Tragedy struck Japan this morning. It will be some time before we know just how many lives the tsunami took, and how much damage was done. But pundits are already saying dumb things.
Larry Summers, who should know better, committed the economists’ cardinal sin this morning: he fell for the broken window fallacy. The sunny side of the destruction is that it will boost the economy. Just think of all the jobs that will be created by the rebuilding process!
Over at the Daily Caller, I gently correct Summers. Natural disasters are bad for the economy. All the rebuilding activity in the next few years will only get Japan back to where it was. If the tsunami had never happened, all that energy could be put to creating new wealth. Disasters are just that: disasters.
Posted in Economics, International, Publications, Stimulus
Tagged bastiat, bastiat broken window fallacy, broken window fallacy, cnbc, daily caller, earthquake, economic growth, japan, japan earthquake, japan tsunami, larry summers, lawrence summers, natural disaster, Stimulus, tsunami
Over at The American Spectator, my colleague Alex Nowrasteh and I make the case for expanding skilled immigration. Our main points:
-1 in 8 Americans are foreign-born, but 1 in 4 American Nobel laureates since 1901 are foreign-born. Immigrants, it seems, are chronic overachievers. America would benefit by letting more in.
-The H-1B visa for skilled immigrants is capped at 85,000. In non-recession years, those 85,000 spots are typically filled in a single day.
-Genius-level intellects are missing out on the chance to flower at the world’s best universities. They’re also missing out on one of the world’s best entrepreneurial environments. And Americans are missing out on cutting-edge jobs in high-tech fields. Consumers lose out on products that are never invented.
-The number of Nobel-caliber intellects who have lost their opportunity to do research in this country is unknown. What is known is that the U.S. government has kept out millions of the most inventive, brilliant, and entrepreneurial people in the world for no good reason.
Read the whole piece here.
Posted in Immigration, Publications
Tagged alex nowrasteh, american spectator, amspec, economic growth, economic recovery, Immigration, nobel prize, open borders, Ryan Young, skilled immigrants, skilled immigration, the american spectator
A little government can do a lot of good. A lot of government can do little good.
Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.
Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.
Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.
The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.
Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.
I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.
Posted in Economics, The Market Process
Tagged cato, cato institute, center for freedom and prosperity, dan mitchell, economic growth, Economics, gdp, government, growth, rahn curve, richard rahn, size of government, spending