Libertarianism and the shutdown

Yesterday, Paul Krugman published a deceptive, sloppy, and self-contradictory opinion article in the New York Times entitled “Trump’s Big Libertarian Experiment.” The premise: the shutdown delivers what all libertarians want, and the shutdown (this is strongly implied) demonstrates just how silly libertarians are.

This is nonsense. First off, Trump is decidedly not a libertarian. Second, government shutdowns have occurred for decades–are all of these “libertarian” experiments? Finally, no libertarians that I’m aware of have ever favored mercurial spending freezes that sweep the rug out from under people who’ve come to rely on government programs. Principled reform is a bit different from abrupt financial lurches.

The disruption and harm caused by sudden spending jolts have no bearing on whether a libertarian society could work or not. Krugman points out that businesspeople are already enraged that the Small Business Administration has ceased issuing loans, an organization that many libertarians have claimed is unnecessary. Of course they’re angry–they expected something that suddenly has ceased. That has absolutely nothing to do with whether the SBA is necessary; it just demonstrates that people get ticked off when their expectations are suddenly dashed. The shutdown proves nothing about whether the private market could ultimately supply any benefits offered by the SBA.

He also says that work at the FDA has dwindled. Routine inspections have ceased. He has zero evidence that this has caused even an iota of harm to anyone, but the implication is clear: we’ll all be confined to the toilets soon as E. coli swamps the country. He marshals no evidence to confront whether state regulators can adequately fill this role, or whether tort law and market forces can suffice.

Libertarians envision a society in which many roles currently served by government can find contractual and common-law counterparts (or not, if it turns out no one wants the service). Libertarians certainly don’t believe in blasting holes in long-standing social structures without warning, without forethought, or without transition.

Ironically, to the extent we do confront Krugman’s silly claims, it appears that the shutdown’s impact has been minimal despite huge numbers of furloughed employees. The New York Times, aside from Krugman’s disposable rhetoric, also published a comparison of the number of furloughed employees (800,000 by their estimation) to private industries. The number of furloughed employees, for example, exceeds twice the number of people employed by Target. I don’t think this tells us what the New York Times thinks it tells us. These stats beg the question as to whether these positions are necessary at all. That said, any negative impact from the shutdown that actually does exist–aside from the furloughed workers losing money–should be attributed to social and economic disruption resulting from spending turbulence, not to the actual necessity of the government programs affected.

Midweek Reader: The Folly of Trump’s Tariffs

With stocks plummeting this week upon an announcement of retaliatory tariffs by China in response to a recent spate of steel and aluminum tariffs from the Trump administration, it seems a midweek reader on the situation is appropriate.

  • At the Washington Post, Rick Noack explains how Trump is going into unprecedented territory since the WTO was founded, and why existing trade norms probably can’t stem a trade war. A slice:

    But while China has used the WTO to accuse the United States of unfairly imposing trade restrictions over the last months, Trump does not appear interested in being dragged into the dispute settlement process. In fact, Trump appears to be deliberately undermining the legitimacy of that process by saying that his tariffs plan was based on “national security” concerns. WTO rules mandate that a member state can claim exceptions from its trade obligations if the member’s national security is at stake.

    That reasoning has long been a no-go among WTO member states, because they understand  that triggering trade disputes under a “national security” framework could eventually render the WTO meaningless.

  • Last month at the Chicago TribuneSteve Chapman had a good op-ed showing why Trump’s justification of steel and aluminum tariffs on national security grounds is bogus:

    But putting tariffs on all imports to prevent dependence on China or Russia is like throwing away your library card to avoid bad books. It would make more sense to focus on the guilty countries rather than deploy a sprayer that also soaks the innocent.

    The national security risk is minuscule, though. Imports make up only one-third of the steel we use, and the Pentagon requires less than 3 percent of our domestic output. No enemy has us over a barrel, because we buy steel from 110 different countries.

    Most of what we import comes from allies and friends, including Canada, South Korea and Mexico, which would have no reason to cut us off in a crisis. If China stopped shipping to us, friendlier countries would leap to grab the business.

  • Also at the Washington Post last month, historian Marc-William Palen gives numerous historical examples of how nobody wins in trade wars and how they can threaten our national security by arousing populist resentment of the US abroad. A slice:

    The trade wars that followed the Republican passage of the protectionist Smoot-Hawley Tariff Act of 1930, which raised duties on hundreds of imports, similarly contain illustrative lessons for today. Canada responded with tariff increases of its own, for example, as did Europe.

    In a widely cited study from 1934, political economist Joseph M. Jones Jr. explored Europe’s retaliation. His study provided a warning about the trade wars that can arise when a single nation’s tariff policy “threatens with ruin” specialized industries in other countries, arousing “bitterness” throughout their populations.

  • At Cato’s At LibertyDaniel Ikeson explains how Trump’s tariffs establish a dangerous international precedent that will threaten US interests elsewhere:

    By signing these tariffs into law, President Trump has substantially lowered the bar for discretionary protectionism, inviting governments around the world to erect trade barriers on behalf of favored industries.  Ongoing efforts to dissuade China from continuing to force U.S. technology companies to share source code and trade secrets as the cost of entering the Chinese market will likely end in failure, as Beijing will be unabashed about defending its Cybersecurity Law and National Security Law as measures necessary to protect national security.  That would be especially incendiary, given that the Trump administration is pursuing resolution of these issues through another statute—Section 301 of the Trade act of 1974—which could also lead the president to impose tariffs on China unilaterally.

  • The Independent Institute’s Robert Higgs reminds us that citing trade deficits is misleading:

    In reality, individuals, firms and other organizations, and governments trade with other such entities, some of which are located in the same country and others of which are located in other countries. The location of the trading partners has no economic significance whatsoever. Trading entities enter into exchanges voluntarily, each one in each transaction anticipating a gain from the trade. Hence, in expectational terms, every such trade entails a gain from trade, or in other words an addition to the trader’s wealth.

  • At American Greatness, Henry Olsen tries to give a communitarian justification of protectionism:

    So-called populist movements around the world are gaining strength because their voters no longer feel like valued members of their nations. They do not believe their worth should decline because the owners of capital say so, nor do they think their life dreams or values should be denigrated simply because the most educated have different visions.

    Populists like Trump address this spiritual yearning and fulfill the deepest need every human has, to be valued and to belong to a group that values you. In this, and perhaps in this need alone, all men are truly created equal. Tariffs are simply an economic means to fulfill this spiritual need. Tariff opponents can only win if they first recognize this need and promise a more effective way to fulfill it.

  • At Bleeding Heart Libertarians, Jason Brennan explains why communitarianism cannot justify protectionist policies:

    Second, if tariffs don’t actually succeed in helping these workers, then the symbolic argument falls flat. Imagine an artist said, “I’m so concerned about the plight of people living in tenements, I’m going to do a performance art project where I burn down all their homes and leave them on the street. Sure, that will make them even worse off, but my heart is in the right place, and I thereby express my concern for them.” This artist would be…a contemptible asshole.

  • Finally, given its relevance at the moment, it’s worth revisiting Paul Krugman’s classic essay “Ricardo’s Difficult Idea” which remains the best account of why non-economist intellectuals have a hard understanding free trade:

    (i) At the shallowest level, some intellectuals reject comparative advantage simply out of a desire to be intellectually fashionable. Free trade, they are aware, has some sort of iconic status among economists; so, in a culture that always prizes the avant-garde, attacking that icon is seen as a way to seem daring and unconventional.

    (ii) At a deeper level, comparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one’s audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

Trade: Is Obama Right This Time?

I was hoping to sit this one out. I mean the multiple discords about the new Pacific trade treaty proposed by President Obama. I feel I need to lend a hand because there are good reasons to be confused. Plus, I taught international business for twenty-five years. My voice just might be useful this time. Here is my brief but adequate road map to the problem. I am deliberately staying away from nouns and initials because they do more harm than good.

Pres. Obama has an early draft of an international trade agreement with a large number of Pacific countries. Such agreements eliminate or lower trade barriers. So, first, they make it easier for economic actors from one country to buy a and sell things to economic actors from another country. That’s because all trade barriers are hidden taxes on consumers. They all raise prices above where they should be. Get rid of them, have more real income.

Second, the lowering or the elimination of trade barriers ultimately result in something almost magical: Economic actors stop doing what they are doing badly and start focusing on what they do well. Most items become less expensive and of better quality. Everyone benefits from this. I mean everyone in the world.*

International trade agreements do cause some to lose their jobs. They create many more jobs than they cause to disappear, however. But the loss is certain: After all, as soon as central American bananas are allowed into Canada, Canadian banana growers must lose their jobs, by and large. Incidentally, there have not been Canadian banana growers, as far as I know but you see what I mean: Canadians ought to concentrate on producing lumber, or refrigerators, or iron ore, almost anything but bananas.

The current trade project presented by Obama contains a $500 million clause to retrain at public expense those Americans who might lose their job as a result of the new agreement. This is nothing new. Previous trade agreements contained similar arrangements.

President Obama wants what is known as “fast track authority.” That’s the privilege to have the Senate vote a simple “Yes” or “No” on the final draft of the agreement with those many other countries. This is pretty necessary because if each government of each signing country has to go home and gather amendments and often, amendments to amendments, in the end, no agreement sees the light of day. It’s a practical thing, not a sinister ploy.

On the one hand, practically all previous presidents who signed international trade agreements had fast track authority. On the other hand there is a sturdy reason to deny Mr Obama fast track authority: He is a proven, extremely bad negotiator. On the third hand, the negotiations of such agreements are almost completely done by technical personnel who know their business. And, how likely is Mr Obama actually to get involved?

As I write, elected Democrats are all against everything involved because the unions think that every international trade agreement makes them lose ground. I think their perception is correct. Republicans are torn between their understanding of the world (which is more or less like mine) and their wish to give the president a black eye.

This is a small digest of a complex and interesting issue. I deal with it at leisure and extensively in nine installments on this blog. Each had the words “protectionism” or “protectionist” in the title. Again, those are installments; you may want to look at them in order. No test!

* Paradoxically, one of the best, clearest scholarly explanations of this magic – called comparative advantage – is by Paul Krugman. It’s from the days when he was not yet crazy. Bret Stephens in the WSJ 6/16/15 jogged my memory on this strange fact. It’s worth looking up Krugman, for once.

Some more thoughts on what to do with conspiracy theorists and other libertarian sympathizers

Just a quick note on a perennial topic…

Years ago I met my (now) ex-girlfriends crazy uncle. For whatever reason we ended up talking about how some policy or other was a bad idea. “Oh cool,” I thought, a fellow traveler. And then he started talking about how 9-11 was an inside job. “Okay, sure, whatever, but there’s so much else. We could actually convince people that, for example, a better regulatory system could improve the world.” To which he replied that yes indeed 9-11 sure was extra inside-job-y.

Now, this guy was a legitimately crazy uncle, so whatever. But this exchange wasn’t about his being a crazy uncle, because I’ve met plenty of non-crazy, non-uncles who have been similarly zombie-like. Whether they’re of the “Obama is a secret gay Muslim” variety, or any other variety of conspiracy theorist, they are just completely uninterested in attacking the Democratic party for any sensible reason. And this is true of anti-Republicans too. There the conversation is something like “war sure is bad, huh?” “Yeah, and Bush’s puppet masters set the whole thing up.” “Okay, let’s just assume that’s true, how do we reduce the amount of war?” “By getting hung up on evidence that only convinces people who don’t need any more convincing!” “I’m going to go get another drink.”

Here’s the thing: there are plenty of good arguments for opposing whoever it is you want to oppose. Yes, it feels good to talk about how the bums in charge are pawns for the cartoon-mustache-twirlingly-evil powers that be. But if you want to be taken seriously, keep it to yourself.

I see two things going on here. First, these conspiracy zombies are simply bad at thinking like economists. The first rule of being a good economist is that you have to recognize opportunity cost. By perseverating on the big, exciting, good-vs-evil struggle amongst competing factions of the Illuminati (I guess?) you attach all your attention to something you’re unlikely to have any real influence on at the expense of minor but achievable goals like marginal improvement of the immigration system, or school choice, or any number of other things the other side is willing to discuss with you (yeah, yeah, they aren’t willing to discuss that stuff because they’re convinced that your side is in a deal with the devil too…).

Second, and this is more troubling, people have a natural predilection to these sorts of things. People would rather get excited about conspiracies than actually make the world a better place. Is there anything we can do about that? I don’t know. Maybe we need to convince rank-and-file Republicans and Democrats that aliens are conspiring to pit humans against one another by making us argue unproductively rather than simply reform immigration policy. Maybe Krugerz was right?

Around the Web

  1. The changing face of Chinese advertisements
  2. Paul Krugman’s Philosophy of Economics, and What It Should Be
  3. Impertinent Obstructions, Human Folly, and the Power of the Market
  4. Anthropologist David Graeber’s Debt: The First 5000 Years is now available free online (pdf)

What Ails You, Economy?

The Keynesian is ever mistaking economic activity for economic growth, credit expansion for wealth creation, profligacy for progress. Growth, wealth, progress. He uses his own definitions of each to reinforce his definitions of the others. And they are all fallacious.

When the Austrian tells the Keynesian that the printing and spending of mere pieces of paper cannot lead to more wealth in society, the Keynesian retorts that it is undeniable that credit expansion and stimulus lead to more economic activity. In this he is technically correct. Printing more dollars and handing them out to those who would consume and invest them, does indeed lead to “activity,” even more perhaps than there otherwise would have been.

But our Keynesian assumes, or assumes that his audience will assume, that mere economic activity is growth, is wealth, is progress. Presumably this includes even that activity which our Austrian rightly considers overinvestment (more properly, malinvestment), overconsumption, and/or the proverbial breaking of windows, each of these a common side-effect of the Keynesian witchdoctor’s remedies (often intended to cure ailments caused by earlier interventions, some Keynesian, some not).

If the Keynesian’s definition of economic activity doesn’t (oh, but it does!) include these things then the burden of proof is on him to show that his prescriptions lead to more real growth than would their absence on an unhampered market. And that his incantations lead, on the whole, to economic health rather than disease. A free market is largely unencumbered by the ailments mentioned above so in order to do this it would need to be shown that the sicknesses that do affect it are somehow worse than those caused by intervention.

And to be sure, pure economic freedom isn’t perfect. It has its own share of maladies. But these are all coughs and sneezes by comparison. Cures, if they are needed at all, come from the market itself. The economic meddlers and potion peddlers only serve to make things worse.

We must admit that not even on the most unfettered of markets does all economic activity lead to growth. For human actors err, and the market punishes their errors. How much more is all this the case under a centrally-planned expansionary-monetary/stimulatory-fiscal regime? And how much more severe will be the punishment?

Elites and Housing Segregation: What Gives?

Virginia Postrel has a provocative post on How Elites Built America’s Economic Wall up at Bloomberg (ht Wilson Mixon). The gist of the post is summed up as follows:

Housing prices have always been steeper in high-income places, but the difference is much greater than it used to be […] This segregation has social and political consequences, as it shapes perceptions — and misperceptions — of one’s fellow citizens and “normal” American life. It also has direct and indirect economic effects. “It’s a definite productivity loss,” Shoag says. “If there weren’t restrictions and you could build everywhere, it would be productive for people to move. You do make more as a waiter in LA than you do in Ohio. Preventing people from having that opportunity to move to these high-income places, making it so expensive to live there, is a loss.” That’s true not only for less-educated workers but for lower earners of all sorts, including the artists and writers who traditionally made places like New York, Los Angeles and Santa Fe cultural centers.

This excerpt gets a high place for my Obvious Statement of the Year Award, but are elites listening? Government regulations hurt workers and drive out competition. This is a given, but I have some questions I thought readers could help me answer.

My questions are both broad and messy: Continue reading