plants.
More unfamiliarity with the data. The EPA’s budget is currently a little over $10 billion. He demands a century’s worth of EPA spending over what one assumes is a period of years, not decades. That’s a lot of money that we don’t have.
Meanwhile, forest acreage today is roughly what it was a hundred years ago, despite U.S. population growing four-fold. And getting rid of dams and nuclear power plants means using more coal and natural gas. That’s what economists call a tradeoff. And that tradeoff directly contradicts Demand Five.
Demand eight: Racial and gender equal rights amendment.
Just such an Amendment passed on July 9, 1868. The Fourteenth Amendment reads, in part, “nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” Emphasis added, though the egalitarian language is clear enough on its own. Perhaps he should press for more consistent enforcement of that language. That certainly has been lacking.
Demand nine: Open borders migration. anyone can travel anywhere to work and live.
Yes. I don’t have a problem with background checks to keep out recidivist criminals or terrorists who, while rare, would hurt other people. And screening people for communicable diseases is a reasonable public health measure. But, like the Occupy Wall Street crowd, I don’t think anyone should presume the moral authority to tell other people where they may live, work, or travel. Right on.
Demand ten: Bring American elections up to international standards of a paper ballot precinct counted and recounted in front of an independent and party observers system.
Mandatory recounts are a bit much; most Congressional elections are 60-40 or 70-30 affairs. But there’s not much to object to here. Though there will come a time when computerized voting machines will be harder to corrupt than paper ballots. He should instead demand honest vote counts, whatever the medium.
Demand eleven: Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the “Books.” World Bank Loans to all Nations, Bank to Bank Debt and all Bonds and Margin Call Debt in the stock market including all Derivatives or Credit Default Swaps, all 65 trillion dollars of them must also be stricken from the “Books.” And I don’t mean debt that is in default, I mean all debt on the entire planet period.
Do this and no one will ever lend again. This demand has so little understanding of basic human nature, let alone basic economics, that it frankly doesn’t deserve serious scrutiny. It just sounds like he wants all the trappings of a modern first-world lifestyle without paying for them. As the economist Deirdre McCloskey would say: no, dear.
Demand twelve: Outlaw all credit reporting agencies.
Moody’s and the other ratings agencies played a starring role in inflating the housing bubble. Oh, they deserve plenty of blame. But the solution isn’t to outlaw them. It’s to outlaw Congress from giving them special treatment. Congressional coddling allowed them to lie to their customers and not get punished by market mechanisms. Their legally protected oligopoly is an outsized example of crony capitalism. Don’t confuse it with the real thing.
Demand thirteen: Allow all workers to sign a ballot at any time during a union organizing campaign or at any time that represents their yeah or nay to having a union represent them in collective bargaining or to form a union.
Government policy should be neutral towards labor unions. Not hostile, not favorable. Neutral. Part of that neutrality means ensuring secret ballot elections when workers are deciding whether to unionize. If the ballots are open, it’s pretty easy to imagine both management and unions putting pressure on workers to sign with their side. Better to preserve anonymity. Let workers express their true feelings without fear of reprisal from either side.
This demand’s wording is unclear on neutrality, and unclear on secret ballots. Hard to tell what to make of it.
So there you have it.
Like almost any list of demands, there is good and bad here. Two common themes animate the list. One is that the writer clearly hasn’t studied economics. Free trade promotes wealth and peace, and has almost zero net effect on employment in the long-run. High minimum wages price the lowest-skilled employees out of work, and hurt them. There is no free lunch. Nobody will lend money if they aren’t going to be paid back.
None of those statements are controversial inside the profession, only out of it. Regardless of one’s political leanings.
The second theme is entitlement. Other people should pay for my health care. Other people should pay for my college education. I shouldn’t have to pay back my credit card balance. In short, gimme. How millennial.
The tea party movement’s uninformed populism is embarrassing to many on the right. No wonder Brendan O’Neill, seeing the same phenomenon on the left, wrote in The Telegraph that “The teenage moralism of the Occupy Wall Street hipsters almost makes me ashamed to be Left-wing.”
I agree with some of their demands, but it’s hard to see the Occupy Wall Street crowd being taken seriously. For that, they must first be able to be taken seriously. Given the movement’s lack of policy knowledge, its unseemly thirst for other people’s money, and the fact that some of them actually think that standing in the middle of a bridge invalidates their opponents’ arguments (!), they have a ways to go.
In this morning’s CEI Podcast, my colleague John Berlau predicted that the new price cap on debit card swipe fees would lead to the end of free debit cards and free checking. He pointed out that while this is an unintended consequence, it is also entirely foreseeable.
It didn’t take long for that prediction to come true. Bank of America just announced that it will start charging its debit card users $5 per month. They are not the only ones:
JPMorgan Chase and Wells Fargo are testing $3 fees for debit cards in select areas, and Citibank recently announced it is raising its fees for checking accounts. Janney Montgomery Scott analyst Thomas McCrohan said last week that Visa and MasterCard, the top two debit card companies, may increase drastically increase (sic) fees on small purchases to offset the losses.
Thanks, Congress.
Comments Off on Right on Cue
Posted in Economics, Price and Wage Controls
Tagged bank of america, debit cards, interchange fees, jpmorgan chase, swipe fees, wells fargo
Whether you love the New Deal or loathe it, its policies were not entirely new. FDR’s predecessor, Herbert Hoover, set the precedent. History remembers him as a laissez faire president; a do-nothing who simply let the Great Depression happen. This requires an odd definition of “laissez faire” and an even stranger understanding of “do-nothing” to actually be true.
A new Cato paper from St. Lawrence University economics professor Steve Horwitz takes a closer look:
In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation—all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt’s advisers knew that Hoover had started the New Deal. One of them wrote, “When we all burst into Washington … we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself.”
Comments Off on Herbert Hoover, Father of the New Deal
Posted in Business Cycles, Economics, History
Tagged cato, economic history, fdr, herbert hoover, hoover depression, laissez faire, new deal, steve horwitz st. lawrence university
Inertia Wins! 