Category Archives: Public Choice

GM Layoffs, Tariffs, and Subsidies

Over at Fox Business, I explore three lessons policy makers should learn from General Motors’ announcement of 14,700 layoffs and five plant closures:

One, GM is being too shy about the reasons for the layoffs. President Trump’s tariffs have already cost the company a billion dollars. GM is skirting the topic, possibly to avoid political blowback—a strategy that is already not working.

Two, President Trump is right to want to end GM’s government subsidies, but for the wrong reasons.

Three, contrary to popular belief, U.S. manufacturing is healthy, despite GM’s bad news.

On that third point, real value-added manufacturing output recently set an all-time record, eclipsing the old mark set in 2007. As is often the case, popular fears are unfounded. Read the whole thing here.

Free Trade and Elections

Over at the American Institute for Economic Research, Max Gulker has a perceptive take on why support for free trade doesn’t much matter for winning or losing elections. As he points out, tariffs “were only a hot campaign topic in select states and congressional districts. When candidates did discuss trade, they presented it as an issue of gamesmanship rather than economics.”

In other words, politics and policy are different things.

Gulker is also kind enough to cite something I wrote a while back about public choice and trade. Aside from that, he makes a valuable contribution to the debate.

Virtuous Capitalism in Theory and Practice

Government is responsible for billions and billions of dollars of corruption and corporate welfare. Considering the potential returns on investment compared to honest entrepreneurship, it is a minor miracle the vice-to-virtue ratio in the economy isn’t even worse than it already is. Why is that? CEI founder Fred Smith and I wrote a recent paper, “Virtuous Capitalism,” which explores several possible answers to the question.

If you don’t have time to read the whole thing, Fred summarizes it in his most recent Forbes column, to which I contributed:

Capitalism has a bad reputation. Many people see it as corrupt, uncaring, and in bed with politicians. And popular wisdom isn’t always wrong. For example, take the Export-Import Bank’s pending renewal. How dare large, healthy businesses such as Boeing and General Electric receive billions of dollars-worth of special privileges?

Has Big Business thought through the political and social costs of such self-aggrandizement? Is sacrificing long-term moral standing for short-term dollars really wise?

Read the whole column here. The paper is here.

Virtuous Capitalism vs. Rent-Seeking

Over at the Institute for Energy Research’s Master Resource blog, I have a guest post summarizing Fred Smith’s and my recent paper, “Virtuous Capitalism.” The post is here, and the paper is here.

Ethics and Rent-Seeking

Nice writeup of Fred Smith’s and my recent paper at Business Ethics Highlights.

Virtuous Capitalism, or, Why So Little Rent-Seeking?

The venerable Fred Smith and I have a new paper out today. Click here to read it. In the paper, we try to solve the Tullock Paradox, named for the late, great economist Gordon Tullock (my remembrance of him is here).

What is the Tullock Paradox? It involves rent-seeking, or seeking special favors from the government. Bailouts, subsidies, and regulations that prevent competition are all examples of rent-seeking. To provide some context, lobbying is roughly a $3.5 billion industry, and the federal government doles out more than $100 billion in corporate welfare—meaning rent-seeking is potentially a 30-fold investment. Not 30 percent, 30-fold. Meanwhile, the Dow Jones averages an 8 percent return. With such outlandish returns on investment, the Tullock Paradox is: why so little rent-seeking?

Tullock had his answers, rooted in economic reasoning, which we summarize in the paper. But while Tullock’s theories are valid, they’re missing something: ethics, virtue, and a full picture of humanity. Most economists stick to analyzing a Homo economicus character who is unfailingly rational and utility-maximizing. This is a useful and interesting species to study, but Fred’s and my goal is to encourage economists to study Homo sapiens as well. We are capable of pride and shame, we want to love and be loved, we aren’t always 100 percent consistent, and we make mistakes all the time.

One reason there is so little rent-seeking is that most (but not all!) businessmen and entrepreneurs have a sense of virtue and honor that prevents them from seeking special favors. It is much more satisfying to make an honest living than a dishonest one. This sort of thing is difficult to quantify, but it is real, and economists should allow virtue to exist in their models.

Moreover, economists’ single-minded focus on sin means they’re only doing half their job. They should also praise and encourage virtuous behavior when they see it. Praise where due, not just criticism where due. Just as rent-seekers deserve opprobrium, honest entrepreneurs deserve to be admired and emulated. Maybe if virtuous capitalists had higher social standing, there would be more of them.

Over the next week or two, we’ll be putting up a series of short posts explaining Tullock’s “Big Four” theories for why there is so much less rent-seeking than one would expect. Besides providing a rent-seeking primer for those who don’t have time to read our entire paper, we’ll also delve into our larger project of encouraging economists to study Homo sapiens as well as Homo economicus, and to acknowledge virtue as well as sin.

Read our paper here.

GOP Split over Cronyism?

The Daily Caller’s Guy Bentley has a good piece on Ex-Im, OPIC, and the GOP’s conflicted relationship with big business. He also quotes Mercatus’ Veronique de Rugy and yours truly.